Tax news applicable to infrastructure projects

This new year provides with tax news for investors and companies involved in infrastructures projects, i.e. a reduction by half of the "investment taxes" for running projects and a welcomed clarification on registration duties applicable to the acquisition of project's portfolios.

Registration duties

"Buildings by purpose" are excluded from the calculation of the real estate component

The French Supreme Court (Cour de Cassation) has recently ruled on French registration duties applicable to the acquisition of companies in the field of renewable energies, putting an end to the risk of requalification as rich real estate company (société à prépondérance immobilière).

The issue at stake was the registration duties applicable to the acquisition of portfolios which rate amounts to 5% if the companies are rich real estate companies, or 0.1% otherwise. The definition of a rich real estate companies encompasses unlisted companies whose assets consist predominantly in real estate assets or real estate rights located in France (or holdings in rich real estate companies) (article 726 of the French Tax Code). In the absence of a definition of "real estate property" in tax law and of any comments from the French Tax Administration on the interpretation it intends to give to this concept, there was a risk of broad interpretation by reference to the civil law concept which refers to real estate property by nature, by purpose and by object (article 517 of the French Civil Code).

For years already, the practice agreed that the value of authorizations obtained and the compulsory purchase contract of electricity (power purchase agreement or additional pricing contract) was higher than the inherent value of the underlying properties, and, in all instance, that valuable equipment incorporated in the infrastructures were by nature dismantlable without risk of damage, so that these assets should not be assimilated to real estate assets. Nevertheless, some uncertainty persisted, as evidenced by the contrary position taken by the French tax administration in certain circumstances, in particular for the purchase of a hydroelectric power station in the Etablissement Bernard Escande case, which was appealed before the French Supreme Court (Cass. Com. 2 December 2020 n° 18-25 559).

In this caselaw, where the most valuable assets of the project were the turbines, electrical cabinets and cables integrated into the power station, the French Supreme Court stated that "buildings by purpose" are not to be taken into account in the computation of the real estate component for registration duty because the provisions of Article 726 of the French Tax Code do not expressly refer to them, nor do they refer to the definition of real estate property within the meaning of Article 517 of the French Civil Code.

As such the French Supreme Court confirms the autonomy of tax law and blesses the well-established market practice in the field of renewable energies.

Finance Bill for 2021

Reform of investment taxes

Despite the COVID-19 sanitary crisis and the historical effort conducted by the government to sustain the economy during this period, the finance bill for 2021 decreases the tax burden and uses this as a tool to start-up the recovery of the French economy with the French EUR 100 billion relaunch plan. Among these relief measures is the reduction of investment taxes up to EUR 20 billion over the next two years.

Reduction by half of the taxable basis for industrial properties of the land tax (Taxe Foncière) and CFE (Cotisation Foncière des Entreprises)

Wind and photovoltaic farms are subject to the land tax and the CFE as industrial facilities.

The taxable basis of industrial facilities is determined based on an accounting method. It is assessed on the cost price of the facilities after application of an interest rate (contrary to the basis of other properties which is computed on their rental value). In practice, this results in high tax costs for industrial facilities.

To mitigate this effect, the finance bill for 2021 reduces by half the taxable basis of industrial facilities. To do so, the interest rate applicable to the cost price of the facilities is reduced to 4% for lands and to 6% for constructions and installations (against respectively 8% and 12% under the previous regime).

Lower cap for business tax

The French business tax so called CVAE ("Contribution sur la valeur ajoutée des entreprises") is assessed on the added value produced by companies whose turnover exceeds EUR 152,500. The finance bill decreases the CVAE marginal rate from 1.5% to 0.75% as well as the intermediary rates applicable to companies whose turnover does not exceed EUR 50 million.

Moreover, the aggregate amount payable for the CFE and CVAE previously capped to 3% of the company's value added is reduced to 2%.

Applicable rules to offshore wind farms

Under current French tax law, two taxes apply to offshore wind farms:

• the contribution due to the French "Office pour la Biodiversité" and applicable indistinctively to projects situated on the continental shelf and in the exclusive economic zone (i.e. within the limit of 200 nautical miles from the coasts) ("EEZ"); and

• an annual tax applicable to offshore wind farms, computed based on the number of megawatts installed as at 1st January. The purpose of this tax is to indemnify the municipalities from the damages suffered. As of today, it applies exclusively to offshore wind farms located in inland waters and territorial sea (i.e. within the limit of 12 nautical miles from the coasts).

The launch of a public consultation for the first offshore wind project in the EEZ opened discussions as to the extension of the annual tax to such new project with a proposition of amendment to the finance bill discussed before the French Senate in December 2020.

Although this amendment was rejected, the topic remains under study, as reflected in Barbara Pompili's communication dated 15 January 2021 which announced a specific mission under study by the French Ministry of Ecology.

Authors: Emmanuelle Pontnau-Faure, Partner and Solène Guyon, Associate