The special deduction to support investment
Newsletter - May 2015
On 16 April 2015, the Senate adopted a new taxation measure, which comes under the framework of the Macron law, concerning a special deduction to support investment. Eligible equipment items will be able to generate a “non-accounting” deduction in certain conditions.
Some assets that were purchased or manufactured between 15 April 2015 and 14 April 2016 will be entitled to additional depreciation. It is to be noted that this also relates to assets that were rented with an option to buy (or leased) over that same period.
The companies concerned
The measure is aimed at individuals or legal entities who pay income tax whose profits come from the performance of an industrial, commercial, artisanal or agricultural activity, and all legal entities that are eligible to pay corporation tax (“IS”)
The eligible assets
The assets concerned are listed discretely (BOI-BIC-BASE-100-20150421):
– items of equipment and tools used for industrial manufacturing or processing operations (with the exclusion of any mobile equipment or rolling stock assigned to shipping operations);
– handling equipment;
– infrastructure intended for water treatment and for air pollution control;
– infrastructure that produces vapour, heat or energy, with the exception of electrical energy production facilities whose production benefits from regulated purchase prices;
– items of equipment and tools used in scientific or technical research operations.
This additional depreciation affects only assets that can be depreciated according to the declining-balance method. The only requirement is that this asset is eligible for this type of depreciation; even if the company does not use this method, the measure remains applicable.
How it works
The date of application
With regard to assets that are purchased, the date to be taken into account is the one on which the agreement was entered into with the supplier concerning the item and the price, i.e., the date of transfer of ownership. This date could, therefore, differ from the date of delivery or payment of the price.
For equipment items whose manufacture is staggered, the date of transfer of ownership is fixed at the time of the provisional acceptance, i.e., at that time when, once the order has been processed, the purchaser is in a position to give its agreement on the item.
With regard to items created by the company, such as parts or pieces of equipment that become part of an industrial assembly, the deduction can typically only start on the date on which that assembly is completed.
As an exception, if the item created becomes part of a sub-assembly such that it forms a unit in itself that has a special purpose that enables it to be commissioned separately, the company may start applying the deduction for each of these items at its completion date.
The special deduction
The special deduction is equal to 40% of the original value, not inclusive of borrowing or interest costs, of the eligible items. The special deduction is spread out on a straight-line basis over the normal useful life of the items. In the event that the item is sold before this period is completed, the person or company can take the deduction only for the amounts already deducted from the earnings at the date of the sale, which are calculated on a pro-rata basis.
This deduction is separate from depreciation and will not be included in the company’s accounts. The deduction will be treated in a non-accounting way; it will be mentioned in the “miscellaneous deductions” section of Chart 2058-A for determining the taxable earnings.
Hence, since the deduction is not used in calculating the net book value of the asset, it therefore has no impact on the calculation of the capital gain in the event the asset is sold.
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