TAX ALERT | Amendments introduced by the French finance bill

February 2019

Rules governing the deduction of financial expenses are amended

Deductible interests are now limited to 30% of the taxable income before interests, taxes, depreciation and amortization (tax EBITDA), or 3 million euros, whichever amount is higher. Such limit is reduced to 10% or 1 million euros in case of thin capitalization. Specific rules apply to consolidated groups and tax consolidated groups.

Banks and inter-company operations will be affected by these new provisions. Subject to conditions, taxpayers will also have the possibility to carry forward non-deducted interests (for an unlimited period of time) or unused EBITDA capacity (for 5 years). Specific provisions apply to tax consolidated groups.

Amendment to certain neutralization of the tax consolidated income

Up until 2018, the tax consolidation regime allowed the neutralization of inter-company transactions, including debt waivers and subsidies. As from 2019, debt waivers and subsidies will not be neutralized anymore. The Finance Bill introduces the possibility to sell inventories and services at cost within the group (applicable only for domestic transactions). The Finance Bill also provides specific provisions for dividends distribution and capital gains arising from intra-group sales of shares.

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Pauline Combes

Tax specialist

Alain Boudot

Partner