All

news

TAX LAW – Covid 19 – Tax Measures as of April 20, 2020

Newsletter

As announced by the President of the Republic on March 12, 2020, the DGFiP has implemented exceptional measures to support companies taxwise: terms of payments, early repayment of tax credits and, in the most difficult situations, direct tax rebates or a freeze on tax audits.

In addition, Emergency Act No. 2020-290 voted on March 23, 2020 dealing with the Covid-19 epidemic has empowered the Government to adopt various orders to deal with the economic, financial and social consequences of the epidemic spread. Two orders on tax matters were adopted by the Council of Ministers on March 25, 2020 and published in the “Journal Officiel” the following day:

  • Order n° 2020-306 on the extension of deadlines during the period of health emergency and on the adjustment of procedures during the same period (taken pursuant to 2° of I of Article 11 of the Act of March 23, 2020);
  • Order No. 2020-305 adapting the rules applicable before the administrative courts (taken pursuant to c) of 2° of I of Article 11 of the Act of March 23, 2020).

You will find below an overview of the tax measures, as available to date.

 

I- MEASURES TO PROMOTE TAXPAYERS’ CASH FLOWS

1.1 Terms of payment

1.1.1 For companies

Companies (or public accountants representing their clients in this situation) can request the relevant Corporate Tax Service (“Service des Impôts des Entreprises – “SIE) to defer payment of their next direct tax due dates without penalty:

  • advance payment of corporate income tax (CIT) and social contribution on CIT, due in principle by electronic payment on March 15 (i.e. in practice on March 16 this year) – advance payment statement no. 2571;
  • payroll tax, due in principle by electronic payment on March 15 (i.e. in practice on March 16 this year) in respect of salaries paid in February (for monthly payers) – provisional payment statement No. 2501.

The postponement is granted for 3 months and can be obtained on simple request, without any obligation for small and medium-sized enterprises.

However, a notice has been published on the website of the Ministry of the Economy stating that the benefit of the measures detailed above is subject, for large companies[1], to a commitment not to distribute dividend or to buy back shares in 2020.

This commitment covers dividend distributions in its broadest definition (interim dividend, reserve distributions and dividend paid in kind) and share buy backs decided after March 27, 2020. Conversely, the following are excluded:

  • intra-group distributions in order to financially support a French company;
  • distributions in order to comply with companies’ legal distribution obligations;
  • distributions that would be made in the context of restructuring operations;
  • share buy backs intended for the allocation of shares to employees.

The breach of such commitment will trigger the claw-back of the taxes’ due dates, and thus the application of penalties for late payment (i.e., 5% increase provided by Article 1731 of the FTC plus late payment interest of 0.20% per month, computed as from the standard due date).

For companies that have already paid their March due dates, they have the option of requesting a refund from their Corporate Tax Service once the levy has been effectively paid.

Finally, it should be noted that no postponement (or discount) is provided for VAT and similar taxes, pay-as-you-earn tax (“prélèvement à la source” – “PAYE) and the tax on insurance agreements (“taxe sur les conventions d’assurance” – “TSCA).

1.1.2 For monthly payment of the CFE or property tax

The monthly payment can be suspended by companies in their online professional profile or by contacting the Service Debit Centre: the remaining amount will be paid without penalty on the balance due date.

1.1.3 For self-employed workers

It is possible to adjust the rate and the instalments of the PAYE at any time.

It is also possible to defer the instalments of the PAYE on their business income from one month to the next up to three times, if their instalments are paid monthly, or from one quarter to the next if their instalments are paid quarterly.

All these steps are accessible via their online professional profile, under the heading “Gérer mon prélèvement à la source”: any change before the 22nd of the month will be taken into account for the following month.

 

1.2 Rebates on direct taxes, late payment interest or penalties

The rebate request may relate to the CIT, the CFE (“cotisation foncière des entreprises”) and the CVAE (“cotisation sur la valeur ajoutée des entreprises”). It is excluded in the case of VAT and assimilated taxes, the repayment of the PAYE and the TSCA.

As the request for rebate can only be granted in the event of specific difficulties which cannot be overcome without postponement, it must be justified: the payment incapacity must be demonstrated by providing the information requested by the French Tax Authorities (“FTA), as well as any other element justifying a delay in payment or a discount.

The application will be reviewed on a case-by-case basis.

It should be noted that for large companies, this measure is subject to the commitment not to proceed with dividend distributions and share buy-back as mentioned above.

