Version updated on 3 June 2020
1. APPLICATIONS THAT CAN BE FILED WITH A BUSINESS TAX CENTER (SERVICE DES IMPÔTS DES ENTREPRISES – SIE)
1.1. Application for a payment deferral of direct taxes
Businesses can request, without any penalty for late payment being imposed, a deferral of direct tax instalment payments.
Deferral can be requested in relation to the following direct taxes: corporate income tax (impôt sur les sociétés), corporate property tax (contribution foncière des entreprises), contribution on value added tax of businesses (contribution sur la valeur ajoutée des entreprises or CVAE), and payroll tax (taxe sur les salaires).
Deferral is granted for a period of three (3) months without justification needing to be given.
Businesses having already paid their March instalments may still stop the automatic debit (SEPA) with their bank. They can otherwise apply for a refund before their business tax center once the automatic debit is effectively realized. Please note that the French tax authorities have warned businesses however to not revoke the automatic debit mandate used for the payment of their taxes since such a revocation prevents the collection of all taxes even the ones that are not covered by the exceptional deferral measure (such as VAT).
Regarding monthly contracts for the payment of the corporate property tax (contribution foncière des entreprises) or property tax (taxes foncières), businesses can also suspend, without penalty, their monthly payment.
A press release dated 29 May 2020 from the Ministry of Action and Public Accounts has relaxed the modulation of the payment of corporate income tax and CVAE installments by allowing the payment of installments to be staggered according to the forecast result for the financial year and by increasing the tolerated margins of error.
Thus, corporate income tax instalments can be modulated as follows[1]:
- the second instalment can be adjusted so that the sum of the first and second instalments is at least 50% of the forecast corporate income tax for the current financial year, with a margin of error of 30%;
- the third instalment can be adjusted so that the sum of the first three instalments is at least 75% of the forecast corporate income tax for the current financial year, with a margin of error of 20%;
- the fourth instalment can be adjusted so that the sum of all instalments corresponds at least to the amount of the forecast corporate income tax for the current financial year, with a margin of error of 10%.
CVAE instalments can be modulated as follows:
- the first instalment can be modulated with a margin of error increased to 30% (instead of the 10% provided for by law);
- the payment of the second instalment on 15 September should ensure that both instalments together reach the total amount of CVAE for 2020, with a margin of error of 20%.
In case of insufficient instalment, the 5% surcharge and late interest may be applied, at the time of the balance, on the difference between the expected taxation (minus the margin of error) and what has actually been paid.
In addition, the payment of the June corporate income tax and CVAE instalments, when calculated on the basis of the 2019 results (filing of the tax return postponed to 30 June[2]), is deferred from 15 June to 30 June 2020, so that each company is able to correctly assess its instalment.
It is also noted that:
- if companies have postponed their March corporate income tax instalment to 15 June 2020, this instalment must be paid on that date. The June instalment is then suspended and will be adjusted on the next instalment;
- the rules for the last instalment for large companies (payment obligation of 95% or 98% of the corporate income tax) remain unchanged.
The following taxes are however currently excluded: value added tax (VAT) and assimilated taxes, the repayment of the withholding tax (prélèvement à la source) paid by businesses and the special tax on insurance agreements (taxe spéciale sur les conventions d’assurances).
1.2. Application for a remission of direct taxes
Businesses can also apply for a remission of their direct taxes.
The relevant taxes are the same as those referred to in the aforementioned application for payment deferral. However, it is specified that such remission also covers late payment interest and/or penalties relating to these direct taxes.
Unlike the abovementioned application for a payment deferral, remission will only be granted if the business can show that it is experiencing serious economic difficulties which cannot be overcome through a payment deferral.
1.3. Acceleration of repayment of tax credits owed to businesses
We understand that the French tax authorities (Direction générale des Finances publiques – DGFIP) have issued instructions for the repayment of tax credits to be accelerated.
Businesses can apply for a tax credit refund without waiting for the filing of their income tax return next May. We understand that the business tax centers (service des impôts des entreprises – SIE) are mobilized to process refund claims as quickly as possible, within a few days.
All tax credits that are refundable in 2020 are covered, including the competitiveness and employment tax credit (crédit d’impôt compétitivité emploi – CICE) and the research tax credit (crédit impôt recherche – CIR) or innovation tax credit (crédit d’impôt innovation – CII).
An accelerated refund is conditional upon the online filing of certain forms (in particular form no. 2573, form no. 2069-RCI and form no. 2572).
The French tax authorities have also undertaken to process businesses’ VAT credit refund application as quickly as possible.
2. VAT
At a press conference, the Minister for Action and Public Accounts answered a question by stating that when a customer has not yet paid its invoice to its supplier, who consequently has not collected the VAT, the French tax authorities (DGFIP) could, on a case-by-case basis, grant a payment deferral of the corresponding VAT.
In addition, while requests for payment deferral may only apply to direct taxes, a new measure provides for, during the lockdown period and under certain conditions, a simplified reporting process for VAT in the form of the two following measures.
2.1. Extension of the simplification related to paid leave
The French tax authorities extend to the lockdown period the simplification provided for in its guidelines[3] regarding paid leave in case of difficulties in the preparation of declarations.
