France: Draft rectified finance law for 2016 | KPMG | GLOBAL
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France: Draft rectified finance law for 2016

France: Draft rectified finance law for 2016

The French government on 18 November 2016 submitted to the National Assembly a draft rectified finance law for 2016. As usual, this draft law includes tax technical provisions including changes to the 3% tax on dividend distributions.


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3% tax on distributions of dividends

The French government proposes to modify, pursuant to a decision of the French Constitutional Court (Conseil Constitutionnel), the scope of the exemption of the 3% tax on distributions. 

The Constitutional Court issued a decision holding as unconstitutional a provision limiting the exemption from the 3% tax to distributions made within French tax groups—whereas foreign parent companies satisfying all of the conditions, apart from the nationality, required of French companies to become head of a French tax group could not benefit from the exemption.

The draft rectified finance law would restore this exemption for French tax groups and would extend it to foreign companies subject to corporate tax and that hold, directly or indirectly, at least 95% of the share capital of the French distributing company (thus, complying with the Constitutional Court’s requirements). This exemption would apply to distributions made as from 1 January 2017.

Parent companies established in so-called “non-cooperative” countries or states could not benefit from the exemption unless they demonstrate that the location of the parent company is not mostly driven by tax reasons. 

KPMG observation

Tax professionals with Fidal* have noted that with this draft provision, taxpayers may want to consider (despite on-going litigation concerning the 3% tax currently pending at the EU level) delaying until after 31 December 2016, any contemplated distributions to be made by French companies to their foreign parent companies holding at least a 95% share ownership interest.

Modification of the French Parent/Subsidiary (participation exemption) regime

Following a July 2016 decision of the French Constitutional Court, the benefit of the participation exemption regime on dividends received from subsidiaries would be extended to situations when the rights owned (which must represent a participation of at least 5% of the capital) by the recipient in its subsidiary are not voting rights. However, the benefit of the quasi-exemption of capital gain taxation on the sale of qualifying participations would still require that the disposing company own at least 5% of the voting rights in its subsidiary.

Measures regarding tax audits

The draft finance law includes the following proposals:

  • A new kind of “on-desk” audit would be established. Instead of the audit taking place as the typical or usual tax examination in the company’s offices, an audit of the company’s computerized accounting data would be conducted by the French tax authorities through an on-desk review, in the tax authorities’ offices.
  • Another specific procedure would be established to allow for accelerated review of claims for refund or reimbursement of value added tax (VAT) credits. Under this procedure, it would be possible for the tax authorities, in instances when there could be doubts regarding the validity of the VAT credit refund claims, to examine the claims (with the examination being limited to these claims, instead of a full tax examination) in the company’s offices. The tax authorities would then be required to make a decision on the VAT credit refund claims within 60 days, and the company would still have the option to challenge an unfavorable decision.
  • There would be audit authority given to the tax authorities within the framework of the measures to address international tax fraud. The tax authorities would be authorized to audit any person (clients, suppliers, professional acquaintances, for instance) who might provide information with respect to an audit within the framework of certain provisions of the French general tax code regarding international tax evasion or fraud or to demonstrate the existence of such tax evasion fraud. The audited persons could refuse the audit request. There would have to be a record of the audit meetings with these persons.

Measures to encourage “start-ups”

The draft finance law includes a new kind of account—a “CPI” or an account to foster small and medium-size enterprise innovation. Managers or minority individual shareholders could participate in this new kind of account, with shares of companies they create or invest in (during the start-up phase) and allowing them to sell and reinvest the proceeds of the sale directly in new small and medium enterprises. Taxation of gains realized on such sales would, in the case of reinvestments, be deferred until the date when the funds resulting from the sale (or from successive buy/resale transactions) are not reinvested in qualifying start-up or “young” companies. However, social levies due on the gains would still be payable at the time of the realization of the gain, even in instances when the proceeds are reinvested. Also, dividends received during the ownership period of the participations would be immediately subject to tax and social levies.


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 | 

Olivier Ferrari | +33 1 55 68 18 14 |

Laurent Leclercq | +33 1 55 68 16 42 |

Patrick Seroin | +1 (212) 954-2523 |    


* Fidal is a French law firm that is independent from KPMG and its member firms.

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