Pursuant to the territoriality principle, the tax liability to French corporate income tax depends on the nature and the source of the income.

The tax applies both to resident and non-resident companies, provided that a nexus exists between the earnings and the French territory. The French corporate income tax is a global tax, which means that the taxable base is determined by aggregating the income of all sources and categories of the taxpayer.

The Tax Code provides that the General Accounting Standards (Plan Comptable Général) constitute the starting point for the assessment of the taxable base. All corporate income taxpayers are, accordingly, required to keep regular accounts based on an accruals basis (i.e., balance sheet and income statement). But it should be noted that a specific law provision may command adjustments to the company’s books in order to assess the taxable base. Such adjustments have to be made on a distinct table attached to the corporate tax return; they are called additions if they increase income (e.g., re-adjustments of deducted corporate income tax, abnormal acts of management, and thin capitalization rules) and deductions if they reduce income (e.g., loss carry-forward, long-term capital gains, and accelerated depreciation).

The corporate tax is assessed on the “net profit” (articles 13 and 38 of the CGI), which can be determined by two different methods. Under the first method, based on the income statement (compte des résultats), “net profit” is the result of operations of any kind undertaken by the taxpayer, including capital gains from the sale of fixed assets (article 38(1) of the CGI). The second method, based on the balance sheet (théorie du bilan), was introduced in order to expand the taxable base (article 38(2) of the CGI). According to this method, “net profit” of a company is the difference between its net worth (actif net) at the beginning of the taxable period (i.e., financial year) and its net worth at the end of the period, reduced by additional contributions to capital and increased by distributions of income to the shareholders. Net worth means the excess of the net assets over the total liabilities of the company. The major significance of this balance sheet method is that any increases or decreases of assets or liabilities affect the taxable base, whereas income determined solely on the basis of the profit and loss statement (i.e., the first method) would not necessarily reflect them.

Thus, by virtue of these two methods, taxable income includes both operating income, passive income (e.g., real estate income, loan interest, dividends, profit shares of partnerships), and extraordinary income (e.g., capital gains, gains from the revaluation of fixed assets, subsidies, earnings from stock exchange transactions, waivers of debt by a creditor and indemnities), subject to certain exclusions and certain adjustments (e.g., the special rules governing capital gains and business incentives).

The Finance Law 2021 introduced optional temporary measures, which include a spreading regime for the taxation of revaluation differences over 5 or 15 years for depreciable fixed assets and a tax deferral regime for revaluation differences until the subsequent disposal of the assets for non-depreciable fixed assets. The measures neutralize the tax consequences of asset revaluations, which apply to the first revaluation transaction recorded at the end of a financial year ending from 31 December 2020 until 31 December 2022.

An optional measure is also introduced to spread the taxation of a capital gain derived on the sale of a building within the framework of a sale-leaseback arrangement, subject to certain conditions.

Taxable income (or expenses) must be expressed in euro; foreign currency values must be converted at the final rate for the day on which the accounting entry occurs.

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