From the establishment of a minimum tax for large corporations to the revision of VAT regulations, let’s explore the significant amendments introduced by the French Finance Bill for 2024 that global companies need to be aware of to effectively adapt to the refreshed French tax landscape.
1. Minimum Taxation of Multinationals
Context: This measure responds to a global effort to combat tax evasion and ensure fair taxation of large corporations, especially within the OECD and G20 initiative framework. The implementation of the minimum taxation for multinationals in France by the Finance Bill for 2024 directly transposes the European Directive (EU) 2022/2523. Adopted on December 15, 2022, this directive aims to establish a global minimum tax level for multinational company groups and large national groups within the European Union. The French Finance Bill for 2024 integrates these rules, establishing an additional tax to ensure this global minimum taxation.
Measure Details: France applies a minimum tax of 15% on the profits of multinationals and large groups generating more than 750 million euros of consolidated turnover over two of the last four exercises, excluding public entities and certain non-profit organizations, among others. The effective tax rate is calculated annually by the state, based on the taxes paid and the adjusted qualified net profits. An additional tax is applied if the effective rate is below 15%, calculated on the difference between this threshold and the entity’s effective taxation rate in the state concerned.
Impact on Foreign Companies: French subsidiaries of foreign multinationals will be subject to this minimum taxation. This may affect their tax and operational strategies in France, requiring a reevaluation of existing fiscal structures.
Strategic Objective: Ensure that multinational companies pay their fair share of taxes in France, regardless of their international tax planning strategies.
2. VAT Exemption Scheme
Context: Article 82 of the Finance Bill for 2024 transposes the EU Directive/2020/285 of February 18, 2020, which aims to harmonize the rules applicable to small businesses within the EU from 2025. This change is part of a broader effort to support small and medium-sized enterprises (SMEs) and simplify administrative procedures.
Measure Details: Two main measures are adopted in the Finance Bill:
- The establishment of a VAT exemption scheme for EU businesses, allowing them to benefit from a VAT exemption in their state of establishment and in other member states, provided their turnover does not exceed a certain ceiling.
- Harmonization of the national turnover ceiling that qualifies for the exemption scheme, to facilitate its transnational application.
Impact on Foreign Companies: From January 1, 2025, EU companies will be able to benefit from the exemption in all member states, provided they do not exceed a European-level turnover threshold of 100,000 euros. To exercise this right in France, they must notify their intention to benefit from the exemption scheme in France to their state of establishment and not exceed the national turnover ceiling in France.
Strategic Objective: Encourage entrepreneurship and facilitate the entry of small foreign businesses into the French market, thus contributing to the diversity and vitality of the French economy.
3. Amendment of Transfer Pricing Rules
Context: Transfer pricing refers to the prices at which companies within the same multinational group charge for transactions of goods, services, or the use of intellectual property among themselves, across different countries. The update of the transfer pricing rules in France aims to strengthen the documentation and evaluation of transactions, in accordance with the OECD’s BEPS directives.
Measure Details: The French Finance Bill for 2024 provides for an update of the rules and procedures related to transfer pricing. Article 116 of the Finance Bill amends Article L. 13 AA of the tax procedures code to lower the annual turnover or gross asset threshold on the balance sheet, from which a company is required to establish transfer pricing documentation, from 400 million euros to 150 million euros. Simultaneously, the mandatory documentation is expanded, and penalties are strengthened.
Impact on Foreign Companies: Multinationals will have to comply with these new transfer pricing rules. This requires a reevaluation of their transfer pricing strategies and potentially an increase in transparency and documentation for their operations in France.
Strategic Objective: Ensure that companies pay their fair share of taxes in France by strengthening the administration’s ability to detect and penalize abuses of transfer pricing rules.
4. Dividends and QPFC: Compliance with Jurisprudence (Article 52)
Legal Context: This measure follows European jurisprudence (CJEU, May 11, 2023, cases Manitou BF and Bricolage Investissement France), which influenced French tax rules regarding the distribution of dividends.
Measure Details:
- Reduced Rate for QPFC (Charge and Expense Quota): The reduced rate of 1% for QPFC will now apply to all dividends received from European subsidiaries that meet the conditions to form an integrated group with their French parent company, regardless of the option for tax consolidation.
- Neutralization Regime: Neutralization of 99% of dividends not qualifying for the parent-subsidiary regime received from European subsidiaries by companies that have voluntarily opted out of the tax consolidation regime.
- Group fiscal membership period: A minimum fiscal group membership period of one fiscal year is reinstated to benefit from the reduced 1% rate. Dividends distributed among group members during this period will be subject to a 5% QPFC.
Impact on Foreign Companies: Favorable tax conditions for European subsidiaries of French parent companies. Encouragement towards the formation of consolidated groups.
Effective Date: In the absence of specific provisions regarding its entry into effect, Article 52 of the law applies for determining the taxable profits of fiscal years closing as of December 31, 2023.
These measures in the French Finance Bill for 2024 signify significant changes in the French tax landscape, affecting various aspects of operations for foreign companies in France. They highlight the importance of careful tax management and compliance with new regulations.
