French CIT: New developments for companies generating part of their revenue abroad

France

French law provides for a gradual reduction of the standard rate of corporate income tax (CIT) from 33,1/3 % to 25% in 2022, which has been taken into account by the tax administration in an update on1 August 2018 (the commentaries of the French tax administration are gathered in a public data base referred to as the BOFiP which stands for Public finance official Bulletin).

As a result, corporate tax instalment payments due for a financial period beginning during a year must be calculated by applying the standard rate for that financial period (BOI-IS-DECLA-20-10 n°110). It means that for financial periods beginning during 2018, companies will be able to determine their instalment payments using the 28% rate applicable to the portion of profits not exceeding €500,000.

It also marks a positive shift for companies generating part of their revenues abroad. Indeed, for those companies, the law does not indicate whether the revenues generated abroad should be taken into account to determine the thresholds they should be subjected to. Companies exceeding certain revenue thresholds have had to endure aggravations as the French administration wanted to take global revenues into consideration at times (a position upheld with regard to the former exceptional contribution on corporate tax: Conseil d’Etat, 9 December 2016, no. 395015, SEB Investment Gmbh), however, on 1 August, it took the opposite position.

From now on, the thresholds used for aggravations such as the non-application of the reduced corporate tax rate of 15% (for small businesses), the social contribution of 3.3% on the fraction of CIT above €763.000, and the increased corporate tax instalment will be assessed taking in consideration only revenue generated in France (more precisely, revenue linked to profits subject to corporate tax in France).

This position is in line with the one position expressed by the French tax administration on 8 December 2017 in its commentaries regarding the exceptional contributions aimed at companies with revenue exceeding the thresholds of €1 billion or €3 billion (applicable to financial periods ending from 31 December 2017 to 30 December 2018). The authorities considered that only French revenue should be taken into account.

Lastly, there is another favourable reversal for companies that pay interest to a related company. In this case, Article 212, I, b of the French tax code makes deductibility conditional on the creditor being subject to a minimum tax on interest (tax “at least equal to one fourth of the profit tax determined under the conditions of ordinary law and at the standard rate”).

The French tax administration recently abandoned its previous position that the reference corporate tax rate from which the minimum tax is calculated should take into account the additional corporate tax contributions that the creditor would have owed if it had been taxable in France. It now expressly specifies the opposite view (BOI-IS-BASE-35-50 n°40).