As previously announced, the French Ministry of Finance released guidelines on 2 April 2020 setting out the undertakings to be given by large companies wishing to benefit from the favourable tax measures (i.e. the postponement and waiver of taxes) implemented in the context of the COVID-19 crisis. 

Large companies (or the group to which they belong) must undertake to neither pay dividends nor buy back shares in 2020. If the undertaking is breached, the benefit of the tax measures would be withdrawn, and penalties and interest charged. 

Cut-off date: 27 March 2020

Subject to certain exceptions, any decision to pay dividends or buy back shares, if taken on or after 27 March 2020, would deprive the company of the benefit of the aforementioned favourable tax measures (triggering the payment of tax penalties if the company has already benefited from these measures).

According to the information currently available, and subject to official confirmation, companies having benefited from the favourable measures prior to 27 March 2020 could fall outside the scope of such restrictions and could proceed with the payment of dividends and/or the buy-back of shares without any challenge of the favourable measures applied to them in the past. Such dividend payment or share buy-back would, however, make them ineligible to benefit from the favourable measures in the future.

Which companies are "large"?

“Large companies” are defined as companies, or groups of companies having, in respect of the preceding fiscal year, at least 5,000 employees or a consolidated turnover exceeding €1.5bn in France.

These thresholds would be assessed at the level of the relevant company or, if the company belongs to a group, at the group level on a consolidated basis. In defining a “group”, the current guidelines seem to refer only to a minimum 95% shareholding (and not to a more stringent criterion defining control). This question is key and would need to be further clarified by the tax authorities.

If the company benefitting from the favourable tax measures belongs to a group, all companies within the group must comply with the commitment, even if not all of them benefit from the favourable tax measures. In practice, the commitment must be given by the parent company on behalf of the group (and also, in our view, by the company requesting the benefit of the favourable tax measure).

Returns of value subject to the restriction

All dividend payments, including interim dividends and distributions of reserves (whether in cash or in shares), and share buy-backs implemented as a result of a share capital reduction not justified by losses (including through a reduction of the nominal value of the shares) would fall within the scope of this restriction.

By way of exception, the following would not be subject to the restriction:

• any such operation which was decided before 27 March 2020, even though the payment/implementation actually occurs after this date
• any dividend payment which is compulsory under applicable law, provided that the amount distributed is strictly limited to what is required by the legal obligation
• intragroup distributions if “their final effect is  to provide financial support to a French company (notably to enable it to pay its creditors)” (dividends paid by foreign subsidiaries to French companies would also be allowed)
• share buy-backs implemented in order to grant shares to employees
• share buy-backs pursuant to liquidity agreements entered into before 27 March 2020 and not amended since then
• share allocations implemented in connection with a group reorganisation

Consequences of breach

If the required undertaking is not given, or if the undertaking is breached, deferred tax payments are due immediately, with an initial 5% late payment penalty, plus late payment interest at a rate of 0.2% per month. This late payment interest will be computed as of the original due date of the instalments for which the time-limits for payment had been extended or for which the waiver had been granted.