French Finance Act 2024

Postponement of the entry into force of electronic invoicing and data transmission obligations

The Finance Act for 2024 again postpones the implementation of the electronic invoicing and data transmis­sion obligations as follows:

• The obligation to receive electronic invoices must apply from 1 September 2026.
• The obligation to issue electronic invoices and the obligation to transmit data must apply:

• from 1 September 2026 for large businesses, medium-sized businesses and members of a single taxable entity
• from 1 September 2027 for small and medium-sized businesses and micro-businesses

These dates could be postponed to 1 December 2026 or 1 December 2027 respectively.

 

Changes to the rules governing the territoriality of VAT

Measures to combat dropshipping fraud in the distance selling of imported goods
The rules governing distance selling of imported goods ("VAD-BI") have been amended to combat VAT fraud through dropshipping. For explanation purposes, dropshipping is a commercial practice whereby an intermedi­ary (the dropshipper) buys a good in a third country with a view to reselling it to the end consumer without having physically disposed of it.

 

In this context, French VAT is due when the VAD-BI meets the following cumulative conditions:

• VAD-BI is not facilitated by an electronic interface
• the seller does not use the Import OneStop-Shop ("IOSS") one-stop shop
• the import VAT base is lower than that which would have been determined if the VAD-BI had been located in France

 
Consequently, the dropshipper is liable for French VAT when the above conditions are met. The dropshipper intermediary will therefore have to comply with French VAT identification, declaration and payment obligations.
These measures come into force on 1 January 2024.

 
Adjusting the territoriality of certain virtual activities
Transposing Directive EU/2022/542, the Finance Act for 2024 provides that cultural, artistic, sporting, educa­tional, entertainment or similar events or activities carried out virtually will be subject to VAT at the place where the customer is established, whether or not the customer is a taxable person.

 
This measure applies to the above-mentioned virtual services for which the chargeable event occurs on or after 1 January 2025.

 

 

Taxation of profits

Adjustment of the “parent company/subsidiary regime” in case of European-source dividends

In principle, when the conditions of the parent company/subsidiary regime are met, dividends received by a French company are exempt, subject to the reintegration of a 5 percent share for costs and expenses. By way of exception, under the French tax consolidation regime, dividends received by a French company that is a member of the tax consolidated group are exempt, subject to the reintegration of a 1 percent share for costs and expenses.

 

Following the Steria ruling by the Court of Justice of the European Union ("CJEU"), the Finance Act for 2019 has allowed dividends paid by a European company to a French company that is part of a tax group to also benefit from the exemption with reintegration of the 1 percent share of costs and expenses, provided that the European subsidiary would have qualified for inclusion in the tax group if it had been a French tax resident.^[1]

 

In the same vein, the CJEU has once again brought forward changes to the French parent-subsidiary regime, ruling that it was contrary to the freedom of establishment for a dividend paid by a European subsidiary, which would have met the conditions for forming part of a tax group if it had been located in France, to be received by a parent company that had voluntarily not formed a tax group, and not to benefit from the reduced rate of the share for costs and expenses.^[2]

 

Against this backdrop, the Finance Act for 2024 introduces two main changes to the French parent-subsidiary regime:

• Dividends benefiting from the parent company/subsidiary regime: The exemption for dividends with reinteg­ra­tion of a 1 percent share for costs and expenses has been extended to European companies that pay a dividend to a French parent company, even if the latter has not opted for the tax consolidation regime.  However, the former companies must have met the conditions for forming a fiscally integrated group if they had been resident in France for tax purposes for more than one financial year.
• Dividends not benefiting from the parent company/subsidiary regime: 99 percent of the dividends paid from abroad by a European company are now neutralised when paid to a French parent company that has not opted for the tax consolidation regime, provided that the European subsidiary would have met the conditions for forming a tax consolidated group if it had been resident in France for tax purposes for more than one financial year.

 

These new measures apply to the determination of taxable income for financial years ending on or after 31 December 2023.
  

Finally, it should be noted that the extension of the French parent-subsidiary regime is likely to create a situation of "reverse discrimination" regarding the tax treatment of intra-group dividends depending on whether the subsidiary is located in France or in another EU country. Dividends from European subsidiaries paid to a French parent company that is not a member of a fiscally integrated group would be treated more favourably for tax purposes (with a share for costs and expenses of 1 percent) than dividends distributed by French subsidiaries (with a share for costs and expenses of 5 percent). The exercise of a priority constitutional issue on this topic is therefore to be expected.

 

Creation of a tax credit for investment in green industry ("C3IV")

In line with the Government's stated ambition to "make France the leader in green industry in Europe", the Finance Act for 2024 introduces a new tax credit applicable to investments in France in industrial sectors producing renewable energy equipment in four key sectors: batteries, photovoltaic panels, wind turbines and heat pumps.

