The document summarizes recent changes to French tax law and case law. It outlines new rules that allow for horizontal tax groups between sister companies with a common EU parent company. It also details restrictions on the parent company tax regime, office taxes no longer being deductible, changes to tax treatment of share buybacks, lowered capital gains tax rates for non-EU residents, interest rates on shareholder loans, penalties for inadequate transfer pricing documentation, and various tax treaty changes.

1. Our first newsletter of 2015 sets out
key 2015 Finance Act changes as
well as some recent case law deci-
sions.
NEW RULES FOR GROUP TAX
CONSOLIDATION PERIMETERS -
HORIZONTAL TAX GROUPS
French tax rules previously permit-
ted tax consolidation only for a ver-
tical tax group where a parent com-
pany held directly or indirectly 95%
of a subsidiary undertaking. With
effect from 31 December 2014, it is
possible to establish a tax group
horizontally between sister compa-
nies established in France that
have a common parent company
situated in the European Union or
European Economic Area.
This change, which reflects the
European Court of Justice decision
in June 2014 and modifies Article
233A of the Code Général des Im-
pôts, permits the nomination of a
subsidiary company as the repre-
sentative for the consolidated group
tax payer.
Clearly as a consequence certain
intra group transactions may re-
quire elimination as part of the tax
consolidation. An example of a pos-
sible structure is set out below:
RESTRICTIONS ON PARENT
COMPANY REGIME
Presently dividends received are
95% exempt from corporate income
tax where the investment in another
company represents more than 5%
of the share capital (either through
voting or non voting shares) and
has been held (or where there is a
commitment to hold) for at least 2
years. 5% of the dividend received
is a taxable add-back in the share-
holder company under the régime
mere-fille (Parent—subsidiary re-
gime).
From 1 January 2015 the parent
company tax regime which permit-
ted this exemption of revenue distri-
butions has been tightened. Such
revenues are now excluded propor-
tionally from the parent company
regime where the relevant distrib-
uted profits are deductible from the
taxable profits of the distributing
entity.
This change represents the imple-
mentation of EU Directive 2014/86.
Elsewhere in another recent deci-
sion by the Conseil d’Etat, it was
ruled that the parent company re-
gime applies only to direct holdings
(and not indirect holdings).
OFFICE TAX NO LONGER
DEDUCTIBLE
From accounting periods starting
1 January 2015, the annual office
tax in the Paris region (taxe an-
nuelle sur les bureaux en Ile de
France) is no longer a deductible
expense for tax purposes. This ap-
plies for both corporate and individ-
ual income tax scenarios.
Where this tax is recharged by the
landlord, the income is treated as a
rent supplement and so will be sub-
ject to tax. For tenants, where the
tax is recharged by the landlord the
expense is deductible.
BUYBACK OF OWN SHARES
Until a decision by the Conseil Con-
stitutionnel in June 2014, tax treat-
ment on share buy backs could be
either entirely a capital gain or part
gain / part distribution depending on
the particular circumstances. The
differing approaches applied where
shareholders were individuals sub-
ject to income tax (as distinct from
legal entities subject to corporate
income tax).
The treatment here has been
aligned from 1 January 2015 so
that a purchase by a company of its
own shares from an individual is
now taxed as a capital gain irre-
spective of the circumstances
(share buyback schemes, ad hoc
capital reductions, etc...)
CAPITAL GAINS TAX CHANGES
AFFECTING NON RESIDENTS
Although capital gains tax rates
applicable on property disposals by
residents of EU member states has
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Newsletter March 2015
Example of a horizontal tax group

