September 28, 2021
French Government releases draft Finance Bill for 2022
On 22 September 2021, the French Government presented the draft Finance Bill for 2022 (the draft Bill). This draft will be discussed by the French Parliament over the coming weeks and may be subject to amendments; the final version will be enacted by the end of December 2021.
As a preliminary remark, the draft Bill does not affect the already enacted decrease of the French corporate income tax (CIT) rate from 26.5%, for fiscal years (FYs) starting on or after 1 January 2021, to 25%, for FYs starting on or after 1 January 2022.
This Alert summarizes some of the main direct tax reforms included in this draft that may affect corporations.
Adjustment of certain French withholding taxes
In order to comply with European Union (EU) law and the case law of the French Supreme Administrative Court (Conseil d’Etat),1 the draft Bill provides for an adjustment of certain withholding taxes, in particular: (i) those of Article 182 B of the French Tax Code (FTC) applicable to payments made for royalties and the provision of certain services; and (ii) those of Article 119 bis 2 of the FTC applicable to dividends.
Withholding taxes imposed under Article 182 B of the FTC
Withholding taxes imposed under Article 119 bis 2 of the FTC
The above-mentioned claim would also apply to withholding taxes applicable to French-source dividends provided that the beneficiary is established:
Finally, this draft Bill also provides for a slight adjustment of the procedure for obtaining a refund of French withholding taxes borne by non-French resident loss-making companies.
Tax deduction for goodwill amortization for small businesses
Article 214-3 of the French General Chart of Accounts allows small businesses within the meaning of Article L. 123-16 of the French Commercial Code2 to amortize their goodwill over a 10-year period, for French GAAP purposes. However, such amortization is not deductible for tax purposes.
As a derogatory and temporary measure, the draft Bill provides for the possibility to deduct for tax purposes the amortization of goodwill acquired between 1 January 2022 and 31 December 2023. Although the wording of the draft Bill may be debatable as to the actual scope of this measure, it seems that the intention of the lawmaker, at this stage, is to limit the benefit of that temporary tax deduction to small businesses, only.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Société d’Avocats, Paris
Ernst & Young LLP (United States), French Tax Desk, New York