French 2025 Finance Act Includes Pillar 2 Changes for OECD Administrative Guidance

Overview

On February 15, 2025, the French Finance Act 2025 was published in the Official Gazette. Article 53 includes amendments to the French Global Minimum Tax Regime for the OECD Administrative Guidance. 

Article 33 of the French 2024 Finance Act (published in the Official Gazette on December 30, 2023) included provisions to implement the  EU Minimum Tax Directive (the ‘EU Directive’).

As provided in the EU Directive, the 2024 Finance Act included an income inclusion rule (IIR) and an under-taxed profits rule (UTPR).

The IIR is effective for financial years beginning on or after December 31, 2023, whilst the UTPR will generally apply for financial years beginning on or after December 31, 2024.

A domestic minimum tax (intended to be a Qualified Domestic Minimum Top-Up Tax (‘QDMTT’)) also applies for financial years beginning on or after December 31, 2023.

Whilst the 2024 Finance Act applies the provisions of the EU Minimum Tax Directive, it does not implement many of the provisions of the Second or Third Set of OECD Administrative Guidance The main exception is the inclusion of the Transitional UTPR Safe Harbour.

The Transitional CbCR Safe Harbour was included from the OECD Safe Harbours and Penalty Relief Rules. The Simplified Calculation Safe Harbour for Non-Material Constituent Entities was not included.

The 2025 Finance Act included amendments to the General Tax Code to reflect the OECD Administrative Guidance, including the December 2023 OECD amendments to the Safe Harbours. This will apply to financial years ending on or after December 31, 2024.

OECD Administrative Guidance

The only aspects of the First Set of OECD Administrative Guidance included in the 2024 Finance Act were:

– Forex hedge election (Article 2.2)

– Excluded Dividends – Asymmetric treatment of dividends and distributions (Article 2.3)

– Debt release election (Article 2.4)

– Accrued Pension Expenses (Article 2.5)

– Excess negative tax carry-forward guidance (Article 2.7)

– Substitute Loss carry forwards (Article 2.8)

– The extension of the taxable distribution method election to insurance investment entities (Article 3.1)

– Exclusion of Insurance Investment Entities from the definition of Intermediate Parent Entity and Partially-Owned Parent Entity (Article 3.2)

– Extension of definition of restricted tier 1 capital (Article 3.3)

– Liabilities related to Excluded Dividends and Excluded Equity Gain or Loss from securities held on behalf of policyholders (Article 3.4)

– Portfolio shareholding election (Article 3.5)

– Transitional Rules (Article 4)

As such, the following were not included in the original law:

– Blended controlled foreign company regimes;

– Transferable tax credits;

– Meaning of “ancillary” for Non-Profit Organisations;

– Excluding sovereign wealth funds from the definition of Ultimate Parent Entity;

– The extension of the tax transparency election to mutual insurance companies; and

– Additional rules (such as the deemed 50% requirement where employees perform work outside the employer’s jurisdiction for the SBIE).

The December 2023 Administrative Guidance provides that groups can still qualify for the Transitional CbCR Safe Harbour if they complete Article 2.2.1.3(a) of the GloBE Information Return using the data from Qualified Financial Statements that would have been reported as Total Revenue and PBT in a Qualified CbC Report if the MNE Group were required to file a CbC Report. This is designed to ensure that domestic groups for instance can still qualify for the safe harbour (as they would not otherwise prepare CbC reports.

Article 223 VZ of the 2024 Finance Act provides for this and states that the amounts that the CbCR Safe Harbour are tested against are the amounts derived from the French statutory accounts (eg the PBT and turnover). This is further clarified in the 2025 Finance Act. 

The 2025 Finance Act includes a number of aspects from the First, Second and Third Set of OECD Administrative Guidance. The Fourth and Fifth Set of OECD Administrative Guidance (issued in June 2024 and January 2025) are not included and the Explanatory Notes to the Bill note that they will be included in a future draft finance bill or, in Regulations. The 2025 Finance Act includes:

-Rebasing monetary thresholds in the GloBE Rules (Article 1.1 – First Set of OECD Administrative Guidance)

-Equity Gain or loss inclusion election (Article 2.9 – First Set of OECD Administrative Guidance)

-MTTCs (Article 2 – Second Set of OECD Administrative Guidance)

-SBIE Rules (Article 3 – Second Set of OECD Administrative Guidance):

       -Foreign rules

        -Leases

-QDMTT Safe Harbour (Article 4.1 – Second Set of OECD Administrative Guidance)

