France Introduces Its “New Green Industry Investment” Tax Credit

On May 16, 2023, the French Council of Ministers presented the Green Industry draft bill[1], providing details on the new “Green Industry Investment” tax credit scheduled to be incorporated in the Finance Act of 2024. 

When presenting the Green Industry draft bill to the French Council of Ministers, Bruno Le Maire was quick to point out the ambition of this draft: “to make France the leading low-carbon Nation in Europe” by 2050. [2]  Therefore, with the aim of keeping this bill in line with the Temporary Crisis and Transitionframework (the “TCTF”) of March 2023[3], France’s Minister of the Economy expressed his full support to measures accelerating the transition to a Net-Zero economy.[4]  Among the fifteen measures presented and aimed at promoting French energy sufficiency (i.e. the non-binding radical 10% reduction of energy consumption by 2024[5]), the draft bill includes the creation of a “Green Industry Investment” tax credit (“C3IV”), a novel tax measure[6] that will be implemented in the French Finance Act of 2024.  

Inspired by the USInflation Reduction Act (IRA)[7] and China’s subsidy policy, this new tax credit is designed to attract industrial investments in green technologies from French-based undertakings.  This tax credit will benefit undertakings that invest in tangible assets (e.g., land, buildings, facilities, equipment, machinery) or intangible assets (e.g., patent rights, acquisition of licences, acquisition of expertise or other intellectual property rights) to produce batteries or their components, heat pumps, wind turbines or solar panels.[8]  According to France’s Minister of the Economy, between 20% and 45%[9] of investments in strategic sectors for green reindustrialisation should be covered by this aid.  The French government is hoping for 23 billion euros in investments and the creation of 40,000 jobs by 2030.  Additional aid should also be provided for sectors not covered by this tax credit (e.g., networks of renewable energies and thermal renewable energies).  These grants may cover productive Capital Expenditure (CAPEX) and Research, Development & Innovation (RDI) expenditure.  They will be based on existing aid schemes (e.g., regional Aid regime[10]) and current or future calls for projects (e.g., “Support for investment in the industrial supply of renewable energies”[11]).  Additional measures for supporting the hydrogen sector will be determined following the national hydrogen strategy review consultations by the end of 2023.[12] 

This new tax credit will make France the first European country to take advantage of the loosening of European state aid rules through the adoption of the TCTF, which facilitates the granting of state aid (max. 150 to 350 million euros per undertaking[13]) for accelerated investments in sectors deemed strategic for the transition towards a net-zero economy[14] by the end of December 2025.[15]  In France, companies (with the exception of undertakings in difficulty as defined under EU State aid rules)[16] may even be able to use this tax credit until 2029[17].  To obtain access to this tax credit, French undertakings will need to satisfy specific criteria set out in the TCTF.  More specifically, the intangible assets covered by the tax credit must : (i) remain associated with the area concerned and must not be transferred to other areas; (ii) be used primarily in the relevant production facility receiving the aid; (iii) be amortisable; (iv) be purchased under market conditions from third parties unrelated to the buyer; (v) be incorporated in the assets of the undertaking that receives the aid; and (vi) remain associated with the project for which the aid is awarded for at least five years (or three years for SMEs).[18]

In order to offset the cost of this new measure estimated at 500 million euros per year (i.e., 2 billion euros by the end of the five-year period – 2027), France considers lifting the penalty ceiling on polluting vehicles, incentivise the “greening” of undertaking’s transport fleets, and limit so-called “brown” tax expenditures (i.e., all expenditures unfavourable to the environment).[19]  French undertakings will now have to wait for the publication of the Finance Act of 2024 and its new tax credit rules of implementation.  Developing an understanding of the Finance Act of 2024’s impact could prove beneficial and be a determinant factor in the strategic development of Green Industry undertakings investing in France in the near future.

[1] French Senate, Green Industry draft bill; text available here.

[2] Bruno Le Maire’s speech at the presentation of the Green Industry draft bill, May 16, 2023.

[3] Communication from the Commission, Temporary Crisis and Transition Framework (the “TCTF”) for State Aid measures to support the economy following the aggression against Ukraine by Russia 2023/C 101/03; text available here.  See also Press release available here.  See also Cleary blog post available here.

[4] Proposal for a Regulation of the European Parliament and of the Council on establishing a framework of measures for strengthening Europe’s net-zero technology products manufacturing ecosystem (COM(2023) 161 final) (“Net-Zero Industry Act”); text available here.  See also the Press Release available here.  See also Cleary blog post available here.

[5] French Government, Energy Sobriety Plan; text available here.

[6] Corresponding to the “Measure 6” of the French Ministry of the Economy, Press pack, Green Industry, p. 28; press pack available here.

[7] H.R. 5376 (117^th) : Inflation Reduction Act of 2022; text available here.

[8] French Senate, Green Industry draft bill, p. 167; text available here.

[9] French Ministry of the Economy, Press pack, Green Industry, p. 29; press pack available here.

[10] French Decree no. 2022-968 of 30 June 2022 on regional aid areas and investment aid areas for small and medium size enterprises for the period 2022-2027; text available here.

[11] Call for projects, “Support for investment in the industrial supply of renewable energies”, submissions between February 10^th 2022 (Midnight, Paris time) and October 15^th 2023 (Midday, Paris time); rules available here.

[12] French Ministry of the Economy, Press pack, Green Industry, p. 29; press pack available here.

[13] See TCTF, para. 85 (g).

[14] See TCTF, para. 85 (a)(i-iii). This includes, for example, batteries, solar panels, wind turbines, heat-pumps, electrolysers, equipment for carbon capture usage and storage or their keys components  and the production or recovery of related critical raw materials necessary for the production of those equipment and key components.

[15] See TCTF, Section 2.8.

[16] See TCTF, para. 85 (l).

[17] Bruno Le Maire’s speech at the presentation of the Green Industry draft bill, May 16, 2023, p. 7.

[18] See TCTF, para. 85 (f).

[19] The limitation of brown tax expenditures will be debated in the framework of the Finance Act of 2024.