The year 2020 has been exceptional for many reasons, as the Government has tried by all means to curb the effects of the health crisis. The Finance Law for 2021 (the " Finance Law") is a perfect illustration of this and reduces certain taxes and fiscal charges in order to allow the French economy to rebound in the context of the 100 billion euro "France Relance" plan.
The following are the main measures in business law, whether they concern individuals, companies or employee share ownership. These measures are applicable as from January 1, 2021 and therefore concern open fiscal years or decisions of the partners pronouncing themselves as from this date.
CORPORATE TAX RATE
The Finance Act continues the trajectory of corporate tax cuts already initiated, with differentiated cuts based on company revenues:
- the reduced corporate tax rate of 15% (which was previously reserved for companies with sales of less than 7.63 million euros excluding tax) is now extended to companies with annual sales of up to 10 million euros excluding tax. The fraction of the profit concerned by this reduced rate remains unchanged, up to 38,120 euros of taxable profit per fiscal year.
- the standard corporate tax rate has been lowered to 26.5% (27.5% for companies with revenues of more than €250 million) and is expected to reach 25% for all companies by 2022.
EXEMPTION FROM EMPLOYER'S CONTRIBUTIONS IN THE CASE OF BONUS SHARE GRANTS (AGA)
As a reminder, until now only companies qualified as micro, small and medium-sized enterprises (less than 250 employees and having either a turnover not exceeding 50 million euros or an annual balance sheet not exceeding 43 million euros) could benefit from an exemption on AGAs.
The Finance Act extends the scope of this exemption from the employer's contribution on AGAs to FTEs if the following conditions are met:
- less than 5,000 employees,
- a turnover not exceeding 1.5 billion euros or a balance sheet total not exceeding 2 billion euros, and
- the absence of dividend payments since its creation.
With the exception of the last condition, these conditions are assessed at the level of the company granting the bonus shares by integrating the data of its affiliated companies.
The value of the free shares granted to the beneficiaries must not exceed the annual social security ceiling (i.e. 41,136 euros for the year 2020). For the assessment of this limit, the free shares acquired during the current year and the three previous years are added together. If this limit is exceeded, the exemption will be lost in full.
REDUCTION OF THE SOCIAL SECURITY RATE
As a reminder, the lump-sum social security tax is a contribution payable by the employer which is deducted from remuneration or earnings exempt from Social Security contributions but subject to the general social security contribution (CSG). Amounts paid in respect of employee profit-sharing and incentive schemes and employer contributions to company savings plans (PEE) are subject to this flat-rate social security contribution.
The Finance Act provides for a reduced rate of 10% of the social security tax on sums paid unilaterally by an employer into a PEE when these sums are devoted to the acquisition of shares or investment certificates issued by the company or by a company in the group.
It also provides for a temporary exemption from the social security tax for the years 2021 and 2022 applicable to employer contributions supplementing voluntary payments by the employee to a PEE to acquire shares or investment certificates issued by the company or by a group company.
These incentives aim to strengthen the equity of companies by encouraging employees to become shareholders, while encouraging companies to provide financial support for their employees' savings.
REDUCTION OF FORMALITIES RELATING TO CERTAIN CORPORATE ACTS
At present, when filing certain deeds, companies must take two steps: first, they must file the deeds with the tax authorities to carry out the registration formality, and second, they must file them with the clerks of the commercial courts to be entered in the trade and companies register (R.C.S). In addition, certain transactions must be recorded in the form of original documents. This formalism can be the cause of significant processing delays and thus of a lack of fluidity in the company's economic activity. The Finance Law simplifies and lightens these procedures.
a) Relaxation of the requirement of prior registration for certain acts
The formalities of registration or modification at the clerk's office of the court may be carried out before the execution of the registration formalities with the tax authorities, even for company deeds which remain subject to registration.
