Corporate Tax News Issue 64 - November 2022

Corporate tax measures in 2023 draft finance bill

France’s 2023 draft finance bill, originally released on 26 September 2022 and expected to be finalised and enacted by the end of December, contains the following measures affecting companies:

Introduction of a windfall tax

An EU regulation that applies as from 8 October 2022 introduces exceptional measures, including a “contribution on surplus profits” to address the energy crisis and mitigate the effect of high energy prices. The contribution is levied on the excess profits derived by companies in the energy sector (see the item in Corporate Tax Bytes).

France’s draft finance bill would transpose the EU regulation into French law, as follows:

  • The measures would apply to entities and permanent establishments carrying on business in France (or whose taxation of profits is allocated to France under an applicable tax treaty) where at least 75% of turnover is generated from the extraction, mining, refining of petroleum or manufacturing of coke oven products.
  • Only profits made in 2022 and/or 2023 that exceed a 20% increase of the average taxable profits generated in the four fiscal years starting on or after 1 January 2018 would be subject to the solidarity contribution.
  • The contribution would not be deductible in computing the company’s corporate income tax liability, nor would any tax reductions, tax credits or tax claims be deductible.
  • The solidarity contribution would have to be paid by the date the balance of the corporate income tax is due, which is 15 May 2023 for companies that close their fiscal year on 31 December 2022 (and by the 15th of the fourth month following the end of the fiscal year for other companies).
  • The contribution would apply for the first financial year beginning as from 1 January 2022.

Phase-out of the CVAE (company added value contribution) and adjustment of the CET (territorial economic contribution capping mechanism

The CVAE is based on the added value produced by a company during a fiscal year and is charged at progressive rates that depend on the company’s turnover. Under the draft finance bill, the CVAE would be phased out over a two-year period: the CVAE would be reduced by 50% on 1 January 2023 and abolished on 1 January 2024.

The CET consists of the company land contribution and the CVAE. According to the capping mechanism, a company’s CET burden cannot exceed 2% of the annual added value of the company. The draft finance bill would lower this ceiling to 1.625% for the CET due in 2023 and to 1.25% thereafter.

Support for small businesses

  • Profits subject to reduced corporate income tax rate

The maximum amount of profits subject to the reduced corporate income tax rate of 15% applicable to small and medium-sized businesses (SMEs) would be increased from EUR 38,120 to EUR 42,500.

The 15% rate currently applies to small corporations on their first EUR 38,120 of taxable profits, with the excess subject to the standard 25% rate. (The reduced rate of 15% applies to SMEs whose turnover before tax is less than EUR 10 million and that are at least 75% owned by individuals (or by a company applying this criterion.).

  • Reintroduction of the tax credit for energy renovation of business premises

To support companies that wish to carry out energy-efficient renovations of their buildings used for tertiary purposes, the tax credit that applied to expenditures incurred for these purposes between 1 October 2020 and 31 December 2021 would be re-introduced for qualifying expenditures incurred between 1 January 2023 and 31 December 2024. The tax credit would be available to SMEs as defined by EU law (i.e., companies with fewer than 250 employees, annual turnover not exceeding EUR 50 million or a balance sheet total not exceeding EUR 43 million). The credit would correspond to 30% of the pre-tax price of eligible expenditure after the deduction of public aid and aid received in respect of energy saving certificates and would be capped at EUR 25,000 for the entire two-year period.

Sacha Boksenbaum