On December 17, 2015, the French Parliament approved the Finance Bill for 2016 (2016 FB) and the Amended Finance Bill for 2015 (2015 AFB). Except for the constitutionality review by the French Conseil Constitutionnel, both bills are final and expected to be published before year end.
The 2016 FB introduces a country-by-country reporting (CbCR) requirement into French legislation. For fiscal years starting on or after January 1, 2016, the CbCR will have to be filed online within 12 months from the close of each fiscal year. The information disclosed, which should include, on a country-by-country basis, group’s profits and other economic, accounting and tax aggregates and information on the location and activities of its constituent entities, will be detailed by decree. The CbCR will be exchanged by France under automatic exchange agreements, subject to reciprocity.
The CbCR requirement applies to legal entities established in France (i) that prepare consolidated accounts, directly or indirectly hold foreign branches or subsidiaries and generate a consolidated revenue of €750 million or more (unless they are held by another entity that is already subject to a CbCR requirement), or (ii) that are held by foreign companies which meet the aforementioned conditions but are located in a “non-compliant” jurisdiction (except if the entity demonstrates that another group entity located in a “compliant” jurisdiction has been designated for filing the CbCR). “Compliant” jurisdictions will be listed by decree and will be those that (i) have introduced CbCR, (ii) have an automatic exchange agreement in place with France, and (iii) respect the terms of that agreement. Penalties for non-filing are €100,000.
The 2016 FB amends the filing process of the annual transfer pricing documentation by (i) making e-filing compulsory, and (ii) imposing on the parent company of a French tax consolidated group the obligation to file each consolidated entity’s annual transfer pricing documentation. In addition, the annual transfer pricing documentation will have to report the country(ies) in which related companies own intangible assets or carry-out intra-group transactions.
The 2015 AFB modifies the tax treatment of certain dividend distributions to be received by French companies following the decision recently rendered by the Court of Justice of the European Union (CJEU) in the Steria case. For fiscal years starting on or after January 1, 2016, (i) the fraction (currently 5%) of qualifying dividends that generally remains taxable under the French dividend participation exemption regime will no longer be exempt for distributions made within a French tax consolidated group, and (ii) the rate of that taxable fraction will be set at 1% (instead of 5% for all other cases) for those distributions made within a French tax consolidated group, as well as for distributions received by a member of a French tax consolidated group, which hold 95% or more shares in European Union (EU) or European Economic Area (EEA) qualifying subsidiaries.
As a result of the 2015 AFB, French domestic law will include the general anti-abuse clause included in the amended EU Parent-Subsidiary Directive 2015/121, dated January 27, 2015, for fiscal years starting on or after January 1, 2016. The anti-abuse clause applies both to dividends paid by a French entity to certain EU-resident entities, to deny the WHT exemption, and to dividends received by a French resident entity, to deny the application of the participation exemption regime.
For fiscal years ending on or after December 31, 2015, the 2015 AFB:
- Extends the application of the WHT exemption to dividends paid to entities having their effective place of management in an EEA State having concluded with France a tax treaty, which includes an administrative assistance clause.
- Reduces the 10% shareholding requirement for benefiting from the WHT exemption to 5% when the EU/EEA effective beneficiary of the dividend cannot offset the French domestic WHT as a tax credit.
- Introduces a safe-harbor clause for French parent companies receiving dividends from entities located in non-cooperative states and territories (NCST), entitling them to the benefits of the participation exemption regime, provided they can establish that the activities run by the NCST entities relate to genuine operations that do not have, as an object or purpose, the localization of profits in an NCST with the intent to commit tax fraud.
- Excludes from the benefits of the participation exemption regime the dividends distributed by specific French investment companies.
- Extends the benefits of the participation exemption regime and of the WHT exemption to dividends derived from shares that are held through bare ownership only.
The 2015 AFB also exempts from French WHT the dividends paid from France to non-French resident entities subject to corporate income tax (CIT) that have their effective place of management in an EU Member State or an EEA State having concluded with France a tax treaty that includes an administrative assistance clause, and these entities are (i) in a tax loss-making position, and (ii) either subject to a legal procedure equivalent to the French liquidation procedure, or insolvent. This exemption will apply to dividends paid on or after January 1, 2016.
Finally, the 2015 AFB modifies the qualifying requirements to benefit from the dividend participation exemption regime in cases where the French parent is held by non-profit organizations, for fiscal years ending on or after December 31, 2015. In this situation, in order for the French parent to benefit from the participation exemption regime on dividend income, the standard 5% holding requirement of the share capital during a two-year period will be reduced to a 2.5% holding requirement of the share capital and 5% of the voting rights of the issuing company and the holding period will be increased to five years.