Finance Act for 2024

Written on
31 January 2024

The Finance Act for 2024 was published in the Journal Officiel on December 30, 2023, after its provisions had been examined by the Constitutional Council (decision of December 28, 2023).

As in previous years, the Finance Act provides for : (i) corporate tax measures (ii) as in the case of personal taxation, and (iii) certain cross-functional measures.
The main measures are :

For companies :

– Taxation of profits :

  • Introduction of a worldwide minimum tax
    • Tightening transfer pricing control rules
    • Creation of a green industry tax credit (C3IV)
    • Changes to rules on intra-group dividends (amendment)
    • Adjustment of employee shareholding rules in tax consolidation (percentage holding)
    • CVAE abolition postponed
    • Electronic invoicing reform postponed

Other measures :

  • VAT
  • Tax inspections
  • Anti-fraud plan
  • Energy transition measures
  • Elimination of tax niches

For private customers:

  • Changes to the Dutreil scheme
  • Inheritance assets and quasi-usufruct: new anti-abuse rule
  • Reinforcement of article 155 A of the CGI
  • New IFI anti-optimization measure
  • Adjustment of the exit tax.

CORPORATE TAXATION

  1. Taxation of profits

Minimum taxation of large corporations (worldwide minimum tax and French top-up tax)

In short, groups of companies with consolidated sales in excess of €750 million will be subject to a tax on their profits of at least 15% in each jurisdiction. >

This is the transposition of the December 14, 2021 Directive (anti-erosion rules).

The effective tax rate must be calculated, for each financial year and for each jurisdiction, as the ratio between (i) the sum of the corrected amounts of taxes covered by the constituent entities located in that jurisdiction, and (ii) their net qualifying income.

In the event of under-taxation in the jurisdiction, an additional tax will be payable.

In principle, this additional tax will have to be paid by the group’s ultimate parent entity in its state of residence. Otherwise, this tax will have to be collected on a pro rata basis in the jurisdictions applying these rules in which the other entities making up the group are established. In addition, States may decide to introduce a national top-up tax in order to collect this top-up tax themselves in respect of entities established on their territory.

The Finance Act for 2024 inserts these rules into a new, dedicated chapter of the General Tax Code (“CGI”).

As authorized by the Directive (see above), France is introducing an additional national tax to which entities established in France of a group falling within the scope of the worldwide minimum tax (“Pillar 2” rules) may be subject.

This tax, determined at the level of all French entities and then allocated to each of them according to specific rules, will in principle have to be declared and paid individually by each of them. However, it will be possible to designate one entity to pay the complementary national tax for all French entities, and to file the statement of settlement for all of them.

It should be noted that a French entity may thus be required to pay an additional national tax in France even though its individual ETR (effective tax rate) is higher than 15%, if other French entities in the group are insufficiently taxed.

The additional national tax will not be deductible from corporate income tax (“IS”).

Procedural and collection rules will be those applicable to corporate income tax, with the following exceptions (i) the absence of a quarterly installment, (ii) an extended recovery period running until the fifth year following the year in respect of which the tax is due, and (iii) specific penalties for failure to comply with declarations.

These new rules apply to fiscal years beginning on or after December 31, 2023.

As the OECD continues its work on the Directive, these rules will be supplemented, clarified and commented on, notably in the administrative comments.

Tightening transfer pricing control rules

This reinforcement involves four measures:

  • The threshold of sales or gross assets on the balance sheet above which a company is required to present full documentation of the group’s transfer pricing policy has been lowered from €400 million to €150 million for financial years beginning on or after January 1, 2024;
  • The content of their transfer pricing documentation becomes enforceable against companies: a presumption of profit transfer is established in the event of a discrepancy between the declared result and the result that would have been achieved if the rules set out in the documentation had been complied with. This presumption can be rebutted (it will be necessary to demonstrate that there has been no transfer of profits abroad). This new rule applies to fiscal years beginning on or after January 1, 2024;
  • The minimum fine for failure to submit transfer pricing documentation or to respond to requests for information from the tax authorities has been raised from €10,000 to €50,000;
  • The administration’s recovery period has been adjusted and extended for intangible assets that are difficult to value: (i) the tax authorities may adjust the sale price of these assets on the basis of results subsequent to the financial year in which the transaction took place; (ii) for these asset disposals, the recovery period runs until the end of the sixth year following the year in which the tax is due; (iii) the tax authorities will be able to audit these disposals without this constituting a repeat of an accounting audit; these new rules apply to financial years beginning on or after January 1, 2024.

