French General Tax Code
In forceI. - The net financial charges borne by an undertaking which is not a member of a group, within the meaning of Articles 223 A or 223 A bis, are deductible from taxable income subject to corporation tax up to the higher of the following two amounts:
1° Three million euros;
2° 30% of its income determined under the conditions of II.
The amount referred to in 1° of this I is per financial year, if necessary reduced to twelve months.
II. - The income referred to in 2° of I is determined by adjusting the taxable income subject to corporation tax at the rates referred to in the second paragraph and in b of I of Article 219 des montants suivants :
1° Net financial charges determined in accordance with III of this article;
2° Depreciation allowed as a deduction, net of taxable reversals and fractions of capital gains or losses corresponding to depreciation deducted, to depreciation expressly excluded from deductible expenses, or to depreciation that has been deferred in disregard of the provisions of article 39 B ;
3° Provisions for depreciation allowed as a deduction, net of taxable reversals of provisions for depreciation;
4° Gains and losses subject to the rates mentioned in a of I and IV of article 219.
The taxable income referred to in the first paragraph of this II refers to that obtained before allocation of losses and before application of the provisions of this article. It takes into account deductions for the tax base and allowances deducted for this same base.
If the option mentioned in V is exercised, the result mentioned in 2° of I takes into account neither the result relating to the contracts mentioned in 3 of III determined under the conditions of II, nor the result mentioned in b of 2 of IV.
III. - 1. For the application of I of this article, net financial charges mean the excess of deductible financial charges after application of I of article 212, in relation to taxable financial income and other equivalent income received by the company.
2. The financial charges and income referred to in 1 of this III correspond to interest on all forms of debt, i.e. those relating to sums left or made available to the company or by the company, including:
a) Payments made in connection with equity loans or bonds;
b) Amounts disbursed in connection with alternative financing;
c) Amortisation of capitalised interest included in the original cost of an asset and, where applicable, the portion of interest included in the net book value of assets removed from the balance sheet;
d) Amounts measured by reference to a financial return determined by comparison with similar businesses normally operated within the meaning of Article 57 ;
e) Interest paid under derivatives or hedging contracts relating to the company's borrowings;
f) Exchange gains and losses relating to loans, borrowings and instruments linked to financing ;
g) Guarantee fees relating to financing transactions;
h) Debt-related administration fees;
i) The amount of rental income, less amortisation, financial amortisation applied by the lessor pursuant to I of Article 39 C and the costs and ancillary services invoiced to the lessee in the case of leasing, rental with a purchase option or leasing of movable property between affiliated companies within the meaning of 12 of Article 39 ;
j) All other costs or income equivalent to interest.
The expenses and income to be used to determine the net financial expenses for a financial year include expenses incurred and income acquired during that financial year.
3. The net financial expenses referred to in 1 of this III do not include the net financial expenses borne by the delegatee, concessionaire and private partner and relating to the assets acquired or built by it as part of:
1° A public service delegation referred to in Article 38 of Law no. 93-122 of 29 January 1993 relating to the prevention of corruption and the transparency of economic life and public procedures, as it stood prior to the entry into force of Order no. 2016-65 of 29 January 2016 relating to concession contracts ;
2° A public works concession contract, as defined by Order No. 2009-864 of 15 July 2009 on public works concession contracts, as it read prior to the entry into force of the aforementioned Order No. 2016-65 of 29 January 2016;
3° A concession contract referred to in Article L. 2224-31 of the General Code of Local Authorities;
4° A partnership contract, as defined by Ordinance No. 2004-559 of 17 June 2004 on partnership contracts, in its version prior to the entry into force of Ordinance No. 2015-899 of 23 July 2015 on public contracts;
5° An emphyteutic lease provided for in Article L. 1311-2 of the General Code of Local Authorities, as it stood prior to the entry into force of the aforementioned Order No. 2016-65 of 29 January 2016, or Article L. 6148-2 of the Public Health Code, as it stood prior to the entry into force of the aforementioned Order No. 2015-899 of 23 July 2015;
6°A contract with a subject equivalent to the contracts mentioned in 1° to 5° of this 3, concluded with a contracting authority or contracting entity of another Member State of the European Union.
