- Transfer pricing reporting requirements - VAT on internet selling - Internet intermediary obligations - Restricted stock unit rule changes - Refund claim against 3% tax on dividend distributions - France-Luxembourg tax treaty - Dividend distributions by tax group members - Employees seconded to France - Allowable interest on shareholder loans - C3S threshold changes - Retail software obligations

1. Newsletter March 2016
Our March 2016 newsletter sets out
the main changes introduced by the
2016 Finance Act and a selection of
other recent changes which may im-
pact groups doing business in France
TRANSFER PRICING
REPORTING REQUIREMENTS
As part of the OECD Base Erosion
and Profit Shifting Project (BEPS),
the French Tax Administration (FTA)
has introduced a country by country
reporting requirement for large
groups. This filing, which is applies
to financial periods starting 1 January
2016, will show a group’s aggregated
accounting and taxable profits on a
country by country basis as well as
information as to where the group is
established. Although more informa-
tion should be available in due
course, the declaration will be based
on the OECD model and be required
to be filed within 12 months of the
financial period end.
This obligation will be applicable to
French legal entities:
♦ whose consolidated turnover ex-
ceed €750 million ;
♦ who are a member of a group
meeting the above consolidated
turnover criteria and are unable to
demonstrate that the reporting ob-
ligation has been completed in
another country that has an infor-
mation sharing arrangement with
France ;
♦ have been designated by the group
to complete a global declaration.
VAT ON INTERNET
SELLING
With effect from 1 January 2016, the
threshold for French VAT registra-
tion in respect of internet sales made
to French resident customers by sup-
pliers in other EU member states has
been reduced from €100 000 to €35
000. The rule is applicable to B to C
transactions (i.e. customers are not
registered for VAT in France) rather
than B to B scenarios.
Once this threshold is exceeded,
French VAT will be applicable thus
EU suppliers will normally be requi-
red to register for French VAT with
the Non Residents Tax Office and
account for the VAT in France.
The threshold is based on annual dis-
tance sales to French residents in the
previous year or where exceeded in
the current year.
INTERNET INTERMEDIARY
OBLIGATIONS
Businesses acting as intermediaries
on the internet for individuals under-
taking sales of assets or supplying
services (such as property rental sites)
are now required to provide to users :
♦ Clear, transparent and fair infor-
mation concerning the users’ so-
cial security and tax obligations;
♦ An annual statement in January of
each year summarising transac-
tions made on their behalf during
the previous year.
RESTRICTED STOCK UNIT
(RSU) RULE CHANGES
Article 135 of the Loi Macron, which
was published in August 2015, has
been embodied into the French Com-
mercial Code (Code de Commerce
Art L225-197-1).
It has authorised companies to loosen
the rules relating to grants of shares
under the RSU régime to employees
and company officers. The changes
are:
♦ Taxation of acquisition and dis-
posal gains is now entirely under
the capital gains régime for stocks
and share investments (plus value
mobilières) which includes an
abatement based on the length of
the share holding period ;
♦ Removal of the 10% employee
“social contribution”;
♦ Employer “social contribution”
reduced from 30% to 20% and
payable at the time of acquisition
by the employee (- previously the
employers’ contribution was due
at the moment RSUs were
granted) ;
♦ European SMEs are exempt from
the employer’s social contribution
up to the annual social security
threshold for each employee ;
♦ The minimal holding period is
reduced to one year and an Ex-
traordinary General Meeting are
permitted to fix the cumulative
acquisition period and holding
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2. periods on condition that this is
not less than 2 years.
It is important to highlight that
these changes apply only to
RSUs and do not apply to the
stock option régime which re-
mains unchanged
REFUND CLAIM AGAINST
3% TAX ON DIVIDEND
DISTRIBUTIONS
In 2015 the European Commis-
sion launched infringement pro-
cedures against France concern-
ing its 3% tax on dividend distri-
butions within the EU. This tax,
which had been embodied in Ar-
ticle 235 ter ZCA of the French
Code Général des Impôts, had
been introduced in 2012 as an
additional corporation tax sur-
charge on distributing compa-
nies.
The European Commission’s
position was that this was con-
trary to the EU Parent –
Subsidiary Directive and also
was a form of withholding tax
applied in France.
The infringement process is still
in progress however it is sug-
gested that claims for refund of
taxes paid relating to dividend
distributions made during 2014
or 2015 should be made to the
company’s tax office.
