Spontaneous application

An End to Retro Active Taxes

Primexis Insights
27 June 2014
people talking

In my January article “France Moves Towards More Favorable Investment Policies”, I reported that a huge step forward was made in 2014 when French Finance Minister Michel Sapin announced the end of a practice of retro?activity for taxes, except in cases where it would benefit companies

Why is this such an important change? And why had it been one of the key demands of corporate CEOs and CFOs for so long? So much so, that in 2013 the heads of 50 foreign corporate branches signed an open letter published in the influential Les Echos newspaper calling for an end to this “destabilizing” tax retroactivity.

Of course the answer is as simple as it seems. A company bases its strategic planning on projected growth and losses, and with the possibility of retroactive taxes that planning becomes useless. Companies lived with this accounting uncertainty that was subject to political whims.

What governed the retro-activity ?

The principle of non-retroactivity of laws is enshrined in the constitution, but only guaranteed in situations contravening a legal right(s). It was therefore possible to adopt retroactive tax regulations, but they had to respect what the Constitutional Council calls “the requirement of legal certainty. ” Thus “small tax retroactivity” was permitted, but successive governments tended to abuse it to boost the performances of measures they passed and favored. This retroactivity had been denounced by business leaders as an unpredictability factor that could affect their strategy; and subsequently employers consistently pushed for a greater fiscal stability that would allow managers to better plan their investments. It seems they have finally been heard.

What the new law states…

“According to this declaration, sections of statutes or Government amendments projects should no longer apply to income received during the year of adoption of the Act and can only be applied to fiscal years from the publication of the law in the Official Gazette, except for measures favorable to taxpayers.”

The declaration covers income tax and the corporate income tax. Three exceptions to the non-retroactivity of tax laws will be maintained. They are:

– “articles of the laws or government amendments may continue to include interpretative regulations (provisions which merely clarify existing law in order to avoid difficulties in their application by the administration, justice and citizens);

– articles of the laws or amendments , which necessarily have a retroactive character, will continue to be implemented, as soon as its text is strictly supervised by the jurisprudence of the Constitutional Council and of the European Court of Human Rights;

– where that may lead to behaviors of tax optimization between the announcement of the measure and the vote of the law provisions in a Government amendment, the effective date of this amendment may be anticipated at the date of its filing by the Government.”

Although operating a business in France still requires navigating a complex environment of regulations, this one very important block to effective actuarial planning and reporting has been removed.


Didier Hémion
Partner,Chartered Accountant

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