13 November 2014 EY Global Tax Alert Library Access both online and pdf versions of all EY Global Tax Alerts. • Copy into your web browser: http://www.ey.com/GL/en/ Services/Tax/InternationalTax/Tax-alert-library#date Global Tax Alert French Government releases draft Second Amended Finance Bill for 2014 Executive summary On 12 November 2014, the French Government presented the draft of the Second Amended Finance Bill for 2014 (the Draft Bill). The Draft Bill will be discussed by the French Parliament over the following weeks. This Alert summarizes the key provisions relevant for companies. These include the introduction of “horizontal tax consolidation” and amendments to the French Value Added Tax (VAT) regime (reverse-charge mechanism on import VAT and specific anti-fraud provisions). Detailed discussion Amendment of French tax consolidation regime to allow “horizontal tax consolidation” In order to comply with a recent decision rendered by the Court of Justice of the European Union (CJEU) related to the Dutch fiscal unity regime,1 the Draft Bill allows a French company/permanent establishment (PE) (the French Parent Company) to form a French tax consolidated group with other French companies/PEs (the French Consolidated Companies) when all are owned at 95% or more by a company/ PE that is subject to a tax equivalent to French corporate income tax in another EU country or European Economic Area country2 (an EU/EEA country) (the Foreign Parent Company). The 95% ownership test can be met directly, or indirectly, via intermediate companies/PEs) that are all subject to tax in an EU/EEA country (the Foreign Intermediate Companies) or via the French Parent Company or other French Consolidated Companies. The horizontal tax consolidation would be optional, i.e., a French company can still choose to apply only the current tax consolidation rules (which remain broadly unchanged) and thus only consolidate French companies/PEs that are below it in the chain of ownership. However, if horizontal tax consolidation is chosen, only the top EU/EEA company/PE in a chain of 95%-held companies/PEs subject to corporate income tax in France or to an equivalent foreign tax in an EU/EEA country could act as Foreign Parent Company. Likewise, only a French company/PE that is not indirectly owned at 95% or more by another French company/PE via such a chain could act as French Parent Company. Yet, French Consolidated Companies would be free to be included or not. The draft provision not only requires (as the current tax consolidation regime) that the fiscal year opening and closing dates of the French Parent Company and French Consolidated Companies be identical (with a fiscal year of 12 months, subject to exceptions), but that it also be aligned with those of the Foreign Parent Company and all Foreign Intermediate Companies. As under the current tax consolidation regime, the election would need to be filed within the corporate income tax filing deadline of the fiscal year preceding the start of the consolidation (i.e., by mid-May 2015 for the consolidation to start in a calendar fiscal year 2015). However, it would need to include written approval of the Foreign Parent Company and all Foreign Intermediate Companies, in addition to that of the French Parent Company and French Consolidated Companies. It seems that the election for a horizontal consolidation would not terminate the existing tax consolidated group headed by the French Parent Company, but would terminate any tax consolidated group headed by a French Consolidated Company. 2 As regards operation of the regime, the neutralization of intercompany transactions provided by the current French tax consolidation regime (e.g., intercompany sale of assets, depreciation of intercompany shares or receivables, dividends) would be extended to certain transactions involving the Foreign Parent Company and/or the Foreign Intermediate Companies. Likewise, the restructuring provisions applicable under the current regime (i.e., merger, demerger or change of ownership situations) are extended to transactions involving the Foreign Parent Company and/or the Foreign Intermediate Companies. The horizontal tax consolidation regime would be applicable to fiscal years closed on or after 31 December 2014. However, to apply the regime in a calendar year 2014, the election was in principle due mid-May 2014. Domestic exemption applicable to French-source dividends paid to foreign CIVs Collective Investment Vehicles (CIVs) created under foreign law are entitled, since 17 August 2012, to the benefit of a domestic withholding tax exemption on French source dividends. This exemption is subject to conditions, especially their similarity to French CIVs and their location in an EU Member State or in a State that has signed a treaty with France that includes administrative assistance provisions aimed at fighting against tax fraud. Global Tax Alert Following a recent decision by the CJEU, the Draft Bill provides that the content and actual implementation of the so-called administrative assistance provisions must effectively allow the French tax authorities to obtain from the foreign tax authorities the information needed to verify that the foreign CIVs meet the conditions of the exemption. Extension of reverse-charge mechanism to import VAT due upon the importation of goods in France The Draft Bill introduces the possibility for certain companies to apply the reverse-charge mechanism on import VAT due upon the importation of goods in France. In practice, this measure would allow eligible operators to cancel the cash outflows of import VAT (and of corresponding financial costs), as it is already allowed in 16 other EU Member States. This regime would be applicable only to operators duly certified by the French Customs Authorities for the simplified customs clearance procedure for exports with unique domiciliation, as well as to foreign companies satisfying certain conditions. Industry specific anti VAT fraud measures The Draft Bill introduces specific measures in order to strengthen the current provisions against VAT fraud in the following industries: • In the car reselling industry, the application of the “VAT on margin” mechanism to sales of used vehicles and the release of the fiscal certificate (which is necessary to license the vehicle in France) would require that the seller evidences the VAT regime applied by the foreign initial vendor owning the certificate of registration of the vehicle. • In the construction industry, newly created companies would be subject to the standard VAT regime without any possibility to elect for the simplified regime during their first two years of activity, and thus be subject to filing requirements on a regular basis (i.e., monthly or quarterly, instead of annually as allowed under the simplified taxation regime). Non-deductibility of certain taxes for corporate income tax purposes The Draft Bill proposes to disallow the deduction of the following taxes for corporate income tax purposes: the banking tax on systemic risks (introduced by the Finance Bill for 2011), the tax on excess risk provisions by insurance companies and the annual tax due on business premises in the Ile-de-France region. Special regime for organizers of international sporting competitions The Draft Bill would allow entities in charge of the organization of an international sporting competition (and their subsidiaries) to benefit from certain tax exemptions (including corporate income tax, certain withholding taxes, tax on wages, social construction tax, apprenticeship tax and certain local taxes) for French source income paid or received by them. Eligible competitions are those (i) that are only exceptionally organized in France (i.e., not regularly), (ii) the organization of which is attributed by an international committee based on applications made by Government bodies or sporting federations, and (iii) that have a level at least equivalent to a European championship. The eligibility of a particular competition is to be confirmed by a ministerial decree. Endnotes 1. CJEU, 12 June 2014, joint cases C-39/13, C-40/13 and C-41/13, SCA Group Holding BV and others. The Court ruled that the Dutch fiscal unity regime infringed the freedom of establishment by not allowing Dutch sister companies held by a common parent company of another EU Member State to form a fiscal unity. 2. Excluding Liechtenstein. Global Tax Alert 3 For additional information with respect to this Alert, please contact the following: 4 Ernst & Young Société d’Avocats, Paris • Claire Acard +33 1 55 61 10 85 [email protected] Ernst & Young Société d’Avocats, Nantes • Gwenaelle Bernier +33 2 51 17 50 31 [email protected] Ernst & Young LLP, French Tax Desk, New York • Frédéric Vallat +1 212 773 5889 • Daniel Brandstaetter +1 212 773 9164 • Nicolas Privat +1 212 773 6817 [email protected] [email protected] [email protected] Ernst & Young LLP, Financial Services Desk, New York • Sarah Belin-Zerbib +1 212 773 9835 [email protected] Global Tax Alert EY | Assurance | Tax | Transactions | Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. 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