This measure, available for businesses subject to the standard VAT regime (French “régime du réel normal“), enables them to estimate the amount of VAT due for a month and to only pay a down-payment equal to such estimate.
We however draw your attention to the fact that the French tax authorities only tolerate a 20% margin of error.
2.2. Down-payment
This measure allows a business, under certain conditions, to limit its March payment to a down-payment equal to:
- 80% of the declared VAT amount for the months of February or January, where the business has experienced a drop in its turnover due to the Covid-19 crisis;
- 50% of the declared VAT amount for the months of February or January, where the business has ceased its activity since mid-March (complete closure) or where its activity is in sharp decline (estimated at 50% or more) due to the Covid-19 crisis.
This measure should be applicable for the entire lockdown period decided by the public authorities.
However, we draw your attention to the fact that the French tax authorities have already announced that these measures will be subject to ex-post verifications.
3. IMPACT ON THE TAX AUDITS
The Minister for Action and Public Accounts announced Monday 16 March that no new tax audit will be launched by the French tax authorities and that no procedural documents will be sent for ongoing tax audits.
The Ordinance No. 2020-560, dated 13 May 2020, extended the suspension of tax audits until 23 August 2020 (see 5. Impact on tax procedures). The Chairman’s report on this order specified that this extension will allow a staggered return of tax audit procedures, adapted to the economic situation of each taxpayer.
4. IMPACT ON TAX LITIGATION
Following the Emergency Law No. 2020-290 dealing with the Covid-19 epidemic, dated 23 March 2020, the Government adopted on 26 March 2020 two Ordinances (No. 2020-34 and No. 2020-305) adapting the rules applicable to civil jurisdictions[4] (ruling in non-criminal matters) and to administrative jurisdictions[5].
In order to adapt to the current situation:
- the Government Ordinance relating to civil jurisdictions alleviates their functioning, in particular by making the organization of hearings more flexible and by allowing the parties to be informed and the organization of adversarial proceedings by any means.
This Government Ordinance applies from 12 March 2020 until the expiry of a one month period after the end of the declared state of health emergency.
- the Government Ordinance relating to the administrative jurisdictions makes it possible, in particular, for judges from other courts to fill the empty seat of an incomplete panel of judges, to inform the parties by any means of the dates of hearings, and to make extensive use of telecommunications in order to hold hearings.
This Government Ordinance applies from 12 March 2020 until the end date of the declared state of health emergency.
The Law No. 2020-546 of 11 May 2020 extended the state of health emergency until 10 July 2020, end of day.
5. IMPACT ON TAX PROCEDURES
Following the Emergency Law No. 2020-290 dealing with the Covid-19 epidemic, dated 23 March 2020, the Government adopted on 26 March 2020, the Ordinance No. 2020-306 on the extension of the deadlines that expired during the period of declared state of public health emergency and the adaptation of procedures during the same period. This Ordinance was amended by Ordinance No. 2020-560, dated 13 May 2020.
In essence, the consolidated Ordinance provides for a “mechanism for postponement of term and deadline” according to which the non-completion of procedures of whatever form (deed, formality, registration, etc.) that were supposed to be completed during the reference period (i.e., between 12 March 2020 and 23 June 2020) and may produce adverse legal effects such as a penalty, expiration of a statute of limitation or forfeiture of a right, these procedures may be carried out at the end of the reference period within the period normally provided for, but at the latest within two months following the end of the reference period.
The Government Ordinance also extends certain jurisdictional or administrative measures. It also provides, regarding relations with the administration, for the suspension of certain deadlines until 23 June 2020 inclusive, mainly those under which an administrative decision may be deemed taken in absence of any response from the administration. This would, for example, be likely to concern the implied rejection of contentious claims by taxpayers.
With regard to tax matters more specifically, the Government Ordinance provides that the following deadlines are suspended from 12 March 2020 to 23 August 2020 inclusive, and will run only from this latter date:
- the statute of limitation regarding the right for the French tax authorities to reassess tax returns (Articles L. 168 to L. 189 of the French Tax Procedure Code and Article 354 of the French Customs Code) for those that are supposed to expire on 31 December 2020;
- the deadlines relating to the conduct of audit and investigation procedures in tax matters[6];
- the deadlines provided for in Article 32 of the Law of 10 August 2018 relating to the experimentation of the limitation of the duration of administrative controls on certain businesses in certain regions (Hauts-de-France and Auvergne-Rhône-Alpes).
The suspension period is however different for tax rulings which are suspended from 12 March 2020 to 23 June 2020, end of day, and only run from this latter date. This concerns:
- the response time for the French tax authorities in case of rescrit-valeur (a specific tax ruling provided for in Article L. 18 of the French Tax Procedure Code, consultation of the French tax authorities on the market value of a company prior to a donation);
- the response time for the French tax authorities in case of taxpayer consultation prior to a transaction (Article L. 64 B of the French Tax Procedure Code);
- the response times for the French tax authorities to requests for tax rulings and tax approvals (Articles L. 80 B, L. 80 C and L. 80 CB of the French Tax Procedure Code);
- certain time-limits for customs matters (Article 345 bis of the French Customs Code).