  

Prior approval required and granted
To give taxpayers greater legal certainty, the tax credit is subject to prior approval by the authorities within three months of the application being submitted. In addition to setting the amount of eligible expenditure and the tax credit, it will be responsible for ensuring that the following cumulative conditions are met:

• The scheme can only be applied if the investment project carried out in France is not the result of a relocation from another territory of the European Union.
• Investments must be operated in France for a minimum of five years (reduced to three years for small and medium-sized enterprises as defined by the European Union).
• The company must comply with all its tax, social security and environmental obligations during each of the financial years for which the credit is claimed.
• The company must not be a company in difficulty within the meaning of European regulations.

  
Tax credit rates and ceilings
In principle, the rate of the tax credit varies between 20 percent and 40 percent of eligible expenditure, depending on the size of the company, up to a ceiling of 150 million euros. Specific rates and ceilings apply in so-called "Regional Aid Zones" (Zones d'Aide à Finalité Régionale – AFR).
 
Charging and refunding the tax credit
The tax credit can be offset directly against corporation tax due for the financial year in which the expenditure mentioned in the investment plan is incurred and can be immediately refunded in respect of the portion that exceeds the tax due.

 
Entry into force of the scheme, its duration and the repayment of the tax credit
The scheme is temporary and remains limited to investment plans approved between 27 September 2023 and 31 December 2025. The text must also be authorised by the European Commission, and will come into force no later than three months from the date on which it is approved as conforming to EU law.

 

Wealth taxation

Property wealth tax: Valuation of company shares and restriction on the deductibility of debts

The Finance Act for 2024 restricts the inclusion of debts incurred by the company that do not relate to taxable assets for the purposes of determining the basis of assessment for property wealth tax. In principle, company shares and units are taxable up to the fraction of the value representing property or property rights held directly or indirectly by the company, regardless of the number of levels of interposition. In order to avoid a windfall effect tending to create liabilities unrelated to a taxable asset, the Finance Act for 2024 stipulates that debts contracted directly or indirectly by the company that are not related to a taxable asset are now excluded.

 
In addition, it introduces a ceiling in that the taxable value of the shares may not exceed their market value or, if lower, the market value of the company's taxable assets less the related debts it has contracted, in proportion to the fraction of the company's capital to which the shares included in the taxpayer's assets give entitlement.

 

This anti-misuse measure applies from 2024.
 

Dutreil pact: Changes to eligible activities

Essentially, the "Pacte Dutreil" is a favourable tax arrangement which, under certain conditions, leads to an exemption from free transfer duties of up to 75 percent of the value of the shares in the business being transferred. One of the conditions for entitlement to the Pacte Dutreil is that the business being transferred must be classified as industrial, commercial, craft, agricultural or professional.

 

Under the Finance Act for 2024, the French legislator has redefined commercial activities more precisely, thereby excluding de facto activities involving the management of one's own movable or immovable assets, in particular furnished leasing and the leasing of industrial or commercial establishments equipped with the furniture necessary for their operation.
  

In addition, the Finance Act for 2024 also specifies that the activity eligible for the Pacte Dutreil may be mixed, provided that the eligible operational activity is carried out on a principal basis. This means that a company carrying on both a civil and an operational activity can legally benefit from the Dutreil scheme, provided that the civil activity is not the predominant one.
  

Finally, the Finance Act for 2024 legalises the definition (previously based on case law) of "animating holding companies". These are eligible for the Pacte Dutreil provided that the holding company's main activity is to promote the business.
  

These changes to the Pacte Dutreil will apply to transfers of businesses taking place from 17 October 2023.

 

Local taxation

Progressive abolition of the business value added tax (CVAE)

The CVAE is a local tax payable by anyone carrying on a business in France, based on the value added generated by that business. It was initially planned that the CVAE would be abolished from 2024. In the end, the Finance Act for 2024 provides for the CVAE rate to be gradually reduced (0.28 percent in 2024, 0.19 percent in 2025, 0.09 percent in 2026) and completely abolished in 2027.

 
EXEMPTION FROM PROPERTY TAX AND COTISATION FONCIÈRE DES ENTREPRISES FOR WIND TURBINE SITES

To encourage the development of "green energy", the Finance Act for 2024 introduces an automatic exemption from property tax and CFE for wind turbine masts.

 
These exemptions will apply to taxes levied in respect of 2024. 

Other taxes

TRANSPOSITION OF THE PILLAR 2 DIRECTIVE

Article 33 of the Finance Act for 2024 provides for the transposition of the Pillar 2 Directive adopted by the European Union on 14 December 2022. The Pillar 2 rules provide for minimum overall taxation of all groups of companies with a consolidated annual turnover of at least 750 million euros in at least two of the four financial years preceding that of the financial year tested. The aim is to achieve a corporate income tax rate of 15 percent in order to limit international tax competition and create greater tax fairness. If the effective tax rate is below 15 percent, a top-up tax is levied within the Group.

  

Although calculating the effective tax rate can be complex, the Finance Act for 2024 allows groups to calculate a simplified rate for 2024, 2025 and 2026. Where use is made of the calculation of the effective tax rate using the "simplified" method based on country-by-country reporting, particular attention should be paid to the impact of certain restructurings benefiting from preferential tax regimes that may lead to a "deterioration" in the effective tax rate.
   