 

1.3 Accelerated repayment of VAT claims and CIT credits

Companies also have the possibility to apply for an early refund of VAT claims and tax credits refundable in 2020.

This measure applies to all tax credits that are refundable in 2020, such as the competitiveness and employment tax credit (“CICE”) and the R&D tax credit (only for the part refundable in 2020), or those relating to certain sectors currently struggling such as:

  • tax credit for film production expenses;
  • tax credit for production expenses of audiovisual works;
  • tax credit for production expenses for foreign films and audiovisual works;
  • tax credit for businesses engaged in live musical or variety shows;
  • tax credit for production expenses for phonographic works;
  • tax credit for creators of video games.

In order to obtain the refund of the said credits, companies will have to proceed to the electronic filing of the following forms:

  • the tax credit refund application (Form No. 2573);
  • the form justifying the tax credit (Form No. 2069-RCI or specific form, unless it has already been filed previously);
  • in the absence of income tax return, the CIT balance statement (Form No. 2572) enabling the tax due to be settled and the refundable claim for 2020 to be established.

 

1.4 Modalities of referral to tax services

As indicated above, the DGFiP invites companies struggling to pay their taxes to contact the Corporate Tax Service they are affiliated to.

First, the company may reach out either to the accountant of the Corporate Tax Service in charge of collecting the tax debts, or to the Chief Finance Commission (“Commission des chefs de services financiers”) if it remains liable for tax and social security debts.

In the event that a company does not obtain satisfaction from its Corporate Tax Service, it may take the matter directly to the superior of the accountant of the Corporate Tax Service.

The DIRECCTE can refer companies to the Chief Finance Commissions if they believe that these latter are able to respond to their difficulties.

 

II- VAT MEASURES

Regarding VAT, declarations must be submitted within the legal deadline, together with the payment of the corresponding VAT. Non-payment of VAT gives rise to penalties under ordinary law, with rates depending on the case at hand:

  • In the case of late payment, a 5% default or late payment penalty is incurred;
  • In the absence of VAT statement filing, a 10% penalty of the undeclared amount for failure/late filing is incurred if no formal notice is given or if the statement is filed within 30 days of such formal notice to file the return[2].

Although in principle these penalties are cumulative, this will not be the case if a late filing is made together with the full payment of the corresponding VAT. In such a case, only the 10% penalty for default/late filing should apply. Furthermore, both default/late payment and default/late filing trigger the application of late payment interest of 0.2% per month.

Thus, fulfilment of the reporting aspects allows, in the event of non-payment of VAT on the due date, to reduce the amount of penalties incurred to the sole penalty applicable in case of late filing. Finally, the penalties and late payment interest may in principle be claimed against ex gratia. However, such appeals are purely discretionary and are considered on a case-by-case basis.

Nevertheless, further flexibility measures have been introduced for taxpayers which are unable to collect all the documents needed to prepare their VAT returns (“régime du réel normal”):

  • in periods of work leave, possibility of providing a mere estimate of the VAT amount due for a month with payment of an installment corresponding to that amount the following month (with a tolerated margin of error of 20%);
  • for companies experiencing a turnover decrease due to the Covid-19 crisis, on an exceptional basis and for the duration of the quarantine decided by the authorities, possibility to determine a VAT lump-sum down-payment as follows:
    • for the April statement in respect of March: possibility to pay an instalment of 80% to 50% of the amount declared in February;
    • for the May statement in respect of April: identical procedures as for the previous month if the quarantine period is extended and makes it impossible to proceed with a regularization on that date;
    • for the regularization statement: regularization of the VAT due based on the actual elements from the activity over the previous months, with deductions of instalments paid in April and May.

 

III- FORMAL ASPECTS

An extension of tax reporting deadlines is expressly set aside by Article 10, II of Order No. 2020-306 relating to the extension of deadlines expiring during the period of health emergency and the adjustment of procedures during this same period (cf. § 4. below).

According to the report to the President on the Order, the rationale behind this is to “preserve the collection of the State revenue necessary for the operation of public services and the support of the economy.

In this regard, the FTA specify in their administrative guidelines[3] that, except in the case of deferral measures taken by instruction to the Corporate Tax Service and Personal Tax Service and granted at the request of taxpayers, the latter are obliged to declare and pay their tax debts under ordinary law and schedule.

Thus, statements used for the assessment, basis, settlement and recovery of taxes, duties and charges are not concerned as a matter of principle by the postponement of deadlines falling due during the Suspension Period.

Nevertheless, the filing date for professional and personal income returns for 2019 has been postponed by further announcements from the French government.

