The French tax authority published guidance clarifying a recent retroactive tax measure tightly curtailing interest deductions linked to hybrid instruments and entities.  The anti-hybrid measure, which was included in the 2014 budget law that the French government published Dec. 31, 2013, states that a French company can deduct interest it pays to a related party only if that interest income on the other side of the transaction—that is, of the lender—would be taxed at a minimum of 25 percent of the French statutory corporate tax rate, if it were taxable in France.  The company must supply proof of this sufficient taxation to French tax authorities on request. 

The guidance note clarifies that companies are only required to submit proof of “sufficient” taxation if the French tax authorities request it.  Companies are not required to include such proof with their annual revenue declarations.  The note further states that, in cases where proof is required, “documents must be of a nature to show that deducted interest was included in the creditor enterprise’s profits, and thus subject to a minimal taxation,” and that “[s]uch proof can be in the form of the creditor company’s accounting records showing relevant transactions (booking of interest) and showing that this profit was declared.”

The guidance note is available in French here.