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France Plans Corporate Tax Reform

March 2010 - Tax & Private Client. Legal Developments by Hassans.

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French Finance Minister Christine Lagarde has confirmed plans to reform corporate taxation in France.

According to Largarde, such a discrepancy between the nominal rate of corporate tax in France (le taux facial) and the actual rate (le taux r�el) is ?not very healthy?. Consequently, the government is currently reflecting on the best means of addressing the problem, she revealed.

Lagarde explained that the ?significant? gap between the nominal rate (currently 33.3%) and the actual rate (in the order of 22%) is due to the manifold exemptions and tax reductions (tax breaks or ?niches fiscales?) that exist in France. Large businesses are better able to benefit from these tax breaks than small- and medium-sized enterprises, she noted, adding that larger companies are also able to benefit from transfer pricing to localize profits.

Despite the Union for a Popular Movement?s (UMP) historic defeat in the country?s regional elections, Lagarde nevertheless confirmed that the government did not envisage a ?pause? in the reform programme, emphasizing that transparency, governance, regulation, the fight against tax evasion, and employment policy would not suffer as a result.

The latest revelations by the French Finance Minister follow shortly after the French Court of Auditors published its annual report. In the 2010 report, the Court underlined the need to rapidly reduce the structural deficit to enable the government to weather future economic crises. In order to achieve this goal, the Court emphasized the need to increase fiscal revenue, and pointed out that the plethora of tax breaks available in France, which serve to reduce vital income, must urgently be reviewed.

The Court also recommended a systematic reduction of the ceiling applied to both tax reductions and tax credits, and noted that an increase in social levies is particularly necessary to end spiraling social debt.