Tax credit
In the complex world of taxation, various mechanisms enable taxpayers to reduce their taxes or benefit from certain advantages. One such mechanism, known in France until 2005, is the “avoir fiscal”. Although it is no longer used today, understanding it is essential to understanding the evolution of dividend taxation in France and its impact on taxpayers and companies.
What is the “Avoir Fiscal”?
The avoir fiscal was a tax credit that enabled shareholders, whether individuals or companies, to recover part of the corporate income tax already paid by the company distributing the dividends. This system was designed to avoid double taxation of a company’s profits: once at the level of the company and a second time at the level of the shareholder receiving the dividends. The history of the tax credit is rich in lessons about investment incentive policies and the debates surrounding tax justice.
Historical development and raison d’être
The introduction of the tax credit
Introduced in France in 1965, the tax credit was initially intended to encourage investment in shares and support the development of national companies. One of the aims of this measure was to encourage savers to become shareholders, by reducing the tax cost of such investments.
Elimination of the tax credit
Over time, the tax credit has come in for criticism. It was deemed costly for public finances and essentially benefited the wealthiest shareholders. Faced with this criticism and pressure from the European Union, which saw the tax credit as a distortion of competition, France scrapped the scheme in 2005, opting for a more traditional dividend tax regime.
Tax credit implications for taxpayers
For private customers
For individual taxpayers, the tax credit offered a significant tax reduction. However, its abolition introduced new rules, encouraging taxpayers to turn to other forms of tax optimization such as thechildless tax, in order to minimize their taxation.
For companies
Corporate shareholders also benefited from the tax credit, which reduced the tax burden arising from dividends received. Its disappearance has necessitated an adjustment in corporate tax strategy, particularly in terms of investment structure and tax incentives.
The current tax landscape
Dividend taxation today
In France, dividends are currently subject to taxation including social security contributions, with the option for taxpayers to choose between taxation on the progressive scale or a single flat-rate withholding tax (PFU), known as “flat tax”. This reform aims to simplify and modernize the taxation of capital income.
Alternatives to equity investment
Taxpayers, deprived of the incentive represented by the tax credit, can explore other options such as thetax on singleness or the use of tax exemption schemes. For capital gains, taxation is based on other criteria detailed under capital gains tax.
Frequently asked questions
Here is a list of frequently asked questions about Avoir fiscal.
Are individuals still eligible for the tax credit?
No, the tax credit system was abolished in 2005. From now on, the taxation of dividends for individuals will be based on the “prélèvement forfaitaire unique” (PFU) system.
What impact has the abolition of the avoir fiscal had on companies?
The abolition of the avoir fiscal has reduced certain tax advantages for companies, prompting them to diversify their sources of financing and turn to schemes such as the patent box to optimize their intellectual property income for tax purposes.
Do tax credits exist in other countries?
Some countries have introduced schemes similar to the tax credit, often with the aim of encouraging investment in shares and avoiding double taxation of capital income. However, these rules vary by jurisdiction and are subject to change.