French General Tax Code
In forceI. - French companies that invest abroad with a view to setting up a sales establishment, a design office or an information office, either directly or through a company in which they hold at least 10% of the capital, may set up a tax-free provision in an amount equal to the losses incurred during the first five years of operation of their establishment or this company, up to the limit of the sums invested in capital during the same years.
However, for investments made in countries on a list drawn up by the Minister for the Economy and Finance, the amount of the provision may be equal to the sums invested in capital during the first five years.
To be eligible for the provision, the investments must have been brought to the attention of the Minister of the Economy and Finance prior to their implementation and must not have given rise to any objection on his part within a period of two months.
The provisions of the present I are no longer applicable to investments which are the subject of a request for prior approval filed after 31 December 1987.
I bis. - French companies which set up their first commercial establishment in a foreign State in the form of an establishment or a subsidiary in which they hold at least a quarter of the capital may, where the investment made is less than 5 million francs, set up a tax-free provision in an amount equal to the losses incurred during the first five years of operation of the establishment or subsidiary, up to the amount of the investment.
The sole activity of the establishment or subsidiary must be the marketing of goods produced by the company in one of its establishments, the results of which are subject to corporation tax.
The investment is equal to the net amount of capital transferred to the establishment during the first five years of operation or to the amount of capital injections into the subsidiary made during the same period, up to the limit of expenditure actually incurred for the purposes of the activity defined in the second paragraph.
The provisions of this I bis do not apply to investments that are made for banking, financial, insurance and activities defined in Article 35.
When the establishment is made in a State that is mentioned on the list drawn up by an order of the Minister in charge of finance, the provision may be equal to the amount of the investment.
The provisions of this I bis are no longer applicable to investments made as part of a first commercial establishment made after 31 December 1987.
I ter. - The provisions of I bis also apply to French companies whose establishment or subsidiary has as its sole activity the marketing of goods produced by companies or establishments whose results are subject to corporation tax; in this case, this activity must relate principally to goods produced by the company making the provision referred to in the said I bis.
I quater. - French companies that set up their first commercial establishment in a foreign country that is not a member of the European Community in the form of a subsidiary in which they hold at least a quarter of the capital may set up a tax-free provision equal to the amount of the investment made during the first five years of the establishment.
The subsidiary must have as its business the marketing abroad of goods produced mainly by the company in one of its establishments whose results are subject to corporation tax.
The investment is equal to the amount of the capital injections into the subsidiary made during the first five years of the establishment, up to the limit of the expenditure actually incurred for the purposes of the activity defined in the second paragraph.
The provisions of this I quater apply to the first commercial establishments made as from 1 January 1988.
The provisions of this I quater no longer apply to investments made as part of a first commercial establishment made after 31 December 1991.
II. - French companies making an industrial or agricultural investment in one of the countries on a list drawn up by the Minister for the Economy and Finance and the Minister for Industrial and Scientific Development, either directly or through a company in which they hold at least 10% of the capital, may, with the approval of the Minister for the Economy and Finance given after consultation with the Minister for Industrial and Scientific Development, set aside a tax-free provision equal to half of the sums invested in capital during the first five years of operation.
The provisions of the first paragraph are no longer applicable to investments that have not been the subject of an application for approval filed before 1 January 2004.
II bis. - The provisions of II also apply under the same conditions to investments made abroad by a French company, as from 1st January 1988, through a subsidiary in which it holds at least 25% of the capital and whose main purpose is to provide a service necessary for the marketing of goods produced by companies or establishments whose results are subject to corporation tax. However, when the investment is made in a Member State of the European Community, the provision is equal to the losses incurred during the first five years of operation in the proportion, calculated in nominal value, of the securities of the subsidiary giving entitlement to dividends held by the French company over all the securities giving entitlement to dividends issued by the subsidiary, and within the limit of half the investment.
The provisions of the first paragraph are no longer applicable to investments which are the subject of an application for approval filed after 31 December 1991.
III. - Provisions deducted by application of I to II bis are applied in equal fractions to taxable profits for five consecutive financial years, starting with the sixth following that of the first investment.
IV. - The provisions of I to III may be applied to groups of companies. The benefit of the provisions of I quater may be granted with the approval of the Minister responsible for the budget under the conditions and within the limits laid down by this approval.
V. - The benefit of the provisions set out in I, I quater, II, II bis, III and IV may be granted, with the approval of the Minister responsible for the budget and under the conditions and limits set out in this approval, to credit institutions and finance companies, the list of which is set by decree, and to industrial, commercial or agricultural companies which, in the interest of a French company and with a view to supporting the latter's investment abroad, participate in the capital of the foreign company set up for this purpose by the company or with which the latter is itself associated.
In the event of non-compliance by the French company or by the credit institution or finance company with the undertakings or conditions to which approval is subject, the provisions of Article 1649 nonies A shall apply to the credit institution or finance company.
