Exemption from payroll tax: clarifications from the Conseil d'État

Payroll tax (taxe sur les salaires - TS) is payable by companies that employ staff and are not subject to VAT. However, there are a number of conditions for exemption, which the Conseil d'Etat recalled and clarified in a ruling handed down on March 31.

Who is affected by payroll tax?

Payroll tax applies to employers who are not subject to VAT in the year in which the remuneration is paid, or who are not subject to VAT on less than 10% of their sales in the year preceding the payment of remuneration.

Several professionals are likely to be liable for this tax:

  • Certain professions ;
  • Landowners ;
  • Cooperative, mutual and professional agricultural organizations;
  • Higher education institutions ;
  • Industrial technical centers...

TS is calculated on the basis of the CSG tax base applicable to earned income (salaries, bonuses, various allowances, benefits in kind or in cash).

The date and formalities for payment depend on the amount of tax paid the previous year:

  • Tax of less than 4,000 euros: companies must complete the annual declaration form n°2502 before January 15 of the year following payment of wages;
  • Tax between 4,000 and 10,000 euros: companies must provide 3 provisional payment statements n°2501 before April 15, July 15 and October 15. They must also complete an adjustment declaration (déclaration de régularisation n°2502) by January 31 of the year following payment of the wages;
  • Tax in excess of 10,000 euros: companies are required to submit a monthly provisional statement no. 2501, and complete an adjustment statement no. 2502 by January 31 of the year following payment of wages.

It is important to point out that the TS is not due if the previous year's amount did not exceed 1,200 euros.

Reminder of payroll tax exemption conditions

In a ruling handed down on March 31, 2023, the Conseil d'Etat reiterates the conditions for exemption from payroll tax.

In this case, a company was subject to an accounting audit in 2014 covering the years 2012 to 2014, at the end of which the tax authorities found that it had failed to file a payroll tax return for 2012. Disagreeing with this decision, the company brought an action before the lower courts to obtain discharge of the tax reminder and the corresponding penalties, arguing that it was liable to pay VAT on its entire sales for the same year.

Although the Administrative Court initially found against the company, the Administrative Court of Appeal upheld the company's claim, stating that it could not be liable for TS on its entire sales for the period in question. The Ministry of the Economy and Finance appealed against this decision.

The Conseil d'Etat has ruled that, in order to be exempt from payroll tax on remuneration paid in year N, a company must have been liable to pay VAT on part of its sales in year N, and must have been liable to pay VAT on at least 90% of its sales in year N-1. Contrary to what the company claimed, these conditions are cumulative and not alternative. Consequently, the Conseil d'Etat overturned the decision of the Administrative Court of Appeal.