French General Tax Code
In forceII. 1. - Companies may set aside, free of tax, a provision for investment equal to 50% of the amount of sums transferred to the special profit-sharing reserve during the same financial year and deducted from taxable profits, which are allocated in addition to ordinary law profit-sharing pursuant to agreements that meet the conditions set out in Article L. 3324-2 of the French Labour Code.
Companies that have adopted an optional scheme in accordance with articles L. 3323-6 and L. 3323-7 of the French Labour Code may also set aside, under the same conditions, a provision for investment equal to 25% of the amount of sums transferred to the profit-sharing reserve during the same financial year and which correspond to ordinary law profit-sharing. This rate is increased to 50% for agreements existing on the date of publication of law no. 2001-152 of 19 February 2001 on employee savings and those concluded no later than two years after this publication. This rate is increased to 50% for agreements concluded within three years of the publication of loi n° 2006-1770 du 30 décembre 2006 pour le développement de la participation et de l'actionnariat salarié et portant diverses dispositions d'ordre économique et social.
The amount of the provision referred to in the first and second paragraphs is reduced by half when the agreements provide that the sums allocated are unavailable for three years only.
Companies employing fewer than one hundred employees that have concluded a profit-sharing agreement in application of Title I of Book III of Part III of the Labour Code on the date of publication of the aforementioned Act no. 2001-152 of 19 February 2001 or within two years of this publication and that have a savings plan set up in application of Title III of Book III of Part III of the Labour Code may set up, tax-free, a provision for investment equal to 50% of the amount of the sums mentioned in the articles L. 3332-11 to L. 3332-13 of the said code which supplement the employee's payment from the profit-sharing scheme and allocated to the savings plan.
Companies may set aside, tax-free, a provision for investment equal to 25% of the amount of additional payments made as part of the collective retirement savings plan defined in articles L. 3334-1 to L. 3334-16 of the Labour Code. This rate is increased to 50% for additional payments invested in securities giving access to the company's capital.
Companies which pay, under the collective retirement savings plan defined in articles L. 3334-1 to L. 3334-16 of the French Labour Code and within the framework of the provisions of articles L. 3332-11 to L. 3332-13 of the same code, sums in addition to the amount paid by their employees to acquire units in funds governed by the fifteenth to eighteenth paragraphs of article L. 214-164 of the French Monetary and Financial Code may set up a tax-free investment provision equal to 35% of the additional payments. Shares in solidarity companies or organisations acquired must be held for at least two years by the fund.
2. At the end of each financial year, sociétés anonymes à participation ouvrière may set aside, free of tax, a provision for investment equal to 50% of the sums transferred to the special profit-sharing reserve during the same financial year and deducted from taxable profits. This amount is increased to 75% when the companies concerned allocate, for each financial year, to a non-distributable reserve account, by deduction from profits, a sum equal to 25% of the sums transferred to the special profit-sharing reserve during the same financial year and deducted from taxable profits. In the event of dissolution, the reserve resulting from this allocation may only be distributed to holders of employee shares.
3. The amount of the provision for investment that the sociétés coopératives de production may set aside tax-free at the close of a financial year is at most equal to the amount of the sums transferred to the special profit-sharing reserve in respect of the same financial year. Allocations to the legal reserve and to the development fund of these companies may take the place, up to the same amount, of an investment provision.
This provision does not apply to sociétés coopératives de production whose capital is more than 50% owned by persons defined in 1 quinquies of the article 207 and holders of cooperative investment certificates, with the exception of those in which the majority of the capital is held by another cooperative production company under the conditions set out in article 25 of law no. 78-763 of 19 July 1978 on the status of sociétés coopératives de production.
This provision is, however, applicable to sociétés coopératives de production resulting from the transformation of other companies under the conditions provided for in articles 48 to 52 of the same law and for which the non-cooperating members undertake, at the time of the conversion and under conditions laid down by decree, to transfer a sufficient number of shares to enable the cooperative members to hold at least 50% of the company's capital no later than 31 December of the seventh year following the year of conversion into a société coopérative de production.
This provision is also applicable to sociétés coopératives de production which have set up a grouping between themselves covered by the articles 47 bis to 47 septies of said law and the majority of the capital of which is held by one or more cooperative societies which are members of this grouping or by employees employed by the other cooperative societies which are members of this grouping.
In the event of non-compliance with the undertaking referred to in the third paragraph and by way of derogation from the first paragraph of 4, the company reports against the taxable income for the financial year in progress or closed on 31 December of the seventh year following that of the conversion into a société coopérative de production a sum corresponding to the excess provisions for investment allowed as a deduction pursuant to this 3 compared to the amount of provision deductible pursuant to 2. The corresponding duties are increased by the late payment interest provided for in Article 1727, deducted from the financial year during which the provision was deducted.
4. The provision referred to in 1 to 3 is deducted from taxable profits if it is not used within two years for the acquisition or creation of fixed assets. This period is extended to four years for cooperative production companies where the investment provision is represented by allocations to the legal reserve and the development fund.
The provision referred to in the fifth paragraph of 1 may also be used for the training expenses provided for in Article L. 3341-3 of the Labour Code.
5. When an agreement is concluded within a group of companies subject to the regime defined in articles 223 A et seq and results in the release of an overall profit-sharing reserve, the investment provision is set aside by each of the companies concerned within the limit of its actual contribution to the overall profit-sharing. However, each of these companies may transfer all or part of its right to set up the said provision to one or more of the other companies in the group in question.
6. When a collective retirement savings plan defined in articles L. 3334-1 to L. 3334-16 of the Labour Code is created by a group agreement provided for in articles L. 3344-1 et L. 3344-2 du même code, the investment provision is set up by each of the companies concerned up to the limit of the additional contributions actually paid within this framework. However, each of these companies may, with the authorisation of the Minister of Finance, transfer all or part of its right to set up the said provision to one or more of the other companies in the group in question.
III. - The provisions of this article apply to each company as from the first day of the first financial year beginning after 23 October 1986.
IV. - The provisions provided for in 1 and 2 of II shall cease to be deducted from taxable income recorded in respect of financial years ending on or after 17 August 2012. As from these same financial years, 5 and 6 of II apply only to provisions set up in application of 3 of said II.
The provisions referred to in the first paragraph of this IV appearing at the start of the first financial year closed as from this same date are brought back to the taxable results under the conditions provided for in 4 of II.
