France 2025 Financial Bill

Background

In December 2024, the French Parliament faced significant political turmoil when it failed to advance the Finance Bill for 2025. The political instability was exacerbated by the fact that no party held an overall majority in the Parliament of France, making it difficult to form a stable government. Prime Minister Michel Barnier attempted to push the social security financing bill through without a vote by using Article 49.3 of the French Constitution. This move bypassed the usual parliamentary procedures and led to a no-confidence motion, supported by both far-left and far-right lawmakers. The no-confidence motion, primarily driven by disagreements over austerity measures including the “exceptional contribution,” resulted in the government’s ousting and the resignation of Prime Minister Michel Barnier. This “exceptional contribution” was part of the government’s broader strategy to address fiscal challenges by asking the wealthiest businesses to contribute more. Despite its significance, the political crisis and subsequent no-confidence motion led to the Finance Bill’s temporary obsolescence. This marked the first time in over 60 years that the National Assembly toppled an incumbent government. A special finance law was enacted to manage government expenditures until a new government was appointed.

Finance Bill for 2025

Initially, the French President of the Republic considered the Finance Bill for 2025 obsolete due to the no-confidence motion, an interpretation supported by the Presidents of both Assemblies. From a constitutional law perspective a “special law” had been enacted to extend existing taxes (LOI 2024-1188 du 20 décembre 2024 spéciale prévue par l’article 45 de la loi organique du 1er août 2001 relative aux lois de finances). While this law did not replace the budget, it allowed for the temporary continuation of credits from the previous year’s budget and the Minister of Finance was able to proceed with borrowing and any other operation concerning state continuity.

On Feb. 6, 2025, the French Parliament approved the Finance Bill for 2025, which was subsequently promulgated by the President and published in the office Gazette on Feb. 14, 2025, thereby becoming law in hopes of restoring public finances, and strengthening the nations sovereignty, credibility, and financial stability. Some of the major goals of the legislation include:

• Deficit Reduction: The bill aims to reduce the budget deficit to 5.4% of GDP in 2025, with a target of bringing it below 3% by 2029.
• Corporate Taxation: An exceptional, temporary contribution on the profits of large companies with over €1 billion in revenue has been introduced to stabilize the economy.
• Spending: The bill includes measures to control public spending, focusing on reducing discretionary state interventions and contributions to public operators.
• Social and Health Investments: Investments in health and social services have been increased, including a significant boost to emergency funds for elderly care facilities and hospital budgets.
• Environmental Initiatives: The bill maintains funding for ecological transition projects, such as the Green Fund and initiatives for electric vehicle leasing.
• Tax Reforms: The bill introduces new income tax measures for high earners and maintains certain social security contribution reductions

US Multinational Enterprises

Exceptional Contribution

Arguably the most significant measure in the Finance Bill of 2025, is the introduction of an “exceptional contribution” on the profits of large multinational businesses with annual sales in France of at least 1 billion euros, applicable for financial year ending on or after Dec. 31, 2025, with an advance payment equal to 98% of the amount of the exceptional contribution estimated for the current financial year or tax period. Additionally, the combined revenue of all group members, including individual companies and corporate tax groups, will be considered.  For companies with an annual sales revenue between 1 billion and 3 billion euros, the contribution rate is set at 20.6%. For companies with an annual sales revenue exceeding 3 billion euros, the rates are 41.2%. This measure is of a different nature than corporate tax, it is a separate contribution based on total corporate income tax (CIT), computed at the French tax consolidated group level, before credits, reductions, and receivables, and aims to ensure that large, profitable companies contribute more significantly to the national budget during these challenging economic times.

The Finance Bill of 2025 also includes a specific measure for large shipping companies. The exceptional contribution targets shipping companies subject to the French tonnage tax regime (Article 209-0 B of the French Tax Code) with worldwide revenues of at least €1 billion. The contribution rate is set at 12% of the profits generated by these companies and this temporary measure is applicable for the first financial year ending on or after Dec. 31, 2025. Similar to the contribution for other large companies, this is not deductible from taxable income and aims to ensure that large shipping companies contribute fairly to the national budget, reflecting their significant economic presence and profitability.

Research & Development (R&D)

The bill introduces an adjusted basis for the computation of the R&D tax credit to better align the credit with actual R&D expenditures and encourage more investment in innovation and technology advancements. Additional funding has been allocated to support R&D projects, particularly in high-tech and green technology sectors.  The bill also includes measures to simplify the application process for R&D tax credits, making it easier for companies to access these benefits and reduce administrative burdens.

Buyback Transactions

When a company engages in share buyback transactions, it repurchases its own shares from the open market which can lead to a decrease in share capital. The Bill introduces a new tax specifically applicable to companies headquartered in France with standalone or consolidated revenues exceeding 1 billion euros. A nondeductible 8% tax will be imposed on capital reductions resulting from the cancellation of shares following share buyback transactions carried out on or after March 1, 2025.

Financial Transaction Tax Rate

The bill includes a 0.1% increase in the financial transaction tax rate, raising it from 0.3% to 0.4%. This increase applies to transactions involving the purchase of shares in French companies with a market capitalization exceeding €1 billion.

Pillar Two Global Anti-Base Erosion Rules

The Pillar Two Global Anti-Base Erosion Rules were adopted by French Parliament in 2024, which introduced a 15% minimum tax on the profits of multinational enterprise groups operating in France with global revenues of at least €750 million. The 2025 financial bill incorporates the OECD’s recent technical guidance designed to help countries implement Pillar Two. It introduced amendments to the Pillar Two mechanism, incorporating OECD guidelines on deferred taxes and introduced two new types of tax credits for determining GloBE income and covered taxes. Key changes include administrative guidance on simplification measures for insignificant entities and rules for the qualified domestic minimum top-up tax.

Business Contribution on the Added Value

This business contribution was initially set to be completely abolished by 2024, however, the Finance Bill for 2025 includes an extension and outlines a gradual repeal until 2029. Despite the planned repeal, the bill introduces an additional contribution for 2025 designed to ensure that businesses continue to contribute to public finances during the transition period. These measures aim to balance the need for public revenue with the goal of reducing the tax burden on businesses over time.

ASC 740

Under ASC 740, the changes enacted by the Finance Bill of 2025 on Feb. 14, 2025 should be reflected in a company’s financial statements in the period that includes the enactment date. Some of the changes discussed above may lead to adjustments to deferred tax assets and liabilities. Companies will need to carefully analyze the impact of these tax measures on the measurement of deferred tax assets and liabilities as well as impacts on current year tax liabilities. Companies should also consider:

The 15% minimum tax on the profits of multinational enterprise groups under the OECD’s Pillar Two rules will require companies to evaluate their global tax strategies and evaluate whether US MNEs will incur additional tax under the Pillar Two rules.

Adjustments to the R&D tax credit computation may impact the recognition and measurement of deferred tax assets related to R&D activities.

Reporting and Compliance

For US multinational corporations with operations in France, the Finance Bill of 2025 introduces several complex changes that may impact business operations and tax liabilities. Regularly consulting with tax advisors and proactively addressing these changes will allow US multinational corporations to better navigate the evolving tax landscape in France and optimize their operations. It is advisable for US multinational corporations to work closely with their tax advisors and accounting professionals to ensure accurate and compliant reporting.