French Parliament approves Finance Bill for 2025 #FrenchFinance

On 6 February 2025, the French Parliament approved the Finance Bill for 2025 (the Bill).

This Global Tax Alert summarizes some of the key tax reforms included in the Bill that may affect corporations, including:

• Exceptional contributions based on
• Corporate income tax (CIT) due by large companies
• Profits generated by large shipping companies
• An adjusted basis for the research and development (R&D) tax credit computation
• A new tax applicable to share capital decreases, subsequent to a share-buyback transaction and realized by large companies
• Changes to the French domestic dividend withholding tax regime
• An extension of the tax-neutral merger regime
• Revised Pillar Two Global Anti-Base Erosion (GloBE) rules transposed into French domestic law
• Postponed repeal of the Business Contribution on the Added Value (BCAV) and an additional contribution for 2025

New exceptional contribution based on CIT owed by large companies

The Bill provides for the creation of a temporary CIT surcharge to be imposed on standalone companies, or tax-consolidated groups, with revenue realized in France equal to at least €1b in the fiscal year (FY) with respect to which the surcharge is due or in the previous FY. This surcharge will apply to the first FY ending on or after 31 December 2025 and will be based on the average CIT owed with respect to the FY during which the surcharge is due and with respect to the previous FY. The CIT will be assessed before offsetting any tax reductions, tax credits or tax receivables.

The rate of the exceptional contribution will be equal to:

• 20.6% for standalone companies or tax-consolidated groups with revenue realized in France equal to or greater than €1b, but less than €3b
• 41.2% for standalone companies or tax-consolidated groups with revenue realized in France equal to or greater than €3b

The revenue amount used to determine which of the two rates applies is that of the FY with respect to which the exceptional contribution is due or that of the previous FY, if higher.

To limit the threshold effects, a smoothing mechanism will modulate the rates for taxpayers with revenue exceeding the €1b or €3b thresholds by less than €100m.

Taxpayers will be required to remit the exceptional contribution, which will not be tax deductible for CIT purposes, no later than the CIT balance payment date. An advance payment equal to 98% of the estimated amount of the exceptional contribution will be due on the last CIT prepayment due date.

New exceptional contribution based on large shipping company profits

The Bill provides for the creation of a 12% temporary exceptional contribution to be imposed on shipping companies, subject to the specific French tonnage tax regime of Article 209-0 B of the French Tax Code and with worldwide revenue of at least €1b in the FY with respect to which that contribution is due. This exceptional contribution will apply to the first FY ending on or after 31 December 2025 and will be based on the average operating income corresponding to the operations subject to the French tonnage tax regime and generated in the FY during which the payment of that contribution is due and in the previous FY.

Taxpayers will be required to remit the exceptional contribution, which will not be tax deductible for CIT purposes, no later than the CIT balance payment date. An advance payment equal to 98% of the estimated amount of the exceptional contribution will be due on the last CIT prepayment due date.

Adjustment to basis of R&D tax credit computation

The rules governing the basis for computing the R&D tax credit are adjusted to limit the eligible expenses.

These new rules apply to expenses incurred from the day after the promulgation of the Bill.

New tax applicable to share capital decreases, subsequent to share-buyback transactions and realized by large companies

The Bill provides for the creation of a new tax applicable to share capital decreases, subsequent to share-buyback transactions, that are realized as from 1 March 2025 by companies headquartered in France with revenue exceeding €1b. A similar temporary tax applies for the period between 1 March 2024 and 28 February 2025. If the company is part of a consolidated group, the revenue amount includes revenue reported on the consolidated or combined financial statements.

This new 8% tax will be based on the amount of the share capital decrease, increased by a fraction equal to the amount of the share premiums multiplied by the ratio between the amount of the share capital decrease and the amount of the share capital before the operation.

This new tax will not be deductible for CIT purposes and taxpayers will be required to declare and pay the tax upon the filing of their Value-Added Tax (VAT) return appendix for the period during which the share capital decrease occurs.

Amendment to the French domestic dividend withholding tax regime

The scope of and application mechanism for the French 25% domestic dividend withholding tax has been amended.

1. First, the general scope of the withholding tax is extended to dividends and assimilated income, whose beneficial owners do not have their tax residence or corporate seat in France.
2. Second, when dividends and assimilated income are paid to a person or entity that is established or resident in a State that has a tax treaty with France that does not provide a withholding tax for such income, or exempts such income from withholding tax, the entity paying the income must apply the 25% withholding. Thereafter, the beneficiary of the income may claim a refund for the withholding if they can show that they meet all of the treaty’s conditions for not being subject to withholding tax or benefiting from a withholding tax exemption.
3. Finally, the existing dividend anti-arbitrage mechanism is strengthened and extended to cover not only temporary sales of securities, but also other transactions/instruments allowing a transfer of value, based on certain conditions.

These amendments enter into force as from the day after the publication of the Bill, and as from 1 January 2026, for distributions referred to in (b), above.

Extension of the tax-neutral merger regime

The legal regime applicable to corporate reorganizations was amended by the ordinance No. 2023-393 of 24 May 2023, which introduced into French corporate law partial demergers and a new simplified merger without share exchange (i.e., when the absorbed entity and the absorbing entity are held in the same proportions by the same shareholders both before and after the transaction).

The Bill acknowledges these changes and, in particular, extends the tax-neutral regime applicable to merger transactions to partial demergers and new cases of simplified merger.

Revised Pillar Two GloBE rules transposed into French domestic law

The Finance Bill for 2024 provided for a transposition into French domestic law of European Union (EU) Directive 2022/2523 introducing, per the Organisation for Economic Co-operation and Development (OECD) Pillar Two GloBE rules, a 15% minimum tax on the profits of multinational enterprise (MNE) groups that operate in France and have a consolidated revenue of at least €750m generated during at least two of the last four FYs.

The Bill revises French legislation to consider the developments published in the 2023 OECD guidelines (addressing the determination methods of the substance-based exclusion, the application rules related to the top-up tax and the transitional safe harbor regime) and adjust certain rules concerning the French Qualified Domestic Minimum Top-Up Tax.

Postponing repeal of BCAV and adding a BCAV contribution for 2025

The BCAV is a local tax applicable to any person carrying out a trade or business in France and is levied on the added value that the trade or business generates.

Through gradual repeal, the BCAV was initially intended (Finance Bill for 2023) to be completely abolished as of 2024, but this timeline was modified by the Finance Bill for 2024, which provided for a gradual repeal over four years, so the tax would be completely abolished as of 2027 (with the following applicable maximum BCAV rates: 0.28% in 2024, 0.19% in 2025, 0.09% in 2026).

The Bill, in turn, provides for a further postponement of the repeal of the BCAV. Based on the proposed new timeline, the tax will be completely abolished as of 2030, with the following applicable maximum BCAV rates:

In addition, for 2025, the Bill also provides for an additional BCAV contribution to reach a total maximum BCAV rate of approximatively 0.28% (to neutralize the initial decrease of that rate as provided by the Finance Bill for 2024).

Corporations with interests in France should consider the above changes and consult with their tax advisors as needed.