FRANCE Law and Practice Contributed by: Raphaële Courtier, Sébastien de Monès, Victor Camatta and Jessica Chartier, Bredin Prat
registration duties in order for such documents to become effective or, as far as security docu- ments are concerned, for perfection purposes. Any party may, however, file the financing docu- ments with the French tax authorities on a vol- untary basis (in practice this is rarely done). In such a case, the registration will give rise to fixed duties ( droits fixes ), the amount of which is nomi- nal. Registration duties may be due upon the enforcement, as the case may be, of the security (eg, sale of shares resulting from such enforce- ment). 8.2 Withholding Tax/Qualifying Lender Concepts Interest paid by French companies to non-res- idents is usually not subject to any withhold- ing tax, except for interest paid outside France in certain non-co-operative jurisdictions (ie, states or territories that do not apply interna- tional standards with respect to exchanges of tax information and have not concluded with France and at least 12 other states or territo- ries a convention on administrative assistance allowing the exchange of information necessary for the application of their respective tax laws, and the states or territories included in the list of non-co-operative jurisdictions established by the EU on the ground that they facilitate the creation of extraterritorial structures or devices intended to attract benefits that do not repre- sent real economic activity), which is subject to a 75% withholding tax, unless the company proves that the main purpose and effect of the transaction are not to transfer income to the non-co-operative jurisdiction. Interest that is excluded from the deductible expenses pursu- ant to certain of the rules described hereafter may generate a deemed distribution and be sub- ject to a withholding tax when the beneficiary is a non-resident (subject to tax treaties, as the case may be).
As far as finance documents are concerned, French law practice does not differ from the European equivalent in terms of withholding taxes. Facilities agreements systematically con- tain provisions that protect lenders against such withholding taxes by imposing a gross-up obli- gation on the borrower if a payment due to the lenders pursuant to the finance documentation becomes subject to a deduction or withholding on account of tax, provided the lender is a quali- fying lender on the date on which the payment is due (unless – and under certain exceptions – its change of status is due to a change in the law having occurred after the date it became a lender) or, if the lender is a treaty lender, pro- vided it has complied with any formalities nec- essary for the relevant obligor to pay without a tax deduction. In addition, lenders located in a non-co-opera- tive jurisdiction or to which payments are made on an account opened in a non-co-operative jurisdiction will not benefit from the gross-up provisions. 8.3 Thin-Capitalisation Rules As a general rule, interest paid by a French com- pany subject to corporate income tax (CIT) is deductible for tax purposes, provided that: • it is incurred in the direct interest of the com- pany’s business and the debt service does not exceed its financial capabilities; • it corresponds to actual and justified interest expenses; • the debt is duly recorded in its balance sheet for accounting purposes; • the financial terms and conditions of the debt are set at “arm’s length” ; and • its deduction is not excluded by any specific provision of French tax law.
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