French Tax Report and Financial Market News

This is the 1st edition of the French Tax Report and Financial Market News that we will endeavour to circulate on a monthly basis; it will provide you with the relevant current French tax news together other general information regarding the French financial market.

A. French Finance Bill For 2022 (Bill)

The Bill was definitely enacted on 31 December 2021. We provide below a summary of its main provisions.

1. French withholding tax (WHT) on certain French source income : flat rate allowance

Article 182 B of the French General Tax Code (GTC) provides for a WHT on certain French source income (royalties, income for provision of services, etc) paid to non residents of France. The rate of the WHT would vary, depending on the recipient, from 15% to 25% to 75%.

Up to the implementation of the Bill, the WHT was applied to the gross amount of the underlying income.

From 1 January 2022, to comply with the EU law, the WHT will apply to the gross amount reduced by a flat 10% allowance which would be deemed to represent the costs associated with the income.

The allowance will apply when the recipients are entities and organisations
(individual recipients are not in scope) established within the European Union, or within the European Economic Area (EEA) when, in the latter case, the relevant jurisdiction has concluded a treaty with France with an administrative assistance provision to combat tax fraud and evasion (Iceland, Liechtenstein and Norway).

2. Refund of the WHT

Another Bill’s provision to comply with the EU rule.

From 1 January 2022, the WHT due under the above article 182 B, together with the WHT due under article 182 A bis (provision of artistic services) and article 119 bis, 2 (dividends) of the GTC, may benefit from a refund equal to the difference between the WHT applied to the gross income’s amount and the WHT applied to the gross amount minus the acquisition and conservation costs directly related to the underlying income.

The recipients should be the ones mentioned under (1) above. In the specific case of article 119 bis, 2 , the recipient of the dividends may be also outside EU and EEA (but only if the distributing entity does not allow the recipient to participate in its management), assuming its jurisdiction of tax residency or establishment has concluded a treaty with France with an administrative assistance provision to combat tax fraud and evasion.

The eligible costs are those which would have been deductible if borne by a French corporate taxpayer, to the extent the taxation rules of the recipient’s jurisdiction does not allow to impute a tax credit representing the WHT.

The request for the refund should be filed not later than the 31 December of the 2nd calendar year following the one during which the WHT took place.

3. Proposals to tax French manufactured dividends

Certain members of the National Assembly (lower house) and of the Senate had proposed to broaden the current scope of the taxation of the French manufactured dividends to all derivative transactions where the underlying would be French equities.

Under the current rule, only the stock loans (and assimilated trades) of less than 45 days, between a French resident borrower and a non French resident lender , are in scope; any related manufactured dividends is subject to a WHT which may be refunded if it is evidenced that the transaction was not principally tax motivated.

The above proposals were rejected with the support of the Government.

NB: Separately, during a hearing before the Senate, a representative of the tax administration announced that there are currently 7 French banks under tax audit for their transactions involving French dividends. The position of the tax administration is that these banks are not the effective beneficiaries of the French dividends they receive and accordingly the dividends should be liable to WHT.

4. Proposals concerning the treaties’ WHT exemptions

Certain members of the National Assembly and of the Senate had proposed that when a tax treaty signed by France provides for a WHT exemption on French source dividends, the WHT should be applied upfront by the paying agent and the recipient should file for a refund which would be conditional upon the evidence that the underlying transaction was not tax motivated.

These proposals were rejected with the support of the Government.

B. Ten biggest financial transactions in the French market during 2021

According to the French daily Les Echos the list is as follows :

• Record year for Société Générale in terms of profits, streamlining of its retail business, together with various business developments (in the asset management selling Lyxor to Amundi , and, in the car leasing, in discussions with LeasePlan, etc)

• Sale by BNPP of its US retail business, Bank of West, to Banque de Montréal and acquisition of Floa Bank from Casino and Crédit Mutuel

• Delisting of Natixis

• Continuing development of La Banque Postale in insurance (acquisition of the balance of CNP Assurances equity it did not already own), in investment banking and in in the Italian market (purchase of Aviva business over there)

• Credit Agricole increasing presence in Italy (purchase of the remaining 90% in Credito Valtellinese), and in exclusive discussions with Stellantis for a joint venture in car leasing

• Sale by HSBC of its French retail business

• The purchase of Aviva France by Macif

• Purchase of a reinsurance business (Partnerre) by Covéa

• In private equity: listing of Antin

• In payment services : decision by Worldline to dispose of the hardware business of Ingenico