Updates on the French finance bill for 2025

Exceptional contribution on the profits of large companies

An exceptional contribution on the profits of large companies has been introduced for the two consecutive fiscal years ending on or after 31 December 2024 (for entities that have fiscal years which match calendar years, this would effectively be applied to their 2024 and 2025 fiscal years). 

This new measure would apply to entities who are subject to corporate income tax in France and whose revenue in France is at least Euro 1 billion. For entities that are the head of a French tax consolidation group, the aforementioned threshold would be applied to the sum of the French revenue realised by the entities that members of that group. On the other hand, foreign groups would be caught by the new rules to the extent that their French revenue exceeds Euro 1 billion; revenue realised out of France would not be taken into account to appreciate this threshold.

The tax base for this contribution would be the entity’s French corporate income tax calculated on all of its taxable income determined before tax reductions and credits and tax receivables of all kinds. For the head of a French tax consolidation group, the tax base would be the group’s French corporate income tax and net capital gain, determined before deducting tax reductions, credits and tax receivables of any kind.

The rate of this exceptional contribution would be the following:

• If the entity’s revenue is between Euro 1 and 3 billion: 20.6% the first fiscal year (i.e. 2024) and 10.3% the second fiscal year (i.e. 2025), resulting in a corporate income tax rate of respectively 30.98% and 28,40%
• If the entity’s revenue is above Euro 3 billion: 41.2% the first fiscal year (i.e. 2024) and 20.6% the second fiscal year (i.e. 2025), resulting in a corporate income tax rate of respectively 36.13% and 30,98%

NB: An exception to these rates exists when the entity’s turnover is very close to the minimum threshold (i.e. between Euro 1 and 1.1 billion or between Euro 3 and 3.1 billion).

This exceptional contribution would not be deductible from taxable income and it would not be possible to offset it against tax reductions, tax credits and tax receivables of any kind. It would be assessed and recovered in the same manner as French corporate income tax and would be due at the same time as the balance of corporate income tax (i.e.  May 15 of the next year for companies closing on December 31 of a year). It would not be paid in instalments.

Tax on capital reductions resulting from the buy-back of shares

Similarly to what is done in the USA since January 2023, France would introduce a tax on capital reductions resulting from companies buying back their own shares with a view to cancelling them. This measure would only apply to companies headquartered in France with a revenue (excluding tax) in excess of Euro 1 billion in the last financial year (as shown in the consolidated or combined accounts, where applicable).

For companies included in the scope of consolidation or combined financial statements, revenue is to be defined as that reported in the consolidated or combined financial statements. In addition, these companies would be subject to the tax only when their accounts are fully or proportionally consolidated or combined.

This tax of 8% would apply on the amount of the capital reduction, and on a fraction of sums treated as capital premiums for accounting purposes. The bill sets out the methods for calculating the tax base, particularly in the case of successive capital reductions.

It would not apply when the capital reduction is carried out to offset a capital increase aimed at giving employees an interest in the company's capital (such as through the granting of free shares). Likewise, there would be no tax where the capital reduction is intended to facilitate a merger or demerger through the repurchase and cancellation of shares representing no more than 0.25% of the share capital.

This new tax would be applicable to capital reductions carried out on or after October 10, 2024. It would not be deductible from the entity’s corporate income tax base; and it would have to be declared and settled on the appendix to the VAT return (CA3) and paid when the return is filed.

Business tax (CVAE): abolition to be reported

The Finance bill provides for a further postponement of the abolition of the CVAE (tax on added value of businesses), which was due to happen in 2027. The current 2024 CVAE tax rates would be maintained from 2025 to 2027 (with a maximum rate of 0.28%). This rate would then be reduced to 0.19% in 2028, 0.09% in 2029, with the complete abolition of the CVAE scheduled for 2030 (if not postponed one more time).

Reform of Pillar 2

The Finance bill completes the Finance law for 2024 which transposed the Pillar 2 Directive into French law, by including the administrative instructions published by the OECD . It adds a number of definitions, gives precisions on the rules for applying the national top-up tax and its safe harbor, modalities for determining the substance based exclusion rule, and on the application of the transitional safe harbor (CbCR Safe Habor).

In addition, it modifies the rules on apportionment of the national top-up tax between French constituent entities of the same group, introduces two new categories of tax credits (negotiable transferable tax credits and non-negotiable transferable tax credits) and provides for their treatment in calculating the effective tax rate. Solidarity of payment is implemented where the constituent entities have designated a single entity to pay the entire additional tax.

The administrative guidance published by the OECD on 17 June 2024 are not included, due to the deadlines governing the preparation of the Finance Bill. However, they should be “transposed in a forthcoming finance bill or, in the case of provisions that do not fall within the scope of the law”, included in the guidelines published by the tax administration (BOFiP).

Changes to the merger regime

French law had been modified to transpose the European Directive on cross-border reorganizations (27 November 2019), it has introduced a number of changes: a new type of merger without share/securities exchange, a new partial demerger (consisting in the direct allocation of the securities representing the contribution to the shareholders of the contributing company), and a new definition of the partial contributions of assets.

The new type of merger does not require any capital increase or issuance of shares: no equity securities will be issued if the shareholders of all the merging companies hold the same proportion of shares in all of the merging companies, and if these proportions are maintained after the merger.

The new partial demerger regime enables shares to be allocated directly to the contributing shareholders. This eliminates the need for a two-stage distribution, i.e. a partial contribution of assets followed by a distribution in kind by the transferring company to its shareholders. This is a transaction in which the shareholders of the transferor receive the securities issued in consideration for the contribution, without the transferor legal entity disappearing.

The new definition of a partial contribution of assets is the transaction by which a company contributes part of its assets and, where applicable, part of its liabilities to one or more existing or new companies, with these companies being able to decide by mutual agreement to make the transaction subject to the demerger regime. This definition expressly recognizes the possibility of contributing part of the assets to several beneficiary companies in the course of the same operation.

The Finance bill makes the necessary adjustments to French tax law to enable those newly-created operations to benefit from the preferential corporate income tax regime that currently applies to mergers (and assimilated operations). In essence, this exempts from tax the capital gains and profits realised by the company that is merged/contributed.

Take away

The Finance Bill for 2025 should not be considered final. In the absence of a majority in parliament, it is highly likely that several measures will be adopted as the budget is discussed, with the aim of increasing the tax burden on French companies. By way of examples, the benefits of the research tax credit could be reduced in the coming weeks.