Guidelines On French CFC Rules
Last January 1,2006, the French Tax administration had
made available detailed guidelines on the new CFC rules. Let’s take a
brief overview of that CFC:
Eligible Participants
To know the level of participation, the privileges held
directly and those that are held indirectly should be added. The
overseas CFC falls within the range of the latest rules if somehow the
French parent or main company holds a minimum of 50% of the voting
privileges, or 50% of monetary privileges, or both.
Meaning of low tax jurisdiction
A low tax jurisdiction happens if the tax that is
effectively paid by the foreign company or entity is lower than 50
percent of the tax that could have been paid to the government of France
if the entity or company was operated there.
How to determine the deemed income
According to article 209 B CGI of the French Tax Code,
business income and passive incomes are no longer assessed separately.
For that reason, losses coming from the French legal entity or company
may be equalize against the profits of the CFC while in reverse
situation losses can only be passed ahead.
Safe-harbor rules
The European Union is exempted or do not apply when it
comes to the new CFC rules unless the structure is a fake ploy and the
main purpose is to prevent from paying French tax. That means that the
entity has no physical presence as well as no effective activity. If the
foreign entity is outside the European Union, they can also be exempted
or CFC does not apply if the entity is mainly involved in commercial or
industrial activities that have a real confined locally inclined
substance. When it comes to Swiss entities, the new rules are thus more
positive and favorable.
Binary Taxation relief
The new CFC guidelines clearly state the forms of relief
that are available, whereby along with other conditions the foreign tax
payable on the profits that falls under Art. 209 B CGI may be equalizing
adjacent to the equivalent French tax.
What are the implications of the new CFC rule for
investors?
Undoubtedly, the new CFC rules are much constructive than
the old one in a lot of aspects. It had opened the opportunity up to a
certain level, for the use of Swiss entities or companies by French
companies or groups when it comes to global tax planning situations.
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