France: French 2014 budget increases companies, tax burden and targets transfers of functions and hybrid financing

International Tax Review is part of Legal Benchmarking Limited, 4 Bouverie Street, London, EC4Y 8AX

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

France: French 2014 budget increases companies, tax burden and targets transfers of functions and hybrid financing

rives.jpg

cotte.jpg

Helene Rives


Fabien Cotte

On September 25 2013, the French government released its 2014 draft Finance Bill now in Parliament discussion. If voted for, the proposed measures would apply retroactively to year end. French and foreign companies operating in France are thus encouraged to review their position in the light of the new provisions described hereafter.

New anti-hybrid financing/subject to tax rule

Under the proposed rule, interest deductions for related party financing would be allowed only if the French borrower demonstrates that the lender is subject to a corporate tax on the interest income that equals 25% or more of the corporate tax that would be due under French tax rules (that is when the lender is established outside of France, the tax liability that it would have owed had it been resident in France). The new measure would apply to ?nancial years ending on or after September 25 2013 and would apply to existing financing.

Transfer of risks and functions

The Bill would amend the transfer pricing rules to include a new provision applicable to business restructuring in the case where a company would cumulatively:

  • Transfer one or more risks or functions to a related party;

  • Discontinue, either partially or fully, performing such functions or bearing such risks; and

  • The transferor's EBE accounted for during one of the two financial years following the transfer is less than 20% of the average of the EBEs accounted for during the last three financial years.

Enterprises fulfilling the above tests must (i) demonstrate that they received an arm's-length compensation, and (ii) provide all documents and information needed to compute the income realised before and after the transfer.

These new rules would not apply to isolated asset transfers or licensing, provided such transfers or licensing are independent from any transfer of risks and functions.

Increase of the corporate income tax rate for large companies

The contemplated set up of a new tax on gross operating margin (EBE tax) is withdrawn and replaced by an exceptional increase of the corporate income tax rate for companies with turnover exceeding €250 million ($341 million). As a result, it is expected that the French corporate income tax rate will be around 38%.

New temporary tax on high remuneration owed by French entities

Under the Bill, entities operating in France would be subject to a temporary tax on high remunerations owed in 2013 and 2014 that exceed €1 million to each individual. The new tax rate should be equalled to 50% but the latter cannot exceed 5% of the French company's gross revenue realised for the year during which the tax is due.

Helene Rives (helene.rives@fr.landwellglobal.com)

Landwell & Associés, Paris

Tel: +33 (0) 1 56 57 42 20

Fabien Cotte (fabien.cotte@fr.landwellglobal.com)

Landwell & Associés, Paris

Tel: +33 (0) 1 56 57 47 72

more across site & shared bottom lb ros

More from across our site

Heads of tax need to push their teams forward as strategic business advisers to add value across the organisation, says Sandy Markwick
Scott Bessent reportedly felt undermined by Musk naming Gary Shapley as acting IRS commissioner; in other news, Baker Tilly will combine with a top 15 US firm
The promise of nine years’ tax certainty and a ‘rational and pragmatic’ government process makes APAs a no-brainer, Indian tax advisers tell ITR
Despite garnering significant revenues from multinationals, Italy’s digital services tax presents pressing double taxation issues, say Stefano Simontacchi and Francesco Saverio Scandone of BonelliErede
ITR’s research shows that in-house tax counsel in Asia also feel underserved by their advisers’ international networks
World Tax global head of research Jon Moore tells ITR how his team spots standout submissions, and gives early statistical insights into this year’s entries
Australia’s conservative opposition will repeal controversial tax agent reporting rules if elected in the country’s May general election
Shapley would be the fourth person to hold the job this year; in other news, UK tax advisory firm MHA raised fewer funds than expected from its London IPO
The US needs to be involved in pillar one for there to be more international acceptance of the project, Michael Masciangelo says
The UK regulator is investigating EY’s auditing of the national postal service as it relates to the high-profile Horizon scandal, which saw hundreds wrongfully convicted
Gift this article