French corporate tax: A lighter burden than it may appear

France is generally considered to be a high-tax jurisdiction for businesses, but in reality it compares favourably with many other European countries. EURACTIV’s partner La Tribune reports.

The research firm EY published its comparison of Europe’s tax regimes on Tuesday (10 May). At 33%, France’s corporate tax rate is higher than that of most of its European neighbours. But a narrower tax base makes up for this difference, according to the researchers.

As a result, France ranks seventh out of 14 European countries for business tax. “A high rate applied to a narrow tax base can lead to lower effective taxation compared to a lower rate applied to a broader tax base,” the study said.

Tax credits and exemptions

France is a country of tax credits and exemption clauses, and a company’s final tax burden depends on a number of fiscal rules, notably whether or not it is part of a tax consolidation group. Special tax arrangements for dividends, asset depreciation, royalties and research and development must also be taken into account.

According to EY, France has one of the most competitive systems of tax exemption for dividends in Europe. And the un-capped deductibility of asset depreciation – which is capped in most countries – is seen as another big tax advantage for French businesses.

French start-ups and SMEs also benefit from a favourable tax regime of just 15% for the first €38,000 of profits.

A drop in the ocean

The many exemptions and tax credits available to businesses in France significantly lighten the tax burden of those businesses that qualify for them, particularly medium-sized companies and large groups.

These many loopholes explain why corporate tax in France brings in only €34 billion per year, a drop in the ocean compared to the €1,000 billion collected from private taxpayers.

Another lesson from the study is that the introduction of a Common Consolidated Corporate Tax Base (CCCTB) in the EU would not necessarily be in France’s interest, despite the country’s support for the measure. This project to fight tax competition between EU member states will not be finished in the near future, but Paris will nonetheless be wary of losing its competitive edge.

Strategic error

Yet as EY explained, the most vociferous supporters of the CCCTB would not be the biggest beneficiaries in terms of tax revenue. If and when the CCCTB enters into force, France and Germany, two of the main partisans of the fiscal reform, would actually see their revenue reduced by the reform.

“Paradoxically, the countries that have publically expressed the biggest reservations over the CCCTB are those that would be in the best position to deal with it and would stand to gain the most in terms of tax competitiveness,” EY said.