Global Insight | October 2024

France: Draft finance bill released for 2025

The French government has released the first draft of the French Draft Finance Bill for 2025 on Thursday 10 October 2024.

The draft bill intends to introduce several changes in the French taxation system. The main proposed measures are summarised below. This draft bill remains to be discussed before the French parliament and several amendments/changes are expected to be made in the next coming weeks. We will keep you updated of the developments.

Individual Taxation

Indexation of income tax rates scale

The income tax scale for 2024 income is indexed to inflation (2%), to avoid automatic tax increases due to inflation. Withholding tax scales are adjusted accordingly.

Contribution on high incomes

Article 3 of the Draft Finance Bill for 2025 introduces a differential contribution for high incomes, aimed at ensuring a minimum tax of 20% for taxpayers whose reference tax income exceeds EUR250,000 (for a single person) or EUR500,000 (for a couple).

Main characteristics:

Households concerned : Single, widowed, separated or divorced taxpayers whose reference tax income exceeds EUR250,000.

Households subject to joint taxation with income in excess of EUR500,000.

Calculation of the contribution : It is equal to the difference between 20% of the reference tax income and the total income tax already paid, including the exceptional contribution on high incomes.

An allowance of EUR1,500 per dependant and EUR12,500 for married couples is provided for.

Objective : This contribution aims to ensure that the wealthiest taxpayers, who often benefit from tax niches, do not pay an effective tax of less than 20% of their income.
Period of application : This contribution will be applied to income earned from 2024 to 2026 (3 years).

It will target around a few tens of thousands of households, and is intended to generate EUR2 billion a year.

Corporate Taxation

Exceptional Contribution

Article 11 of the Draft Finance Bill for 2025 introduces an exceptional contribution on the profits of large corporations, in order to help restore public finances. This measure will be applicable for the first two financial years ending on or after December 31, 2024.

Main features:

Companies concerned: The contribution applies to companies subject to corporate income tax with sales in excess of EUR1 billion in France.
Tax base: The contribution, which cannot be deducted from the taxable income, is calculated on the basis of the amount of corporate income tax due (before deducting tax reductions and credits). This contribution cannot be paid through offset of tax credits.
Contribution rates: For companies with a turnover comprised between EUR1 billion and EUR3 billion, the rate is 20.6% for the first year and 10.3% for the second.

For companies with sales in excess of EUR3 billion, the rate is 41.2% for the first year and 20.6% for the second.

Period of application: This contribution is temporary, spread over two years, with a reduction in the rate for the second year.

The aim is to generate EUR8 billion in revenue by 2025.

Exceptional contribution for shipping companies

Shipping companies are also subject to a specific tax on their operating income, in a temporary move to balance public finances.

It will apply to companies with sales in excess of EUR1 billion for the two consecutive years ending on or after December 31, 2024. The rate will be 9% for the first year an 5.5% for the second year.

Taxation of multinationals

Clarifications concerning the global minimum taxation of multinational groups, to ensure that these companies pay a minimum amount of tax, in line with OECD initiatives.

Article 13 of the Draft Finance Bill 2025 clarifies and adjusts the modalities of minimum worldwide taxation for multinational and largescale domestic groups. This taxation stems from international agreements negotiated under the aegis of the OECD and adopted as part of the BEPS (Base Erosion and Profit Shifting) initiative, notably via Pillar 2, which introduces a minimum worldwide tax rate of 15%.

The bill intends to transpose several recommendations and administrative instructions published by the OECD in 2023, to ensure that the rules applied in France comply with international standards recognised by the other States party to the agreement.

Tax on share buy-back operations

Article 26 of the Draft Finance Bill for 2025 seeks to address criticisms that share buybacks are often used by large companies to increase share value for the benefit of shareholders, without necessarily reinvesting in the real economy or favoring employees. The tax aims to rebalance these practices by capturing some of the excess cash used for these operations.

