Finance Bill 2022 released
France’s draft Finance Bill for 2022, released on 22 September 2021, is currently under discussion. The principal corporate income tax provisions are discussed below.
Corporate income tax rate
As scheduled in the previous Finance Bill, the corporate income tax rate will be reduced from 26.5% to 25% effective 1 January 2022.
Temporary deductibility of ongoing amortization for small companies
France’s accounting rules allow small companies (defined as companies that do not exceed two of the following thresholds: EUR 6 million balance sheet, turnover of EUR 12 million and average number of employees at or below 50) to amortize their goodwill over a period of 10 years.
However, such amortization is not deductible for tax purposes. This position was recently confirmed by the French Supreme Court in a decision dated 8 September 2021. From a tax perspective, goodwill may be amortized only if it is likely, at the time of its creation or acquisition, that the positive effects on the business will end at a given date.
The draft Finance Bill for 2022 would allow the deduction for tax purposes of the amortization of goodwill acquired by small companies between 1 January 2022 and 31 December 2025.
Training tax credit increase for small companies
Expenses incurred for management training are entitled to a tax credit. The latter is obtained by multiplying the number of hours of training (within the limit of 40 hours per year and per company) by the hourly rate of the minimum wage (“SMIC” from its French acronym). The amount of this tax credit would be doubled for micro-companies (those with fewer than 10 employees and a turnover or balance sheet that does not exceed EUR 2 million). This measure would be applicable to training hours conducted during calendar year 2022.
Adjustment of withholding tax on income of nonresidents
Under current French tax rules, nonresident companies that receive “non-salary income”— income from the provision of services, and dividends and royalties—are subject to withholding tax on the gross amount of the payment, whereas French resident companies are subject to tax on their net income. This discrepancy in the tax treatment of foreign and domestic corporations has been found to be contrary to EU law by the French Supreme Tax Court.
To align domestic tax rules with EU law, the draft bill for 2022 would allow foreign companies that are recipients of income subject to withholding tax to obtain a tax refund corresponding to the difference between (i) the tax paid on gross income and (ii) taxation on a net-of-charge basis (that is, after deduction of costs incurred for the acquisition and conservation of such income).
For non-salary income, it would be possible to apply a 10% deduction to the gross amount of the withholding tax (if more favorable to the taxpayer).
This measure would benefit nonresident companies established in (i) an EU or European Economic Area (EEA) state or (ii) a third-party state that has entered into a mutual administrative assistance agreement with France. Such a beneficiary would be eligible to avail itself of this provision only if it is not able to offset the withholding tax against the tax due in its state of residence.
These changes would apply to withholding taxes for which the taxable event (an income payment) occurs on or after 1 January 2022.
Extension of Young Innovative Company Program
The “Young Innovative Companies” regime is available only to small and medium-sized enterprises incorporated for less than eight years and in which 50% of the capital is held continuously by individuals either directly or indirectly.
This regime entitles companies to a corporate income tax exemption for the first year and then a 50% tax allowance on profits, immediate refund of the research tax credit and exemption from local business taxes (if the local authorities authorize the exemption).
Under the draft Finance Bill for 2022, the benefits from the Young Innovative Companies regime would be extended from eight to 11 years.