Deferred Tax Calculator
France

IAS 12 deferred tax in France: IAS 12 as adopted by the EU for IFRS reporters; Plan Comptable Général (PCG) and CRC 99-02 for non-IFRS entities

France completed its corporate tax rate reduction from 33.33% to 25% in 2022, and the standard rate now stands at 25% for all entities regardless of size. This multi-year rate reduction required French IFRS reporters to re-measure deferred tax balances each year as each new rate was substantively enacted, creating a series of adjustments through profit or loss between 2019 and 2022. Entities that failed to re-measure in a timely manner accumulated errors that carried forward into subsequent periods. With the rate now stable at 25%, the re-measurement issue has resolved, but its legacy is visible in prior-period comparatives. French entities listed on Euronext Paris apply IAS 12 as adopted by the EU. Non-listed entities use French GAAP, which handles deferred tax through CRC Regulation 99-02 for consolidated accounts (broadly aligned with IAS 12's temporary difference approach) and the PCG for individual accounts (which historically didn't require deferred tax in individual statutory accounts, though this changed with ANC Regulation 2020-01). The integration fiscale regime allows French parent companies to consolidate the taxable income of 95%-or-more-owned French subsidiaries, similar to the Dutch fiscal unity and German Organschaft. Deferred tax in an integration fiscale should consider the group's combined tax position.

Regulatory context: Autorité des Marchés Financiers (AMF); Direction Générale des Finances Publiques (DGFiP) for tax administration

The AMF publishes annual recommendations on financial reporting, and deferred tax features regularly. The AMF's 2023 recommendations emphasised that entities should clearly disclose the basis for recognising deferred tax assets, particularly for entities with recent losses or in cyclical industries. The AMF noted that some entities disclosed only the aggregate deferred tax asset without breaking it down by type of temporary difference, which prevents users from assessing the recoverability risk. The AMF also highlighted that the tax rate reconciliation should reconcile between the French statutory rate (25%) and the effective tax rate, with each reconciling item above a materiality threshold explained individually. The Haut Conseil du Commissariat aux Comptes (H3C), France's audit oversight body, has identified deferred tax as a theme in its inspection findings. H3C noted that auditors of French groups with foreign subsidiaries sometimes applied the French rate to foreign temporary differences, rather than using the local rate of each subsidiary's jurisdiction as required by IAS 12.47. H3C also found that auditors accepted management's deferred tax computations without independently verifying the tax bases of assets and liabilities.

Practical guidance for France

French practitioners need to address several country-specific deferred tax issues. First, the CVAE (Cotisation sur la Valeur Ajoutée des Entreprises) is a French business tax calculated on value added rather than net income. The IFRS Interpretations Committee considered whether the CVAE meets the definition of an income tax under IAS 12 and concluded that it does (based on IAS 12.2, which includes taxes based on taxable revenue adjusted by deductions that approximate a net income calculation). This means temporary differences that affect the CVAE base should carry deferred tax at the CVAE rate in addition to the corporate income tax rate. However, many practitioners treat the CVAE as outside IAS 12 because the value-added base is significantly different from net income. The entity's accounting policy on this point should be disclosed. Note: the CVAE is being progressively phased out, with the phase-out expected to complete by 2027. Second, the French participation exemption applies to qualifying dividends (taxed at 1% after the 95% exemption) and capital gains on qualifying participations. This affects deferred tax on investments in the same way as the Dutch participation exemption. Third, French tax depreciation rules allow accelerated depreciation (amortissement dégressif) for certain asset categories, creating taxable temporary differences between the accounting straight-line depreciation and the tax declining-balance method.

Audit expectations

H3C inspection findings have highlighted that auditors should verify the tax base of each material balance sheet item rather than relying on the entity's tax computation. For French entities, the tax base is determined by the Code Général des Impôts (CGI), and the accounting carrying amount under IFRS may differ significantly from the French GAAP carrying amount that forms the starting point for the tax computation. Auditors should reconcile the IFRS carrying amounts to the tax bases and identify any temporary differences that arise from the IFRS-to-French-GAAP differences (such as the treatment of development costs, which are capitalised under IFRS but may be expensed under French GAAP, with the tax treatment following French GAAP).

France-specific considerations

France introduced the global minimum tax (Pillar Two) through the Finance Act 2024, implementing the EU Minimum Tax Directive. Entities within the scope of Pillar Two (consolidated revenue above EUR 750M) may face a top-up tax to bring the effective rate to 15% in each jurisdiction. IAS 12.4A (introduced by the May 2023 amendment) provides a mandatory temporary exception from recognising deferred tax arising from the top-up tax. However, entities must disclose information about their exposure to Pillar Two, including the jurisdictions where the effective rate is below 15%. French entities should check whether the Pillar Two top-up tax affects their group's overall tax position and note the IAS 12.4A exception in their accounting policies. The tax loss carry-forward rules in France allow indefinite carry-forward, but with a restriction: losses can offset only EUR 1M plus 50% of taxable income above EUR 1M in any given year. This restriction (similar to Germany's Mindestbesteuerung) extends the recovery period for deferred tax assets on tax losses and must be modelled in the IAS 12.24 assessment. France also has a specific surcharge (contribution sociale de 3.3% on the corporate income tax liability above EUR 763,000) that brings the effective combined rate to approximately 25.83% for large entities. Some preparers round to 25%, but the surcharge should be included in the deferred tax rate for precision.

Common inspection findings

The AMF found that entities failed to explain material reconciling items individually in the tax rate reconciliation, instead grouping them under generic headings.

H3C identified auditors applying the French 25% rate to temporary differences in foreign subsidiaries rather than using the local rate of each jurisdiction.

Deferred tax assets on French tax losses were recognised without modelling the EUR 1M plus 50% loss utilisation restriction, overstating the speed of expected recovery.

The CVAE accounting policy (within or outside IAS 12 scope) was not disclosed, and the deferred tax treatment was inconsistent between periods in some entities.

Entities within Pillar Two scope failed to provide the required disclosures about their exposure, including the jurisdictions where the effective rate was below 15%.