FRANCE: An Introduction to Tax
As we enter 2025, the uncertainty that has been looming in recent years feels more relevant than ever. Whether in terms of the global economy, geopolitical tensions, or the political situation in France, the road ahead is more unpredictable than ever. Even the Finance Bill for 2025 has yet to be passed at the time of writing. However, tax developments have not come to a standstill, and several trends are picking up steam, offering reassurance that neither economic players nor tax authorities are paralysed by inaction. There is no doubt that the year ahead will be challenging.
On the macroeconomic front, leading analysts are divided. Some predict a buoyant United States, a weakened or contracting Europe, and a China poised for recovery, whether sooner or later.Others argue against conflating the strength of a major economy with short-term stock market fluctuations, emphasising Europe’s potential for resurgence and China’s vast consumer base as key drivers of future growth.
Interest rates have also begun to shift, with declines in Europe and reflation in the United States, suggesting that lower taxes can act as a stimulus. In this context, while some immediate effects will be felt, the importance of a tax system increasingly aligned with the long-term strategic choices of economic players remains less pronounced in a globalised economy moving towards harmonisation.
In France, the economic situation and the current level of public debt strongly suggest that tax levels will rise from 2025 onwards. The latest version of the budget proposal – abandoned at the end of 2024 – projected additional revenues of nearly EUR50 billion. Here, too, the constitutional validity and scope of the Finance Acts will come under scrutiny, putting tax experts in the spotlight as they work to decipher the key issues as quickly as possible.
On the geopolitical front, 2025 will also be a year of significant change, particularly in the wake of the US elections and the start of Donald Trump’s new presidential term. In France, however, attention is likely to remain focused on domestic affairs, following the dramatic fall of the government in late 2024 when it was censured by the National Assembly after just 91 days in power. The new government, taking office at the start of 2025 without a parliamentary majority, will require close monitoring. Without a doubt, public finances and taxation will quickly return to the forefront of debate.
In the mergers and acquisitions market, activity remained fairly robust despite initial expectations. This could signal better times ahead, given that European interest rate trends and inflation levels should help revive the market. However, certain emerging trends suggest potential signs of a slowdown, which must be closely monitored: extended investment durations, the growing use of continuation funds, the increasing implementation of NAV financing at fund level, and a rise in deferred payments (such as closing account adjustments and earn-outs). Taken together, these indicators lend weight to the argument that growth may be decelerating. Additionally, early signs of struggles with refinancing and restructuring projects are beginning to surface. Here, too, tax specialists will have a crucial role to play in offering the best solutions to mitigate potential difficulties.
In taxation more broadly, there has been a noticeable rise in tax audits and litigation, along with an intensification of certain practices. According to French tax authority statistics, the number of administrative assistance procedures initiated by the French tax authorities has risen by 12%. Litigation remains as active as ever, including cases with constitutional implications. A signal of things to come?
At the same time, the use of rescript procedures, approval requests, and measures to secure transfer pricing – such as Advance Pricing Agreements (APAs) and International Compliance Assurance Programmes (ICAPs) – demonstrates an evolving approach to safeguarding taxpayers’ positions. Another trend worth noting?
Significant VAT developments, particularly in the realm of electronic invoicing, and customs taxation will be key areas of focus. The latter, in particular, warrants close attention, as the overhaul of customs duties was a central pillar of the US President-elect’s campaign. A development to watch.
And what about artificial intelligence? The tax authorities appear to be investing in it, rolling out its use in audits, though progress has been slow. A longer timeframe will be needed to assess its true impact. Meanwhile, businesses and tax specialists are also exploring AI’s potential. Continuous testing, monitoring, and investment will be essential. Another area to keep under scrutiny.
Finally, we continue to witness an upsurge in specific reporting obligations for certain groups, driven by recent legislative developments – such as Pillars 1 and 2, the DAC, and various ATAD directives. As we enter 2025, it is hard to ignore the fact that international and European regulatory bodies continue to rely on acronyms that imply an “anti-abuse” agenda, even as the fundamental principles of free movement of goods and people remain as relevant as ever. Food for thought.
In conclusion, we are undoubtedly facing a year filled with uncertainties and challenges, but tax specialists will have a vital role to play – standing by their clients’ side and anticipating changes. The only real risk would be inaction.