1. What is the most significant change to your region/jurisdiction's tax legislation in the past 12 months?
In France, rather than one specific significant change, it's been more a question of continuous embedding of Base Erosion and Profit Shifting (BEPS)-influenced changes in the French domestic legislation. Both the European Union and Organisation for Economic Co-operation and Development (OECD) have had more impact on the French tax features, leading to more transparency (e.g. through Country-by-Country Reporting (CbCR) and the recent Mandatory Disclosure Rules) and to more restrictions in terms of financing deductions.
The French tax rate actually increased significantly for large companies last December, as the French government reacted to the fact that a distribution tax had been ruled non-EU compatible. France will be soon facing another major change–this time on the personal income tax front; as from January 1, 2019, French companies will have to withhold income tax at source for the first time, putting an end to decades of complex self-declarations by taxpayers.
2. What has been the most significant impact of that change?
For French companies, the combined effect of these and related changes is additional costs of doing business due to the increased compliance requirements. Technology will be a key element to help companies face their increased obligations, and to calculate and file the data directly to the tax authorities. However, we believe that the French tax authorities are not yet ready to process and analyse the information they will now receive and need further investment from a technology standpoint to be able to process smart data and use it as part of a system of effective taxpayer controls.
3. How do you anticipate that change impacting your work and the market moving forwards?
French multinationals have always had to implement responsible and sustainable tax policies, totally in line with their business situation. As such, Deloitte France does not see that the new rules will significantly affect the way we advise clients on their tax strategy, although it will of course introduce new areas on which to advise. However, although the corporate tax rate is planned to decrease in the coming years it is still one of the highest in the modernised economies. As such, we are concerned that far from improving the overall position of the French economy through increased tax collection, the recent compliance focus may have a significant downside effect on the competitiveness of French groups.
Technology will of course have a significant impact on both our work as advisors and on the market. The ongoing increase of declaration and compliance burden will force companies and tax advisors to get their act together in order to provide quick, smart, efficient and reliable transmission of data.
4. How has this changed the way you offer tax advice?
It is important to note that changes are not only related to the tax legislation, but other areas are driving the market and our clients. The government's Industry 4.0 initiative is the transformation of traditional industries, because of technology, into a more digital business that will create new operating models. Talent models too have to change, to develop new skills linked to the use of technology.
Changing from more products to solutions focus has an impact on the taxation of our clients. Understanding theses deep changes is crucial to anticipate what might lie ahead.
5. What potential other legislative changes are on the horizon that you think will have a big impact on your region/jurisdiction?
Most radical is the change in the personal income tax system and implementation of a monthly withholding by the employing companies discussed above. However, changes are also expected in terms of how the tax consolidation group regime works in France which will have a significant impact on French groups.
6. What are the potential outcomes that might occur if those changes are implemented?
For the personal income tax reform companies, large and small, will need to adapt to the significant changes they will have to face from January 1, 2019. Training, new tools, communication with their employees and managing an international mobile population will be key activities that they need to focus on this coming fall.
For corporate tax, companies will be facing uncertainty until the very last moment, as the final finance law is not due to be enacted until the last days of December.
7. Do you think that change will have a positive effect on both your practice and the wider regional/jurisdictional market?
Change always has a positive effect on a tax advisers as it forces professionals to adapt and grow new skills. These recent trends are requiring advisers to have an understanding not just of tax legislation but also of their clients' business operations. Technology-embedded solutions will help Deloitte France's workforce respond to change in the market and, while technology will never replace talent, it can help make individuals even better advisers.
8. How are issues surrounding the taxation of the digital economy affecting your jurisdiction?
There is some uncertainty at this stage as we await final legislation and solutions. France knows it faces competition risk if it moves alone so ideally a consistent global approach to digital taxation needs to be implemented. Even if the EU was to adopt a common set of rules, it is hard to see how this can work if the US and China do not follow. There will be challenges ahead.
Deloitte France Country Tax & Legal leader – DTTL Global Board member
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