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Taxation of Business Operations in France, Germany and the United Kingdom Taxation of Business Operations in France, Germany and the United Kingdom A Brief Overview Taxation of Business Operations in France, Germany and the United Kingdom A Brief Overview This overview is effective as of the summer of 2004. Latham & Watkins operates as a limited liability partnership worldwide with an affiliate in the United Kingdom and Italy, where the practice is conducted through an affiliated multinational partnership. © Copyright 2005 Latham & Watkins. All Rights Reserved. Preface We understand that business operations conducted by a foreign investor can be quite complex. Taxation of Business Operations in France, Germany and the United Kingdom examines the specific tax requirements of each country in detail. We hope you find the book both interesting and useful. Latham & Watkins’ attorneys regularly deal with international tax matters of all types. With tax attorneys in France, Germany, the United Kingdom and the United States, our practice covers a broad range of both domestic and international tax issues. In particular, we have considerable expertise handling inbound and outbound business investments, cross-border mergers and acquisitions and international capital market transactions, combining our attorneys’ familiarity with the tax systems of their respective countries with the department’s experience in developing efficient international tax structures. Our rich history in the tax arena dates back to founding partner and former Tax Department Chair Dana Latham, who served as Commissioner of the Internal Revenue Service under President Eisenhower. Today, Latham’s team of tax attorneys includes some of the most recognized practitioners in the industry. To learn more about Latham & Watkins and our Tax Department please visit our Web site at www.lw.com. Office locations: This publication is published by Latham & Watkins as a service to clients and other friends. The information contained in this publication should Boston not be construed as legal advice. Should further analysis or explanation Brussels of the subject matter be required, please contact the attorneys listed Chicago below or the attorney whom you normally consult. Frankfurt Hamburg Hong Kong London Jiyeon Lee-Lim Christian Nouel Goetz T. Wiese Los Angeles +1-212-906-1200 +33(0)1 40 62 20 00 +49-40-41 40 30 Milan Moscow Oonagh Whitty New Jersey +44-20-7710-1000 New York Northern Virginia Orange County Paris San Diego San Francisco Silicon Valley Singapore Tokyo Washington, D.C. If you wish to update your contact details or customize the information you receive from Latham & Watkins, please visit www.lw.com/resource/globalcontacts to subscribe to our global client mailings program. Taxation of Business Operations in France Taxation of Business Operations in France Latham & Watkins operates as a limited liability partnership worldwide with an affiliate in the United Kingdom and Italy, where the practice is conducted through an affiliated multinational partnership. © Copyright 2005 Latham & Watkins. All Rights Reserved. May 2004 Taxation of Business Operations in France Table of Contents 1. Business Overview _______________________________________ 1 1.1. Legal Overview _______________________________________________ 1 1.2. Tax Overview_________________________________________________ 1 1.2.1. Taxation of Companies _________________________________ 1 1.2.2. Taxation of Individuals _________________________________ 2 1.2.3. Other Taxes ___________________________________________ 2 2. Taxation of Companies ___________________________________ 2 2.1. Corporate Income Tax ________________________________________ 2 2.1.1. Territoriality Rules _____________________________________ 2 2.1.2. Rates__________________________________________________ 3 2.1.3. Determination of CIT ___________________________________ 3 2.2. Distributions__________________________________________________ 5 2.2.1. Dividends Paid by French Companies____________________ 5 2.2.2. Foreign-Source Dividends ______________________________ 8 2.3. Tax Consolidation ____________________________________________ 8 2.3.1. Overview______________________________________________ 8 2.3.2. Requirements __________________________________________ 9 2.3.3. Consolidated Tax Result ________________________________ 9 2.3.4. Dividend Distributions Inside the Tax Unit ______________ 10 2.3.5. End of the Tax Unit____________________________________ 10 2.4. Anti-Avoidance Measures ____________________________________ 10 2.4.1. CFC Rules ____________________________________________ 10 2.4.2. Transfer Pricing Rules _________________________________ 11 2.4.3. Thin Capitalization Rules ______________________________ 12 2.5. Acquisitions — Share Deal vs. Asset Deal ______________________ 12 2.5.1. Asset Deal ____________________________________________ 12 2.5.2. Share Deal____________________________________________ 13 2.5.3. Funding of the Acquisition _____________________________ 13 2.6. Reorganizations _____________________________________________ 14 2.6.1. Overview_____________________________________________ 14 2.6.2. Cross-Border Reorganizations __________________________ 15 2.7. Investment Funds ____________________________________________ 15 2.7.1. Overview_____________________________________________ 15 2.7.2. French Venture Capital Funds__________________________ 16 May 2004 Taxation of Business Operations in France 2.8. Stock Options and BCE _______________________________________ 18 2.8.1. Stock Options_________________________________________ 18 2.8.2. BCE__________________________________________________ 19 3. Taxation of Individuals __________________________________ 20 3.1. Individual Income Tax _______________________________________ 20 3.1.1. Territoriality Rules ____________________________________ 20 3.1.2. Taxable Base _________________________________________ 21 3.1.3. Rates_________________________________________________ 21 3.1.4. Capital Gains and Interest Income ______________________ 21 3.1.5. Non-Resident Taxpayers_______________________________ 21 3.1.6. Anti-Avoidance Measures _____________________________ 22 3.2. Wealth Tax __________________________________________________ 22 3.2.1. Territoriality Rules ____________________________________ 22 3.2.2. Rates_________________________________________________ 22 3.2.3. Taxable Base _________________________________________ 22 4. Other Taxes _____________________________________________ 22 4.1. Withholding Taxes ___________________________________________ 22 4.2. Value Added Tax (VAT) ______________________________________ 23 4.2.1. Scope ________________________________________________ 24 4.2.2. Territoriality Rules ____________________________________ 24 4.2.3. Taxable Base _________________________________________ 25 4.2.4. Payment of Tax _______________________________________ 25 4.2.5. Deductions ___________________________________________ 25 4.2.6. Reporting Requirements _______________________________ 26 4.3. Other Turnover Taxes or Indirect Contributions _______________ 27 4.4. Registration and Transfer Duties ______________________________ 27 4.4.1. Registration Duties to be Paid by Companies ____________ 27 4.4.2. Transfer of Goodwill, IP Rights and Real Estate __________ 27 4.4.3. Gift and Death Taxes __________________________________ 28 4.4.4. Stamps Duties ________________________________________ 28 4.5. Taxes Based on Salaries ______________________________________ 28 4.5.1. Payroll Tax ___________________________________________ 28 4.5.2. Other Taxes Based on Salaries _________________________ 28 4.6. Social Contributions _________________________________________ 29 4.6.1. Social Security Contributions___________________________ 29 4.6.2. Additional Social Contribution Due by Companies _______ 29 May 2004 Taxation of Business Operations in France 4.6.3. Additional Social Contributions Due by Individuals ______ 29 4.7. Profit Sharing________________________________________________ 30 4.8. Local Taxes__________________________________________________ 30 4.8.1. Business Tax__________________________________________ 30 4.8.2. 3% Real Estate Tax____________________________________ 31 4.8.3. Other Real Property Taxes _____________________________ 31 5. Statute of Limitations ____________________________________ 31 APPENDIX____________________________________________________ 33 May 2004 Page 1 Taxation of Business Operations in France Taxation of Business Operations in France 1. Business Overview 1.1. Legal Overview A business may be conducted in France through a company, a branch or other entities such as Groupements d’intérêts économiques (GIE). Companies can be formed as: limited liability companies, e.g., sociétés anonymes (SA), sociétés par actions simplifiées (SAS), and sociétés à responsabilité limitée (SARL); limited partnerships, e.g., sociétés en commandite par actions (SCA); partnerships, e.g., general partnerships, sociétés en nom collectif (SNC) and sociétés en commandite simple (SCS), civil companies (sociétés civiles) or sociétés en participation (SEP - non-registered partnerships). 1.2. Tax Overview 1.2.1. Taxation of Companies Certain entities are automatically subject to corporate income tax. Among these entities, the most important are limited liability companies, limited partnerships and certain partnerships. SCS are subject to corporate income tax with respect to the profits of certain of their partners, so-called associés commanditaires. SEP are subject to corporate income tax with respect to the profits
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