Finance Act for 2022: Main Legal Provision

Extension of the tax allowance on capital gains made by a retiring SME (Small and Medium Enterprises) manager (article 150-0 D ter of the French Tax Code).

Retiring SME managers can benefit from a fixed tax allowance of € 500,000 regarding the tax basis in relation with capital gains made concerning transfers of shares of the company they are running, provided the latest is subject to corporate income tax.

This tax measure, which had already been extended until December 2022, is now prolonged until 31 December 2024.

The tax measure is still subject to retirement of the manager within two years, before or following the transfer of shares but in order to acknowledge the economic and health context, which does not favor the swift execution of contracts, the deadline is increased to three years instead of two for the managers who retired between 1 January 2019 and 31 December 2021, in case of termination of duties prior to said transfer of shares.

In the event of non-compliance with this three-year time limit, the fixed tax allowance shall be challenged by the tax authorities for the year in which the deadline expires.

NEPTUNE law firm is willing to assist you regarding these legal matters, as counsel or legal defendant, to make the best of statutory regulations and case law.

Temporary exemption on tax amortization regarding the French notion of « fonds de commerce » (« universality of business assets »).

The French Finance Act for 2022 states, as a general principle, that the amortizations of universality of business assets are not deductible from taxable income and immediately provides for a temporary exemption by allowing the deductibility of book amortizations from the taxable income regarding companies sold as of 1 January 2022 until 31 December 2025.

This temporary authorization refers to universalities of business assets amortized in the accounts and not to universalities of business created by their owners.

NEPTUNE law firm is at your disposal to assess any related business opportunities regarding this tax measure.

Tax credit in favor of collaborative research (« Crédit d’Impôt en faveur de la Recherche Collaborative – CIRC » in French)

Prior to 2021, the tax basis of the tax credit in favor of research (« Crédit d’Impôt Recherche – CIR » in French) included expenditures of the company in relation to operations entrusted to subcontractors, which may have been private entities, public bodies, or any equivalent. Those outsourced expenditures were taken into account for twice their amount for determination of the tax credit, however this incentive scheme was challenged before the European Commission and subsequently removed.

The risk was strong to see a drastic decrease in private/public partnerships, hence the creation of a new tax credit, separate from the old CIR, and provided for in article 244 quater B bis of the French Tax Code.

This new tax credit concerns companies in respect of their expenditures billed by bodies in charge of research and knowledge diffusion (« Organisme de Recherche et de Diffusion des Connaissances – ORDC » in French) in the framework of a research partnership agreement (« contrat de collaboration de recherche » in French) entered into until 31 December 2025.

Those agreements concern the joint carrying, by a company and one or many research entities, of research projects, with a split in related risk and results. This is not equivalent to classic subcontracting since the entities do not charge any trade margin, given that the profits related to the project benefit them just as any other.

Signatory bodies shall obtain a formal approval from the Ministry of Research to guarantee their « ORDC » status.

For this purpose, companies can benefit from a tax credit amounting to 40 % of charged amounts, within the limit € 6,000,000 per year. The rate is increased to 50 % for SME. These amounts are also used to determine the research expenditures ratio in relation with the young innovative company status (« jeune entreprise innovante » in French).

Being generous tax measures, these are to be interpreted strictly, a task that NEPTUNE law firm can help you with.

Extension and arrangements of the tax credit for innovation (« Crédit Impôt Innovation – CII » in French)

The article 244 quater B-II-k of the French Tax Code provides for a tax credit for companies regarding the carrying of operations in relation to the design of prototypes or drivers setup for new products.

This tax measure is extended until 31 December 2024 and the rate for the tax credit is raised from 20 % to 30 % as general lax in continental France as of 2023.

Value Added Tax – VAT (« Taxe sur la Valeur Ajoutée – TVA » in French) liability for advance payments regarding supply of goods

Rules regarding payability used to be traditionally different between provision of services and supply of goods:

• Supply of goods: VAT due at the time of the delivery, advance payments used to have no impact on VAT payability;
• Provision of services: VAT due at the time of the collection the sums, except in case of an option for VAT payable at the time of the debit of accounts receivable.

From now on, advance payments will make VAT payable. However, entry into force is postponed to 1 January 2023.

This change shall bring the French law in line with the European VAT directive, following a ruling from the administrative court of appeal of Nantes of 28 May 2021 (n°19NT03579) It will allow, in case of advance payments, companies to deduct VAT sooner on purchases and, for the French State, to receive VAT sooner concerning supplies of goods.

It is a perfect opportunity to review your VAT processes, in terms of compliance of your VAT returns to the authorities or even concerning your reliable audit trail, given that the digital billing obligation is coming very soon.