France: The 2015 Finance Act and the Rectificative Finance Act for 2014 have entered into force | Tax Connect Flash

The main provisions are as follows:

1. Scope of tax consolidation is broadened: French companies which are 95 percent owned by a common foreign company resident in the EU or EEA will be able to file a consolidated tax return. One of the "sister" French companies would file as the "parent" of the group. Such an election could terminate existing tax consolidated groups of which the French companies are members, which could have significant consequences;

2. The participation exemption will not be applicable to dividends received from foreign subsidiaries which can claim a tax deduction for dividends paid out;

3. Penalties applicable in case of incomplete transfer pricing documentation are amended. Previously, the penalty could be up to 5 percent of the transfer pricing adjustment, with a minimum EUR10,000. Starting in 2015, the penalty could be up to the higher of 5 percent of the transfer pricing adjustment, or 0.5 percent of the amount of the transactions which have not been documented, with a minimum of EUR10,000. This will require a change in the documentation approach, for certain taxpayers may have decided so far to invest little or no resources in documenting transactions which were unlikely to be adjusted;

4. Taxpayers subject to a transfer pricing adjustment will be able to eliminate the corresponding withholding tax applicable to the corresponding deemed distribution if they accept the adjustment and obtain a refund from the foreign related party for the corresponding amount within 60 days. The request should be made before the withholding tax bill is issued. This provision includes in the tax code a solution which was routinely implemented when a settlement was found during a tax audit. It does not preclude the taxpayer from seeking elimination of double taxation for corporate tax through the applicable Competent Authority procedure;

5. Gains derived from stock redemption after January 1, 2015 will be subject to tax as capital gains for individual and corporate shareholders. Previously, gains were taxed either as dividend or capital gains depending on the status of the shareholder;

6. Dividends paid to non-resident investment funds will be exempt from withholding tax only to the extent that the French tax administration is effectively in a position to check through the applicable administrative assistance treaty whether the investment fund meets French requirements;

7. The first bracket (5.5 percent) of individual income tax is eliminated. Now, the first bracket is 14 percent, applicable after EUR9,690;

8. Real estate capital gains realized by all non-residents individuals will be subject to tax at the 19 percent rate. Previously, such rate was applicable only to EU and EEA residents;

9. EU and EEA residents will no longer be required to appoint a tax representative for corporate tax, individual tax, and wealth tax purposes.