The French government presented its draft Finance Law for 2020. It includes amendments regarding the scheduled reduction on corporate tax rates, which began in 2018 but was partially reversed for large companies for 2019.
Corporate income tax rate
Under the draft finance law, the government proposed the corporate income tax reduction path for companies with an annual turnover of EUR250 million or higher is proposed as follows:
- for fiscal years starting from 1 January 2020 to 31 December 2020, profits up to EUR 500,000 will be subject to a corporate income tax rate of 28%. The standard corporate tax rate of 31% will be applicable on the excess;
- for fiscal years starting from 1 January 2021 to 31 December 2021, the rate on all profits will be 27.5%; and
- for fiscal years starting on or after 1 January 2022, the standard rate of corporate income tax will be 25% for all companies and all taxable income (article 11 of the Bill).
Transposition of ATAD 2
The Bill also includes the transposition of the measures to combat hybrid mismatch arrangements provided for in Articles 9, 9a and 9b of European Union Anti-Tax Avoidance Directive (EU) 2016/1164 (2016) (ATAD 1), as amended by the COUNCIL DIRECTIVE (EU) 2017/952 of 29 May 2017 amending Directive (EU) 2016/1164 as regards hybrid mismatches with third countries (ATAD 2).
In particular, four categories of hybrid mismatches are covered by the Bill:
- hybrid mismatches resulting from payments made under a financial instrument;
- hybrid mismatches resulting from differences in the allocation of payments made to a hybrid entity or institution;
- hybrid mismatches deriving from payments made by a hybrid entity to its owner or deemed payments made between headquarters and the institution or between two or more institutions; and
- double deduction outcomes(article 13 of the Bill).
Other than the aforementioned points, the government also proposed the amendment of dividend withholding tax rules. The new rules to allow for a refund of dividend withholding tax for non-resident loss-making companies. Such amendment was made in order to comply with a 22 November 2018 judgment of the Court of Justice of the European Union, which found that the effective dividend tax exemption for loss-making resident companies, but not for loss-making non-resident companies, constituted a restriction on the free movement of capital in violation of EU law.
In addition, it is worth noting that Article 55 of the Bill proposes the sanctionatory publication of a list of non-cooperative digital platforms. This list was laid out to support French unilateral proposal to impose Digital Service Tax.
Source: French Government