|The changes are expected to
improve the state of affairs for taxpayers and tax
The French government has released a second corrective
finance bill for 2017, which contains new provisions for
cross-border mergers in response to a ruling by the European
Court of Justice (ECJ) in March 2017 and complementing Emmanuel
Macron's pro-business agenda.
The ECJ ruling found that the provision of the French tax
code, which requires a prior tax ruling from the authorities in
advance of a cross-border merger, breaks the principle of
freedom of establishment under EU law. This provision brought
the French tax system into conflict with the EU Merger
"The European Court of Justice ruled that the obligation to
file a ruling request for the merger of a French legal entity
into (or the contribution of an activity by a French resident
entity to the benefit of) a legal entity resident in another EU
member state before the legal completion of the transaction is
not compatible with Article 11 of the Merger Directive,"
Patrick Seroin, partner at KPMG, told International Tax
Under EU law, designed to create a level playing field for
businesses whether they operate domestically or cross-border
within the European single market, national borders must not
"The ECJ's decision evidenced an infringement to the
fundamental principle of freedom of establishment, since the
obligation to file a ruling request does not affect purely
domestic restructuring operations," Seroin said.
Under the new measure, companies undergoing cross-border
mergers would still have to file with the French tax
authorities but the reform will do away with the obligation to
keep shares in exchange for a partial contribution of assets
for three years. Businesses can still request a ruling from the
tax authorities on whether the deal meets the conditions
necessary to claim the benefits of the special merger
At the same time, the corrective draft bill addresses
measures tackling tax evasion and the control of financial
information with regard to foreign tax authorities under the
common reporting standard (CRS).
According to Seroin, the ECJ found that the provision
"created a general presumption of tax evasion or fraud, which
goes well beyond the limits of the anti-abuse provision of the
These changes will free up cross-border restructuring.
Seroin believes that this change "should make international
legal restructuring operations much more business friendly and
of a significantly higher legal certainty".
This is just the latest phase of tax reform introduced by
the French government, as President Emmanuel Macron pursues his
aim of cutting the corporate tax rate from 33% to 25% and
bringing public spending in line with the EU's 3% deficit
limit. The French tax system is gradually being reformed for
the sake of greater tax harmonisation across the EU.
The National Assembly has already approved a package of tax
reforms for 2018, such as a flat rate of 30% for capital gains,
dividends and interests, as well as an effective 70% cut to the
wealth tax by scrapping its application to everything except
property assets. The ultimate aim is to simplify the tax regime
and alleviate the burden on enterprise.
These cuts will be made just as the new provisions on
cross-border mergers come into effect. Going forward, the
combination of these changes is expected to improve the state
of affairs for taxpayers and tax professionals.