The new parliamentary majority’s first 2012 Amending Finance Act has just been passed and this edition of the Tax Newsletter is completely devoted to it.

For the most part, the Act’s general outlines had been announced and it, therefore, does not come as a surprise for tax experts:  elimination of the social VAT, reduction of social contributions and of taxation of overtime hours, and increase in employers’ special social contribution and social contributions on stock options and share awards, restoration of the wealth tax to its 2011 rate, a decrease to 100,000 euro in the allowance for gifts and inheritances for direct heirs, doubling of the tax on banks’ systemic risks and of the tax on financial transactions.

Other measures were less expected, but beyond their merit or lack thereof, we can already voice some regrets as to their usefulness in terms of companies’ competitiveness.  The government, however, appeared to make competitiveness its mantra:

  • Its entry into force:  we already know that the short retroactivity period (application of a measure for financial years underway to the date on which the government presents the bill or the date on which the Parliament passes the bill) is a bad habit, but we have to continue to fight it because, save some exceptions, it cannot be justified given the stability that investors need.  Hence, how does one justify that financial support granted prior to July 4, 2012, is also affected by the lack of deductibility?  And we will say nothing more than mention the exceptional contribution on wealth tax passed in July 2012 and applicable to the value of assets at January 1, 2012!
  • Measures adversely affecting company buy-outs:  as in many countries today, a number of our companies are experiencing difficulties and seeking buyers who can inject fresh cash:  yet, what do we do?  All financial support is now no longer deductible.  Quite to the contrary, it is still taxable for the company which receives it.  Of course, the Senate has excluded support granted to companies in collective procedures.  This, however, is far from adequate because it does not allow companies to face many situations where groups provide assistance in view of outsourcing their activities to third parties, without commencing a collective procedure.

In cases where a company’s activities change (addition, transfer or cessation of activities) according to certain thresholds, the company will have to ask for approval to authorize it to continue to carry over tax losses.  Although we understand the desire to fight against the “tax losses market”, introducing a tax approval system and, therefore, delays that will undoubtedly go beyond several months, is not going to make it easy for decision-makers to make choices, as they need foreseeability.  Yes, among other considerations, tax savings are one component in the choice of an executive who is investing or restructuring, but is this so wrong when the company is just asking to use the costs it has incurred?

Lastly, one final word about a measure which was expected—elimination of the withholding tax on dividends paid to foreign investment funds:  one day we will have to ask who was responsible, at all levels, for having allowed a controversial issue last, which we knew would be lost in advance, and the cost of which could have been limited if some decisions had been made much earlier.

We should nonetheless remain optimistic and bet that these imperfections or inadequacies will be remedied in the near future