The date for filing the professional income returns for fiscal year 2019 (initially set for May, 20th 2020 at the latest) is postponed to June, 30th 2020. This measure applies to profits subject to CIT and to the various income (BIC, BNC, BA) that are subject to income tax (Forms Nos. 2065, 2031, 2035 and 2139 and their appendices). The deadline extension also applies to the income tax return of “sociétés civiles immobilières” that are not subject to CIT (Form no. 2072) and to all tax credits’ forms.

The date from which the taxpayer can file his personal income tax return has also been extended from April 9 to April 20, 2020. The deadlines for filing personal income tax returns depends on the taxpayers’ residence and are set as follows:

  • departments 01 to 19: Thursday, June 4, 2020 at 11:59 pm;
  • departments 20 to 54: Monday, June 8, 2020 at 23:59;
  • departments 55 to 976: Thursday, June 11, 2020 at 11:59 p.m.

Even if not specified by the French government, as the date to file professional income returns (BIC, BNC, BA) has been extended to June 30th, the deadline to file personal income tax return should be extended accordingly.

 

IV- EXTENSION OF CERTAIN DEADLINES DURING THE PERIOD OF HEALTH EMERGENCY

On March 25, 2020, the Council of Ministers adopted Order No. 2020-306 on the extension deadlines during the period of health emergency and the adjustment of procedures during the same period.

This Order provides for the extension of several deadlines expiring between March 12, 2020 and the expiration of a one-month period after the end of the period of health emergency (the “Suspension Period”).

Deadlines which expired before March 12, 2020 are not within the scope of the Order.

The Order provides for:

  • the suspension of deadline relating to the statute of limitations and tax audits (4.1) and this suspension should also apply to pre-litigation claims (4.2) as well as to tax rulings and approval procedures (4.3) and
  • the postponement of deadlines for carrying out certain acts and other formalities (4.4).

Unlike “suspended” deadlines, which will start running again for their remaining period at the end of the Suspension Period, “postponed” deadlines will start running again for their initial duration with a maximum duration of two months at the end of this period (i.e., as if they had not started running before the start of the Suspension Period but limited to two months).

The FTA have commented the measures introduced by Order No. 2020-306 in their administrative guidelines (BOI-DJC-COVID19) of April 3, 2020. These guidelines were open for public consultation until April 13, 2020. However, the FTA are bound by such guidelines as they currently stand on their website.

 

4.1 Suspension of deadlines relating to the statute of limitations and to tax audits

Article 10 of Order No. 2020-306 (Title II) specific to tax matters provides that the periods that should have terminated during the Suspension Period are suspended during this period and will only start running again from the end of the Suspension Period.

Periods which should have begun to run during the Period of Suspension shall be deemed to begin to run after the end of the Period of Suspension. The deadlines in the scope of Article 10, I of this Order relate both to the statute of limitations applicable to the FTA (Article 10 I 1° of the Order) and to tax audits (Article 10 I 2° of the Order).

4.1.1 Regarding the statute of limitations applicable to the FTA

The limitation periods granted to the FTA to reassess full or partial omissions in the tax base, inadequacies, inaccuracies or errors in taxation and to apply late payment interest (limitation periods provided for in Chapter IV of the French Tax Procedure Code (“FTPC”), Articles L. 168 to L. 189) are suspended during the Suspension Period but only for the statute of limitations expiring on December 31, 2020.

The FTA specify in its administrative guidelines on the Order[4] that the deadline for the statute of limitations of the FTA is suspended for the period between March 12, 2020 and one month after the date of termination of the period of health emergency for the year ending December 31, 2020 only, regardless of the date on which the tax audit was initiated.

Thus, for instance, if the period of health emergency ends on May 12, 2020 (i.e. a suspension period of three full months since it expires one month after the end of the period of health emergency), the reassessments relating to 2017 CIT that should have been statute-barred on December 31, 2020 could be notified until March 31, 2021.

Deadlines for the statute of limitations of the FTA expiring after December 31, 2020 are outside of the scope of this suspension.

The limitation periods provided for in Articles L. 168 to L. 189 of Chapter IV of the FTPC and in the scope of the suspension relate to the following taxes:

  • direct taxes (personal income tax and CIT);
  • direct local taxes and assimilated taxes (property tax, housing tax, territorial economic contribution);
  • turnover taxes (VAT and similar taxes);
  • indirect taxes;
  • transfer taxes, land registration tax, real estate wealth tax, stamp duty, duties and assimilated taxes.

