The Finance Act 2014 and the Amended Finance Act for 2013 were adopted on final reading by the National Assembly on 19 December 2013. Pending the decision of the Constitutional Council, the examination of these two texts, we show below the main measures applicable to undertakings.

Finance Act 2014:

  • Changing the definition of abuse of rights

The definition of abuse of rights under Article 64 of The Book of Tax Procedures was modified. Will now be considered a violation of any law fictional act or acts of which the main (and not exclusive) reason is to seek or reduce the tax burden in seeking the benefit of a literal application of the law or decisions to against the objectives pursued by their authors.

This new definition will apply to corrections notified with effect from 1 January 2016 only for acts done or made on or after 1 January 2014.

  • exceptional solidarity tax on high salaries paid by enterprises

The device establishes a special tax rate of 50% payable by employers who pay above one million euros to their executives and employees individual remuneration.  This contribution is paid on the compensation earned or granted in 2013 and 2014 by any sole proprietorship, partnership, group or organization with or without legal personality and operating a business in France.

This contribution is based on the fraction of individual gross earnings over one million euros. As such, compensation means the sum of:

  1. wages and salaries including benefits in kind or in money, 
  2. fees, 
  3. pensions and assimilated income 
  4. the sums awarded under incentive, participation and plans employee savings, 
  5. awards of stock options or purchase of shares and bonus "qualified" within the meaning of the Commercial Code, share allotments 
  6. assignments warrants founder share business, 
  7. reimbursements to other entities of the abovementioned elements of remuneration (1-6).

Whatever the actual date of payment of the compensation, the tax is due for the year in which: 

  • the expense is taken into account in determining the results of the company (1, 2, 3, 4 and 7), 
  • the award decision was adopted (5 and 6).  

The tax is based on the gross income recognized by the company, or on the basis of specific valuations when it comes to pensions retirement and related benefits or employee share plans. For the latter, the valuation rules used are those applicable to the specific employer contribution payable for the grant.

The amount of the fee for a year is capped at 5% of sales recorded for that year.  contribution will be payable on February 1, 2014 (as remuneration 2013) and 1 February 2015 (as remuneration 2014) via a declaration specifically created.

Finally, this tax will not be allowed as a deduction from taxable to calculate the over-contribution of corporation tax of 10.7% results (see below).

  • Temporary increase in the over-contribution tax on companies

Additional temporary contribution to corporate tax at the expense of companies or fiscally integrated groups whose annual turnover exceeds EUR 250 million is raised from 5% to 10.7%.

This increase leads now for these companies, a global corporate tax rate of 38%.

This rate will be applicable to financial years ending between 31 December 2013 and 30 December 2015.

  • Fight against tax optimization in hybrid products and artificial debt

This text introduces a new requirement for the deduction of loans paid by companies liable to corporation tax in affiliated undertakings (Article 212 of the CGI) interests. This deduction could only intervene if the borrowing company shows that the lending company is, under the current financial year, subject to respect of the same interest to corporate income tax at least equal to 25% of the tax profits determined under the conditions of ordinary law.

When the lending company is resident or established abroad, the tax on profits determined under the conditions of common law which means that the lending company would have been liable in France on interest if it had been domiciled or established in France.

In the presence of partnerships or funds, the dependency links between lending and borrowing entities is discussed at the shareholders or unitholders and not the transparent entity. In this case the tax on interest is assessed at the level of the unitholders.

This measure applies to fiscal years ending after September 25, 2013 and therefore relates to contracts of loans outstanding at that date.

  • Transfer Pricing - Fight against indirect transfers of profits in case of transfer of functions and risks

The rules relating to transfer pricing are amended to include new provisions called business "restructuration" operations.These new rules apply in the following cases:

  • The company transfers one or more functions or one or more risks to an affiliated undertaking ceases to exercise or to assume all or part  and
  • Subsequent to transfer its recorded over operating income of either following years shall be at least 20% the average of the three years preceding the transfer.

In this case, the company must show that it has received an equivalent counterpart to that which would have been agreed between unrelated companies. To do this the company must provide, at the request of the administration, all the elements to determine the results achieved before and after the transfer by all parties to the transaction, including therefore the recipient entity transfer .

Otherwise, the benefits that have been made ​​by the company that made ​​the transfer, will be incorporated into the results.  The new provisions are not applicable in case of transfer of an individual asset or if granting the use of an individual asset, when such assignment or grant is independent of any other transfer function or risk.

Finally, when the transfer is done with companies outside France, which have privileged or established or incorporated in a non-cooperative State or territory taxes, these new provisions apply even in the absence of link dependence.

This new device is effective for fiscal years ending after December 31, 2013.