2. been aligned with the French do-
mestic rates for a number of years
at 19%, capital gains tax on prop-
erty disposals by non EU residents
had been maintained at 33.33%
until now.
Effective from January 2015, a rate
of 19% will also apply to non EU
residents (unless the vendor is resi-
dent in a non co-operative state). In
addition to the 19% capital gains
tax, 15.5% social contributions are
also currently payable, making an
effective rate of 34.5% on dispos-
als.
A potential change is likely, how-
ever, following the decision pub-
lished on 26 February 2015 by the
European Court of Justice that the
15.5% social contributions levied on
the sale of properties by non
French residents should not be
applicable. These social contribu-
tions (CSG & CRDS) are intended
to assist reduction of the French
social security debt. A claim by a
Dutch tax payer that this contribu-
tion should not be levied, given that
he was registered with the Dutch
social security and did not benefit
from French system, was upheld.
In practice, this does not mean that
the social contributions will disap-
pear immediately – these contribu-
tions will continue to be due until
French law is modified. Where such
contributions have been paid in
2013 or 2014, a reimbursement
claim should however be filed with
the French Tax Administration
( FTA) in any case.
ALLOWABLE INTEREST RATES
ON SHAREHOLDER LOANS
We remind you that that the FTA
publishes the maximum rate of in-
terest on shareholder loans that is
deductible for corporate income tax
purposes.
This rate for 12-month accounting
periods ending 31 December 2014
has been set at 2.79%.
The rate, which is equal to the aver-
age effective floating rate on bank
loans with a minimum two-year ma-
turity as set out in Article 39.1.3° of
the French Tax Code, is given be-
fore evaluation of interest deducti-
bility under:
(i) thin capitalisation rules; and
(ii) the interest restriction under
article 212 -1 French Tax
Code whereby no deduction
for French corporate income
tax purposes is permitted
where interest charged to
the French registered bor-
rowing entity is not subject
to corporate income tax of at
least 25% borne by the lend-
ing company.
PENALTIES FOR INADEQUATE
TRANSFER PRICING
DOCUMENTATION FOR LARGE
GROUPS
Potential penalties may be applied
by the FTA where adequate Trans-
fer Pricing Documentation is not
provided at the outset of a tax audit.
Large groups (defined as busi-
nesses whose revenues or total
assets exceed €400 million or busi-
nesses that control or are controlled
by businesses exceeding these
thresholds) are required to make
available to the FTA documentation
supporting the transfer pricing pol-
icy.
Until now, penalties for the non re-
spect of this obligation were limited
to 5% of profits indirectly trans-
ferred, subject to a minimum of
€10,000. In future, penalties applied
will be the higher of:
♦ 0.5% of the amounts con-
cerned by the TP documen-
tation (or any further docu-
mentation that has not been
made available to the FTA
following receipt of a warn-
ing notice by the company);
♦ 5% of the re-assessments
issued relating to the indirect
transfer of profits subject to
a minimum of €10,000 ap-
plied.
TAX TREATY CHANGES
We take this opportunity to highlight
the following changes to French tax
treaties:
France & Luxembourg
Changes in the France – Luxem-
bourg Tax Treaty which will be ap-
plicable from 1 January 2016 will
have an impact on certain property
disposals. An amendment to the
existing treaty was signed in Sep-
tember 2014.
Sales of shares or interests in legal
entities that fall within the definition
of a property company holding
French property will be taxed exclu-
sively in France.
An entity is defined as being a
property company/entity where the
values of property assets (either
directly or indirectly) make up more
than 50% of total assets. Property
assets or interests that are used as
part of the business’s own trading
activities are not taken into consid-
eration.
Once effective, sales of shares or
rights by Luxembourg entities meet-
ing the above criteria will face cor-
porate income tax exclusively in
France.
France & Singapore
An amendment to the France Sin-
gapore Tax Treaty was signed in
January 2015 intended to eliminate
double taxation and also tighten the
rules against tax evasion.
In particular, the amendment re-
duces withholding tax on dividends
paid to a parent company holding at
least 10% of the share capital of the
distributing entity to 5%.
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Newsletter March 2014

3. TAX AUDITS
The requirement for businesses to
provide accounting transaction files
at the opening of a tax audit has
now been in place for one year
(detailed requirements were set out
in our October 2013 newsletter).
The FTA has indicated that English
language narratives in the account-
ing will be a tolerated for one more
year (i.e. to the end of 2015).
Respecting the remaining obliga-
tions of the software files provided
to the tax inspector is expected
however (such as the required 18
separate data fields, accounting
journals being irreversibly validated,
definitive closure of financial peri-
ods, etc.) .
Penalties for non compliance are
now either:
♦ A fine of €5,000; or
♦ 10% of the notified reas-
sessments if greater.
Additionally, it is possible that a tax
inspector could ‘reject’ the account-
ing completely if it is not compliant
thus leading to an estimated as-
sessment (taxation d ‘office) by the
FTA.
In conclusion, it clearly remains
important to ensure compliance
with these requirements and we are
available to offer specific advice on
this matter where needed
DECLARATION SOCIALE NOMI-
NATIVE (DSN)
The déclaration sociale nominative
(nominative social declaration),
which will come into effect for most
businesses from January 2016, is a
major change in the manner in
which employers (or their agents)
declare social security and other
payroll taxes such as pension, acci-
dent assurance or health care.
Currently one internet platform is
used (Net-entreprise.fr) but sepa-
rate filings are made for the various
organisations.
The DSN is intended to replace all
existing declarations that are filed
by employers. It will be made up
of:
♦ A monthly declaration filed
by the employer concerning
each employee for each
business location; and
♦ A separate declaration for
specific events arising dur-
ing the month such as sick-
ness or termination of an
employment contract which
permits calculation of indi-
vidual benefit rights.
These changes apply for most busi-
nesses from 1 January 2015, how-
ever where annual social charges
€2 million (or €1 million if declared
on behalf of the employer by a third
party agent who filed social security
declarations totalling more than €10
million in 2013), the changes will
take effect from 1 April 2016.
Non respect of the new obligations
will lead to a penalty amounting to
€7.50 per employee on each decla-
ration subject to a maximum of
€10,000 per month for businesses
employing more than 2000 staff
and €750 per month for businesses
employing less than 2000 staff.
If you have any questions regarding
the contents of this newsletter,
please contact:
Patrick Scanlon
FERRIERES & Co
46 Rue du Général Foy
75008 PARIS
France
info@ferrieres.net
+33 (0) 1 42 94 29 33
www.ferrieres.net
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Copyright © Ferrieres & Co. All rights reserved Telephone: +33 (0) 1 42 94 29 33 Facsimile: +33 (0) 1 42 94 26 99 Email: info@ferrieres.net
Newsletter March 2014