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September 29, 2023

French Government releases draft Finance Bill for 2024, including OECD Pillar Two rules

  • The French Government has presented the draft Finance Bill for 2024.
  • This Tax Alert summarizes key tax reforms in the draft Bill that may affect corporations, including (i) transposition of the European Union Minimum Taxation Directive (2022/2523) into French domestic law; (ii) postponement of the repeal of the Business Contribution on the Added Value; (iii) creation of a tax credit for investments in green industry; (iv) criminalization of the provision of instruments supporting tax fraud; and (v) strengthening of transfer pricing audits for multinational enterprises.

Executive summary

On 27 September 2023, the French Government presented the draft Finance Bill for 2024 (the draft Bill). The French Parliament will discuss and potentially amend the draft Bill over the coming weeks and vote on the final version by the end of December 2023.

This Global Tax Alert summarizes some of the key tax reforms included in the draft Bill that may affect corporations.

Detailed discussion

Transposition of the European Union (EU) Minimum Taxation Directive (2022/2523) into French domestic law

The draft Bill provides for a transposition into French domestic law of the EU Directive 2022/2523 introducing, per the Organisation for Economic Co-operation and Development (OECD) Pillar Two Global Anti-Base Erosion (GloBE) rules, a minimum tax of 15% on the profits of multinational (MNE) groups that operate in France and have a consolidated revenue of at least €750M generated during at least two of the last four fiscal years (FYs).

A top-up tax, distinct from the corporate income tax (CIT), would be established in case the effective tax rate (ETR) of the MNE constituent entities (CEs) established in any given jurisdiction is lower than 15%. For each jurisdiction where the MNE group is established, the ETR is equal to the ratio between the adjusted covered income taxes imposed on the CEs and the adjusted financial accounting net income or loss determined based on the CEs' financial statements under the accounting standard that the Ultimate Parent Entity (UPE) uses in preparing the MNE group's consolidated accounts.

The top-up tax, equal to the positive difference between 15% and the ETR applied to the adjusted income of CEs reduced by a substance-based exclusion, would be collected as follows:

  1. Primarily, when the UPE or another parent entity (Intermediate Parent or Partially-Owned Parent) of the MNE group is established in France, under the Income Inclusion Rule (IIR), whereby the top-up tax is imposed on the relevant parent entity
  2. Secondarily, under the Undertaxed Profit Rule (UTPR), which reallocates a residual portion of the top-up tax to a jurisdiction where a CE of the MNE group is established if the total amount of the top-up tax failed to be collected under the IIR (e.g., because the legislation of the UPE's jurisdiction of residence does not include the IIR)

In addition, the draft Bill would establish a French Qualified Domestic Minimum Top-up Tax (QDMTT), which would be determined in the same way as the top-up tax under the IIR, with the possibility to use French Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS) as an alternative to the consolidation GAAP. The QDMTT amount would be equal to the difference between 15% and the ETR of the CEs established in France. The French QDMTT would be creditable against the top-up tax determined under the IIR or the UTPR.

Finally, the draft Bill would authorize the French Government to adopt through ordinances any subsequent measures addressing the filing, collection, audit and penalties related to the additional taxes arising from this new regime.

The new measures would apply to FYs starting on or after 31 December 2023, except that the UTPR would apply to FYs starting on or after 31 December 2024.

Postponement of the repeal of the Business Contribution on the Added Value (BCAV)

The BCAV is a local tax due by any person carrying out a trade or business in France and it is levied on the added value that the trade or business generates.

Rather than abolishing the BCAV as of 2024, as initially scheduled, the draft Bill provides for a gradual decrease of the BCAV tax rate (i.e., 0.28% in 2024, 0.19% in 2025, 0.09% in 2026) and complete abolishment of the BCAV in 2027.

Creation of a tax credit for investment in green industry

The draft Bill provides for the creation of a tax credit for investments in green industry. This tax credit would benefit companies setting up or developing production facilities related to batteries, photovoltaic panels, wind turbines and heat pumps in France.

As a matter of principle, the tax credit would correspond to 20% of the expenses incurred for the acquisition of qualifying tangible assets (land, buildings, plant, equipment and machinery) or qualifying intangible assets (patent rights, licenses, know-how and other intellectual property rights) enabling the production of the above-mentioned equipment.

The total amount of the tax credit would, as a general rule, be capped at €150m for a given FY and would be deductible from the CIT for the year during which the expenses are incurred; the unused portion of that credit would be directly refundable.

Under the draft Bill, eligibility for this tax credit would require that: (i) the investment project carried out in France does not result from a relocation from another EU Member State; (ii) the company commits to operate the investments for at least five years; and (iii) a ruling must be obtained from the French tax authorities (FTA).

Companies may begin submitting their ruling requests before the FTA on or after 27 September 2023 in anticipation of their being granted no later than 31 December 2025.

Criminalization of the provision of instruments supporting tax fraud

In the current state of law, individuals or companies promoting fraudulent tax schemes or arrangements can only be prosecuted on a case-by-case basis for the tax fraud committed by their clients.

The draft Bill would introduce an autonomous criminal offense to be charged against individuals and companies that provide their clients with instruments facilitating tax fraud.

The applicable criminal penalty could result in five years of imprisonment and a €500k fine, increased to €2.5m for legal entities.

Strengthening of transfer pricing audits for MNEs

The draft Bill provides for the reinforcement of FTA resources to detect and take action against breaches of transfer pricing rules.

To that end, the draft Bill proposes the following measures:

  • Article L.13 AA of the French Tax Procedure Code (FTPC) would be amended to reduce from €400m to €150m the revenue/gross-asset threshold triggering the obligation to provide transfer pricing documentation to the FTA upon its request during a tax audit.
  • The transfer pricing documentation would become binding on the taxpayer.
  • The minimum amount of the fine for non- or partial submission of such documentation would be increased from €10k to €50k.
  • The statute of limitations for the transfer of certain intangibles (i.e., hard-to-value assets) would be extended from three to six years and derogatory tax audit rules would be established.


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

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor