Key measures in the 2024 Finance Bill in relation to tax evasion and green taxation

As the 2024 Finance Bill is still being discussed, we would like to briefly present certain measures that caught our attention.

Transposition of the “Pillar Two” directive, minimum corporate tax rate of 15% :

On 14 December 2021, OECD members adopted model rules aimed at preventing erosion of the tax base, referred to as “Global Anti-Base Erosion (GloBE) – Pillar Two”. The text is intended to neutralise the practices of some companies enabling them to transfer their profits to countries which have much lower tax rates. The European Union has given this text its support and on 14 December 2022 adopted Council Directive (EU) 2022/2523 on Pillar Two.

Article 4 of the 2024 Finance Bill transposes this directive into French law. It sets a minimum tax rate of 15%. Practically speaking, an additional tax on top of corporation tax will be applied to :

companies located in France belonging to a multinational group with consolidated turnover of €750 million or more for at least two of the four financial years preceding the financial year in question
companies located in France belonging to a group whose activities are conducted solely in France and meeting the same turnover threshold.

Compliance with the minimum rate of 15% will be assessed by calculating the ratio, for each country in which the group operates, between the amount of income tax and equivalent taxes borne by the constitutive entities of the group (subsidiaries, permanent establishments, etc.) in this country, and the profits made by these entities. Taxes and profits will be adjusted to neutralise differences in legislation.

These rules on minimum taxation will apply to financial periods beginning as of 31 December 2023.

Strengthening of transfer pricing control among multinational companies :

Article 22 of the 2024 Finance Bill provides for implementation of measures announced as part of the plan to combat all forms of public-finance fraud in the area of transfer pricing, unveiled by the government in May 2023.

The trigger threshold for the obligation to submit full documentation on transfer pricing policy from the outset of a tax audit would be lowered from €400m to €150m in turnover;
Documentation submitted by the company to the tax authorities would now be enforceable against it.
A strengthening of penalties for failure to submit transfer pricing documentation is envisaged. For the record, if the audited company fails to produce the transfer pricing documentation provided for under Articles L.13 AA and L.13 AB of the French Code of Tax Procedures, or produces only partial documentation, within thirty days of receipt of formal notice, it shall be liable, for each financial period covered by the audit, to a minimum fine of €10k. This amount would be increased to €50k.
The recovery period available to the authorities for transfers of intangible assets would be extended to the end of the sixthyear following that for which the tax is payable and a new exception to the guarantee of non-repetition of an accounting audit would be created in this regard.

Measures to combat import VAT fraud :

Where certain conditions are not met, particularly where the tax base payable on the import would not be equal to that which would be determined for distance selling if it were located in France, Article 19, I-1° and 6° of the bill provides for:

designating the person carrying out the sale as compulsorily liable for the VAT payable on the import, and removing the possibility of the recipient being designated as such.

thereby territorialising in France certain distance sales of imported goods which are currently territorialised outside the EU.t

Taxation “greening” measures

Creation of a tax credit in favour of green industry : Combating evasion

Article 5 of the 2024 Finance Bill provides for the creation of a tax credit in favour of companies contributing to the development of strategic industrial sectors for the transition towards a low-carbon economy.

As of 1January 2024, those who would benefit from tax credits under the plan for investments in green industry (C3IV) include industrial and commercial companies setting up or developing facilities in France for the production of batteries, photovoltaic panels, wind turbines and heat pumps, essential components and sub-components primarily designed and used as direct inputs in the production of such equipment, and production and recovery systems for critical raw materials which are also necessary for the production of such equipment.

To qualify for this tax credit, the company should not, in particular, transfer outside the national territory investments having benefited from the tax credit during the two financial years following the year of their entry into service, and should undertake to operate them for at least five years as of their entry into service (reduced to three years for SMEs).

The C3IV tax credit would be 20%, increased by 10 points for investments made by medium-sized companies and by 20 points for those made by small businesses. The total amount of tax credit for any one company would not exceed €150m.

Availing of the tax credit would be subject to prior approval of the investment plan by the authorities, after joint assessment by the French directorate general of public finances (DGFiP) and the environment & energy management agency (ADEME).

The C3IV tax credit would apply in respect of investment projects approved by 31 December 2025 at the latest, subject to validation by the European Commission.

Higher taxes on passenger vehicles : Combating

As part of a strengthening of incentives towards energy transition, taxation applicable to passenger vehicles is set to be reviewed (Articles 12 and 14 of the 2024 Finance Bill)

Taxes payable on first registration of passenger vehicles in France (“CO2 surcharge” and “weight surcharge”) and annual taxes payable on the use of passenger vehicles for business purposes (annual CO2 emissions tax and annual age-related vehicle tax) are set to be modified, with the aim of accelerating the “greening” of the car fleet. In practical terms:

Vehicles in category N1 that can be described as “passenger” vehicles would no longer be listed under Article L 421-2 of the French products and services tax code (CIBS) but would be determined by decree (taking account of their body, equipment, technical and usage characteristics);
The annual CO2 tax would be increased, the scale would become progressive, with upwardly revised rates, and the exemption for hybrid vehicles would be removed;
The age-related vehicle tax would be replaced by a tax on atmospheric pollutant emissions;
With regard to vehicle registration, the trigger threshold for the CO2 surcharge would be lowered, and the weight surcharge would also be reviewed downwards.

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