Main features:

Companies concerned: The tax applies to companies with sales in excess of EUR1 billion. Only companies of this size are subject to the tax, because of their ability to generate substantial profits and use share buybacks as a financial tool.
Tax base: The tax base corresponds to the amount of the capital reduction effected by share buybacks, plus a fraction of the capital premiums. Buybacks carried out as part of a restructuring (mergers, demergers) or to finance a capital increase for a strategic project may be exempt.
Tax rate: The tax is set at 8% of the amount of the capital reduction. This rate is deemed proportionate to avoid totally discouraging these operations while capturing part of the funds used.
Application period: The tax is meant to be temporary and applies as from tax years ending on or after December 31, 2024.
Declaration and payment: Companies must declare this tax when amending their commercial register entry as a result of the capital reduction.

Contribution on added-value (« CVAE ») – Postponement of the abolition

Article 15 of the Draft Finance Bill for 2025 introduces a three-year postponement of the phasing-out of the CVAE.

The phase-out of the CVAE, one of the main French local taxes, had been initiated in 2023, with the aim of improving business competitiveness. Initially scheduled to end in 2027, this phasing-out has now been postponed to 2030, to enable better management of public finances.

Main provisions :

Reduction trajectory postponed: The process of phasing out the CVAE, which was due to take place between 2025 and 2027, will be postponed by three years. The rate applicable in 2024 (0.28%) will be maintained until 2027, with decreases planned for 2028 (0.19%) and 2029 (0.09%), until complete abolition in 2030.
CVAE rates and capping: The text also provides for the postponement of the lowering of the capping rate of the territorial economic contribution in relation to value added, as well as the adjustment of the rate of the additional tax on the CVAE allocated to the French Chambers of Commerce and Industry (CCI).

Extension of the special merger regime
Article 17 of the Draft Finance Bill for 2025 concerns changes to the special merger regime following the reform adopted by Ordinance no. 2023-393 of May 24, 2023. This reform impacts several aspects of mergers, demergers and partial contributions of assets, particularly in relation to cross-border operations by commercial companies.

Legislative changes: The article adjusts several articles of the General Tax Code to take account of the new definitions and procedures introduced by the May 2023 ordinance. For example, adjustments are made to articles 38, 39, 112, and 145 of the tax code to incorporate the new forms of mergers and demergers without exchange of shares and a new definition of partial contributions of assets.
New tax regime: Companies can now carry out mergers or demergers without exchanging shares, an option that did not previously exist under the French tax system. This provides greater flexibility for corporate restructuring.

A new procedure for the direct allocation of the securities representing the contribution to the shareholders of the contributing company is introduced, enabling a smoother redistribution of assets during partial contributions of assets, known as “partial demergers”.

Tax impact: Article 17 also adapts the tax regimes applicable to these new operations, ensuring that they are properly integrated into the existing tax framework. The adjustments are designed to avoid tax distortions while supporting the modernisation of economic restructuring procedures in the context of company mergers and demergers, particularly for operations involving several countries.

Miscelleanous

Ecological taxation: The evolution of the tax on carbon dioxide emissions is addressed, with adjustments to encourage energy sobriety (Article 8). Vehicle taxes are also to be adjusted according to mass and CO2 emissions, with specific arrangements for used vehicles (Article 9).
Tax cooperation on crypto-assets: Administrative cooperation on tax matters has been stepped up, with mandatory exchanges of information on crypto-assets. This is part of the drive to comply with European law and aims to better control the reporting obligations of players in this sector (Article 14).

For more information, please contact:

Benjamin Gohet
Tax Partner
Nexia S&A
b .gohet@avocats.nexia-sa.fr

Emilie Casella
Tax Director
Nexia S&A
e .casella@avocats.nexia-sa.fr

Edouard Frizon
Tax Director
Nexia S&A
e .frizon@avocats.nexia-sa.fr
Date: October 2024