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France: Tax-Efficient Sectors

Introduction

Whilst France is at the forefront of proposals to end fiscal distortions through the harmonization of world tax systems and even dedicated a presidency of the EU to the advancement of such an agenda, it nonetheless offers a considerable number of discriminatory tax regimes which give certain sectors of the domestic economy a significant fiscal advantage over others. These tax incentives overlap but nonetheless broadly fall into one of three categories:

  • Reduced or nil rates of corporate income tax for the sectors favored. Included in this category at the time of writing are energy conservation companies, patent holding companies, business start-ups and companies locating to free trade zone areas (established in mainland France, Corsica & the French colonies). However, the free zone schemes in Corsica and the metropolitan colonies (part of EU territory) came partially to an end in 2002 as a result of EU moves to limit state aid schemes and 'unfair' tax competition. Local Investment Funds were introduced in 2003 to mobilise individual savings.
  • Unusually generous tax-deductible allowances (including accelerated depreciation): This incentive has the effect of significantly reducing taxable income. The principal beneficiaries of these allowances are companies operating in the fields of mineral extraction, oil & gas exploration & publishing. Accelerated depreciation allowances are also available to all sectors in respect of certain products (e.g. software purchases).
  • Artificially created investment tax credits which can be set off and credited against corporate income tax assessments. These are granted to companies involved in scientific & technical research and to all sectors of the economy engaged in staff training.

(N.B. Only a few of the most significant tax incentives are referred to here).

 

 

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