  • Introduction to cost accounting and consolidated in case of tax audit

New documents must be presented on request of the administration in case of tax audit.

Thus, when have cost accounting, companies whose gross assets is greater than or equal to € 400 million are required to submit it in case of control. This threshold also applies to companies holding directly or indirectly more than half of the capital or voting rights of such company or when held directly or indirectly by a company to meet these same criteria.

For other companies holding a cost accounting obligation presentation will concern only those whose turnover for the year was in excess of € 152.4 million when their core business is to sell goods, articles, supplies and food to take away or eat on site or provide housing, and € 76.2 million for the remaining cases.

In addition, commercial companies preparing consolidated accounts in accordance with Article L. 233-16 of the Commercial Code are also required to present.

The failure to do so is punishable by a penalty of 0.5% of turnover or revenue recovered.

These new requirements apply to audit notification addressed to the entry into force of the law.

  • Documentation on Transfer Pricing - Obligation to present the "rulings" obtained from foreign jurisdictions

For audit accounting firms to submit documentation on transfer pricing are also now required to present "the decisions of a similar nature that interpretations, instructions and circulars referred to in Article L. 80 A [Book of Tax Procedures] taken by the foreign tax authorities in respect of associated companies. "

This new requirement is effective from 1 January 2014. • Documentation on Transfer Pricing - Penalties for failure to submit for audit of accounts

In case of partial or total failure of the obligation to transfer pricing documentation under section L13 L13 AA and AB of the Book of Tax Procedures, the penalty provided for in Article 1735 ter of the CGI will now reach 0.5% of turnover of the company verified (against 5% of profits transferred within the meaning of Article L 57 before), so even in the absence of recovery.

These new penalties are applicable from 1 January 2014.

  • Declaration of tax optimization schemes

Two categories of persons subject to reporting these patterns:

  1. any person marketing such a scheme. Failure will be sanctioned with a fine of 5% of the amount of revenue received from the marketing of such a scheme. 
  2. any person developing and implementing an optimization scheme. In this case, the breach notification shall be liable to a penalty of 5% of the amount of the tax benefit obtained, corresponding to the difference between the amount of tax due and the amount actually incurred if the person had not implemented the optimization scheme.

Is a scheme under this scheme, any combination of procedures and legal instruments, tax, accounting or financial 1) whose main purpose is to underestimate the tax burden of a taxpayer to defer repayment or obtain payment or reimbursement of taxes or contributions and 2) filling the criteria to be defined by decree in Conseil d'Etat.

This requirement will apply from 1 January 2015.

  • Remove the interruption of the procedure for recovery in case of mutual agreement procedure for the elimination of double taxation

The suspension of the tax assessment for the duration of a mutual agreement between France and open another State in order to eliminate double taxation relief following is deleted for procedures beginning on or after 1 January 2014

  • Maintain 5.5% reduced rate of VAT

The device of lower VAT rate from 5.5% to 5% under the third amended Finance Act for 2012 (see our e-alert dated 8 January 2013) and should enter into force as of 1 January 2014 is deleted .

  • Exclusion of the base of the payroll tax acquisition gains on stock options and bonus shares

As of 1 January 2014, no longer will return in the tax base wage gains option exercise and acquisition of bonus shares.

  • Raising the tax rate of systemic risk

The rate of bank systemic risk tax is raised from 0.5% to 0.539% in 2014.

Amending Finance Law for 2013:

  • Calculation of employee participation: understatement of income tax in the amount of tax credits

Article L 3324-1 of the Labour Code now provides that the amount of income tax deducted from earnings used to calculate employee participation will itself down "the amount of tax credits, charged or refunded and tax charged to income related included in taxable income in the ordinary rate reductions. "

This amendment will legalize the position of the administrative doctrine which was annulled by a decree of the State Council of 20 March 2013 (see our e-alert of 21 March 2013).

Note however that the CICE is expressly excluded from this device and therefore does not impact the calculation of employee participation.

The revised formula applies to fiscal years ending on or after the entry into force of this Act.

  • Ability to securitize the debt CIR

An amendment introduced in the covering of the Research Tax Credit was introduced to allow companies to securitize their tax debt before the deadline of 3 years for any reimbursement by the State.

Securitization of these receivables will be possible after the entry into force of the law.

  • reporting deadlines and payment companies subject to corporation tax

In order to restore the consistency of return deadlines and payment companies subject to tax on the companies close their fiscal year on December 31, the deadline for filing the statement of balance of corporation tax is postponed to May 15 . For companies filing their tax results via TDFC procedure, the deadline for filing of the statement balance SI therefore coincide with it.

