This French Tax Update will focus on (i) the main provisions of the draft Finance Bill for 2016 (Projet de loi de finance pour 2016) issued by the French Government on September 30, 2015 and to be discussed before the French Parliament between October and December ("Draft Finance Bill for 2016"), (ii) the amendment signed in March 2015 in respect of the France/Germany double tax treaty, and (iii) the decision issued in early September by the European Court of Justice ("ECJ") in the Steria case.
DRAFT FINANCE BILL FOR 2016
PERSONAL INCOME TAX TO BE WITHHELD AS FROM 2018
Personal income tax is currently directly declared and paid by individual taxpayers themselves. The Draft Finance Bill for 2016 proposes to switch to a withholding system as from January 1, 2018. Although the main features of the personal income tax system (e.g. progressive scale, basket rules, etc.) should not be modified by such switch, the specifics of the reform will be discussed during 2016, inter alia in order to determine the scope of the withholding (essentially salaries and similar income) and the treatment of the transition year (the current system entails an interval as the personal income tax declared and paid in a given year is based on the income of the previous year).
REDUCTION OF THE GLOBAL CORPORATION INCOME TAXES BURDEN
The Draft Finance Bill for 2016 contains the following announcements:
the corporation income tax (impôt sur les sociétés) standard rate will be decreased from 33,33 percent to 28 percent by 2020; the corporate social solidarity contribution (contribution sociale de solidarité des sociétés, so-called C3S) will be progressively repealed by 2017; the temporary surcharge on corporation income tax (contribution exceptionnelle sur l'impôt sur les sociétés, currently imposed at the rate of 10.7 percent on the corporation income tax liability of companies with a turnover in excess of 250 million) will be repealed by the end of 2016. Several amendments to the current filing system are proposed by the Draft Finance Bill for 2016, in order to have all transfer pricing documentations filed electronically.
The Draft Finance Bill for 2016 proposes several measures to combat tax avoidance and tax evasion, in particular in the field of VAT.
The Draft Finance Bill for 2016 will be discussed before the French Parliament between October and December and most likely adopted before year-end. It will be complemented by the amended finance bill for 2015 (Loi de finances rectificative pour 2015), which is likely to contain further technical provisions.
NEW FRANCE/GERMANY DOUBLE TAX TREATY
On March 31, 2015, the Ministers of Finance of France and Germany signed an amendment ("Amendment") to the double tax treaty entered into between France and Germany on July 21, 1959 ("FR/GER Treaty"), as amended on June 9, 1969; September 28, 1989; and December 20, 2001.
The most salient provisions of the Amendment are discussed hereinafter.
SCOPE AND DEFINITIONS