The purpose of this document is to provide a brief description of a tax incentive recently approved by the French Government for the improvement of competitiveness and employment in French businesses.

Its purpose is simply to provide information regarding the legislative measures which are being adopted in the tax area in other neighbouring jurisdictions and which may well serve as an example for reflection and debate regarding the adoption of similar measures in Spain at a time when public authorities are considering the adoption of legal measures to support businesses and entrepreneurs.


1.1 On November 6, 2012, the French Prime Minister (Jean-Marc Ayrault) announced the so-called National Pact for Competitiveness, Growth and Employment, which envisages the gradual implementation of a package of measures to reactivate the French economy.

1.2 One of the first measures in which the above-mentioned Pact has materialized is of a fiscal nature and consists of the creation of a new Tax Credit for Competitiveness and Employment (CICE), which came into force on January 1, 2013.

1.3 The measure has been strongly promoted by the employers’ organization and French trade associations, which have managed to get the French Government to favourably view their proposals when approving the CICE.

1.4 This new tax incentive, which is not temporary but rather is intended to be permanent, has been regulated by Article 66 of French Law no. 2012-1510, of December 29, 2012 (published in the Official Gazette of December 30), which has incorporated new regulations into the French General Tax Code.1

1.5 From a budgetary perspective, 50% of the 20,000 million euros which the French Government estimates for the CICE will be financed by additional reductions of public expenditure and the other 50% will be financed through greater revenue which will be obtained from January 1, 2014 by ecological taxes and by the increase of the VAT rates.2

1.6 The first tax year in which this tax incentive will be applicable is 2013. Therefore, its economic effects will take place immediately.


1.7 CICE can be applied by businesses which are subject to taxation on business profits regardless of their legal form or the nature of their activities.

1.8 Both taxable persons subject to Corporate Income Tax and Personal Income Tax payers that engage in a business activity are considered enterprises for these purposes.

1.9 This tax incentive can also be applied by taxable persons that enjoy a temporary exemption from Corporate Income Tax due to certain geographical schemes (urban tax-free zones, rural revitalization zones) or schemes for stimulation of creation and innovation (new enterprises, innovative start-up enterprises, etc.).

1.10 The CICE can also be applied by entities partially exempt from Corporate Income Tax referred to in Article 207 of the French General Tax Code (agricultural and craft cooperatives, non-profit entities and foundations, among others), although only with regard to remunerations paid to the employees assigned to the performance of non tax-exempt activities. When the European Commission declares this tax incentive compatible with the EU Law, it is also envisaged that these specific entities could apply CICE in relation to the remuneration paid to the employees assigned to the performance of exempt activities.

1.11 In relation to the CICE calculated by partnerships and other entities that are not subject to Corporate Income Tax (e.g. partnerships engaged in construction of buildings for sale or economic interest groupings), the amount thereof will be attributed to the partners in the relevant proportion subject to certain requirements.

1.12 The consequence of the application of this tax incentive will be a significant reduction of the labour costs of businesses.

1.13 The new rules included in the French General Tax Code expressly provide that the resources freed up by businesses which apply this tax incentive must be used to improve their competitiveness through investment efforts in research, development, innovation, training and new recruitment, investigation of new markets, ecological and energy transition and reestablishment of working capital.

1.14 In this sense taxable persons that apply CICE will be obliged to report in their annual accounts on the use given to the CICE in accordance with the above stated.


1.15 The amount of the CICE will be the result of applying a deduction percentage of 4% (in 2013) or of 6% (from 2014 onwards) to the remuneration paid to the employees in the calendar year.


1.16 The base of the tax credit will be formed by the remuneration actually paid in the calendar year the amount of which does not exceed the result of multiplying the French national minimum wage by 2.5.

1.17 Remuneration defined for the purposes of the calculation of social contributions under Article L.242.1 of the French Social Security Code is considered “eligible” remuneration for the application of CICE. In addition, to be considered as “eligible” for CICE purposes said remuneration paid shall be considered a tax deductible expense for the purposes of calculating the taxable base under Corporate Income Tax or Personal Income Tax and it also must have been declared to the Social Security authorities.

1.18 The legislation passed provides special rules for the calculation of the base of the deduction in the case of remuneration paid to employees who work overtime and to persons who are not fulltime employees or who have contracts for less than one year.

1.19 For the purpose of controlling the calculation of the base of the deduction by those that apply this tax incentive, the bodies in charge of collecting social contributions are entrusted the task of verifying the data relating to the remuneration which has been used to calculate the CICE and of supplying such information to the French tax authorities.


1.20 The CICE will be applied on the tax due of the tax period in which the remuneration taken into account for its calculation has been paid.

1.21 This tax credit shall be applied when filing income tax forms. For entities liable to Corporate Income tax where their financial year is the same as the calendar year, by the second business day after the 1st of May of the year following that in which the salaries were paid.

1.22 In the case of individuals who carry on businesses liable to Personal Income Tax, the tax credit application shall be filed along with the income tax return, usually at the end of May of the year following that in which the salaries were paid.

1.23 In the case of groups of companies, the parent company will be the holder of the tax credit arising from the remuneration paid by the entities that have become part of the group as subsidiaries and, consequently, it will apply the CICE to the amount of consolidated Corporate Income Tax payable. The deduction will be the sum of all the deductions calculated by the subsidiaries.

1.24 CICE amounts not deducted in the tax period due to insufficiency of Corporate Income Tax or Personal Income Tax due are legally considered to be a “tax credit” against the French treasury, the amount of which may be offset in the following three years and may be refunded, where applicable, at the end of this period.

1.25 If in the above-mentioned three-year period a restructuring operation (merger or similar operation) occurs, tax credit generated by the transferring company may be applied by the receiving entity in the operation.

1.26 The tax credit cannot be transferred or assigned, except in specific cases regarding the transfer of professional and trade receivables provided for in the French Monetary and Financial Code (assignment of professional receivables –in full or as a guarantee- to a credit institution). The CICE may be assigned before it is actually applied by the taxable person and even before the payment of the remuneration which determines the calculation of the CICE, although subject to the condition that the tax authorities are informed in advance.

1.27 The tax credit cannot be the subject of various assignments or partial security in relation to one or more assignees or creditors.

1.28 The three-year period for the application of the pending tax credit will not be applicable and, therefore, may be immediately refunded, in the case of the following businesses:

  1. Microenterprises, small and medium-sized enterprises as defined in the annex of Commission Regulation (EC) no. 800/2008, of August 6, 2008, declaring certain categories of aid compatible with the common market in application of Articles 87 and 88 of the Treaty (General block exemption Regulation).
  2. New companies whose capital is fully paid up and in which at least 50% of equity belongs to:
    1. Natural persons.
    2. Companies in which at least 50% of their equity belongs to natural persons.
    3. Venture capital companies and funds, regional development companies, innovation finance companies or single-member risk-investment companies, on condition that there are no relationships of dependence between the new companies and the latter companies or funds within the meaning of the last three sections of Article 39 (12) of the French General Tax Code.

In particular, the companies in this point c) can request the immediate refund of the tax credit in the year in which they are created and in the following four years.

  1. Innovative start-up enterprises mentioned in Article 44 sexies-0 A of the General Tax Code.
  2. Enterprises in difficulties which have been the subject of conciliation or protection proceedings, a financial restructuring or a judicial liquidation. These enterprises can seek the refund of their unused credit from the date of the decision or of the trial which commenced these proceedings.