Corporate taxpayers have the option to carry losses back against “undistributed profits” realized in the preceding financial year (Art. 220 quinquies of the CGI). For financial years ending before 21 September 2011, it was possible to carry losses back for 3 years.

The carry-back results in an overpayment of corporate income tax for the preceding year. The compensation does not take the form of an immediate refund of overpaid tax. Instead, it takes the form of a tax credit which the taxpayer can use to settle its corporate tax liabilities for the following 5 financial years. This tax credit cannot be sold or otherwise transferred (other than being used as surety with a bank), but at the end of the 5-year period, unused amounts may be either claimed for refund or used to settle tax liabilities other than the corporate tax itself. Earlier refunds are possible when claimed by enterprises facing financial hardship. The tax credit itself does not represent taxable income for the enterprise. Losses used to obtain the loss carry-back may not be used again for the loss carry-forward.

Carry-back is only possible up to the lower of:

The retained profits realized in the preceding financial year; or
EUR 1 million.

In addition, carry-back is only possible if the corporate income tax liability of the preceding financial year had been fully paid. Further, the law specifies that the option for loss carry-back must be exercised during the financial year in which the losses were incurred. As a result, unused losses incurred in previous financial years can no longer be carried back.

Within consolidated groups, only the profits of the head company (i.e., ultimate parent company) are taken into account when assessing the income against which the losses may be set off (i.e., undistributed profits). Note that any distributions made from profits which were not subject to any tax in France at the level of the distributing company (e.g., as a result of the operation of the territoriality principle) do not reduce the amount of “undistributed profits” against which the losses may be set off (Private Ruling No. 2010/65, 2010/66, 2010/68, 30 November 2010).

Finally, like loss carry-forward, loss carry-back is a prerogative of the taxpayer which cannot be exercised if the taxpayer terminates its business activities, disposes of the business, takes part in a company reorganization (e.g., merger, division), or is under a court order to liquidate its business. In a ruling of 14 November 2024, the Court of Appeal of Toulouse confirmed that an enterprise which undergoes a profound change of activities is no longer eligible for the loss carry-back mechanism.

COVID-19 Emergency Measures

In response to the COVID-19 pandemic, France provided enhanced loss carry-back relief for impacted companies. Losses recorded for tax years ending from 30 June 2020 to 30 June 2021 could be carried back for up to 3 years instead of the standard 1 year, without the standard carry-back limit of EUR 1 million. Similarly to the standard loss carry-back mechanism, the tax credit resulting from the enhanced mechanism could not be claimed for refund immediately but could be used to settle the taxpayer’s corporate tax liability for the following 5 years, with any remaining balance being refundable at the end of the 5-year period. The enhanced credit had to be calculated by reference to the standard corporate tax rate applicable from 1 January 2022 rather than the (higher) standard corporate tax of the preceding 3 years. The rationale for this was that absent the enhanced carry-back facility, the losses would have been carried forward to 2022 and later years.

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