France: Introduction of New Anti-Abuse Rules on the Tax Deductibility of Interest and other Financing Expenses

Until recently, private-equity investment funds and international corporate groups investing in France enjoyed a very favorable tax environment, including inter alia the benefit of both EU Directives and the double tax treaties signed by France, as well as the ability generally to “push down” debt incurred in connection with their acquisitions through the combination of (i) the tax consolidation regime, (ii) the 95% exemption of dividends from subsidiaries, (iii) the full deductibility of interest and other financing expenses, subject thin capitalization and arm’s length interest rate requirements, and (iv) the unlimited carry-forward of losses.

Although still competitive with other jurisdictions, the French tax environment is becoming less favorable as the pressure grows on France’s budget.

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