Government offers fresh tax cuts and tweaks in The French Finance Bill for 2020.
Wide-ranging measures announced to benefit French taxpayers, including reducing and simplifying taxes for corporates and households and fighting fraud.
Corporate income tax (CIT)
Corporate tax reduction path
The Finance Act for 2018 has initiated a gradual reduction in the standard CIT rate, which has been reduced to:
- 28% for fiscal years beginning on or after 1 January 2020;
- 5% for fiscal years beginning on or after 1 January 2021;
- 25% as of 1 January 2022.
For companies with a turnover of less than €250 million, the CIT rate is reduced to :
- 28% for fiscal years beginning on or after 1 January 2020;
- 5% for fiscal years beginning on or after 1 January 2021;
- 25% as of 1 January 2022.
For large companies with a turnover of €250 million or more :
- for the financial years from 1 January to 31 December 2020, these companies will pay CIT at a rate of 28% up to a profit of €500,000; beyond which the standard rate of 31% will apply.
- for fiscal years beginning 1 January to 31 December 2021, the rate of 27.5% (and not 26.5%) will be used for all their taxable income.
For financial years beginning on or after 1 January 2022, the standard corporate tax rate will be reduced to 25% for all companies.
Reduction of corporate tax ‘niches’
Tax reduction for patronage by large companies
On the basis that the benefits of sponsorship measures are highly concentrated on very large companies, the Bill would reduce the tax reduction rate for payments above €2 million, from 60% to 40%.
However, payments made to non-profit organisations that provide free meals to people in difficulty, help to promote their housing or provide free care to people in difficulty will remain eligible for a tax reduction at the rate of 60%, regardless of the amount.
Adjustment of the Research Tax Credit (RTC)
The Bill would reduce the rate used to calculate the operating costs included in the RTC base.
These costs are currently estimated, on a flat-rate basis, at 50% of research personnel costs plus 75% of depreciation charges.
The Bill would reduce the rate of recognition of personnel costs from 50% to 43%, as close as possible to the operating costs actually incurred by companies. The proportion of operating costs based on depreciation will remain unchanged, which takes into account industrial sectors with higher significant operating costs related to the size of their scientific installations than the service sectors.
Value Added Tax (VAT)
Combating VAT fraud on the Internet
Obligation of online VAT platforms
In order to combat VAT fraud on distance sales facilitated by the use of an electronic interface and to reduce the administrative burden for sellers, tax authorities and consumers, the Bill provides that online platforms are liable for the VAT due on sales that they facilitate, provided that the seller is established in a third-party country.
The measure is more ambitious than the future European obligations. It covers all direct imports by the consumer and all intra-Community supplies of previously imported goods, which are often pre-positioned in logistics warehouses before delivery to the final consumer.
In addition, platform operators will have to keep a register for 10 years, allowing Member States where these transactions are taxable to verify that VAT has been correctly paid.
Creation of a list of non-cooperative platform operators
The Bill plans to allow the publication on the Internet of the list of platform operators considered as non-cooperative, because they do not repeatedly comply with their tax obligations on French territory, including as declaring third parties.
This measure, which is in line with the “name and shame” reputational sanctions of the Anti-fraud Act published on 23 October 2018, has a dual objective:
- to ensure full tax cooperation from platform operators;
- to inform citizens about the identity of the platforms that are least compliant with their tax obligations, with a view to transparency and improving competition in the digital sector.
Traceability of packages transiting logistics warehouses
The economic model of e-commerce, which connects European consumers with economic operators from all over the world, is based on the existence of a network of warehouses and logistics platforms that allow for the fast delivery of imported goods. The fight against VAT fraud in e-commerce requires better traceability of these physical flows.
The Finance Bill introduces a communication right for the tax administration which can be directly exercised toward warehouses and logistics platforms, making it possible to trace the flow of imported goods and to clearly identify the person liable for VAT.
This reform should make it easier to combat unfair competition from sellers located outside the European Union who do not pay VAT and thus enjoy an advantage over their competitors who comply with their tax obligations.
Anti-fraud and tax audits
Combating aggressive tax optimisation
The Bill transposes the provisions of the so-called ATAD 2 directive, which is part of the OECD’s work on combating tax erosion through base erosion and profit shifting (BEPS) and aims to put an end to certain practices aimed at optimising multinational companies by limiting the taxation of their profits, through so-called hybrid schemes.
Hybrid arrangements are the result of differences between States in the legal qualification of financial instruments, entities or in the rules for allocating payments. These arrangements result either in :
- a deduction in one State without consequential taxation in the other State;
- a deduction in each of the two States; or
- the absence of taxation in either of the
In order to combat the tax optimisation that may result from these situations, the proposed measure allows the State, depending on the nature of the hybrid scheme, either to refuse the deduction of the expense or to include the payment in taxable income.
Tax residency of corporate executives of large French companies
The Bill clarifies the tax residency rules applicable to corporate executives of large French companies. With the exercise of managerial functions within large companies highly internationalised and modern working tools reducing the importance of where the activity takes place, this provision establishes, in accordance with administrative case law, a clear link in national law between the functions of managers of large French companies and the tax residency in France
This measure will apply to the taxation of income for the year 2019.
Modernisation of tools and procedures
Electronic invoicing of intragroup transactions
The progressive generalisation of electronic invoicing (already effective for public contracts), pursues several objectives for the benefit of companies and the tax administration:
- simplifying business life with less paper processing and the possibility of pre-filling VAT returns;
- securing commercial relations between companies; and
- strengthening the fight against VAT fraud by automated cross-checks between invoices issued and invoices received.
The Bill provides for the submission of a report in September 2020 to inform the French Government and Parliament’s decision on the modalities and timetable for implementing electronic invoicing from 2023 onwards.
