Practitioners Wary of French Minister’s ‘Exceptional’ Tax Comment

Trust Bloomberg Tax for the international news and analysis to navigate the complex tax treaty networks and global business regulations.

By Rick Mitchell

French President Emanuel Macron during his campaign promised tax and other policies to attract foreign investors and boost employment, winning praise from companies for his vow to avoid tax measures that take them by surprise.

But when Economy Minister Bruno Le Maire said on FranceInfo radio Oct. 16 that companies might have to pay an “exceptional contribution” to help cover an estimated 9 billion euro ($10.57 billion) budget shortfall caused by a recent court ruling, it seemed that France’s predilection for unexpected tax wallops may not yet be entirely gone.

The Constitutional Council Oct. 6 voided France’s controversial 3 percent levy on dividends after the European Court of Justice ruled in May that it violates EU law. Released Sept. 27, the government’s draft 2018 budget eliminates the tax as of Jan. 1, 2018, and provides 5.7 billion euros in reimbursements to companies, spread out over five years.

But that’s not enough to cover the 9 billion euros the government will likely have to reimburse, including interest, to companies that have paid the tax since 2013, said Le Maire, adding, “A special contribution by the big groups affected is a possibility. We are in discussions with them.”

Could Be in November Budget Revision

Macron inherited the dividend tax problem when he took office in May.

A 2012 revised budget law imposed a 3 percent corporate surtax on dividends paid out by companies withsales of more than 250 million euros ($293.7 million) and subject to French corporate tax, Then-President Francois Hollande said the idea was to give a strong incentive for businesses to invest in production and employment.

But the tax was immediately on shaky legal ground, and on Sept. 30, 2016, the Constitutional Council voided as unconstitutional its exemption for dividends paid when both parent company and any subsidiary are integrated under France’s tax unity regime, because it was limited to French companies.

On May 17, the European Union Court of Justice found the tax violates the EU Parent-Subsidiary Directive of 2011. The council’s Oct. 6 ruling hammered in the final coffin nail, voiding the entire tax.

Practitioners stressed the government has released no official information on Le Maire’s idea, but they said the exceptional tax would likely have a narrower base than the voided dividends levy.

Stephane Gelin, a Paris-based partner of CMS Bureau Francis Lefebvre, told Bloomberg BNA via email that Le Maire has said he plans to study several options in coordination with companies, and that the project will be made public with the revised budget act for 2017 in November.

Target Energy Companies?

Romain Pichot, Paris-based partner at the law firm Cazals Manzo Pichot AARPI, told Bloomberg Tax that based on what the government has done in the past, the exceptional levy could target major energy companies, including Total, EDF Energy Plc , GDF/Engie and Areva. “These groups are very profitable, depend a lot on public authorities, and have relatively low employment in France,” he said.

The tax also could hit big banking institutions and insurers, but at a lower rate “because these companies employ a lot of people in France. For the same reason, the tax is unlikely to hit companies in the industrial sector or non-financial services, other than in a symbolic way,” he said.

Pichot said the tax could have a very limited economic impact if it hits only about 50 very big companies. “Nevertheless, it could have a big impact on the attractiveness of France, because it gives the impression, once again, that France creates new taxes every time it needs the money,” he said.

Return of ‘Supplementary Tax’?

Herve Quere, senior tax counsel at Baker & McKenzie in Paris, told Bloomberg BNA in a telephone interview that the government has said it wants to negotiate with companies on ways to spread, over two to three years, the amount it has to reimburse.

To cover the budget gap, he said France could decide to bring back the supplementary 10.3 percent contribution, or tax, computed on the corporate income tax paid by big companies, that expired Dec. 30, 2016. He estimated the new tax could affect from 20,000 to 50,000 companies.

Quere said “there would be no direct offset” between what a company gets in reimbursement from the 3 percent dividends levy, and any special contribution it might have to pay. So some companies might have to pay the new tax but get no reimbursement, or vice versa, and other variations are possible, he said.

He said no company wants their corporate tax raised, but companies, especially large groups, will likely understand that this is an exceptional situation the new government has to deal with. But companies’ understanding will depend on the scope of the exceptional contribution. “If the tax is also 9 billion euros, the same as the amount the government has to reimburse in principal plus late interest, I don’t think companies will be satisfied,” Quere said.

To contact the reporter on this story: Rick Mitchell in Paris at

To contact the editor responsible for this story: Penny Sukhraj at

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Request International Tax