Creation of a tax credit for investment in green industry (“C3IV”)

The new scheme will apply to companies carrying out capital expenditure in France in connection with activities contributing to the production of batteries, photovoltaic panels, wind turbines and heat pumps.

Capital expenditure covers (i) acquisitions of property, plant and equipment (including land and buildings), and (ii) acquisitions of intangible assets required for the business (patents, licenses, etc.).

Expenditure on acquisitions between related companies (within the meaning of article 39-12 of the CGI) will not be eligible.

The tax credit rate is 20%, raised to 25% for investments made in a ZAFR or 40% for those made in RUP. These rates would be increased by 10% for medium-sized businesses and 20% for small businesses. Aid will be capped at €150 million (€200 million for LFAs and €350 million for outermost regions).

The tax credit will be calculated on the basis of the year’s expenditure; it will be deductible from corporation tax or income tax, and any excess can be immediately refunded to the taxpayer. This tax credit will constitute state aid (subject to compliance with ceilings) and will be subject to approval.

Anti-abuse mechanisms are provided for (no transfer of activities already carried out in the EU or EEA during the last two financial years, compliance by the company with its tax, social and environmental obligations, commitment to operate the said investments in France for 5 years, no transfer outside France of the assets concerned during
5 years).

The scheme will apply to projects approved until December 31, 2025 and submitted since September 27, 2023. However, entry into force is subject to validation by the European Commission.

Intra-group dividends: changes to the conditions for application of the 1% share of costs and expenses and the 99% tax exemption

Taking note of the Manitou case law, the Finance Act for 2024 extends the application of the reduced 1% rate or the 99% exemption to dividends distributed by a company established in the EU or EEA that can be integrated, without any need to check whether or not the recipient company is or can be integrated. It should be noted that the condition of effective membership of a consolidated group is maintained for distributions between companies established in France (which does not seem fair).

In addition, entitlement to the reduced rate of 1% or the 99% exemption is now limited to distributions made by companies that have been consolidated, or integrated for those established in the EU or EEA, for more than one financial year.

These changes apply to fiscal years ending on or after December 31, 2023 (i.e. retroactive application to fiscal 2023 for most companies).

Tax consolidation: adjustment of rules on employee share ownership

To ensure that employee shareholding does not prevent companies from being consolidated for tax purposes, there are exceptions to the 95% holding requirement, i.e. shares issued to employees are not taken into account in the calculation (under certain conditions and up to a limit of 10% of capital).
The Finance Act for 2024 clarifies and adapts these existing rules, in particular for cases of employee mobility within the group, again with a view to promoting employee share ownership without preventing integration.

 

2. CVAE abolition postponed

The Finance Act for 2023 (of December 30, 2022) provided for the elimination over two years of the CVAE, the amount of which had been halved for 2023 and was due to disappear from 2024.

In line with the Government’s announcements, the Finance Act for 2024 postpones the abolition until 2027: CVAE rates will be reduced by 25% per year between 2024 and 2026, with the CVAE being completely abolished in 2027.

As “compensation” for SMEs, the minimum contribution of €63 to which companies with sales in excess of €500K were subject has been abolished.

3. Electronic invoicing reform postponed

The Finance Act for 2024 postpones the entry into force of e-invoicing and e-reporting obligations.

According to the new calendar :

  • The obligation to receive electronic invoices would apply to all companies from September 1, 2026,
  • The e-invoicing and e-reporting obligations will apply from September 1, 2026 for large companies and ETIs (intermediate-sized companies), and from September 1, 2027 for SMEs and VSEs that are not members of a VAT group.

OTHER MEASURES

  1. Value added tax

The law strengthens anti-fraud measures through several measures:

  • Application of import VAT for dropshippers (traders who buy goods located outside the EU and resell them online without ever physically disposing of them), subject to conditions;
  • Reverse charge of VAT on new transfers of guarantee of origin certificates and certificates provided for under the Energy Code ;
  • Establishment of a tax compliance procedure for taxable persons providing services electronically via an online interface, with the introduction of sanctions that can go as far as dereferencing or restricting access.

Also on the agenda:

  • The replacement of accreditation of a tax representative by a simplified system, for taxable persons not established in the EU and for certain transactions;
  • Changes to the VAT zero-rating system;
  • Rentals of tangible movable property, other than means of transport, supplied to a non-EU lessee (e.g. ski rentals to
  • Méribel to an American tax resident: from now on, French VAT will apply);
  • Adaptation of VAT rules for furnished rental activities to comply with the VAT Directive.