FRANCE—LUXEMBOURG
TAX TREATY
The modification of the France
Luxembourg Tax Treaty which
took place in September 2014
requires that capital gains by a
Luxembourg property company
whose total assets by market
value are 50% or more made up
of property assets in France
(directly or indirectly) are to be
taxed in France . The ratification
of this change by France did not
take place before 30 November
2015 – consequently its applica-
tion will be from 1 January 2017
rather than 1 January 2016.
DIVIDEND DISTRIBUTIONS
BY TAX GROUP MEMBERS
A decision by the European
Court of Justice in September
2015 in the Groupe Steria SCA
case (CJUE, 02/09/2015, aff. C-
386/14) has led to a change in the
dividend regime where a tax con-
solidation is present. This change
has been implemented in order to
bring the tax régime in line with
European law.
When a parent company received
a dividend from its group sub-
sidiary, the dividend income was
exempt from corporate income
tax except for a 5% add back in
the tax calculation
Where a French tax consolidation
was in place for the group, the
5% add back was neutralised
within the group tax consolida-
tion calculation. The 2016 Fi-
nance Act has modified this and
the 5% neutralisation is no longer
available.
With effect from accounting peri-
ods commencing 1 January 2016,
a 1% add back is required to be
applied on dividend income re-
ceived by the parent company
where a tax group is in place or
in certain cases, where a subsidi-
ary would have been eligible to
form a tax group if the subsidiary
had been a French registered en-
tity.
No neutralisation will now be
available in the tax consolidation.
Note that where no tax group is
in place, the 5% add back re-
mains applicable.
EMPLOYEES
SECONDED TO FRANCE
As a means to combat the import
of low cost labour into France, an
important declarative requirement
was introduced in 2015 and re-
cently reinforced which concerns
international groups seconding
staff to France. The type of sec-
ondments targeted are :
♦ Supply of services undertaken
in the context of a sub-
contracted service with a ser-
vice provider ;
♦ Intra-group secondment: sec-
ondments put in place be-
tween group member entities
on a non profit basis for an
assignment or training en-
gagement ;
♦ Temporary staff agencies:
Agencies established outside
France seconding employees
to a French client for tempo-
rary assignments ;
♦ Entities with a permanent es-
tablishment in France : Such
entities seconding employees
temporarily for specific as-
signments.
Information required to be de-
clared at latest with 48 hours of
the start of the secondment in-
cludes:
♦ Name and address of the con-
tractor company;
♦ Principal activities and loca-
tion where the services will be
provided ;
♦ Name and address of a nomi-
nated representative of the
foreign employer in France ;
♦Name and address, nationality,
qualification / nature of employ-
Newsletter March 2016

3. ment ;
♦Address in France where the
seconded employee will stay dur-
ing the secondment.
The contractor company is jointly
responsible with the foreign em-
ployer for ensuring obligations are
respective and for penalties in the
event of non compliance. Penal-
ties are initially set at €2 000 per
employee (€4 000 for repeat of-
fenders) with a maximum limit set
at €500 000 per entity.
ALLOWABLE INTEREST ON
SHAREHOLDER LOANS
The interest rate published by the
French Tax Administration indi-
cating the annual rate to which
deduction of interest as an expense
on related party loans is deductible
for corporate income tax is set at
2.15% for 12 month accounting
periods ending at 31 December
2015. It should be noted that this
deduction is before additional al-
lowance tests; namely (i) evalua-
tion of interest expense deduction
under thin capitalisation rules and
(ii) interest restrictions under Arti-
cle 212 -1 of the Code Général des
Impôts where interest charged by
the lender is not subject to corpo-
rate income tax in the lender’s
home state at least 25% of their
applicable corporate income tax
rate
C3S THRESHOLD CHANGES
The contribution sociale de soli-
darité des sociétés (C3S), which
contributes toward financing the
retirement schemes for the self
employed through a 0.16% levy
on business’s annual turnover,
sees another threshold change in
2016.
The threshold for this levy payable
in May 2016 on turnover declared
relating to 2015 will rise from
€3.25 million to €19 million.
RETAIL SOFTWARE
OBLIGATIONS
Retail businesses will be required
to use a software for checkout tills
that meet a number of approved
criteria concerning data security,
conservation and archiving from 1
January 2018
The French Tax Authorities will
be permitted to carry out spot
checks on retailers. Non compli-
ance will lead to a fine imposed by
the French Tax Authorities.
Newsletter March 2016
If you do have any questions
concerning our 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