The Fourth 2011 Supplementary Budget Act, of which National Assembly vote must take place on 6 December 2011, affects entreprises and individual taxpayers on several key points. A summary of the main new provisions is proposed below.
Exceptional corporate income tax contribution of 5% Budget act creates an exceptional contribution for fiscal years closed from 31 December 2011 until 30 December 2013 for those entreprises with a turnover higher than €250 million or, as far as tax consolidated groups are concerned, when the aggregate turnover of the companies belonging to the group is higher than €250 million.
The new contribution amounts to 5 % of the corporate income tax due détermined before offset of any tax credit or corporate income tax reduction. It results in fact, taking into account the 3.3% social contribution due on corporate income tax exceeding €763,000, to an increase of the actual corporate income tax rate to 36.1%.
The 5% contribution will be payable at the same time as the liquidation of final corporate income tax and not at the time of installment payments.
Tax deductibility of financial expenses linked to the acquisition of equity securities (“titres de participation”) From 1 January 2012, financial expenses derived from the acquisition of equity securities will no longer be deductible for tax purposes if the enterprise cannot evidence that decisions concerning the said equity securities are actually taken by itsself or by a French company controlling the enterprise or controlled by itsself. The proof concerns the financial years covering the period of 12 months following the acquisition and, for equity securities held before 1 January 2012, the first financial year open in 2012. Deduction of interest expenses will be denied in the proportion of the equity securities’ acquisition price divided by the average indebtness of the enterprise for a given financial year.
These new provisions aim at denying the tax deductibility of financial expenses linked to the acquisition of security equities when decisions, influence or control are actually determined outside from France.
The add-back of non deductible financial expense is applicable until the end of the 8th financial year following the acquisition of the equity interest.
The new provisions will not apply when:
- The total amount of equity securities is lower than €1million;
- Acquisitions were not financed by indebtness;
- Indebtness ratio of the group to which the enterprise belongs is higher than its own indebtness ratio.
New reduced VAT rate A new reduced VAT rate of 7% is created in addition to the current reduced rate of 5.5%. Most of the goods and services currently taxed at 5.5% will be taxed at 7%.
Food to take-away (with some exceptions) will be subject to the 7% rate as well as on-site catering.
The 5.5% rate is maintained for some goods and services, among them products intented for human food, including water and non-alcoholic beverage, with the exception of those which are already taxed at 19.6% (chocolate, confectionery …), equipment and services for disabled persons, the sick and the persons needing care, some of the services intended to the elderly.
Tax scale on the income of individuals The tax scale on the income of individuals as well as the different thresholds for its computation are frozen as regards 2011 income at the same level as for 2010.
Tax reduction for capital investment in small and medium size enterprises The tax reduction for direct investment in small and medium size enterprises (so called Madelin provisions) will be limited from 2012 solely to qualified capital investments in very small enterprises (“TPE”) of less than 5 years, realizing less than €10 million turnover and employing less than 50 persons.
The rate of 22% for the computation of the reduction remains unchanged. The ceiling for eligible investment is €50,000 for a singled person and €100,000 for a couple.
Part of the investment exceeding the ceiling may be deferred the 4 following years.
Increase in the flat rate levy at source for dividend and interest income earned by individuals Flat rate levy applicable to dividends earned from 2012 is increased to 21%.
Flat rate levy applicable to interest income earned from 2012 is increased to 24%.
Top-up pension plans Tax regime of top-up pension plans (« retraites chapeau ») is modified to reduce the taxation of the smallest pensions and increase the taxation of pensions higher than €24,000 per month.
Although the vote of these provisions is likelely, it is cautious to wait until the end of December 2011 to obtain a confirmation of their definitive enactment.
