Finance Bill for 2020

9 January 2020

New criteria for tax domiciliation in France applicable to executives of large companies

According to Article 4B of the French Tax Code, individuals are deemed to be French tax residents if they have their main home or place of residence in France, if they carry on their main professional activity there or have their main economic interests there.

The criterion of the main professional activity carried on in France  is extended to the chairperson of the board of directors, the managing director and the members of executive boards  of entities having a head office located in France, with an annual turnover in France in excess of EUR 250 million (for companies controlling other companies, the turnover taken into account is obtained by adding together the turnover of the company and that of the controlled companies).

This provision applies as from the taxation of income for the year 2019, as from 1 January 2020 in the case of wealth tax and to open estates and donations also as from 1 January 2020.

In practice, this new definition of the tax domicile will frequently be deprived of scope by the application of double tax treaties. This will be the case if the executive has a permanent home in a State that has signed a treaty with France that incorporates the provisions of Article 4 of the OECD Model Treaty.

The withholding tax on salaries, pensions and life annuities paid to non-residents  is adjusted for 2021 and 2022; it will be abolished as of 2023 and replaced by the “prélèvement à la source”

The favorable tax regime is now applicable to mergers or demergers without exchange of shares, such as mergers between two sister companies wholly owned by a parent company

Prior approval from the tax authorities is withdrawn under certain conditions for the transfer of the loss carry forward in the event of a merger

The exemption from prior approval concerns only those mergers placed under the preferential tax regime of Article 210 A of the French Tax Code for which the cumulative amount of the loss carry forward is less than €200,000.

That amount must not derive either from the management of movable assets by holding companies or from the management of immovable assets.

Finally, during the period in which the loss carry forward has been recorded, the absorbed company must not have sold or ceased the operation of a business or establishment.

Foreign loss-making companies benefit, upon request and subject to conditions, from a temporary refund or exemption from withholding taxes