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AGENCE FRANCE TRESOR is tasked with managing the government debt and cash positions under the most secure conditions in the interest of the taxpayer.
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Tax treatment of government securities  
1 - Tax treatment of French government securities traded on the cash market

a) Fungible Treasury bonds (OATs) and government bonds (emprunts d’État)

* Tax treatment for retail investors resident in France

For individuals liable to personal income tax, interest on fungible Treasury bonds (obligations assimilables du Trésor: hereafter OATs) and government bonds (emprunts d’État) received up to and including 31 December 2012 was subject to progressive income tax, or taxpayers could opt for a flat-rate withholding tax of 24% (excluding social contributions). This option was eliminated by Article 9 of the 2013 Budget Act (no. 2012-1509 of 29 December 2012) for interest earned on or after 1 January 2013.

Accordingly, since 1 January 2013, interest on OATs and government bonds received by individuals domiciled in France is, with some exceptions (see below), liable to progressive income tax payable in the following year. In the year of receipt, interest payments are subject to a withholding (“advance payment”) of 24%, plus social contributions on investment income levied at a rate of 15.5%1. This advance payment is then deducted from the progressive income tax calculated according to the recipient’s income tax bracket. Any excess is refundable.

The advance payment is due in the first fifteen days of the month after the month in which the income was received. The amount withheld is then offset against the income tax due the following year. If it exceeds the tax owed, the difference is refunded to the taxpayer.

The following categories of individuals, however, are not liable to this withholding:
    - Individuals domiciled in France who receive interest on OATs and government bonds from an institution established in France, and who belong to a tax household with taxable income in the next-to-last year of less than €25,000 for individual taxpayers or €50,000 for taxpayers filing a joint tax return. The taxpayers concerned must apply for this exemption by 30 November of the year preceding the interest payments.

    To apply for the exemption, taxpayers must submit a sworn statement to the paying institution indicating that the taxable income shown on their income tax assessment notice for the next-to-last year preceding the payment of interest is less than €25,000 or €50,000, as the case may be2 ;

    - Individuals domiciled in France who receive interest on OATs and government bonds from an institution established or domiciled outside France, and who belong to a tax household with taxable income in the next-to-last year of less than €25,000 for individual taxpayers or €50,000 for taxpayers filing a joint tax return.

If the total income from fixed-income investments, including interest on OATs and government bonds, received by a tax household does for a given year not exceed €2,000, the taxpayer may opt for a flat-rate income tax of 24%. Taxpayers must choose this option when filing their general income-tax return. When such income exceeds €2,000, it is liable to progressive income tax.


Note: Redemption premiums attached to negotiable bonds issued in France with the authorisation of the Minister for the Economy and Finance are exempt from personal income tax in accordance with Article 157 (3°) of the General Tax Code, with the following exceptions:
    - Premiums attached to bonds issued since 1 June 1985 when they exceed 5% of the face value;
    - Premiums distributed or allocated since 1 January 1989 by an undertaking for collective investment in transferable securities (UCITS) (mutual funds in the French SICAV and FCP categories) covered by Articles L214-2 et seq. of the Monetary and Financial Code, when the premiums exceed 10% of the amount distributed or allocated;
    - Redemption premiums defined in Article 238 septies A (II) of the General Tax Code.

Consequently, the income tax exemption for redemption premiums under the abovementioned Article 157 does not apply to the following:
    - Government bonds issued since 1 January 1992;
    - Government bonds stripped since 1 June 1991;
    - Bonds issued in consecutive tranches and listed as a single instrument on the bond market if a tranche of the bond was issued after 1 January 1992 and paid for on or after 1 January 1994.

Capital gains on individuals’ sales of OATs and government bonds are no longer liable to income tax at the flat rate of 24% applied until the end of 2012. They are now liable to progressive income tax (plus 15.5% in social contributions). Losses can only be offset against capital gains of the same nature realised in the same year or the next ten years.


* Tax treatment for unincorporated enterprises or partnerships subject to the real tax regime

Interest on OATs and government bonds are not counted in the taxable income of the enterprise or partnership: the provisions of Article 155 (II, 1, 1°) of the General Tax Code exclude income that is not generated by business activity. Consequently, such income must be deducted from the income of the enterprise or partnership and declared either:
    - as securities income for personal income tax purposes, in accordance the rules set out above, by the owner of the enterprise or by the individual partners;
    -or as income for corporate income tax purposes, in accordance with the applicable rules, by legal entities in the partnership.