It is to be noted that the deadlines that should have started to run during this period will only start to run as of 23 June 2020 or 23 August 2020, as the case may be.
Moreover, the Government Ordinance expressly provides that these provisions do not apply to tax returns. Please see our article “Covid-19: Impact on tax returns and certain formalities” for more information on this subject.
6. PROHIBITION TO COMBINE CERTAIN STATE AID MEASURES WITH THE DISTRIBUTION OF DIVIDENDS BY LARGE BUSINESSES
Following the announcements made by Mr. Bruno Le Maire on 27 March 2020, that the State will grant financial support to businesses, in the context of the current crisis, only if they commit to not distributing dividends and/or proceeding to any share buybacks. A document was published on the Ministry of the Economy and Finance website on 2 April 2020 to provide further details regarding this measure.
In short, large businesses asking for a payment deferral of taxes (section 1.1 above) or a state-guaranteed loan must undertake (i) not to pay any dividend in 2020 and (ii) not to proceed to any share buyback in 2020.
If a business does not make this commitment or does not respect it, it will be sanctioned with the application of the standard tax penalties, and will not be able to benefit from the State guarantee on any State-guaranteed loan it would have contracted.
Please see our article “Covid-19 | Dividends and share buybacks: commitments imposed on large companies benefiting from government cash support measures” for more information on this subject.
7. REFUSAL OF AID FOR BUSINESSES IN A NON-COOPERATIVE STATE
In a letter dated 23 April 2020, addressed to the Director General of the Treasury, Bruno Le Maire asked the former, in a manner similar to the ban on the distribution of dividends discussed above, to refuse to grant businesses with a registered office in an uncooperative State or territory or with a subsidiary without economic substance the granting of deferrals of payments of tax or social security charges or loans guaranteed by the State.
8. TAX MEASURES PROVIDED FOR BY THE SECOND AMENDING FINANCE LAW 2020
The second Amending Finance Law 2020, adopted on Thursday 23 April 2020 (“AFL 2”) provides for several tax measures.
8.1. Tax and social contribution exemption on sums paid by the solidarity fund
AFL 2 provides for an exemption from corporate income tax, income tax, and all social contributions (legal or conventional) on sums paid to businesses by the solidarity fund created by Ordinance No. 2020-317 dated 25 March 2020.
8.2. Tax incentive for landlords to waive rents
AFL 2 allows a landlord to deduct from its taxable profits the loss resulting from a rent waiver without the said landlord needing to have a commercial motive.
This incentive applies to rent waivers granted between 15 April 2020 and 31 December 2020.The intention is to encourage landlords to assist lessees and, therefore, to, help them reduce their indebtedness and enable them to resume work in better conditions after the health crisis.
This measure thus broadens the tax deductibility of rent waivers granted by lessors to their tenants, as lessors do not have to justify any particular interest, in particular commercial interest.
Please see our detailed article “Tax incentive for landlords to waive rents” for more information on this measure.
8.3. Reduced VAT rate for certain health goods
AFL 2 provides for a reduced VAT of 5.5% for:
- protective masks and protective clothing suitable for epidemic control (gloves, overalls, hair nets, etc.); and
- products intended for personal hygiene and suitable for combating the spread of the Covid-19 virus.
8.4. Increase in the ceiling for overtime exemption
AFL 2 increases to EUR 7,500 the ceiling of the income tax exemption applicable to wages received for overtime, to take into account wages received since 16 March 2020, the beginning of containment, and until the end of the state of health emergency. A ceiling of EUR 5,000 is however maintained for wages received for hours worked outside the period of the state of public health emergency.
8.5. Increase in the ceiling for the deduction of sums paid to non-profits providing support to the most disadvantaged
AFL 2 raises to EUR 1,000 the ceiling for income tax deductions of sums paid to non-profits supporting the most disadvantaged, food banks in particular, in order to support donations from individuals.
9. OTHER MEASURES
We will of course keep you informed of any new tax measures that are adopted in the coming days.
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[1] This also includes the social contribution of 3.3%. It should be noted that these modulation faculties are offered for all instalments (from the second to the fourth) of all current and future financial years, but they cease as from financial years starting after 20 August 2020.
[2] Please see our article “Covid-19: Impact on tax returns and certain formalities” for more information on this subject.
[3] BOI-TVA-DECLA-20-20-10-10 no. 260.
[4] Competent in tax matters, in particular for the solidarity tax on wealth (impôt sur la fortune – ISF), real estate wealth tax (impôt sur la fortune immobilière – IFI), inheritance tax and registration duties (les droits de succession et les droits d’enregistrement).
[5] Competent in tax matters, in particular for corporate income tax, personal income tax, VAT, etc.
[6] The order no 2020-560, dated 13 May 2020, specified that the suspended time limits are those provided for both in Title II of the French Tax Procedure Code (part one) and its two regulatory parts (parts two and three).
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This legal update is not intended to be and should not be construed as providing legal advice. The addressee is solely liable for any use of the information contained herein and the Law Firm shall not be held responsible for any damages, direct, indirect or otherwise, arising from the use of the information by the addressee.
