Draft Finance Bill (Update as of November 15, 2024) - Selected excerpts

The Draft Finance Bill (PLF) for 2025, presented on October 10, 2024, highlights tax reforms for individuals and businesses. Rejected in the first reading at the National Assembly on November 12, the text sent to the Senate retains the initial version proposed by the government.

Taxation of Individuals

1. Indexation of the income tax scale and withholding tax (PAS) to inflation

Article 2

As every year, the income tax (IR) scale and the withholding tax (PAS) rate tables are indexed to inflation (forecast of 2% for 2024). This concerns:

• Tax brackets.
• Associated thresholds and caps (for example, tax exemption caps).

Commentary: This revaluation is a recurring technical measure, but it may not fully offset the actual inflation effects on taxpayers' incomes.

2. Temporary differential contribution on high incomes

Article 3

This temporary contribution targets tax households with incomes exceeding:

• €250,000 for a single person.
• €500,000 for a couple subject to joint taxation.

It guarantees a minimum tax rate of 20% on the adjusted reference tax income (RFR adjusted). This mechanism takes into account:

• Tax benefits reducing the tax, which will be reintegrated into the calculation.
• An increase for family charges (€1,500 per dependent).

Commentary: Although temporary (2024-2026), this measure could be made permanent in the Senate. Debates will focus on its economic impact and symbolic significance in the context of public finance recovery.

3. Reform of the taxation of non-professional furnished rental (LMNP)

Article 24

The calculation of the capital gain in the event of the sale of a property rented under LMNP will include the deducted depreciation, increasing the taxable base. Depreciation for works (construction, improvement, etc.) remains excluded from this measure.

Commentary: This reform aims to limit tax distortions between furnished rentals and traditional tax regimes. Some parliamentarians have proposed extending this reform to professional furnished rentals (LMP), which could reappear in the Senate.

4. Alignment of tax domicile and tax residence

Article 23

The text provides that individuals meeting the criteria for tax domicile in France (Article 4 B of the CGI) are not considered tax residents in France if they are residents of another state under a tax treaty.

Commentary: This measure secures the administrative position, but its retroactive application could be criticized.

Annulled Amendments: Dutreil Pact, PFU, and Capital Gains Tax

1. Dutreil Pact

Amendment No. I-CF1813 (annulled with the rejection of the revenue section)

The amendment proposed to adjust the calculation of the taxable capital gain for securities benefiting from the Dutreil pact.

Commentary: Although withdrawn, this proposal could reappear in the Senate or in a second reading.

2. Flat Tax (PFU)

Amendment No. I-CF1806 (annulled with the rejection of the revenue section)

The amendment aimed to increase the share of income tax in the PFU from 12.8% to 15.8%, raising the overall rate from 30% to 33%.

Commentary: This measure, if it returns to debates, would increase the taxation of capital income.

3. Reform of the taxation of capital gains on real estate

Amendment No. I-CF1814 (annulled with the rejection of the revenue section)

This amendment proposed to replace the current holding period allowances with an indexation to inflation, applying a PFU of 30%.

Commentary: This reform would have increased real estate taxation for some property owners, raising debates on equity and impacts on the market.

Taxation of Businesses

1. Maintenance and postponement of the abolition of the CVAE

Article 15

The gradual abolition of the corporate value-added contribution (CVAE), initially planned for 2025, is postponed to 2030. Current rates will be maintained until 2027.

Commentary: This decision preserves local authorities' tax revenues but increases the burden on businesses.

2. Support for rural and struggling areas

Article 27

The text reintegrates municipalities into the France Ruralities Revitalization (FRR) scheme and extends tax exemptions in employment areas to be revitalized (BER) until 2027.

Commentary: These adjustments aim to correct territorial inequalities generated by the 2024 reforms.

General Analysis

The text sent to the Senate reflects the government's initial intention to strengthen taxation on high incomes and tax loopholes while supporting territories and strategic sectors. However, debates in the Senate could adjust certain measures, particularly those deemed too restrictive by businesses or local authorities.

The Prax Avocats team is at your disposal to analyze these developments and their impacts on your tax and wealth obligations.

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