The French co-operative movement secured a big win as parliament rejected an amendment proposing the removal of some tax exemptions for co-ops.
Les Scop, the French Federation of Worker Co-ops, had warned that the amendment, which formed part of the new Finance Bill, threatened the very existence of co-operative societies of collective interest (SCICs) and co-operative and participative societies (SCOPs), two of the most common legal forms for co-ops in the country.
The draft Finance Bill passed the first reading in the French National Assembly on 22 November and is due to be debated further during the second reading.
Under the Social Economy Law of 2014, SCICs can be set up by different stakeholders, with local groups being able to contribute up to 50% of the capital.
The SCICs were the first co-operatives to be challenged by the new finance law, which included a provision to amend their tax regime.
The existing co-operative law requires SCICs to allocate 57.5% of their surpluses for non-distributable reserves. They do not pay corporate taxes for funds set aside for these indivisible reserves.
Article 11 of the finance law removes the tax exemptions for the amount contributed to indivisible reserves, which, according to CG Scop, could cost these co-ops €1.6m.
In the UK a similar provision enables societies with mutual trading status to be exempt from paying corporation tax on reserves left in the business after payment of the member dividends.
Following campaigning from Les Scop, the government removed the amendment at the second reading of the bill.
Another amendment introduced through the bill questioned the financing of SCOPs (worker co-ops known as production co-operative societies) through the provision for investment (PPI).
The PPI is a tool used by SCOPs to set aside funds for future development. These can be equal to the dividend paid to employees. Tax free, the funds can be used to make investments in the business within the first four years of its creation.
CG Scop estimates that in 2017 SCOPs allocated between 40 and 45% of their surpluses to such investment funds, a total of €72m.
The federation argued that removing tax exemptions for co-ops investing in their business would affect 2,400 SCOPs and their 50,650 employees.
Managing director of Les Scop Fatima Bellaredj described the mechanism: “Imagine that a co-operative turns over a figure of 100. Forty will go to members who participate in the co-op through dividends. Between 40 anf 45 other will be allocated to a tax free reserve fund for four years under the condition that it is reinvested in the activity of the society. The remaining amount is taxable according to corporate tax law. It is this reserve that the amendment attacks by calling for the removal of its tax exemption from 2020.”
SCOPS are employee-owned, with staff holding a minimum of 51% of shares and 65% of voting rights.
Following lobbying from Les Scop, the French senate voted to continue to allow co-ops to use the provision for investment.
