| Although
French corporate taxation rates have been falling,
and are currently at 33.33% (plus a social surcharge),
France has never been considered an attractive
international financial center. However in order
to attract the headquarters of foreign multinational
groups favorable tax treatment has been accorded
to entities known as "co-ordination centers"
*, usually known in France as Headquarters and
Logistics Centres. A co-ordination center is typically
involved in the stocking, labeling, packaging,
distribution, control & co-ordination of administrative
and logistic activities for and on behalf of a
group of enterprises under common ownership but
with a multinational geographic dispersal. Prior
administrative consent is required before an entity
can be granted co-ordination center status.
French co-ordination centers pay corporate income
tax on a fixed sum amounting to 6-10% of "operating
expenses". The actual percentage depends
on the operational structure of the co-ordination
center and the proposed activities and where either
of these factors change after the granting of
co-ordination center status so too can the percentage
factor.
It
is often possible for the management of a co-ordination
centre to make arrangements for expatriate management
to receive tax benefits in France; but there is
no scheme as such, and individual negotiation
is required.
However,
as in other Member States with co-ordination centre
regimes, the European Commission has been on the
attack under State Aid rules, and said in May
2003 that French co-ordination centres infringe
the rules. It is not yet clear, to what extent
France will be able to continue to offer such
centres, or to maintain the favourable treatment
already agreed with existing centres.
In
March 2007, the
European Commission announced that it was extending
an investigation into Belgian coordination centres.
In
its judgment of 22 June 2006, the European Court
of Justice confirmed that the tax scheme for coordination
centres was incompatible with the common market,
but partly annulled the transitional measures
laid down by the Commission for the phasing-out
of the scheme.
This
annulment leaves the procedure initiated by the
Commission on 27 February 2002 partially open.
The procedure must therefore be closed by a new
decision laying down appropriate transitional
measures for the centres concerned. The Commission
is therefore extending the procedure before adopting
a new decision in order to give interested parties
the opportunity to submit their observations.
In
November, 2003, the French government introduced
a package of tax incentives under which foreign
executives working in France would no longer pay
income tax on bonuses derived from working abroad,
which some estimate can represent between 20%
and 50% of a top executive's income.
Other measures included the deductibility of pension
and healthcare contributions paid in their country
of origin from taxable income.
“We know that although the image of France
is good as far as its infrastructure, quality
of life and workforce is concerned, it has a poor
reputation for taxes and employment legislation,”
a spokesman representing the Finance Ministry
commented.
The measures were effective from 1 January, 2004
and were expected to benefit around 3,000 executives.
The measures also apply to French managers who
have been paying taxes abroad for at least ten
years.
In
his New Year address in January 2007, President
Jacques Chirac said that he envisages a cut in
the country's corporate tax rate to as low as
20% within five years, which would give France
one of the lowest rates of corporate tax in the
European Union.
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