Exploiting open data from social networks
The French tax administration is increasingly relying on the use of data through innovative “datamining” techniques to improve fraud detection and control targeting. These tools have already proven their value. Processing operations are now limited to data declared to the tax administration and do not extend to open data, in particular those of social networks. However, these could make it possible, for example, to establish the existence of an undeclared activity on the Internet, or constitute an indication of the tax residency.
Although the data are freely published by users, their use involves the processing of personal data, which is proposed to be governed by a specific provision, accompanied by guarantees, and limited to the detection of the most serious breaches.
This possibility would be open on an experimental basis for a period of three years.
Lower income taxes for the middle and working classes
The Bill foresees an unprecedented €5 billion reduction in income tax, leading to a substantial reduction in the tax burden on the middle and working classes.
- The first taxable portion will be reduced from 14% to 11%.
- The rest of the scale will be adjusted to focus the gains from this measure on the lowest payers.
- Households in the highest brackets of the scale (41% and 45%) will not be affected by the tax reduction.
The tax relief mechanism, which reduces or even cancels taxes for low-tax households, is also strengthened. This is designed to better smooth the transition of household tax into the first income bracket.
This reform of the income tax scale will apply as from the taxation of income in 2020.
Housing tax axed on main residence
The Bill provides for the total and definitive elimination of the housing tax on main residences.
- For 80% of tax households, the housing tax will be definitively abolished in 2020, after having been reduced by 30% in 2018 and 65% in 2019.
- For the remaining 20% of households, the relief will be 30% in 2021, then 65% in 2022.
No household pay will pay housing tax on its main residence from 2023.
Simplifying the individual income tax return
For many French people, the pre-filled income tax return made available each year by the tax authorities does not require any additions or corrections. This is particularly the case for tax households whose income is fully transferred to the tax administration by third parties (such as employers or pension funds).
The implementation of withholding tax from 1 January 2019 has made it possible to systematise and make this information transmission more reliable. However, taxpayers are still required to file their tax returns, either online or in paper format.
From 2020, tax households that meet certain criteria (around 12 million households) will be able to fulfil this obligation tacitly:
- If they have nothing to modify or add to the information available to the tax administration, they will no longer have to take any further action. In this case, their income tax and social-security contributions will be calculated on the basis of this information alone.
- Otherwise, they may make a traditional declaration to inform the tax authorities of the information to be corrected or completed.
For taxpayers unknown to the administration or those whose situation makes it very likely that the administration does not have accurate and exhaustive data (for example, self-employed workers or land-income holders) the reporting obligation continues.
Elimination of ineffective taxes
Low-yield taxes complicate tax law, involve additional administrative formalities and affect the competitiveness of French businesses. In addition, they can generate significant costs for the services responsible for their recovery and control.
After the abolition of 26 taxes by the Finance Act for 2019, 18 taxes are planned to be eliminated in the Bill.
Taking into account the elimination already voted for in the Finance Law for 2019, nearly €600 million in low-yield taxes will have been eliminated between 2019 and 2021.
Chamber of Commerce and Industry Fees Tax
As part of the reform of the network of chambers of commerce and industry (CCI) provided for by the PACTE Act, the Minister of Economy and Finance announced a gradual reduction of around €400 million over four years in the revenue from the tax for the fees of chambers of commerce and industry (TCCI).
The Bill provides that CCI France will become the sole assignee of the TCCI, which will enable this body to perform a real coordination and steering function of the chambers network and ensure a better distribution of the tax revenue between the regional chambers, as close as possible to the needs of the territories and companies, taking into account local circumstances.
These new provisions constitute a structuring simplification measure, resulting in the abolition of a complex and difficult to read distribution system for the TCCI, and in a reduction in the levies on companies.
Development of local and regional trade
The Bill provides for the possibility for local and regional authorities to introduce an exemption from company real estate contribution, property tax on built properties and company value-added contributions for small commercial activities (those with less than 11 employees and less than €2 million annual turnover):
- in rural areas (small municipalities with even fewer than ten businesses, and which are not integrated into an urban area);
- in the intervention areas of municipalities that have signed an Opération de revitalisation de territoire convention and whose median income per consumption unit is lower than the national median.
These two support schemes for local trade can be applied from 1 January 2020.
Unification of social and tax collection
It is planned to entrust the Tax Administration with the collection of taxes currently borne by French customs and indirect taxation authorities. In the long term, taxpayers will be able to turn to a single administration for the payment of their taxes.
- The Bill defines a phased schedule from 2021 to 2024 for the transfer of the following taxes:
- the special tax on road vehicles;
- the taxes assigned to the National Film and Moving Image Centre (CNC);
- the annual francisation fee;
- the passport fee on ships;
- domestic consumption taxes on so-called “grid energies” (natural gas, coal, electricity);
- the collection of customs fines;
- excise duties on tobacco and alcohol.
The Bill also contemplates the unification of the VAT declaration, payment and deduction desk for businesses. This will be extended to import VAT in 2022, which will be declared and paid to the Tax administration services. The aim is to reduce the administrative burden on businesses and improve the efficiency of administrations by centralising VAT collection.
The Social Security Finance Bill for 2020 carries on the same approach of rationalising recovery within the social administration.
- The Central Agency of Social Security Organisations and the Unions de Recouvrement des Cotisations de Sécurité Sociale et d’Allocations Familiales (URSSAF) network are expanding their powers to collect compulsory old-age insurance contributions.
- A single point of contact will be established for social recovery in order to simplify exchanges so that employers have access to useful information in order to carry out their social procedures.
- In the context of the implementation of the “room for error”, it is planned to enrich the Nominative Social Declaration (DSN) in order to facilitate the detection of errors that may be made in the declarations.