The net financial expenses mentioned in the first paragraph of this 3 also include those borne by the company whose sole purpose is the holding of securities of companies acting exclusively as delegatee, concessionaire or private partner under contracts mentioned in 1° to 6°.
This 3 applies to financial expenses borne under contracts mentioned in 1° to 6° signed before 29 December 2012.
IV. - 1. By way of exception to I, VI and VII of this article, the net financial charges referred to in 1 of III borne by the companies defined in article 238 bis HW or by the co-contractor of a contracting authority, a contracting entity or a conceding authority and relating to assets acquired or built by it in the context of are deductible, under the conditions determined in 2 and 3 of this IV:
1° A partnership contract provided for in Article 67 of the aforementioned Order No. 2015-899 of 23 July 2015;
2° A concession contract provided for in I, II or III of Article 6 of the aforementioned Order No. 2016-65 of 29 January 2016;
3° An emphyteutic lease referred to in 5° of 3 of III of this Article;
4° Of a contract in the course of performance concluded before the entry into force of the provisions mentioned in 1° to 3° of this 1 and which, in view of its purpose, would have fallen within the scope of these provisions;
5° Of a contract with a purpose equivalent to the contracts mentioned in the same 1° to 3°, concluded with a contracting authority, a contracting entity or a conceding authority of another Member State of the European Union.
This 1 applies to net financial charges incurred in connection with the contracts mentioned in 1° to 5° signed on or after 29 December 2012 and for which either a consultation has been initiated, or a competitive tender notice or a concession notice has been sent for publication, or a procedure for approval by decree has been initiated before the date of promulgation of Law no. 2018-1317 of 28 December 2018 on finance for 2019, as well as to the net financial charges borne by the companies defined in Article 238 bis HW of this code.
2. Net financial expenses borne by the companies mentioned in the first paragraph of 1 of this IV or relating to the contracts mentioned in the same 1 are deductible up to the higher of the following two amounts:
a) Three million euros;
b) 30% of the income relating to these contracts and determined under the conditions of II.
3. Net financial expenses not deductible in respect of a financial year, pursuant to 2 of this IV, are deductible, in respect of that financial year, up to 75% of their amount.
V. - The net financial charges referred to in 3 of III and 1 of IV are those relating to loans used exclusively to finance long-term public infrastructure projects where the project operator, the financial charges, the assets and the income are all located in the European Union.
3 of III and IV apply by option of the company referred to in I. This option must be notified no later than the deadline for filing the income tax return for the first financial year in respect of which it is requested. It is irrevocable and formulated for a period of ten years and is renewable at the end of this period;
VI. - A company that is a member of a consolidated group may also deduct 75% of the amount of net financial charges not allowed as a deduction pursuant to I when the ratio between its shareholders' equity and its total assets is equal to or greater than that same ratio determined at the level of the consolidated group to which it belongs.
For the application of the first paragraph of this VI:
1° Net financial expenses means those determined in accordance with III before application of VIII;
2° The consolidated group means all French and foreign companies whose accounts are fully consolidated for the preparation of consolidated accounts within the meaning of Article L. 233-18 of the French Commercial Code or within the meaning of the international accounting standards referred to in article L. 233-24 of the same code;
3° The ratio between the shareholders' equity and the total assets of a company is considered to be equal to the equivalent ratio of the consolidated group to which it belongs when the first ratio is less than the second ratio by a maximum of two percentage points;
4° The shareholders' equity and the total assets of the company and of the consolidated group to which it belongs are valued using the same method as that used in the consolidated accounts referred to in 2° of this VI.
VI bis. - 1. The net financial expenses mentioned in 1 of III incurred by the company defined in 2 of this VI bis, which are not deductible in respect of a financial year pursuant to I, are deductible, in respect of that same financial year, up to 75% of their amount.
2. This VIa applies to a company which, in respect of the financial year referred to in 1, is not a member of a consolidated group within the meaning of 2° of the VI and has no establishment outside France, nor any associated company within the meaning of the first four paragraphs of 4 of Article 2 of Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules to counter tax avoidance practices which have a direct impact on the functioning of the internal market.
3. IV and VIII of this article shall not apply to the company defined in 2 of this VIa for the financial year in respect of which it deducted its financial charges under the conditions provided for in 1.