A prior registration obligation with the tax authorities is maintained for the following transactions:
- the transfer of corporate rights,
- the transfer of a business or clientele, and
- the transfer of lease rights could of the profit.
b) Abolition of the registration requirement for certain acts
The registration requirement has been waived for the following transactions:
- recognition of capital increases (by cash contributions or by incorporation of profits, reserves or provisions),
- capital reductions and write-downs, and
- constitutions of economic interest groups (EIG).
The Parties may nevertheless decide to register the deeds relating to the operations listed above in order to give them a certain date.
The following transactions remain subject to registration with the tax authorities:
- capital increases through contributions in kind,
- change in the corporate form of the company, and
- transfers of corporate rights.
c) Recognition of the possibility of registration of certain electronically signed documents
In line with the flexibility shown by the tax authorities in accepting the registration of electronically signed documents, the Finance Law modifies the provisions of articles 658 and 855 of the CGI and thus allows all documents signed in electronic form to be registered.
However, this rule does not apply to the unilateral promises of sale mentioned in article 1589-2 of the Civil Code. These are unilateral promises of sale relating to an immovable, a real estate right, a business or a right to a lease or relating to the securities of real estate companies in co-ownership.
COUNTERPARTIES IMPOSED ON COMPANIES BENEFITING FROM THE STIMULUS PLAN
In order to benefit from tax relief under the Recovery Plan, companies with more than 50 employees are required, by December 31, 2022, to establish and make public the following indicators:
- a simplified greenhouse gas emissions report (companies with between 51 and 250 employees have a "waiver" until December 31, 2023 to prepare this document);
- the main indicators of equality between men and women, combined with the actions implemented to improve its results when the indicators are below a threshold set by decree.
In addition, companies receiving such aid must inform the Social and Economic Committee (CSE) of the amount, nature and use of the aid they receive. This information-consultation is subject to specific procedures.
If these criteria are not met, a penalty of up to 1% of the total payroll of the company concerned may be applied.
ALLOCATION OF LOSSES RESULTING FROM A TOTAL CAPITAL REDUCTION
As a reminder, article 150-0 D 12 of the CGI provides that losses incurred in the event of the cancellation of securities, corporate rights or similar securities in the context of a bankruptcy proceeding may be deducted from capital gains of the same nature realized as from the year in which one of the following events occurs
- capital reduction as part of a recovery plan ;
- court-ordered transfer of the company;
- judgment of closure of the judicial liquidation.
Following the decision rendered on November 22, 2019 by the Conseil d'Etat (n°431867), the Finance Act extends the possibility of setting off losses to the hypothesis of a total reduction of the company's capital pursuant to the procedure provided for in Articles L.223-42 and L.225-248 of the French Commercial Code.
This provision is applicable to the income tax due for the year 2020. However, it is still possible to file a claim based on the decision of the Conseil d'Etat for losses realized at an earlier date.
ADJUSTMENT OF THE TAX TREATMENT OF THE CAPITALIZATION OF A DISCOUNTED CLAIM
This is the situation where a company acquires a claim from a target company for less than its nominal value and then decides to participate in a capital increase by offsetting this claim. For the company holding the claim, a profit will then be recognized, equal to the difference between the acquisition value of the claim and the book value of the subscribed securities.
In principle, the company holding the contributed claim is not taxed on the difference between the nominal value of the securities received and the redemption value of the claim, provided that there is no arm's length relationship between the original creditor (transferor) and the target company (debtor). This regime allows to tax only the possible increase in value between the acquisition price of the discounted debt and the real value of the shares received in consideration (i.e. the increase in value of the target company between the date of acquisition of the debt and the date of the capital increase).
The Finance Law relaxes the regime provided for in Article 209 VII bis of the CGI by removing the condition of absence of link between the initial creditor and the target company in the case where the capital increase is carried out within the framework of a conciliation protocol recorded or approved or within the framework of a safeguard or recovery plan. This flexibility is intended to allow for the immediate recapitalization of distressed companies whose securities and debt have been purchased by a new shareholder.