* Tax treatment for non-profit organisations

A distinction is made between organisations that engage in profit-making businesses and those that do not:
    - when the income comes from the non-profit sector activity of the non-profit organisation, income from government bonds issued since 1 January 1987 are subject to a 10% corporate income tax. Capital gains on sales are not subject to corporate income tax;
    - when the income comes from the profit-making sector activity of the non-profit organisation or when then non-profit organisation is subject to corporate income tax for all of its activities, the income is taxed in accordance with the rules set out below for entities subject to corporate income tax.

* Tax treatment of legal entities subject to corporate income tax

All of the earnings included in the taxable income (interest, redemption premiums and capital gains) are subject to corporate income tax at the standard rate of 33 1/3% (or 28%, depending on the turnover and profits, under the provisions of Article 219 (I, c) of the General Tax Code), plus the 3.3% social contribution, where applicable.
    - Interest paid on OATs is taxable on an accrual basis.
    - A tax rule stipulates taxation of securities with redemption premiums according to an actuarial apportionment formula if the average price at issue is less than 90% of the redemption value, meaning that the premium is more than 10% of the purchase price of the security in question. In such cases, the provisions of Article 238 septies E of the General Tax Code stipulate that the redemption premium and the interest paid yearly are taxed each year on the basis of an apportionment by actuarial calculation over the residual maturity of the security or contract at the purchase date.


* Tax treatment for institutional investors
    - The credit institutions, finance companies and investment companies covered by Article 38 bis A of the General Tax Code that buy fixed-income securities held on a investment securities account or investment securities for a price that is different from the redemption price are subject to the provisions of Article 38 bis B of the General Tax Code: the gain or loss arising from the difference between the purchase price of the securities and the redemption price, plus or minus accrued interest at the time of purchase, is apportioned over the residual maturity of the security on the basis of an actuarial calculation.
    - Article 38 bis B of the General Tax Codes stipulates that when insurance and accumulation companies buy bonds other than inflation-linked bonds at a price that is different from the redemption price, the loss or gain from this difference is spread over the residual maturity for the purposes of calculating the entity's taxable income. When several redemption dates are scheduled, the longest date is used. This apportionment is determined on the basis of an actuarial calculation.

For the purposes of these provisions, annual interest stipulated under the contract is also taxed on an accrual basis.



b) Inflation-linked OATs (OATis)


The tax treatment of inflation-linked OATs is very similar to that of other fixed- and floating-rate OATs for retail investors liable to personal income tax and professionals liable to corporate income tax (see tax treatment of OATs and government bonds above). This also includes securities with redemption premiums, but with some specific rules.

Under the provisions of Article 238 septies E (II, 3) (indents 2 et seq.), the redemption premium on securities with a inflation-linking clause is calculated at the end of the year on the basis of the apparent redemption value, given the variation in the inflation index between the purchase date or contract date and the end of the year in question.

For credit institutions, finance companies and investment companies, as is the case for non-inflation-linked OATs, the gain or loss arising from the difference between the purchase price of the securities, including accrued interest at the time of purchase, and the redemption price is apportioned over the residual maturity of the securities on the basis of an actuarial calculation.

Annual interest payments on OATi are taxed on an accrual basis.

The provisions of Article 38 bis (B bis) of the General Tax Code mentioned above do not apply to inflation-linked bonds held by insurance and accumulation companies. However, in the case of securities with redemption premiums, the provisions of Article 238 septies E (II, 3) (indents 2 et seq.) mentioned above apply. Accordingly, the redemption premium on securities is calculated at the end of the year on the basis of the apparent redemption value, given the variation in the index between the purchase date or contract date and the end of the year in question.

Only a fraction of the inflation-adjustment premium is taxed each year. This fraction is calculated in such a way as to spread the residual taxation of the premium (taxable premium less taxes paid in earlier years) over the residual life of the security.



c) Tax treatment for non-residents


Interest, annuities and all other income from bonds, government securities and all other negotiable debt securities issued by the government and held by non-residents are not subject to withholding taxes, in accordance with Article 132 bis (for securities issued before 1 January 1987) and Article 119 bis (1.) of the General Tax Code (for securities issued on or after 1 January 1987).



2 – International Tax Treaties with France



1 Interest and redemption premiums on OATs and government bonds are liable to total social contributions of 15.5% (including CSG, CRDS, and other levies) on investment income.

2 For income received in 2013, and as an exception to the standard procedure, the sworn statement could be filed with the institution no later than 31 March 2013 provided that it applied to income paid on or after the date it was written.

MAJ : 02 Jan. 2017