2022 draft finance bill released

France’s 2022 draft finance bill was released on 22 September 2021. Parliamentary discussions should begin on 11 October and are expected to be finalized by the end of December 2021 with a vote and enactment. The discussion below summarizes the bill’s main corporate and individual income tax measures.

Corporate income tax (CIT) measures

CIT rate reduced to 25% for fiscal years (FYs) beginning on or after 1 January 2022

The 2022 finance bill confirms (implicitly, by not changing article 219 of the French tax code (FTC)) the CIT rate reduction started in 2019. As a result, for FYs beginning on or after 1 January 2022, the CIT rate would be 25%, unless provided otherwise.

The withholding tax rate on certain income received by nonresidents (e.g., dividends, substantial participation capital gains, or real estate capital gains), that generally is in line with the corporate income tax rate, also would be 25% as long as the triggering event occurs on or after 1 January 2022.

Temporary tax depreciation of goodwill (amortissement du fonds de commerce)

According to French accounting rules, an enterprise’s goodwill (fonds de commerce) is deemed to be a non-depreciable asset unless the enterprise can justify a foreseeable period of use. In such a case, goodwill can be depreciated over the period of use or 10 years if the use period cannot be reliably estimated. Another exception allows small enterprises to depreciate goodwill over 10 years even if there is no foreseeable use period (small enterprises are those that do not meet two of the following three minimum thresholds: EUR 6 million balance sheet, EUR 12 million in net revenue, and/or 50 employees).

The 2022 finance bill confirms that, as a principle, depreciation of goodwill is not deductible; however, it would allow an exception for goodwill acquired between 1 January 2022 and 31 December 2023.

Compliance with EU law regarding nonresident withholding taxes

Several recent decisions[1] by the French Supreme Court (Conseil d’Etat) found that the FTC violates EU law as some withholding taxes imposed on nonresident European Union (EU)/European Economic Area (EEA) companies are contrary to EU principles provided for in the Treaty on the Functioning of the European Union. This is because the withholding taxes apply to gross income whereas a French company in the same situation would be taxed on the gain after deducting the expenses incurred for the acquisition and conservation of the income.

Therefore, to ensure compliance with EU law going forward, the draft finance bill would change article 182 B of the FTC (withholding tax on royalties, non-commercial profits, remuneration for any kind of services, including sports services) by allowing a 10% withholding tax basis reduction on payments made to nonresident companies located in an EU/EEA country that receive French-source income within the scope of the article (the 10% would be deemed to reflect the expenses associated with the income).

The bill also would grant taxpayers the right to claim a refund for the difference between the withholding tax amount paid and the withholding tax amount computed on a net basis, i.e., after subtracting the expenses incurred for the acquisition and conservation of the income. This would apply to entities receiving income subject to withholding tax under FTC article 182 B but also under articles 182 A bis (sums related to artistic services provided or used in France and paid by a debtor who carries out an activity in France to individuals/companies without a permanent business establishment in France) and 119 bis (income from movable property).

To qualify for a refund, the beneficiary of the income would have to:

  • Be an entity whose profits are not taxed in the hands of its shareholders;
  • Have a head office (or permanent establishment whose profits include the income) that is located:
    • In an EU or EEA country that has concluded an agreement with France (tax treaty) that provides for administrative assistance against tax evasion and fraud and that is not a non-cooperative state, as defined in FTC article 238-0 A; or
    • If the income is from movable property falling within the scope of the FTC article 119 bis, 2, in a non-EU/EEA country and (i) this country is not a non-cooperative state, as defined in FTC article 238-0 A, and (ii) the entity does not have a sufficient participation in the distributing company to allow it to have an effective role in the distributing company’s management or control;
  • Be able to deduct the expenses incurred for the acquisition and conservation of the income if it were located in France; and
  • Not be allowed to offset the withholding tax under the taxation rules of the country of its residence.

Finally, the finance bill would adjust the terms and conditions for the implementation of the temporary withholding tax refund mechanism for nonresident companies in a tax loss position. Notably, the deadline for loss companies to file tax returns to benefit from the temporary refund would be extended from three to six months. 

These provisions would apply to withholding taxes whose triggering event occurs on or after 1 January 2022.

Individual income tax measures to support the transfer of small businesses

Transfer of SME upon retirement (FTC article 151 septies A)

Capital gains realized on the sale of a small or medium-sized enterprise (SME) subject to individual income tax (as opposed to corporate income tax) due to the retirement of its owner may be tax exempt, provided certain conditions are met. In certain cases, this capital gains tax exemption may also apply to the sale of an activity that is subject to a business lease agreement, provided that the SME is sold to the lessee.

However, the 2022 finance bill would allow for a more flexible mechanism. When an SME subject to a business lease is transferred, the capital gains could be exempted from tax, even if the SME is transferred to a person other than the lessee, provided that the contract is respected and that the sale includes all items contributing to the activity covered by the business lease agreement.

This measure first would apply to the taxation of 2021 income.

Increase in value limit for tax exemption on business transfers (FTC article 238 quindecies)

Capital gains realized on the sale of an individual company or full branch of activity can be exempt from individual income tax provided certain conditions are met. One of these conditions is that the value of the items transferred cannot exceed EUR 500,000. In addition, the amount of the tax exemption depends on the value of the items transferred, as follows:

  • Full tax exemption if the value of the items does not exceed EUR 300,000; and
  • Partial and degressive tax exemption if the value of the items ranges between EUR 300,000 and EUR 500,000.

The finance bill provides for a limit increase to EUR 1 million, as follows:

  • Full tax exemption if the value of the items does not exceed EUR 500,000; and
  • Partial and degressive tax exemption if the value of the items ranges between EUR 500,000 and EUR 1 million.

The mechanism would also be more flexible if the business transferred is subject to a business lease agreement as the tax exemption could be granted even if the business is transferred to a person other than the lessee, provided that the contract is respected and that the sale includes all items contributing to the activity covered by the business lease agreement.

This measure first would apply to the taxation of  2021 income.


111 May 2021, n°438135; 22 November 2019, n°423698; 9 September 2020, n°434364.

Thomas Perrin

Thomas Perrin, Partner, specializes in international tax. He has been involved in many transactions for international French and foreign groups. In 2004, he created the R&D department as well as […]

Nathalie Aymé

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Sophie Tardieu

Sophie Tardieu is a partner in the international tax department of Taj. With over 18 years’ experience in corporate taxation, Sophie advises French and foreign multinational companies in the context […]

Grégoire Madec

Grégoire Madec, Partner, has over 14 years’ experience in corporate tax. He mainly assists multinational groups in the definition of their tax strategy as well as in the management of […]

Alice de Massiac

Alice de Massiac, Partner, has developed extensive expertise in supporting major French and foreign multinational companies, both in consulting and tax controversy, anticipating the impact of the proposed recommendations in […]