- Measures involving the research tax credit (“CIR”)
Simplification of the CIR’s tax base for “young doctors’” expenses and costs related to industrial property rights (Article 71 of the 2014 Finance Act):
Article 244 quarter B-II of the FTC provides that expenses related to researchers and research technicians directly and exclusively assigned to research are taken into account for calculating the CIR. These same expenses are taken into account for double their amount for the first 24 months after recruitment provided that these individuals’ employment agreements are open term and the company has no fewer staff than in the previous year. In order to avoid penalizing companies that reduce their salaried staff but continue their research, Article 71 of the 2014 Finance Act provides that the criterion of maintaining the number of salaried staff refers only to research staff.
In addition, the article simplifies and harmonizes the territoriality rules related to expenses for protecting industrial property rights that are eligible for the CIR. Up to now, only costs for defending patents and new plant variety certificates and expenses for technological monitoring, other than costs related to prototype design work or new product pilot installations (innovation work), could be taken into account in the French CIR calculation base, including when involving expenses incurred in countries that are not members of the European Union or the European Economic Area. Henceforth, all R&D and innovation expenses can be included to calculate the CIR, even if they are not incurred in a country of the European Union or the European Economic Area.
These measures apply for CIRs calculated for expenses incurred as of January 1, 2014.
Possibility of securitization CIR credits (Article 35 of the 2013 Amending Finance Act):
The legislature has just given companies the possibility of assigning their CIR credits to the securitization organizations mentioned in Article L. 214-169 to L. 214-190 of the French Monetary and Financial Code. This possibility is granted to companies as of the first year a credit is report and, in any event, before expiration of the 3-year period for a possible refund by the State. Therefore, this measure aims to broaden the scope of CIR credit assignees, which up to now were limited to banking institutions, to whom the CIR credits were assigned within the framework of “Dailly” assignments.
It will be possible to securitize CIR credits as of the act’s entry into force.
Calculation of employees’ profit-sharing and CIR: nullification by the French Constitutional Court
The French Constitutional Court struck down this measure, introduced in an amendment to the 2013 Amending Finance Bill, whose purpose was to modify the profit-sharing calculation by adding to it the CIR amount deducted from the corporate income tax or which was refunded. The Constitutional Court ruled that the measure did not belong in a finance act. Nevertheless, it is possible that the Parliament will take this issue back up in 2014 in another finance bill.
- Exceptional amortization of companies’ investments in innovative SMEs (Article 15 of the 2013 Amending Finance Act):
Companies that are subject to the corporate income tax will be able to amortize, on an exceptional basis and over a 5-year period, the amounts paid for certain capital subscriptions made directly or indirectly in innovative SMEs.
Innovative SMEs must respect the SMEs’ criteria, within the meaning of European Union law: have their head office in a Member State of the EU or the EFTA that has concluded an administrative assistance treaty with France and, either devote at least 15% (10% for industrial companies) of their expenses to research (according to the CIR criteria) or prove that products, processes or techniques have been created whose innovativeness and economic development prospects have been recognized by the Bpifrance label.
The amounts invested in subscriptions of units or shares in FCPRs (high-risk investment funds), FCPIs (venture capital funds for innovation) and SCRs (venture capital company) whose assets are composed of at least 60% in securities in SMEs, may also be amortized.
The company’s direct or indirect holdings in innovative SMEs or in FCPRs, FCPIs or SCRs whose assets are composed of at least 60% in shares in innovative SMEs, must not exceed 20% and the value of such securities must not exceed 1% of its own assets.
If securities are sold within two years after their subscription, the deducted amortizations must be added back in, plus late payment penalties.
If the securities are sold more than two years after their subscription, the capital gains from the sale will be taxed at the ordinary statutory rate and will be determined based on the difference between the sale price and the securities’ original value, minus the deducted amortization amount. In the case of investments through a fund, taxes at the normal corporate income tax rate, based on the amortization amount, will apply to the difference between the amounts distributed by the fund and the amounts paid by the subscribers, minus the amortization amount (in this case, the capital gains are taxed through the distribution of the funds’ assets). Similarly, distributions of venture capital companies who fall within the tax regime for long-term capital gains will be subject to the normal corporate income tax rate based on the amortization amount. In the case of subsequent sales of units in venture capital companies, the amortization amount already added back into earnings will not be deducted from the shares’ original value.
The entry into force of this mechanism is subject to the European Commission’s authorization because it is a mechanism that is deemed to be a State subsidy.