The government’s announcement in September of the 2013 Finance Bill measures was not a surprise for companies. Two of these measures are particularly harsh handicaps, while the other two are more technical in nature.

The first measure aims to limit the deduction of finance expenses for large companies. Hence, when the total amount of net finance expenses is greater than EUR3 million, the portion of deductible net financing expenses would be limited to 85 percent for fiscal years 2012 and 2013, then 75 percent from fiscal year 2014. In consolidated tax groups, this limit would apply only to financing expenses resulting from transactions with companies outside the group.

The second measure proposes to lower the offset limit for tax loss carry-forwards. Hence, for fiscal years ending 31 December 2012, where profits of a given fiscal year are more than EUR1 million, the amount of losses which can be offset are capped at 50 percent (instead of 60 percent currently) of profits for the fiscal year above the threshold.

The third measure affecting large companies aims to increase tax liability on the lump sum for non-deductible expenses which must be added back to taxable income in return for capital gains exemption on participating shares ("Niche Copé"). For fiscal years ending 31 December 2012, this 10 percent lump sum will be calculated based on the gross amount of capital gains from sales of securities rather than the net amount.

Lastly, for fiscal years ending as of 1 January 2013, the fourth measure proposes to lower the turnover threshold at which companies are required to pay the last corporate income tax instalment to EUR250 million (instead of EUR500 million currently). In addition, the calculation method for this instalment will be revised to 75 percent for companies whose turnover is between EUR250 million and EUR1 billion, 85 percent for companies whose turnover is between EUR1 billion-EUR5 billion and 95 percent for companies whose turnover is greater than EUR5 billion.

It should also be noted that an additional seven percent tax on insurance companies’ capitalisation reserves will be created.

On the other hand, there is good news for small- and mid-sized companies (PME). The Finance Bill will create a mechanism that would be part of the research tax credit aimed at encouraging innovation expenditures (prototype, new product or pilot facilities design), limited to EUR400,000 per year and at a 20 percent rate (i.e., a maximum tax credit of EUR80,000 per year).