FRANCE Law and Practice Contributed by: Raphaële Courtier, Sébastien de Monès, Victor Camatta and Jessica Chartier, Bredin Prat
tems of two jurisdictions, and which would result in either: • the deduction for tax purposes of an element of income in one jurisdiction without inclu- sion for tax purposes of the same element in another jurisdiction ( “deduction without inclusion” ) or • the deduction for tax purposes of the same element of income in various jurisdictions ( “double deduction” ). The French tax consequences of the anti-hybrid regulation may be summarised as follows: • in case of payment giving rise to a deduction without inclusion: (a) the payment is not deductible for French corporate income tax purposes (in practice when the debtor is established in France and the beneficiary outside France); or (b) the payment is subject in France to corporate income tax (in practice when the debtor is established outside France in a state allowing the deduction and the beneficiary in France); and • in case of double deduction, the payment is not deductible for French corporate income tax purposes, unless it is subject to “double inclusion” in respect of the same fiscal year or any fiscal year beginning within 24 months of the end of the fiscal year in respect of which the payment had initially been deducted. Specific rules apply for “imported hybrids” , for reverse hybrids and in case of double residency. These rules apply to fiscal years opened as from 1 January 2020, except for rules regarding hybrid reverse mismatches, which are applicable to fiscal years opened as from 1 January 2022. It
should be noted that they are subject to various uncertainties, but the administrative guidelines have brought further clarification. In addition to the foregoing general rules, nota- bly: • interest on loans from direct shareholders remains deductible only if: (a) the share capital of the borrowing com- pany is fully paid-up; and (b) the interest rate does not exceed the average annual rate on certain loans granted by banks to French companies; interest on loans qualifying as “related- party loans” are only deductible within the limit of: (i) the rate defined above; or (ii) when the lender and the borrower are “related” for tax purposes (defined by reference to a control criterion), the rate the company could have obtained from any unrelated financial institution in comparable circum- stances; and • pursuant to the Amendement Charasse rule, notably when the shares of a target com- pany are acquired from a seller that controls, directly or indirectly (or is placed under com- mon control) the buying entity, and the latter is or becomes a member of the same tax consolidated group with the target, a frac- tion of the interest incurred by that tax group is not deductible (this limitation applies for a nine-year period). In the context of acquisition finance, the afore- mentioned rules may limit the advantages of financing an acquisition through debt rather than equity by reducing the tax effect associ- ated with a leveraged acquisition. In addition, the increased tax liability that can result from the
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