FRANCE: 10% Exit Tax on capitalization reserve

Paris, 15 février 2011 - Visualiser l'eAlerte

In a tough budgetary environment, the French Government has decided to collect a 10% exit tax on the so called réserve de capitalisation, a regulated reserve which is compulsory for French insurance and reinsurance companies. The exit tax will be due for payment in 2011 and 2012. As from 1 January 2010, movements on the reserve will no longer be tax deductible/taxable. Special provisions are designed for mutual funds and welfare institutions.

The “réserve de capitalisation” works as an equalization reserve for gains and losses realized on fixed rate bonds and other redeemable securities. The "réserve de capitalisation" is hybrid in that it is both a technical reserve in respect of technical liabilities, but also an element of solvency margin. For French GAAP purposes, the "réserve de capitalisation" is not recorded as a liability but is instead recorded in stockholders' equity accounts.

10% Exit Tax
The "exit tax" amounts to 10% of the "réserve de capitalisation", as recorded in the opening balance sheet for FY 2010 and is capped at 5% of the stockholders' equity (including the "réserve de capitalisation") as defined by French GAAP.

French corporate income tax treatment of the “reserve de capitalisation”
In the past, the French tax authorities allowed the tax deductibility of amounts transferred to the “réserve de capitalisation”, with a taxation of such amount taking place when they were reversed to the P&L account. As from 2010, any increase in the reserve is no longer deductible and any reversal to the P&L account is no longer taxable.

French GAAP/IFRS treatment of the "exit tax"
For French GAAP purposes, Finance Act for 2011 provides that the full amount of exit tax must be debited to retained earnings at 31 December 2010, rather than to the P&L account. For IFRS consolidated accounts, the amount of "exit tax" should however be charged to the P&L.

Impact on deferred tax position
For IFRS purposes, the existing deferred tax liability as at 1 January 2010 - if any - must be reversed to the P&L account. No deferred tax asset should be recorded in the future.

Payment of "exit tax" to the French Treasury
The exit tax will be due for payment in 2 equal instalments the first of which shall be payable by 30 April 2011 with the balance being due by 30 April 2012.

French branch
The tax treatment of a "réserve de capitalisation" at the level of a French branch of a foreign insurance/reinsurance company must be considered carefully.

Pour plus d'informations