Lastly, Directive 2022/542 on VAT rates has been transposed, bringing with it a number of changes (in particular, riding schools and horse-related activities return to the reduced rate of 5.5%).

2. Tax inspections

The law sets out the procedures for carrying out on-site tax audits (at the taxpayer’s premises). In principle, an accounting audit must take place on the company’s premises, but case law allows it to be carried out in a separate location (at the lawyer’s or accountant’s) at the taxpayer’s request.

For audits launched on or after January 1, 2024, as well as for those in progress at that date, it is planned that operations may take place at a location determined by mutual agreement between the taxpayer and the tax authorities; failing agreement, the tax authorities may unilaterally decide to hold the audit on their premises.

3. Anti-fraud plan

New measures are planned:

  • Extension of the experiment enabling tax and customs authorities to collect information from online platforms;
  • Authorization to create accounts on these platforms and exchange information anonymously with alleged offenders;
  • Extension of the rules applicable to home visits to tax credits: in particular, the administration will be able to seize information on servers located outside the company;
  • Continuation of the compensation scheme for tax advisors ;
  • New obligation for legal entities to declare the list of digital asset accounts held abroad (this obligation already existed for individuals);
  • Creation of a new offence of making available tax evasion instruments;
  • Creation of a supplementary penalty of deprivation of rights to tax reductions and credits (excluding conventional tax credits) and IFI for individuals convicted of the offence of aggravated tax fraud, concealment of this offence or money laundering.

4. Energy transition measures

In addition to the creation of the C3IV, the law provides for new measures to promote the energy transition:

  • Reduction of environmentally unfavorable tax expenditures (“niches brunes”): increase in the reduced rate of excise duty on agricultural and non-road diesel fuel, elimination of reduced excise duty rates on certain petroleum products and coal;
  • Tougher penalties, taxes and levies on passenger cars and commercial vehicles (4x4s and SUVs).

5. Elimination of tax niches

The law abolishes several tax niches that have become obsolete or have no budgetary impact.

PERSONAL TAXATION

1. Refocusing the Dutreil scheme

In order to counter recent favorable rulings by the French Supreme Court (Cour de Cassation) and the French Council of State (Conseil d’Etat), which have allowed the Dutreil Pact to apply to certain furnished rental activities, the Finance Act amends the definition of eligible activities to exclude furnished rental activities from the scope of the scheme.

In addition, the law now specifies that the shares of a “holding animatrice” and the shares of a company whose “principal” activity is eligible, can benefit from the scheme.

These changes apply retroactively to transfers made on or after October 17, 2023.

2. Non-deductibility of restitution debts related to a quasi-usufruct from estate assets

In order to counter the practice of giving a sum of money subject to usufruct (quasi-usufruct) in order to avoid taxation on inheritance, the Finance Act introduces an anti-abuse mechanism prohibiting the deduction of this liability from inheritance assets.

This measure applies to estates opened on or after December 29, 2023 (regardless of the date on which the quasi-usufruct was created).

3. Extension of the anti-abuse provisions of article 155 A of the General Tax Code

Under certain conditions, Article 155 A of the French General Tax Code allows income from services provided by an individual to be taxed in France despite the involvement of a foreign company (in whole or in part, depending on whether or not the individual providing the services is a French tax resident).

Again in response to a favorable ruling by the Conseil d’Etat, the Finance Act amends article 155 A to include in its scope royalties for the granting of intellectual property rights by an individual to a foreign company.

These provisions apply to income received on or after January 1, 2024.

4. Impôt sur la Fortune Immobilière (IFI): new anti-optimization measure

The law complicates the calculation of the IFI taxable base in the case of real estate assets held via interposed indebted companies. Debts that are not directly or indirectly related to a taxable asset will not be taken into account, although a double ceiling and/or pro rata mechanism will be introduced, depending on the market value of the assets and the taxpayer’s percentage holding in the capital of the said companies.

This new measure applies from the IFI 2024 (for which the triggering event was January 1, 2024…).

5. Adjustment of the exit tax

The text provides for immediate payment of deferred tax (for departures abroad made since January 1, 2019) in the event of failure to file the declaration relating to events whose occurrence gives rise to a tax rebate or refund.

The text has also been corrected with regard to the deduction of social security contributions for certain taxpayers.

SECTORAL MEASURES

For the record:

  • Creation of a tax on excess profits from the operation of long-distance transport infrastructures; this new tax should mainly concern large motorway concessions and major airports;
  • Creation of a tax on streaming;
  • Framework for “fixed” or “telecom” IFER.
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