The French Ministry of Finance presented, during a press conference on 28 September 2016, the main tax provisions of what will be the draft Finance Bill for 2017, prior to the bill being submitted to the French Parliament.
Among the provisions that would affect the taxation of companies are the following proposals:
As proposed and as expected, the length of the period during which “impatriates” (under the tax savings regime intended to make France an attractive locale for inbound employees) can benefit from a specific favorable regime would be extended until 31 December of the eighth year (instead of the fifth year, as currently available) following the beginning of their functions in France. The impatriates regime basically provides an exemption from income tax on the additional compensation paid to executives moving to France and an exemption from wealth tax on foreign assets. Read TaxNewsFlash-Europe
Also, the payroll tax that may apply to certain taxpayers not fully subject to the value added tax (VAT), such as banks and insurance companies, and that is assessed on the compensation paid to employees would not apply to this additional compensation.
A withholding tax system would be established for salaries and pensions paid to individual taxpayers (generally, a system similar to PAYE systems that apply in other countries) as from 1 January 2018. The withholding tax system would be applied to compensation and pension payments, and employers and pension plans would be responsible for withholding, on a monthly basis, the income tax on the amounts of salaries and pensions paid.
The withholding tax rate would be based on the average income tax rate that applied for the individual taxpayer during the previous year. However, individual taxpayers could elect to apply a “neutral rate” that would be based only on the compensation paid to them by their employers, but then these taxpayers would have to pay the difference of any additional income tax owed directly to the tax collector. Individual taxpayers also would be required to remit to the tax collector an amount of monthly provisional payments of income tax with respect to other income earned (income such as commercial or industrial profits, non-commercial profits, rental income, etc.).
Taxpayers would still be required to file an income tax return, and pay any difference in tax. Any excess income tax withheld or paid would be refunded by the tax authorities. To avoid a double tax burden in 2018 (since the income tax is currently paid in France during the year following the year during which it was earned), the income tax normally due in 2018 on income for 2017 would be “cancelled,” except for the tax due on “exceptional income.” A relatively extensive list of what would be deemed to be “exceptional income” would be included in the draft Finance Bill. Anti-abuse measures would also be put into place in order to avoid an artificial shift of income from 2016, or 2018, to 2017.
Tax professionals with Fidal* note that the introduction of this withholding tax system is aimed at avoiding difficulties that may arise in instances when the taxpayer experiences a sudden, large decrease in income from one year to the other while the tax is paid with a one-year difference. Also, the prospects regarding the introduction of a withholding tax system are uncertain, even if the measure is voted on and approved, because of next year’s presidential election in France. Several candidates for the presidency have already indicated their opposition to the withholding tax system and have stated that they would repeal this system (if enacted) if they were to be elected.
In France, the individual income tax system is viewed as being extremely complex—as are the proposals to revise France’s individual taxation rules in the draft Finance Bill. As a consequence, implementation of the proposed rules (if enacted) would give rise to practical difficulties for both employers and individual taxpayers and for companies with expatriates assigned to work in France.
For more information, contact a tax professional with Fidal* in France or with KPMG in the United States:
Gilles Galinier-Warrain | +33 1 55 68 16 54 | email@example.com
Olivier Ferrari | +33 1 55 68 18 14 | firstname.lastname@example.org
Laurent Leclercq | +33 1 55 68 16 42 | email@example.com
Patrick Seroin | +1 (212) 954-2523 | firstname.lastname@example.org
* Fidal is a French law firm that is independent from KPMG and its member firms.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.