Library of Congress

Law Library of Congress

The Library of Congress > Law Library > News & Events > Global Legal Monitor

France: Amended Financial Law

(Oct. 3, 2011) Law 2011-1117 of September 19, 2011, on Amending the 2011 Financial Bill, was published in France's official gazette on September 20, 2011 (Loi no. 2011-1117 du 19 septembre 2011 de finances rectificative pour 2011, LEGIFRANCE).

The original draft law mainly contained provisions concerning financial aid to Greece. The government decided, however, to add several provisions aimed at lowering the French national debt. The key measures that have been adopted are discussed below.

Capital gains on real estate

Under the current law, capital gains arising from the sale of privately held real estate, such as a second home, are calculated based on the difference between the cost and the sale price, and then reduced by 10% for each year of ownership in excess of five years. As a result, any capital gain arising from the sale of properties held for over 15 years was not subject to tax. The new Law doubles the time required to benefit from this exemption. Capital gains arising from the sale of properties within the first five years of ownership are still fully subject to tax, as previously. A reduction rate of 2%, instead of 10%, per year is applicable for each year of ownership in excess of the first five years, and it is increased to 4% a year for each year of ownership beyond the seventeenth year. The reduction rate is then increased to 8% per year of ownership when the property is held for more than 24 years. The new rule will apply to sales occurring on or after February 1, 2012 (id. art. 1).

Carry-forward of tax losses

The Law sets forth that carry-forward of losses is limited to 60% of the current year's profit in a given offsetting year, for the portion of profit in excess of €1million (about US$1.356 million) (id. art. 2).

Carry-back of tax losses

Tax losses will now only be available for carry-back to the fiscal year immediately preceding that in which the losses arise and up to a maximum of €1million (id.).

Worldwide tax consolidation regime

The Law abolishes the application of a worldwide tax consolidation regime as of September 6, 2011. Under this regime, a French company could consolidate all of its qualifying domestic and foreign direct operations and indirect operations with its own such operations for corporate income tax purposes, upon approval from the Ministry of Budget. This regime only concerned a few French corporate groups (id. art. 3).

Parent-subsidiary tax exemption regime

Under the current parent-subsidiary tax exemption regime, 95% of the gross dividends a parent company receives from its subsidiaries are tax exempt. A lump sum of 5% of the gross dividends, deemed to represent nondeductible expenses, must be added back to the taxable income of the parent company and taxed at the standard rate. The Law increases the percentage of the lump sum to 10%. As a result, the 95% capital gains exemption regime is reduced to 90%. This measure will be applicable to gains realized in fiscal years starting from January 1, 2011 (id. art. 4).

Luxury hotel tax

Hotel rooms that have a nightly rate of €200 (about US$268) or more will be subject to an additional tax of 2%. The reporting and payment of this tax will be similar to that of the VAT, and the tax will be applicable for hotel stays on or after November 1, 2011. The government originally planned to tax amusement parks instead (id. art. 5).

European Financial Stability Facility

The Ministry of the Economy is authorized to grant a guaranty, for France's share, to the financing obtained and the bonds issued by the European Financial Stability Facility, up to the amount of €159 billion (about US$213 billion) (id. art. 8). The European Financial Stability facility was created in May 2009 by the Euro-area Member States to safeguard the financial stability of the Euro zone (European Financial Stability Facility (last visited Sept. 27, 2011)).

Tax on insurance contracts

The tax rate imposed on health insurers for certain types of health insurance contracts, referred to as contrats d'assurance maladie dits solidaire et responsable, is increased from 3.5% to 7%. This increase takes effect on October 1, 2011, and it taxes the premiums or contributions received by the insurer on an annual basis (Loi no. 2011-1117, art. 9).

Tax agreement with Switzerland

The French government must prepare a report for the Parliament before December 2012 on the advantages and disadvantages of signing an agreement with Switzerland that woud create a standard tax on undeclared financial placement income realized in Switzerland by French residents (id. art. 11).