Context: a report by the Council on Compulsory Levies to inform industrial policy
The report «Establishing a multi-year fiscal and social framework for French industry» was produced by the Council on Compulsory Levies (CPO), a body associated with the Court of Auditors, at the request of the Government and Parliament.
This study is part of the CPO's remit, which includes: analyze the evolution and economic, social, and budgetary impact of fiscal and social policies.
Objectives: an assessment of the tax framework for French industry
The main purpose of this report is to establish a conduct an in-depth assessment of the current tax framework affecting French industry, measuring its impact on competitiveness, innovation capacity, and reindustrialization momentum, as well as proposing guidelines for a more transparent and effective multi-year trajectory.
The CPO's work is based on hearings with economic and institutional stakeholders, analysis of national and European data, and a detailed assessment of the main tax measures related to research, innovation, and industrial investment.
Observation: significant fiscal effort, but room for improvement in terms of innovation
The report highlights that France devotes significant fiscal resources to supporting research and innovation, with the total cost of the main measures (Research Tax Credit (CIR), Innovation Tax Credit (CII), Young Innovative Companies (JEI) status, IP Box, which exceeds €9 billion per year.
However, the effectiveness of these measures is considered insufficient, particularly due to significant windfall effects. The CIR, which accounts for approximately 80% of tax expenditures in this area, mainly benefits large companies, while SMEs and mid-sized companies, which are more inclined to innovate, benefit less from it.
Furthermore, the mechanism often encourages spending that does not necessarily generate truly disruptive innovations. The report also highlights problems with targeting and the occasional misuse of the measures, such as excessive use of approved subcontracting under the CIR.
CPO recommendations: towards a more transparent and innovation-oriented tax system
- Streamline the system by refocusing its application at the group level, which would limit the optimization and windfall effects associated with approved subcontracting.
- Eliminate the inclusion of subcontracting expenses incurred by private entities in order to better target genuine internal R&D expenses.
- Restrict certain elements of the tax base, already initiated by the 2025 Finance Act.
- Maintain this scheme reserved for SMEs with the aim of providing targeted support for innovation expenditure, while ensuring its long-term funding.
Young Innovative Companies (JEI) status
- Consolidate this status through a balance of tax and social security exemptions, in order to strengthen the conditions for growth of young SMEs engaged in research and innovation.
- Assess the advisability of tightening this mechanism, in particular by adjusting the reduced rate, in order to increase its effectiveness, given the limited effects observed in terms of additional value creation and the localization of R&D activities.
- Expand the green industry investment tax credit (C3IV) to support the ecological transition in the form of targeted, temporary tax breaks for green industrial investment projects.
Conclusion: towards a stable tax framework conducive to industrial investment
These measures aim to better direct public resources toward forms of innovation that promote competitiveness and to improve the visibility and stability of the tax framework, which is crucial for supporting industrial investment in the medium and long term.
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