1. Legislative changes: are there any additional processes or support which have been introduced as a response to the pandemic which I may not have considered previously?
Several measures have been taken amending the French insolvency law and allowing exceptional state aid to French companies, as follows:
- Suspension of insolvency filing duty during the state of alarm (from 12 March to 24 August 2020).
- Extension of the duration of ongoing conciliation proceedings (pre-insolvency proceedings), for a maximum of five months, until 24 August 2020.
- Extension of all deadlines under the French Commercial Code for ongoing insolvency proceedings to 24 June 2020.
- The possibility to extend reorganisation plans currently being carried out until 24 August 2020.
- Releasing by the French state of EUR300 billion of aid to strengthen companies' cashflow by guaranteeing their loans and granting them new credits. This aid has been extended to companies that failed in insolvency proceedings since 1 January 2020.
- Creation of a solidarity fund for very small companies subject to insolvency proceedings other than judicial liquidation.
2. Is there anything else I should look out for?
At the time of writing, there are no new measures implemented by the French government. However, other measures could be adopted in the coming weeks.
3. What is the position with respect to the applicability of emergency tax measures , including
- what they are and apply to;
- when they are expected to be phased out on or following a return to business; and
- whether any transitional periods are likely to apply.
To help companies facing the COVID-19, the French government has taken exceptional measures such as the deferral of payment and/or tax rebates.
Deferral of payments: all companies can request a deferral from their tax office, without any penalty, of their next direct tax payment deadlines for three-months. No justification is required. Once the deferral of payment is granted, the deferred payment will be spread over the next tax instalments.
This measure was effective for payments made in March and April. For instalments due in May, the French tax government has deferred their payment until 30 June 2020. Once the deferral has been granted, the payment schedule remains the same. In order to benefit from this measure, a form must be submitted to the French tax authorities.
However, a government press release mentions that companies in a financial position to pay their direct taxes on time are encouraged to pay them within the deadline and should not request a three-month deferral of payment. In addition, the French tax authorities may reject some unsubstantiated requests.
Companies that pay business tax and property tax on a monthly basis can suspend the payment of monthly instalments by making the request on their online business space.
Tax rebates: companies can request from their tax office a tax rebate for their direct taxes that should be due. This measure is granted only to companies facing financial difficulties that could not be overcome solely by deferred payments, and is granted on a case-by-case basis. We have no indication on the end dates of this measure.
For large companies (i.e. those employing more than 5,000 people or with a turnover above EUR1.5 billion in France), these measures apply on the condition they do not distribute dividends or carry out share buybacks during 2020.
In addition, the French government has declared a state of health emergency and issued a number of ordinances to postpone or suspend the expiry of certain deadlines. These ordinances relate, in particular, to administrative time limits, such as:
- the time limit for referral to the Administrative Court;
- the time limit for appeals before the courts;
- the time limit within which the tax authorities may not start tax audits; and
- the date of the statute of limitations.
However, these ordinances do not apply to the filing of tax returns. The starting point of these measures is set at 12 March and ends on 24 May (end of the state of emergency). This date has been extended to 23 July 2020. Thus, for example, due to the state of health emergency, the statute of limitations for the fiscal year 2017 is set at 12 June 2021, instead of 31 December 2020.
4. Are there specific steps that businesses should take to prepare for these tax measures being phased out – for example new timing of
- payment obligations (and therefore likely pressure on cash flow); and/or
- filing of returns?
Companies benefitting from the deferral of payments mentioned above must take into account that the deferred instalment(s) remain(s) due and will be spread over the next instalments to be paid. This is a deferral of payment, not a tax rebate.
Companies benefitting from a suspension of payments of their monthly instalments must pay the suspended amount with the payment of their tax balance in October/November.
The French government has extended the deadline for the filing of the corporate income tax return (30 June instead of 20 May), the deadline for the payment of the CIT balance, and the deadline for the filing of the other returns and taxes due in May (cotisation sur la valeur ajoutée).
5. Should the impact of emergency tax measures be reconsidered by businesses – e.g. are there certain legal transactions (such as sales or reorganisations) that parties should preferably postpone or accelerate?
The emergency tax measures should have no effect on legal transactions.
However, these measures will have an effect on “large companies that have benefited from the deferral of payments, tax rebates and loans guaranteed by the state.
These companies cannot distribute dividends and/or carry out a share buyback in 2020 (subject to certain exceptions). Large companies are defined as companies with more than 5,000 employees or with a turnover of more than EUR1.5 billion in France for the previous year. To determine whether a company is a large company, companies part of a tax-consolidated group or companies that meet the ownership condition to be part of a tax-consolidated group must be taken into account.