4.1.2 Regarding tax audits

All the deadlines relating to tax audits provided for in Title II (“Tax Audit”) of the FTPC (except for the deadlines for the statute of limitations provided for in Chapter IV of the same code, which are referred to in Article 10 I 1) set out in § 4.1.1 above) are suspended. This suspension applies both to the taxpayers and to the FTA.

Therefore, this article legalizes the measure that we had already relayed in our previous alerts.

It should be noted that Title II of the FTC has a broad scope. In addition, the FTA specify in their administrative guidelines that the suspension applies regardless of whether the considered period is provided for in the legal or regulatory part of the FTPC.

This suspension relates, for example, to the thirty-day period for taxpayers to submit their observations following the receipt of a reassessment notice or the period for responding to binding information requests from the FTA, or the thirty-day period for referring a claim to the Commission for Direct Taxes and Turnover Taxes (“CDTTT”).

The FTA specify in its administrative guidelines, as an example, that if a taxpayer has received, on March 4, 2020, the response of the FTA to its observations following the receipt of a reassessment notice, the period prior to the Suspension Period to be considered for the determination of the thirty-day period to refer the matter to the CDTTT is seven days (i.e., from March 5 to March 11, 2020). If the Suspension Period ends on June 4, 2020, the thirty-day period shall expire twenty-three days (30 days – 7 days) after the end of such period, i.e., on June 27, 2020. Thus, the taxpayer will be able to take the claim to the CDTTT until June 28, 2020.

Conversely, and in accordance with the French Government’s announcements reported in our previous alerts, the deadlines granted to the FTA to review applications for VAT credit refund (Article L 198 A of the FTPC) will not be suspended during the Suspension Period.

Finally, the deadlines provided for in Article 32 of Act No. 2018-727 of August 10, 2018 are suspended during the Suspension Period. This Act has set up an experimental procedure in force from 1 December 2018 to 30 November 2022 applicable to small and medium sized enterprises located in the Hauts-de-France and Auvergne-Rhône-Alpes regions which employs less than 250 employees, pursuant to which the maximum cumulative duration of authorities’ audits cannot exceed 9 months (270 days) over 3 years.

 

4.2 Suspension of deadlines for pre-litigation claims

Pre-litigation claims before the FTA are not directly covered by the Order: the deadlines provided to the taxpayer to file a claim before the FTA are set out in Title III and not in Title II of the FTC referred to in Article 10 of the Order.

Therefore, the extensions provided for in the Order do not apply to time periods ending on December 31 of the second year following the challenged tax payment for the taxpayers to file a claim. The Order appears to create an imbalance between the statute of limitations of the FTA, which is extended, and the time period available to taxpayers to file a claim, which remains unchanged.

The FTA do not provide any comment in that respect in their administrative guidelines.

However, the extension of deadlines should, in our view, apply to the six-month period given to the FTA to answer a claim filed by the taxpayers, pursuant to article 7 of the Order. Thus, deadlines triggering an implied decision of rejection, that would not have expired prior to the Suspension Period will be suspended until the end of the Suspension Period, and deadlines that should have started running during the Suspension Period for claims filed during the Suspension Period will start running only as from the end of the Suspension Period. However, one could regret the absence of clarification from the FTA on this point in their guidelines on the Order.

 

4.3 Suspension of deadlines for tax ruling and tax approvals

4.3.1 Tax rulings

In accordance with our first reading of the Order, the FTA specify in their administrative guidelines that, pursuant to Article 10, I 2° of the Order (which does not expressly refer to tax rulings), the time limits relating to tax rulings are suspended during the Suspension Period for both the taxpayers and the FTA.

This applies in particular to the three-month period given to the FTA to respond to a request for tax ruling filed in accordance with Article L80 B, 1° of the FTPC (no consequences are provided for by law in the event of failure to respond within this deadline).

In addition, the FTA specify in their administrative guidelines that the deadlines triggering an implicit approval to a ruling request are suspended under Article 7 of the Order.

This concerns in particular the “abuse of law” ruling procedures provided for in Article L64 of the FTPC (six-month period), the ruling relating to the application of the general CIT anti-abuse clause provided for in Article L 80 B, 9° bis of the FTPC (six-month period) or the “R&D tax credit” ruling provided for in Article L 80 B, 3° of the FTPC (three-month period).

4.3.2 Tax approvals

The provisions of Articles 10, I 2° and 7 of the Order should also be applicable to procedures for tax approvals which do not provide for tacit agreement in the absence of any response from the FTA within the deadline, even if the Order does not provide explicit details on this point.

