New French Tax System in 2006

As Sustainable Development is at the core of everyone’s concerns, the Finance Act for 2006 amends the vehicle tax regime with a view to lowering the gas emission rate (causing the greenhouse effect) of vehicles.

This new tax reform is comprised of four major measures:

Benefits in kind, taxation follows social benefits

Since 1st January 2003, the rules for assessing the benefits in kind subject to social contributions are the same for all employees, with no distinction made for salary levels. There is a global scale that corresponds to each benefit.

Concretely speaking, the reform enables employers to assess, as early as 2005, according to a global scale, benefits regarding employees’ housing and vehicle benefits for which their remuneration exceeds the ceiling of the French national security scheme. As for authorised agents with an employment contract and separate remuneration, this reform helps to claim the benefit of the global assessment of benefits in kind according to common law.

From the year 2005, the assessment of benefits in kind follows the assessment planned for social contributions.

Tax Reform on Vehicles

This reform concerns corporate vehicles and consists of four main points:

- Suppression of the vehicle tax sticker (differential tax on motor vehicles) for all vehicles used by companies and particular. Therefore, no sticker will need to be paid on 1st December 2006.
- New TVS scale (corporate vehicle tax), the tax period extending from 1st October each year to 1st November of the following year.
- Certain vehicles used by employees will be subject to the TVS (corporate vehicle tax), the rate being in proportion to the number of kilometres reimbursed by the company to its employee.
- Creation of an additional tax on registration certificates in order to encourage the purchase and use of vehicles emitting a low amount of CO2

Modification of the rules on tax amortization for private vehicles

There are two types of amortization:

- Regular amortizations and monthly payments: The new reform limits the amount of tax to be deducted from the amortization on the most polluting vehicles, from 1st January 2006. This limitation concerns the amount deducted from the amortizations of vehicles purchased as well as from monthly payments made for vehicle rental or leasing.

- Amortization of an exceptional nature: Companies subjected to the corporate income tax can rely on amortization of an exceptional nature for twelve months on non-polluting vehicles and their fittings purchased new before 1st January 2006.

Higher tax credit for individuals and companies not subject to a corporate income tax

- This concerns tax credits granted in the event of a purchase or rental of a non-polluting vehicle emitting less than 140 grammes of CO2 per kilometre or transformation to LPG.

- Fulfilling one of these conditions before 31 December 2009 shall lead to a tax credit of €2000.

- When this condition justifying the tax credit coincides with the destruction of a vehicle for which the first registration is prior to 1st January 1997, the tax credit will be raised to €3000.