Temporary Increase Of The Rates

1. The coefficients of accelerated depreciation to be retained for fixed assets purchased or produced between February 1st, 1996 and January 31, 1997 increase by one point. When a company intends to depreciate, following the accelerated method, a good purchased or produced during this period, it must in principle apply these increased rates.

Obviously, the regime of accelerated depreciation remains optional. The decision of a company to depreciate an element of its asset according to a straight line method or an accelerated method is, from a tax standpoint, a management decision, which must be made good per good.

2. Several companies wonder whether they may renounce the application of increased rates of accelerated depreciation, and therefore determine their allowances according to the previous rates. During a meeting of the tax committee on administrative organisation, the Tax Authorities answered positively when questioned on this subject.

3. Once the depreciation duration of fixed assets has been determined according to professional use, the only remaining obligation for the companies for the determination of allowances to be recorded at the end of each tax year is linked to the recording of a minimum depreciation equal to the accumulated amount of allowances computed according to a straight line method (French General Tax Code, art. 39 B). However, should a company still keep the former rates of accelerated depreciation, for a part or for all of the investments realised in 1996, this rule would naturally be respected. It will simply be deemed to have actually and regularly defer the part of the accelerated allowance corresponding to the difference between the amount resulting from the application of the increased rates and the one actually deducted.

4. The terms and conditions of deduction of this part of the accelerated annual depreciation are those provided for actually deferred depreciations, and vary depending on whether the company is in a profit or loss situation at the time of the tax year during which it refrained from booking depreciations.

5. If the company records an accounting loss at the closing of the tax year during which it actually defers an accelerated allowance, it may entirely charge the corresponding amount on the first profits of the following tax years, and apply the increased rate for the determination of the allowances of these tax years.

6. If, on the contrary, the company realises an accounting profit during the involved tax year, it can clear off the outstanding part of the annual depreciation actually deferred only by spreading the amount on the remaining depreciation duration. In other words, the company keeps the possibility to actually take advantage of the increased rate of accelerated depreciation and determine the allowance of a following tax year in application of this rate to the residual value of the fixed asset.

7. Finally, in principle, nothing stands against the application of the former accelerated depreciation rates until the end of the depreciation. In this case, the company will be deemed to be deferring for each tax year the part of the annuity equal to the additional depreciation which would result from the application of the increased rate on the residual value of the good. This solution leads to the loss of the cash advantage resulting from the increased rates of accelerated depreciation, but avoids the implementation of a specific follow-up of the depreciation of the goods purchased during the period of application of this system.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be brought about your specific circumstances.

For additional information contact Claire Acard on 33/(1)/55 61 10 10, Lionel Benant on 33/78.63.72.35, Joel Fischer on 33/78.63.72.31, or Laurent Borey on 33/(1) 55 61 10 10 or enter text search: "ARCHIBALD ANDERSEN Profile".

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