EU Approves New French Tax Breaks Encouraging Takeovers Of Ailing Firms

by Ulrika Lomas, Tax-News.com, Brussels

02 June 2005

The European Commission has approved a new French scheme of tax breaks for takeovers of ailing industrial firms which seek to encourage job creation.

In a statement released yesterday, the Commission said it was satisfied that the scheme complies with the state aid rules in the EC Treaty, more especially the rules on state aid to disadvantaged regions and to small and medium-sized enterprises.

“Takeovers of firms in difficulty have positive effects not only on the labour market but also on the regeneration of the industrial base, notably in the least favoured regions," observed the Commissioner responsible for competition, Neelie Kroes.

The scheme provides for aid towards job creation where an ailing industrial firm is taken over by a new firm. The aid takes the form of reductions in corporation tax, trade tax (taxe professionnelle), and property tax (taxe foncière).

The amount of aid varies depending on the number of jobs created and the region in which the takeover takes place. In the least-favoured regions, the aid is available for all firms; elsewhere it is confined to small and medium-sized enterprises.

The Commission takes the view that the scheme is compatible with the EC Treaty rules on state aid (Article 87) because it complies with the aid intensities set out in the Guidelines on regional aid and the Regulation on aid to SMEs, and requires that the jobs created be maintained for at least five years.

The scheme replaces an earlier one under which aid for takeovers of industrial firms was not subject to any upper limit, and there was no link to job creation; that scheme was held to be incompatible with the Community rules on state aid.

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