Eric Fayolle

CORPORATE TAX DEDUCTIONS

Tax deductions for acquisitions

Article 238 bis AB of the French General Tax Code allows companies registered in France (including professional practices) that buy original artworks from living artists and allocate them to an immobilised assets account, to deduct from the acquisition year end and from the four following years, in equal fractions of 1/5, an amount equal to the purchase price, limited to 5‰ of annual turnover (238 bis of the general French tax regulations).
This deduction is reduced by the total amount of other deductions made for sponsorship mentioned in article 238 of the French General Tax Code (CGI).
In order to benefit from such a tax deduction, companies must show the works of art in the corporate premises or during exhibitions organised by the company or a third party, such as a museum, a local authority or a public establishment to which the work has been lent. The only requirement is that the work of art be in effect accessible to the public, which means that it may not be placed somewhere that is only accessible by a restricted group of people such as a private office or a personal residence, or a space that is reserved exclusively for clients or for personnel.
That having been said, for artworks whose purchase price is under 5,000 euros excl. VAT, the conditions for exhibiting the artwork will be met as long as the work is exhibited in a space accessible to clients and/or personnel, to the exclusion of private offices.

For example: tax deduction resulting from the acquisition of a work of art
For a corporate turnover of 500,000 €.
Annual deduction allowance: 500,000 x 5‰ = 2,500 €.
Total tax deduction over five years: 2,500 x 5 = 12,500 €.

Sponsorship

According to articles 238 bis and 200 bis of the French General Tax Code, taxable profits made from an activity that comes under the category of agricultural profits, industrial and commercial profits or non-commercial profits, and subject to a payments based scheme, give rise to a tax reduction equal to 60% of the amount of donations made by the company.

In order to benefit from the tax deduction, donations must be made to:
- philanthropic, educational, scientific or social organisations working for the general interest;
- corporate foundations;
- foundations or associations of public interest or French museums, that fulfil the same criteria as organisations of general interest;
- cultural or charitable associations that are authorised to receive donations and bequests and registered public establishments of worship in Alsace-Moselle;
- approved non-profit establishments in higher education or public or private art education;
- approved companies or public or private organisations working in scientific and technical research;
- corporate finance organisations;
- public or private non-profit organisations whose main activity is the public production of theatrical, lyrical, musical, choreographic or film works or circus acts.

Expenditure of up to 5‰ of the company's turnover is retained. If the expenditure exceeds this limit, the excess gives rise to a tax deduction over the following 5 years. All amounts in excess of this limit that are carried over, are included in the limit of 5‰.

Example: tax deduction resulting from the gift of a work of art
For a turnover of 500,000 €.
Deductible amount: 500,000 x 5‰ = 2,500 €.
If the deductible amount is greater than 60% of the donation, the excess is deductible up to a maximum of 5‰ over the following 5 years.