VII. - 1. By way of exception to I, when the average amount of sums left or made available by all directly or indirectly affiliated companies within the meaning of 12 of article 39, during a financial year, exceeds, in respect of that financial year, one and a half times the amount of shareholders' equity, assessed at the company's discretion, at the beginning or end of the financial year, the net financial charges determined in accordance with III of this article are deductible :
a) For a fraction of their amount, within the limit of the higher of the two amounts provided for in I retained up to this amount multiplied by the same fraction. This fraction is equal to the ratio existing between, in the numerator, the average amount of sums left or made available to the company during the financial year by companies that are not directly or indirectly related within the meaning of Article 39 12 added to one and a half times the amount of equity capital mentioned in the first paragraph of this 1 and, in the denominator, the average amount of all sums left or made available to the company during the financial year ;
b) For their balance, within the limit of the higher of the two amounts, between one million euros and 10% of the result determined under the conditions of II, retained up to this amount multiplied by the ratio existing between, in the numerator, the amount of sums left with or made available to the company by directly or indirectly affiliated companies within the meaning of Article 39(12) exceeding one and a half times the amount of equity capital referred to in the first paragraph of this 1 and, in the denominator, the average amount of all sums left with or made available to the company during the financial year.
The amount of one million euros referred to in b is per financial year, where applicable reduced to twelve months.
Net financial expenses not allowed as a deduction pursuant to the same b in respect of a financial year may be deducted in respect of subsequent financial years in accordance with 1 of VIII up to one third of their amount.
When the company meets the conditions provided for in the first paragraph of this 1, it may not benefit from the provisions of VI.
2. For the application of 1 of this VII, sums left with or made available to the company by companies that are not directly or indirectly linked to it within the meaning of 12 of Article 39 are considered to be sums relating to:
a) Financing transactions carried out, under an agreement for the centralised management of the cash of affiliated undertakings, within the meaning of the same 12 of Article 39, by one of these undertakings responsible for this centralised management for the benefit of which the sums are made available;
b) The acquisition of assets leased under the conditions provided for in 1 and 2 of Article L. 313-7 of the Monetary and Financial Code.
Sums left with or made available to the company by companies that are not directly or indirectly linked to it within the meaning of Article 39(12) of this Code are also considered to be sums left with or made available to credit institutions or finance companies mentioned in Article L. 511-1 of the Monetary and Financial Code.
3. 1 of this VII does not apply if the undertaking provides proof that the debt ratio of the consolidated group to which it belongs is greater than or equal to its own debt ratio in respect of the financial year referred to in the same 1.
For the application of the first paragraph of this 3:
a) The consolidated group means the group defined in 2° of VI;
b) The company's debt ratio corresponds to the ratio existing between the total amount of its debts and the amount of its equity. The debt ratio of the consolidated group is determined by taking into account the debts, with the exception of those owed to companies belonging to the consolidated group;
c) The debt ratio of the company is considered to be equal to the debt ratio of the consolidated group to which it belongs when the first ratio is higher than the second ratio by a maximum of two percentage points ;
d) The debt and equity of the undertaking and of the consolidated group to which it belongs are valued using the same method as that used in the consolidated accounts referred to in the same 2°.
VIII. - 1. Net financial charges not allowed as a deduction pursuant to I and VI and a of 1 of VII and those which may be carried forward pursuant to the penultimate paragraph of the same 1 in respect of previous financial years may be deducted up to an amount equal to the positive difference between the limit mentioned in I applied in respect of the financial year or, where the condition mentioned in the first paragraph of 1 of VII is met, the limit mentioned in a of the same 1 applied in respect of the financial year and the net financial charges for the financial year less, where applicable, those subject to the ceiling in b of the said 1. Net financial expenses not allowed as a deduction after application of this 1 may be deducted under the same conditions in respect of subsequent financial years.
2. The unused deduction capacity, understood as the positive difference between the limit mentioned in I applied in respect of the financial year and the net financial charges allowed as a deduction in respect of the financial year in application of I and VI as well as 1 of this VIII, may be used in respect of the five following financial years to deduct from the income for these financial years the amount of net financial charges not allowed as a deduction after application of I and VI. This unused deduction capacity may not be used to deduct financial charges carried forward in accordance with 1 of this VIII.
IX. - A decree sets out the reporting obligations of the companies mentioned in I.
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