-Transitional CbCR – Purchase Accounting Adjustments (consistent reporting condition, goodwill impairment adjustment) (Article 1 – Third Set of OECD Administrative Guidance)

-Transitional CbCR – Same Financial Statements/Local Financial Statements for Statutory Reporting (Article 2.3.1 – Third Set of OECD Administrative Guidance)

-Transitional CbCR – Adjustments to Qualified Financial Statements/Dividend Mismatches (Article 2.3.3 – Third Set of OECD Administrative Guidance)

-Transitional CbCR – MNEs not required to file CbC Reports (Article 2.3.4 – Third Set of OECD Administrative Guidance)

-Transitional CbCR – Treatment of hybrid arbitrage arrangements (Article 2.6 – Third Set of OECD Administrative Guidance)

OECD Safe Harbours

The 2024 Finance Act provided for the application of the Transitional CbCR Safe Harbour, and the Transitional UTPR Safe Harbours.

However, Article 53(25) of the 2025 Finance Act includes the QDMTT Safe Harbour and Article 53(2) provides for simplified calculations for NMCEs.

As noted above, the 2025 Finance Act also includes aspects of the December 2023 Administrative Guidance that amend the Transitional CbCR Safe Harbour rules.

Elections in the OECD Model Rules

All of the elections included in the OECD Model Rules and the EU Minimum Tax Directive are provided in the law, including:

– Excluded Entity Election (Article 223VL ter of the law)

– Stock-Based Compensation Election (Article 223 VO octies of the law)

– Election to use the Realization Method (Article 223 VO nonies of the law)

– Election to Spread Capital Gains (Article 223 VO decis of the law)

– Consolidation Election (Article 223 VO undecies of the law)

– Unclaimed Accrual Election  (Article 223 VU SEEN of the law)

– GloBE Loss Election (Article 223 VV of the law)

– Prior Year Adjustment Election (Article 223 VX of the law)

– De minimis Election (Article 223 WD of the law)

– Substance-Based Income Exclusion Election (Article 223 WA of the law)

– Taxable distribution Election (Article 223 WV of the law)

– Tax transparency Election (Article 223 WU of the law)

– Distribution Tax Regime Election(Article 223 WS of the law)

– Safe Harbour Elections (Transitional CbCR Safe Harbour plus the Transitional UTPR Safe Harbour).

Elections in the OECD Administrative Guidance

Elections included in the OECD Administrative Guidance that are included in the law include the:

– Debt Release Election (Article 223 VO duodecies of the law)

– Foreign Exchange Hedge Election (Article 223 VO quaterdecies of the law)

– Portfolio Shareholding Election (Article 223 VO terdecies of the law)

– Excess Negative Tax Carry-Forward Election (Article 223 VT Quater of the law)

Article 53(4) of the 2025 Finance Act includes the Equity Investment Inclusion Election.

Qualifying Domestic Minimum Top-Up Tax

Article 223 WF of the law applies a domestic minimum tax from December 31, 2023.

Article 223 WF(2) provides that the standard GloBE calculation rules are to be used for the QDMTT calculation.

Under Article 223 WF(2) of the original law (in the 2024 Finance Act), MNEs can opt not to use the UPEs accounting standard and can instead use IFRS or the French accounting standard.

This means, for instance, that a French-based low-taxed group entity may choose to compute the excess profit for QDMTT purposes based on IFRS whilst its UPE uses GAAP of the USA in the preparation of its consolidated financial statements.

However, this is deleted in Article 53 of the 2025 Finance Act, as such the general provisions of the GloBE rules will apply for this purpose from December 31, 2024.

Other provisions of the OECD Administrative Guidance relating to the design of QDMTTs are not included (eg there is no restriction on the pushdown of CFC/hybrid taxes or taxes on distributions). They are however included in Article 53(10)-(12) of the 2025 Finance Act.

Article 53(24) of the 2025 Finance Act provides that each constituent entity in France is liable for its QDMTT. The QDMTT allocated to a constituent entity for a financial year is equal to the QDMTT of the group allocated on the ratio between the QDMTT calculated individually by the entity and the total QDMTT for all group entities in France.

However, where DMTT arises to investment entities or insurance investment entities, the MNE/Domestic group is required to designate another constituent entity that is a member of the same group, located in France and which is neither an investment entity nor an insurance investment entity. This entity will be liable for the DMTT.

If another entity is not designated the person liable for the DMTT will be constituent entity that is a member of the group located in France and which has the highest GloBE income for the financial year in question.

If no constituent entity of the group, other than an investment entity or an insurance investment entity, is located in France, the investment entity or insurance investment entity remain liable for DMTT.