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Although
French corporate taxation rates have been falling,
and are currently at 33.33% (a
3% surtax was levied prior to Janaury 1, 2005,
then reduced to 1.5% and repealed after January
1, 2006), France has never been considered
an attractive international financial center.
However in order to attract the headquarters of
foreign multinational groups favorable tax treatment
has been accorded to entities known as "co-ordination
centers" *, usually known in France as Headquarters
and Logistics Centres. A co-ordination center
is typically involved in the stocking, labeling,
packaging, distribution, control & co-ordination
of administrative and logistic activities for
and on behalf of a group of enterprises under
common ownership but with a multinational geographic
dispersal. Prior administrative consent is required
before an entity can be granted co-ordination
center status.
French co-ordination centers
pay corporate income tax on a fixed sum amounting
to 6-10% of "operating expenses". The
actual percentage depends on the operational structure
of the co-ordination center and the proposed activities
and where either of these factors change after
the granting of co-ordination center status so
too can the percentage factor.
It
is often possible for the management of a co-ordination
centre to make arrangements for expatriate
management to receive tax benefits in France;
but there is no scheme as such, and individual
negotiation is required.
However,
as in other Member States with co-ordination centre
regimes, the European Commission has been on the
attack under State Aid rules, and said in May
2003 that French co-ordination centres infringe
the rules. The coordination centre regime was
later amended to fall into line with European
rules, although the scheme remains generally attractive.
In
March 2007, the
European Commission announced that it was extending
an investigation into Belgian coordination centres.
In
its judgment of 22 June 2006, the European Court
of Justice confirmed that the tax scheme for coordination
centres was incompatible with the common market,
but partly annulled the transitional measures
laid down by the Commission for the phasing-out
of the scheme.
This
annulment leaves the procedure initiated by the
Commission on February 27, 2002 partially open.
The procedure must therefore be closed by a new
decision laying down appropriate transitional
measures for the centres concerned. The Commission
is therefore extending the procedure before adopting
a new decision in order to give interested parties
the opportunity to submit their observations.
In
late 2007, the EC confirmed that, for those Belgian
centres whose authorisation expired after 2005,
the transition period remains valid – until
the expiry of their authorisation or the end of
2010, whichever comes first.
In
November, 2003, the French government introduced
a package of tax incentives under which foreign
executives working in France would no longer pay
income tax on bonuses derived from working abroad,
which some estimated at
the time represented between 20% and 50%
of a top executive's income.
Other measures included the deductibility of pension
and healthcare contributions paid in their country
of origin from taxable income.
“We know that although the image of France
is good as far as its infrastructure, quality
of life and workforce is concerned, it has a poor
reputation for taxes and employment legislation,”
a spokesman representing the Finance Ministry
commented.
The measures were effective from January
1, 2004 and were expected to benefit around 3,000
executives. The measures also apply to French
managers who have been paying taxes abroad for
at least ten years.
In
his New Year address in January 2007, then President
Jacques Chirac said that he envisaged a cut in
the country's corporate tax rate to as low as
20% within five years, which would give France
one of the lowest rates of corporate tax in the
European Union. His successor, Nicolas Sarkozy,
who was elected President in May 2007, has expressed
similar deisres, but there is no sign that the
corporate tax rate will be cut any time soon.
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