Publié le 5 janvier 2016 | par Nathalie Mourlot0
French new measures to fight against tax fraud and tax evasion
As part of the fight against tax fraud and tax evasion initiated in the past years at the level of the G20 and the EU, France implemented end of 2013 a first rule limiting the tax deductibility of financial interest, known as the “anti-hybrid rule”, in order to tackle aggressive tax planning. Two new measures, pursuing the same purpose, have been introduced in the Finance Bill for 2016 and the Amended Finance Bill for 2015.
By Pascale Prince, Partner at Denjean & Associés
On the one hand, the French legislator, in response to OECD Base Erosion and Profit Shifting (BEPS) Action plan, introduced a new tax filing obligation for multinational enterprise (“MNE”) group members, known as the “country by country reporting” (“CbCR”) which aims at boosting transparency in international tax matters.
This new tax filing obligation will basically apply to:
- French companies holding foreign subsidiaries or having foreign permanent establishments, preparing consolidated accounts and whose annual consolidated turnover is at least €750m, provided that they are not held by a French or foreign entity subject to this or a similar obligation;
- French subsidiaries of foreign groups of which the parent company is located in a State which doesn’t have a country by country reporting tax filing obligation, and which either has been appointed by the group to file the return, or cannot provide evidence that another group company has been appointed for that purpose.
The law provides that, within 12 months following the fiscal year end, these entities must file with the French tax authorities a tax return reporting the allocation country by country of the group profits, various economical, accounting and tax aggregates and information about the localization and the activities of all group entities. The precise content of the return should be provided by a decree.
This new filing obligation will apply for the first time to fiscal years open as from 1 January 2016, which means that the first filings are expected at the end of 2017. The CbCR can be subject to an automatic exchange of information with the States having concluded an agreement with France in that purpose. However, French Parliament rejected an alternative proposal for public CbCR.
On the other hand, a new anti-abuse provision has been introduced for the purpose of the parent-subsidiary regime to implement a directive voted by Council of the European Union on 27 January 2015 (EU Directive 2015/121 amending the 2011/96/EU Directive).
As a reminder, under the parent-subsidiary regime, subject to certain conditions, dividends paid by a French subsidiary to its EU parent are exempted from withholding tax and dividends received by a French parent from its French or foreign subsidiaries are 95% exempt from corporate income tax.
Under the new anti-abuse clause, the withholding tax exemption and the CIT exemption will not apply to dividends paid within the framework of an arrangement or a series of arrangements which, having been put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of the law, are not genuine having regard to all relevant facts and circumstances. The law specifies that “an arrangement or a series of arrangements shall be regarded as not genuine to the extent that they are not put into place for valid commercial reasons which reflect economic reality”. This new provision, which reflects exactly the wording of the amended EU Directive, raises a lot of issues in terms of interpretation, in particular regarding the concept of the “valid commercial reasons which reflect economic reality”. The European Court of Justice will most likely be required in the coming years to provide its interpretation of these concepts at EU level.
These provisions will be effective for fiscal years open as from 1 January 2016.