The provisions relating to the introduction of the minimum tax on groups of multinational and domestic companies will apply to financial years commencing on or after 31 December 2023, with the exception of certain measures which will apply to financial years commencing on or after 31 December 2024.
 

MAJOR TAX INCREASES ON PASSENGER VEHICLES

Extension of the definition of passenger vehicle
The list of passenger vehicles will now be determined by decree. According to the Senate report on the Finance Act for 2024, "the Government's intention is to extend the definition of passenger vehicles” to include "pick-ups".

Tax increase on passenger car registration
The tax on the registration of passenger cars is made up of the following two taxes:

• tax on CO₂ emissions and on administrative power
  
• tax on mass in running order, also known as "weight tax"

 
For the first, the threshold for triggering the tax is reduced from 123g of CO₂/km to 118g of CO₂/km in 2024. In addition, the maximum amount of the tax is raised to 60,000 euros, and the cap of 50 percent of the vehicle's purchase price is abolished from 1 January 2024.

 
For the second, the threshold for triggering the tax will be lowered from 1,800 kg to 1,600 kg in 2024. A progressive tax scale has also been introduced, ranging from €10/kg to €30/kg, replacing the previous rate. Finally, the weight tax exemption for certain plug-in hybrid electric vehicles will be replaced from 1 January 2025 by an allowance of 200 kg on the mass of the vehicle, limited to 15 percent of that mass.

 
Increased taxation of passenger vehicles used for business purposes
The tax on the use of private cars for business purposes is made up of the following two taxes:

• the annual tax on CO₂ emissions
• the annual tax on the vehicle's emissions of atmospheric pollutants

 
Regarding the first, the tax rate is determined according to three special scales depending on the vehicle's characteristics, namely, two tariffs according to the quantity of CO₂ emitted for WLTP or NEDC approved vehicles, and a tariff set according to the vehicle's administrative power where applicable. The progressive scales required to determine the rate of the annual tax on CO₂ emissions are codified in Articles L. 421-120 to L. 421-122 of the Goods and Services Tax Code for the years 2024 to 2027.

 
It should also be noted that the exemption currently available for hybrid vehicles will be replaced by a reduction from 1 January 2025.

 
The second will replace the tax on the age of vehicles from 1 January 2025. The rate of the tax on emissions of atmospheric pollutants varies according to three categories of vehicle:

• vehicles powered by electricity, hydrogen or both are classified in "category E", with an annual charge of 0 euros
• vehicles with internal combustion engines that comply with Euro 5 or Euro 6 emission limits fall into "category 1", with an annual charge of 100 euros
• other vehicles that do not fall into any of the above categories belong to the category of the most polluting vehicles, for which the annual fee is 500 euros

 

Tax inspection

STRENGTHENING TRANSFER PRICING CONTROLS

For more information, please see our dedicated article (in French) »  

 

STRENGTHENING THE GOVERNMENT'S INVESTIGATIVE POWERS ON THE INTERNET

Possibility for the authorities to conduct investigations under a pseudonym
The Finance Act for 2024 now allows tax officials to conduct online investigations under a pseudonym. This means they can access and use any data freely available on certain platforms, in particular social networks and messaging applications, even if this access is subject to the creation of an online account. In addition, staff assigned to a national department may take part in electronic exchanges, in particular with the taxpayer under investigation.

 
This new scheme is designed as a three-year experiment and will be subject to an implementing decree specifying the terms and conditions.

 
Computerisation and automation of mass data on the Internet
Since the Finance Act 2020, tax and customs authorities have been able to use computerised and automated processing of data freely available on online platforms to identify breaches of the law.

 
The Finance Act for 2024 extends this option through the following measures:

• the scope of the use of the platforms' bulk data has been extended to include reporting deficiencies that result in the deliberate or fraudulent under-reporting or concealment of revenue
• the scope of accessible content has been extended to include content that is publicly available on certain platforms, even if registration is required to access it

 
These new measures are to apply from the publication of an implementing decree for a two-year trial period.

 

CONTINUATION OF THE EXPERIMENTAL COMPENSATION SCHEME FOR TAX ADVISERS

Initially designed as an experiment, the compensation scheme for tax advisors in the event of certain breaches has been made permanent by the Finance Act for 2024. Under this scheme, tax advisers are compensated for information leading to the discovery of certain fraudulent activities when the amount of duty evaded exceeds 100,000 euros.

 

Criminal Tax law

CREATION OF AN OFFENCE OF FACILITATING TAX FRAUD

The Finance Act 2024 introduces an autonomous offence of making available, free of charge or for consideration, legal, tax, accounting and financial means, services, acts or instruments with the aim of enabling a third party to fraudulently evade the assessment or payment of tax. For individuals, the offence of facilitating tax fraud is liable to prosecution by three years' imprisonment and a fine of 250,000 euros. These penalties are increased to five years' imprisonment and a fine of 500,000 euros when the offence is committed via an online communication service. Other penalties may also be applied, such as posting and distributing the judgement, loss of civil rights, etc. Legal entities are liable to a fine equal to five times the fine for natural persons.

 

These provisions apply to offences committed from 1 January 2024.