As a result, if the conditions are met, these prohibitions must be taken into account in the structuring of any transactions to take place in 2020.
6. Are there any additional measures proposed, in particular any that are targeted at particular sectors (e.g. aviation)?
Certain measures, mainly financial (non-tax) measures, have been taken to support particular sectors, such as startups and export companies.
In France, there are to date no specific measures for particular sectors. However, there are special measures for the purchase/sale of specific goods, such as sanitary equipment.
The Second Amended Finance Law for 2020 extends the benefit of the 5.5% VAT rate to protective masks, protective clothing and personal hygiene products adapted to the fight against COVID-19. This rate will apply until 31 December 2021 for all transactions: domestic purchase, intra-EU purchase, or import.
Moreover, the public organizations (such as state organizations, public entities, and other entities governed by public law) can import sanitary equipment from outside the EU free of VAT and customs duties. This measure applies until 31 July 2020.
7. Are there any sectors or interest groups that are now putting forward, or may in the near future request, special tax measures?
Certain measures are currently under review by the relevant authorities, in particular for the restaurant, hotel and tourism sectors.
The French government will have to negotiate with local authorities on the modalities for deferring the business tax (cotisation foncière des entreprises) and the exemption of the lump-sum on the tourist tax for civil year 2020.
In addition, the French government could provide for a removal of tax and social security charges weighing on businesses in these sectors. However, to date, we have no indication as to which companies could benefit from this measure, how long it will apply, or the conditions necessary for it to apply. This is currently under review. Also under discussion is whether this measure would also apply to small and medium-sized companies.
Another discussion point is the possibility of reducing so-called “taxes on production” (gathering almost 200 taxes, often based on the turnover of the enterprise rather than the net profits) applicable for the industry sector.
Finally, the social solidarity contribution (also based on turnover) should be gradually removed from 2021.
8. Which taxes might be increased to address the financial burden caused by the crisis, for example,
- are there political commitments or policy trends that might indicate the likely focus of any tax increase in the future (e.g. to maintain low corporation tax, but to increases taxes on personal wealth)
- measures to broaden the tax base, such as digital services taxation and a pre-emptive response to the OECD/ G20 Inclusive Framework on BEPS (“BEPS 2.0”)
At this stage, there is no political commitment or policy trends regarding finance of the exceptional tax measures.
However, in view of what has been done in the past, there may be two options: (i) slow down the progressive reduction of CIT for some companies, or (ii) introduce an additional tax for large companies. However, at this stage, it appears the French government does not wish to increase these taxes.
France has already implemented a digital services taxation, though its collection is currently on hold pending the approval of new OECD measures on international taxation. At this stage we are not aware that France could take other unilateral measures in this respect.
To date, there is a general trend to implement exceptional tax measures to help companies face the COVID-19 crisis. More general tax reforms or increases are not yet considered; in any event, we would expect this would not happen until a second phase, perhaps as part of the Finance Bill for 2021 or an Amended Finance Bill for 2020.
9. Are there other actions that ought to be considered by businesses in your country e.g.
- revisit past tax filings to claim carry back of losses;
- revise or update preliminary tax assessments;
- claim bad debt relief for VAT output tax
Corporate income tax: Under ordinary law, for companies paying corporate income tax by instalments, there is, under certain conditions, the possibility of reducing the amount of the instalments or removing the payment of certain instalments if the company considers that the instalments paid exceed the amount of the corporate income tax that should be due for that fiscal year. However, in case of non-payment of corporate income tax, a penalty will apply.
VAT: If the conditions are met, it is possible for certain companies to set up separate business sectors (e.g. a sector with full VAT recovery and a sector with low VAT recovery). In this case, the excess VAT due to the setting up of separate business sectors can be requested by filing a claim. This could allow the companies to enhance their VAT recovery position as well as their tax exposure to wage tax (wage tax is applicable, broadly, to companies whose turnover is not fully subject to VAT).
Refund of tax credit: it should be possible for companies benefitting from tax credit (such as research tax credit, competitiveness and employment tax credit) to obtain a refund of tax credit for the part due in 2020 before the filing of the CIT balance return.
In addition, owing to the current situation in France, a decree dated 18 March 2020 has simplified the measures for obtaining a VAT credit refund by increasing the amount of delegations of signature under which an agent may process a VAT credit claim without the prior approval of her superior. As a result, the procedure for processing the claim and reimbursing the VAT credit should be shorter.
10. What do you need to consider in terms of your funding requirements for returning to business and are there any return to business financial assistance packages being made available by government?
