On 11 March 2021, the FTA published their comments on the effects of the United Kingdom’s withdrawal from the European Union on the tax benefits granted to individuals and legal entities in respect of investments made in the EU or the European Economic Area.
As the tax benefits are generally subject to the condition that the investments are made within the EU or another EEA State, investments in the United Kingdom are no longer eligible. However, France adopted temporary measures to mitigate the effects of Brexit. These relaxing national measures are planned for a period of generally nine months, with few exceptions, from 1 January 2021 until 30 September 2021.
Tax consolidation consists of consolidating, upon election, the tax results of member companies of a same group. Under French law, it allows those companies to form a group in which the parent company (holding at least 95% of the capital of the subsidiaries) is solely liable for French corporate income tax (CIT) on all the results of the companies within the consolidation scope.
This regime has been extended to groups that have sites in the EU / EEA:
As a mitigating measure, such entities are deemed to satisfy the conditions of eligibility for the consolidation scope for fiscal years opened before 31 December 2020. After the close of those fiscal years, the condition of residence in the EU or the EEA will no longer be satisfied, triggering the following implications:
Dividends from subsidiaries established in the EU or EEA – satisfying all the conditions for tax consolidation as if they had been French – benefit from a 99% exemption from French CIT. This measure continues to apply to dividends received from UK companies until the close of the beneficiary company’s last fiscal year opened before 31 December 2020.
As from 1 January 2021 (or from the start of the fiscal year following the one in progress as at 31 December 2020), these distributions will be subject to the parent-subsidiary regime. The dividends distributed by the UK subsidiary will be 95% exempt from CIT. Only a 5% portion (versus 1%) of the dividends received will be subject to French CIT.
Dividends paid by a French company to its UK parent company are exempt from WHT, provided that the parent company’s stake in the French company is at least equal to 5%. This exemption applies to all distributions paid during a fiscal year opened before 31 December 2020. Thereafter, the French-UK DTT will still apply, which provides for an exemption from WHT on dividends paid to companies holding at least 10% of the distributing company’s capital. If the ownership interest is smaller, 15% WHT apply.
The French equity savings plan (plan d’épargne en actions or PEA) is a savings product that allows to acquire and manage a portfolio of shares in French or European companies while benefiting from a tax exemption, subject to certain conditions. It is reserved for shares in companies whose head office is in the EU or EEA and for shares or units in collective investment undertakings (Sicavs, FCPs and European UCITS) whose assets are more than 75% invested in securities of European companies. As from 1 January 2021, British UCITS and securities are no longer eligible for PEAs.
As a mitigating measure, UK securities registered in PEA plans as at 31 December 2020 will remain eligible until 30 September 2021. If, at the end of this transitional period, the UK securities still appear in the PEA, the PEA will be closed and the resulting tax contributions will be immediately due.
Regarding French undertakings for collective investment (organismes de placement collectif or OPCs) holding UK securities, the securities acquired or subscribed before or after 31 December 2020 may continue to be taken into account in the investment quota until 30 September 2021. During this period, the OPC must modify its portfolio in order to comply with the 75% quota by the end of September 2021.
Life insurance contracts and capitalization contracts invested mainly in shares for a certain period (“DSK” or “NSK” contracts) enjoy an exemption from French personal income tax if they are composed of a quota of securities in European companies.
Until 30 September 2021, securities in UK companies and UCIs and units in UCIs remain eligible. During this period, insurers must modify the composition of the portfolio.
Since 1 January 2021, capitalization contracts issued by a UK insurer no longer give entitlement to the tax advantages. However, the French tax administration will treat these contracts as contracts issued by EU or EEA insurers for a period of nine months as from:
Other measures have also been implemented regarding:
If you wish to discuss these topics, please contact: Fidal, Paris
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