Regarding the provisions of Article 7 of the Order, the FTA specify in its administrative guidelines[5] that the principle of suspension of deadlines also applies to tax approval procedures for which a tacit agreement is deemed to have been reached in the absence of a response from the FTA within a given deadline, and more particularly to approvals relating to overseas investments.

 

4.4 Extension of deadlines for other acts and formalities

Pursuant to Article 2 of the above-mentioned Order, acts, appeals, legal proceedings, formalities, registrations, declarations, notifications or publications provided by law or regulations and which must be carried out during the Period of Suspension, shall not have the effect attached to their non-execution (nullity, sanction, lapse foreclosure, limitation, unenforceability, inadmissibility, automatic withdrawal, application of a special regime, nullity or forfeiture of a right), if they are carried out within a period which may not exceed, as from the end of the Suspension Period, the time legally set for taking action, within a limit of two months.

Thus, the deadlines set for carrying out the acts and formalities that should have expired during the Suspension Period shall begin to run again one month after the end of the period of health emergency for their initial duration (as if they had not begun to run before the start of the Suspension Period) capped to two months.

The FTA include, in their administrative guidelines, the provisions of Article 2 of the Order without, however, providing details on the acts and formalities that could benefit from this extension of the deadline.

This extension of deadline should, in our view, apply notably to the one-month period to proceed with the registration of a deed.

Thus, for example, if a deed had to be registered within a one-month period expiring on April 26, 2020 and the period of emergency ends on May 24, 2020 (i.e. a Period of Suspension ending on June 24, 2020), the deed could be registered until July 24, 2020.

The French government announced that the postponement does not concern the deadline to elect for the setting-up of a tax consolidated group or the deadline to elect to CIT. As such, despite the lack of guidelines for the election to the SIIC regime (“régime des sociétés d’investissement immobilier cotées” (SIIC)), we believe that such election should be outside the scope of the Order and therefore should not be extended.

However, it has been specified that the election to set-up a tax consolidated group is aligned with the deadline to file CIT returns (i.e. June 30th).

 

V- ADJUSTMENTS TO RULES APPLICABLE BEFORE ADMINISTRATIVE COURTS AND TRIBUNALS

The Council of Ministers adopted a second Order No. 2020-305 on March 25, 2020 to adjust the rules applicable before the administrative courts.

Pursuant to Article 15 of said Order, the extensions of deadlines provided for in Title I of Order No. 2020-306 mentioned above (cf. § 4. above) are to be applied before the administrative courts, except for derogations in matters of aliens’ law, electoral law and legal aid.

Article 2 of Order No. 2020-306 on the extension of deadlines applicable before the administrative courts provides that “any act, appeal, legal action, formality, registration, declaration, notification or publication prescribed by law or regulation shall be subject to nullity, sanction, lapse, limitation, prescription, unenforceability, inadmissibility, automatic withdrawal, application of a special scheme, nullity or forfeiture of any right which should have been exercised during the period referred to in Article 1 [i.e., the Period of Suspension] shall be deemed to have been completed on time if it has been done within a period which may not exceed, from the end of that period, the time legally allowed for action, up to a maximum of two months. ”.

Thus, the various deadlines applicable in the context of tax disputes before the administrative courts benefit from the extension. This concerns in particular the two-month period granted to the taxpayers to bring a case before the Administrative Tribunal following the explicit rejection of his claim by the FTA or the two-month period to lodge an appeal against a judgment of the Administrative Tribunal.

 

[1] Means an independent company or a group of several related entities which, during the last financial year, employed at least 5,000 employees or had consolidated sales in excess of 1.5 billion euros in France. The definition used for the “cotisation sur la valeur ajoutée des entreprises” (CVAE) (Article 1586 quater I bis of the FGTC) or the tax consolidation (Article 223 A of the FTC) can be used as a reference to define “group of several entities”.
[2] This rate is increased to 40% when the declaration has not been filed within 30 days of receipt of a formal notice (or even to 80% in the event of the discovery of an occult activity).
[3] BOI-DJC-COVID19-10-20200403 § 10.
[4] BOI-DJC-COVID19-20-20200403 § 20.
[5] BOI-DJC-COVID19-30-20200403 § 10.

Link to the article Download the PDF

Last publications

De Pardieu Brocas Maffei contributes to the 23th Edition of the “World Energy Market Observatory” published by Capgemini

Sustainable energy sourcing is key to prevent climate goals slipping further out of reach As energy consumption and greenhouse gas emissions are on the rise again, the report calls for [...]