In addition to any other support measures (including from a tax or social perspective) set out or referred to above, it should be noted that the French government and Bpifrance (the French state-backed investment bank), have introduced exceptional financial support measures for companies affected by the COVID-19 pandemic and its consequences on the French economy. These measures include:
- State guarantee measures: In accordance with article 6 of Loi de Finance Rectificative No. 2020-289 dated 23 March 2020 and the order dated 23 March 2020, supplemented by the ministerial ruling dated 2 May 2020, the French state (through Bpifrance Financement S.A.) commits to provide state guarantees to secure loans granted by credit institutions/financing companies to French businesses/companies between 16 March and 31 December 2020. This guarantee plan, subject certain conditions applicable to respective types of companies and loans, is the largest so far offered in France and will secure the repayment in principal, interest and accessories of new loans granted for up to EUR300 billion.
- Bpifrance new loan measures: Under specific conditions, Bpifrance offers two types of loans: Trump Card Loans (Prêts Atout) and other loans in partnership with the region Grand Est such as Rebound Loans (Prêts Rebond) or with the region Ile-de-France Back'up Prevention Loan (Prêts Back'up Prévention) to be granted to several categories of companies (i.e. very small enterprises, small and medium-size enterprises and large independent intermediary companies).
- Bpifrance guarantee measures: Bpifrance has also set up a guarantee scheme for existing bank credits to secure some loans granted to companies by putting in place (i) a guarantee fund to strengthen the cash flow of companies and (ii) a guarantee fund to ensure the implementation or renewal of confirmed short-term lines of credit to finance the operating cycle of companies.
11. How will funding a return to business, including taking on additional indebtedness, impact on your financial or other covenants?
In most cases, additional indebtedness incurred will have to comply with permitted indebtedness baskets set out in the finance documentation, and a waiver from the lenders will be required in most cases.
In addition, bear in mind that any new indebtedness incurred may have an impact on the calculation of any financial covenants (depending in particular on how such covenants are defined and the type of new indebtedness).
Debt financing should also factor in tax stakes in relation to interest deduction (see the section above on tax).
12. Are there any remedies such as equity cure or margin ratchets that you should be checking on to provide liquidity to prevent a default or improve their financial position?
It depends on the documentation – either there are equity cure provisions or there are not.
Bear in mind that many finance documentations provide that the Margin shall revert to its highest level if an event of default is continuing.
13. What practicalities do you need to consider in relation to audit requirements?
A number of credit agreements includes an event of default that will arise if the auditors qualify their report in respect of your annual financial statements. Consider in particular the auditor's assessment of going concern, both in the context of increased economic uncertainty and also the ability of your business to comply with any maintenance financial covenant.
14. What is the process if I need any amendments made or waivers given under my loan documentation (including in respect of financial covenants)?
Article 4 of Ordinance No. 2020-306 dated 25 March 2020 (as supplemented by Ordinance No. 2020-427 of 15 April 2020 and Ordinance No. 2020-560 of 13 May 2020) has suspended the possibility for creditors to apply penalty/termination clauses or clauses providing for forfeiture (acceleration) on the basis of default of compliance by debtors of certain obligations to be contractually performed as from 12 March 2020 until 23 June 2020 (included).This suspension of contractual sanctions applies in particular to loan agreements and payment defaults occurring during between 12 March 2020 and 23 June 2020 (included).
In the meantime, this shall not, however, deprive borrowing companies from setting up a proactive and constructive short- or mid-term strategy in close cooperation with lending entities, by maintaining transparent communication in good faith with the lenders; and by focusing discussions on reasonable requests and, where appropriate, sustainable solutions.
15. Dealing with creditors, including amendments and waivers – Bonds
- If I can’t comply with the terms of my bond covenants who do I need to notify?
It depends on how the deal is construed: either through the bondholders’ representative or directly to the bondholders.
- If I need to ask for a waiver or amendment to the terms of bonds issued by my business what steps do I need to take?
No unique answer; the procedure to obtain a waiver or an amendment to the terms and conditions governing bonds issued by a French company in the private debt market depends on how the bonds are construed: either written consultation or bondholders general meeting.
- What is the process for contacting bondholders and holding meetings to agree changes in the terms of my bond documents?
16. Is the availability of any return to business funding or relief either (a) conditioned on the use of proceeds for green or social purposes or (b) linked to sustainability-related outcomes? If so, what are the applicable purposes or outcomes?
There is no such condition at this stage under (a) or (b) for a company to benefit from business funding or relief made available in the context of the COVID-19 pandemic.
For large companies (i.e. those employing more than 5,000 people or with a turnover over EUR1.5 billion in France), the the financing measures (as well as tax measures) are conditional on the company not distributing dividends or carry out share buybacks during 2020 (see the tax section above).