Tax Alert – France - Finance Bill for 2025

• The Finance Bill for 2025, presented on 10 October 2024, aims to improve France's budgetary situation by reducing the public deficit to 5% of GDP by the end of 2025 through a budgetary effort of 60 billion euros, one-third of which would come from targeted tax increases.
• The evolution of the text during parliamentary debates will allow us to assess the final impact of these measures on the competitiveness of businesses, the attraction of talent and investments, and the spending power of households.

Individuals: Additional Contribution for High Incomes

An exceptional contribution is planned for tax households whose reference tax income exceeds €250,000 or €500,000 (depending on whether it is a single taxpayer or jointly taxed). This measure would establish a contribution equal to the difference between the objective of a minimum effective tax rate of 20% and the tax burden already borne by the household in terms of income tax, the high-income contribution, and flat-rate levies (but excluding the general social contribution and similar levies). This temporary measure would be due for three years, with immediate effect on income earned in 2024 and until the end of 2026. In practice, this contribution would have the effect of nullifying, in whole or in part, the benefits related to preferential tax regimes, such as the reduced rate of 7.5% on life insurance contract products, the flat tax rate of 12.8% on distributions and capital gains on securities, or the taxation of real estate capital gains at the rate of 19%. It would also restrict the tax benefits related to most tax credit or reduction mechanisms, whether it be capital subscriptions in companies or funds, investments in new housing (Robien, Borloo, Pinel, or Duflot) or renovated (Malraux), donations to organizations of general interest or public utility, or home employment or childcare expenses. Deductions related to certain payments made, such as those made to retirement savings plans, would also be targeted. Only certain targeted benefits related to investments made or expenses paid until 31 December 2024, would escape this cutback for the first year, and some even more targeted benefits would be maintained (such as investment expenses in overseas territories or energy renovation costs). It should be noted that tax credits related to income taxed outside France would escape this adjustment mechanism in accordance with international tax treaties.

Large Companies: Exceptional and Additional French CIT Contribution

For fiscal years beginning on or after 1 January 2025, a temporary exceptional corporate tax contribution would apply to profitable companies whose annual turnover in France (individual or by the integrated tax group) is equal to or greater than 1 billion euros. This contribution would be calculated on corporate tax before the deduction of reductions, tax credits, and carry back claims. The rates of this contribution would vary depending on the turnover achieved and the tax years concerned (see table below) with a smoothing mechanism for companies whose turnover slightly exceeds the thresholds.

Large Companies: Introduction of a Tax on Share Buybacks

Inspired by the American model, an 8% tax would be applied from October 10, 2024, to share buyback operations by companies of their own shares (excluding those related to employee share plans or in connection with mergers or demergers).This tax would apply to the amount of the buyback and would concern companies established in France whose turnover (consolidated accounting approach) exceeds 1 billion euros. This tax would discourage companies from redistributing their cash surpluses unequally among shareholders.

French CIT: Extension of the Tax Neutrality Regime to Partial Demergers and Mergers and Demergers Without Share Exchange

The tax neutrality regimes for mergers and partial asset contributions would be extended to partial demerger operations and mergers and demergers without share exchange. This welcome measure would end the silence of the tax law on these specific operations, which had been introduced into the Commercial Code by Ordinance No. 19 2023-393 of 24 May 2023.

Postponement of Repeal Until 2030

The repeal of the CVAE (contribution to corporate value added), initially planned for 2023 and then slowed down in 2024, would be postponed to 2030. The planned rate reduction trajectory from 2025 to 2027 would be delayed by three years, i.e., from 2028 to 2030. The maximum rate of 2024, set at 0.28%, would be extended for the years 2025 to 2027. This rate would then be reduced to 0.19% in 2028, 0.09% in 2029, and the CVAE would be completely repealed in 2030.

Authors: Emmanuelle Pontnau-Faure, Partner; Solène Guyon, Senior Associate; Lucas Halimi, Associate; Théo Savonet, Junior Associate