  • Modification of the tax on financial plane loads of companies subject to specific rules relating to the rotation of their stocks

The "tax plane" has been modified so that the device be excluded financial expenses relating to contracts inventory financing products subject to a regulatory requirement conservation and whose rotation cycle is more than three years.

This provision is primarily companies manufacturing and marketing of products subject to special regulations for the purpose of obtaining AOC, such as wines, spirits ...

This provision is applicable to fiscal years ending on or after the entry into force of the law.

  • Introduction of a tax on the transfer of control of companies operating radio frequencies

A 5% tax on the sale of television or radio operator radio frequencies has been established. This tax based on value of securities transferred, assigned or exchanged only apply when the transfer of securities has reached an amount equal to at least 10 million euros (calculated cumulatively over a period of six months total).

It is caused by the person at the end of contributions, transfers or exchanges made on its securities, transferred control of the company holding the license to use the radio resource.

Fiscally integrated intra-group transfers are exempt from this tax.

This fee is due to disposals made on or after 1 January 2014.

  • Temporary Extension of the device under s 210 F

The device under section 210F providing a reduced corporation tax to 19% for sales made before 31 December 2014 business premises to be converted into residential property rates is extended to disposals made after this date when the sale agreement was signed before 1 January 2015.

In addition, the opportunity to benefit from the reduced rate mentioned above is no longer possible for sales between related companies as of 1 January 2014, except when the signing of the sale agreement is prior to that date.

  • Exceptional depreciation of business investment in innovative SMEs

Companies subject to corporation tax will be amortized over five years amounts paid under the cash subscription to capital for innovative SMEs.

Innovative SMEs must meet the criteria for an SME under the law of the European Union, have their headquarters in an EU Member State or EFTA State has concluded with France a convention on administrative assistance and either devote at least 15% (10% for industrial companies) their spending on research (according to the criteria of the CIR), or justify the creation of products, processes or techniques whose innovative character and prospects for economic development are recognized by the label "Bpifrance."

The amounts invested under the subscription of units or shares in venture capital and innovation funds whose assets consist for at least 60% of shares of innovative SMEs, may also give rise to depreciation.

The company intends to benefit from this device shall not directly or indirectly hold more than 20% of the capital or voting rights of the innovative SMEs or in venture capital funds, innovation funds or SCR investing in such SMEs and the value of securities so held shall not exceed 1% of its own assets.

If shares are sold within 2 years of purchase or in case of non-compliance with the conditions described above, depreciation will be reinstated to taxable income plus interest and late.

Beyond this period, the gain on sale eventually realized will be taxed at the standard rate of corporation tax in the amount of the depreciation charge. This gain means the excess of the sale price of the securities, units or shares in their home less depreciation deducted.

Are also subject to corporation tax at the standard rate surplus realized on distributions from venture capital funds and distributions practiced by the SCR and referred to in Article 5 of 39 terdecies CGI.

This provision constitutes a State aid, its entry into force is nevertheless subject to its review prior to approval by the European Commission.

  • Development of the system of listed real estate investment (REIT) companies

The exemption from the contribution of 3% for dividends paid by the SIIC their shareholders device is permanent. As a reminder, Article 36 of the 3rd Amended Finance Act 2012 introduced an identical device but applicable to dividend distributions that the payment took place during the year 2013. In return for the years ended as of December 31, 2013, the rate of mandatory distribution may be exempt from corporation tax are raised from 85% to 95% in respect of the results of operations and hire 50% 60% of proceeds from the sale of property or property rights.

  • Declaration of subscription contracts of life insurance

A new reporting requirement is charged to insurance, mutual and provident societies. This device makes it mandatory for these companies, with effect from 1 January 2016, the statement of the aggregate amount of premiums paid on January 1 of the reporting year and the cash value or the amount of capital guaranteed when the amount or value greater than or equal to 7,500 euros.

  • Increased participation rates FCIC and FIP

Participation rates in the innovation of Mutual Fund in Innovation and Local Investment Fund (under Articles 214-30 and 214-31 of the Monetary and Financial Code) are raised from 60% to 70%.  Sections 199 terdecies-A-0 885 and 0 V bis of the CGI (respectively for a tax reduction and wealth tax in the case of subscription to such funds and under certain conditions) have been amended accordingly.

These new ratios apply to sales made on or after 1 January 2014.

  • Entry into force of the VAT rate to 10% for improvements or conversion of residential premises

The VAT rate of 7% for the improvements or processing of residential premises is maintained for the work have been the subject of an agreed estimate before 1 January 2014, which resulted in a payment of 30% deposit on that date, and giving rise to the payment of an invoice before 1 March 2014 and cashed before March 15, 2014 balance.