Following the general election of July 2024 and the formation of a new Government in September, it is now time for the French Parliament to examine the draft Finance Bill for 2025, presented by the Prime Minister on 10 October 2024. This draft pursues the Government's objective of reducing the budget deficit by asking the wealthiest taxpayers to contribute more, as evidenced by its flagship measures affecting both businesses and individuals. This article focuses on the main tax measures relevant for businesses (for the measures concerning individuals, see our other post).        

Introduction of an exceptional contribution on the income of large undertakings

This contribution would apply to companies liable for corporate income tax (CIT) with sales of €1 billion or more in France (assessed on a 12-month basis and where applicable, at the level of the French tax consolidated group). 

This contribution (which would not be deductible for CIT purposes) would apply to the two consecutive financial years ending on or after 31 December 2024, and would have the following features.

Base: the contribution would be based on total CIT, excluding the 3.3% contribution, but before tax credits/reductions and tax receivables of any kind (this tax base would be computed at the level of the French tax consolidated group, where applicable). 

Rate:

• Companies with turnover of €1bn or more but less than €3bn: rate of 20.6% for the first financial year ending on or after 31 December 2024 (total effective tax rate of 30.98% for a company subject to the 3.3% contribution), then 10.3% for the second financial year (total effective tax rate of 28.40% for a company subject to the 3.3% contribution). 
• Companies with turnover of €3bn or more: rate of 41.2% for the first financial year ending on or after 31 December 2024 (total effective tax rate of 36.13%), then 20.60% for the second financial year (total effective tax rate of 30.98%).

In both cases, a mechanism is provided to avoid threshold effects for companies whose turnover exceeds one of the defined thresholds by less than €100m.

Payment: the contribution would have to be paid at the latest on the due date of the CIT balance for the relevant financial year (i.e., May 2025 and May 2026 respectively for financial years ending 31 December 2024 and 2025), without any instalments. Tax credits/reductions or tax receivables of any kind cannot be offset. 

Tax on capital reductions following share repurchases 

This tax would be applicable on capital reductions resulting from share buybacks realized by companies – listed or not – having their head office (this concept includes place of effective management) in France and having generated sales exceeding €1 billion during the previous financial year (on a 12-month basis). For companies belonging to a consolidated or combined group (global or proportional combination), the relevant turnover would be the one shown in the consolidated or combined financial statements. 

Certain exceptions would apply, notably, for capital reductions decided in the context employee incentive plans (such as stock-options or free shares plans) or, under certain conditions, to facilitate mergers or demergers.

This tax would be equal to 8% of the sum of (i) the amount of the capital reduction itself and (ii) a fraction of the amounts which are considered share premium for accounting purposes. The amounts of these premiums would be retained in the proportion existing between the amount of the capital reduction and the amount of the capital before this reduction, and based on the composition of share premium accounts before the capital reduction (so that the methods used for effectively carrying out the capital reduction would have no impact on the tax base). 

Unlike the U.S. 1% excise tax on stock repurchases (also covered on this blog), this tax would not apply to the fair market value of the stock repurchased (which certainly explains why its nominal rate is higher), no de minimis threshold would apply, and the base would not be be reduced by capital increases realized during the same period. 

This tax would apply to capital reductions carried out as from 10 October 2024 (i.e., even though the share buyback preceding the capital reduction would have occurred before this date). 

Other measures 

It also worth mentioning the following provisions:

• Pillar 2: several new provisions, or amendments to already existing provisions, would be enacted following the publication of the Administrative Guidance by the OECD in 2023, which were not incorporated into the Finance Act for 2024 for timing reasons. We note in particular a specific provision for investment entities: they would be maintained in the scope of Pillar 2, but the reporting and payment obligations would be transferred to another related French constitutive entity, if any.
• Adjustment to the French tax neutrality regime for partial divisions and certain mergers without issuance of new shares: following the transposition of the EU Directive 2019/2121, which introduced in the French commercial code the partial division (i.e., contributions of assets followed by the direct attribution of the shares issued upon the contribution to the shareholders of the contributing entity) and a new form of merger without issuance of new shares (i.e., in the case where the merged and merging entities are held in the same proportions by the same shareholders), the French tax neutrality regime would be extended mutatis mutandis to these reorganizations.
• Postponement by three years of the gradual suppression of the business tax (CVAE): the final suppression of the CVAE would be postponed to 2030. The 2024 rate (maximum rate of 0.28%) would be maintained until 2027, and the CVAE would be gradually reduced in 2028 (0.19%) and 2029 (0.09%).

What are the next steps? 

The draft Finance Bill will be debated before the French Parliament as from 21 October 2024, and amendments to the draft provisions or new provisions may be proposed and voted on during this process. It is expected that the Bill will be voted on by both chambers in the course of December, although the expected timeline could be impacted if the Government triggers the fast-track procedure (so-called “Article 49.3” procedure).