Worldwide fiscal stimulus - France - Ernst & Young - Global

France

Overview of measures to reinvigorate the economy

In order to improve the cash position of companies, the 2008 Amended Finance Bill makes it possible for companies in 2009 to claim immediate reimbursement of tax credits resulting from loss carrybacks and excessive corporate income tax installments, as well as remaining research tax credit (RTC) for 2005, 2006 and 2007, and excessive RTC for 2008 income.

To stimulate investment, the bill also provides for a temporary increase in the accelerated depreciation rates that apply to newly acquired or created assets and a quasi-exemption from business tax for newly acquired or created investments.

This quasi-exemption from business tax addresses the anticipated reform of the French business tax that was announced by the President of France on 5 February 2009.

Finally, a decree dated 29 January 2009 provides for the possibility for French VAT-registered companies to apply for a VAT credit refund claim on a monthly basis instead of a quarterly basis.

Accelerated depreciation

A temporary increase in the accelerated depreciation rates may apply for assets acquired or created between 4 December 2008 and 31 December 2009.

Company tax measures (other)

Excessive corporate income installments: companies may be reimbursed for excessive corporate income installments on the first day following the closing of the fiscal year (i.e., before the determination of the corporation tax). This measure applies to fiscal years ending from 1 January 2009 to 30 September 2009.

VAT credit refunds: French VAT-registered companies may apply for a VAT credit refund claim on a monthly basis instead of a quarterly basis. This measure applies to a French VAT return that should be filed from February 2009 in connection with transactions performed during January 2009.

Reduced rate of VAT: as a result of changes announced at the ECOFIN meeting on 10 March 2009, the French government has decided to reduce the VAT rate from 10.6% to 5.5% for restaurant services with effect from 1 July 2009.

Deferral of taxation of the capital gain resulting from the sale and lease-back of a real estate asset
This temporary and optional measure aims at facilitating the refinancing of companies by allowing them to spread over several fiscal years the taxation of the capital realized on the sale and lease-back of a real estate to a leasing company.

According to this measure, the taxation of the capital gains realized on the sale of the real estate may be spread over the duration of the leasing, up to 15 years.

Furthermore, in case the lessee company purchases the real estate or the leasing agreement is terminated, the remaining amount of the capital gains is immediately taxable.

This measure, which is optional, only applies to sales of real estate realized between April 23, 2009 and December 31, 2010.

Grants and incentives

Quasi-exemption from business tax with respect to investments acquired or created between 23 October 2008 and 31 December 2009.

Tax credits — new or amended

Companies may apply for the following temporary measures regarding the research tax credit (RTC): 

• RTC for 2005, 2006 and 2007 that have not been previously offset may be reimbursed immediately
• RTC for 2008 may be immediately offset against the tax on the 2008 results
• Companies that estimate that the amount of RTC for 2008 will exceed the amount of tax due for 2008 may claim reimbursement of the excess (if the estimate differs from the real figures by more than 20%, a 5% penalty increase and late-payment interest apply)
  

Tax policy reform

Reform of the French business tax was announced by the President of France on 5 February 2009.

Treatment of losses (carrybacks, etc.)

In 2009, companies may claim immediate reimbursement of the tax credit resulting from loss carrybacks on the first day after the close of the fiscal year (if the amount reimbursed exceeds the real figures by more than 20%, a 5% penalty increase and late-payment interest applies).

This measure applies to loss carrybacks on fiscal years ending on or before 30 September 2009.

Tax treatment of debt

Deferral of taxation of the profit resulting from the buy-back of bank debts
This temporary and optional measure aims at facilitating the buy-back by companies of their bank debts in order for them to improve their balance sheet and for banks to accelerate the recovery of depreciated receivables.

In case a company buys-back a mid or long term bank debt at a price lower than its nominal value, the taxation of the related profit may be spread over the next 5 fiscal years.

The profit that may benefit from this measure corresponds to the difference between (i) the discounted amount of capital and remaining interest at the date of the buy-back and (ii) the price agreed for the buy-back. Furthermore, such profit is increased by 7.20%, which corresponds to 1.5 times the legal interest rate.

Such measure may only apply if, between the first and last days of the fiscal year during which the buy-back is realized:

• The company’s shareholder equity has increased, and
• The ratio of (i) the amount of mid and long term debts on (ii) the total assets, less the eventual accounting loss of the year, has lowered by more than 10%.

Furthermore, the measure ceases to apply when the “debt to asset ratio” at the closing of one of the next 5 fiscal years exceeds the ratio at the opening of the fiscal year during which the buy-back has been realized. In such case, the portion of profit which has not been taxed yet, is increased by 7.20% and added-back in the taxable result.

Finally, this measure does not apply to:

• Banks
• Buy-backs realized between related companies as defined in Article 39-12 of the French tax code (in such case, and if the debt has been acquired by the actual creditor from an unrelated party, the measure may only apply to the portion of the profit which does not exceed the difference between the discounted value of the receivable and its purchase price).

This measure, which is optional, only applies to buy-backs realized between April 23, 2009 and December 31, 2010.

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