» Euro

The Euro has been part of the financial landscape since January 1st 1999.

On January 1st 2002, it took concrete shape in Europe when the notes and coins were put into circulation.

The Eurozone countries.

16 member States of the European Union participate in the single currency. They are the following countries:
   • Germany
   • Austria
   • Belgium
   • Cyprus
   • Estonia
   • Spain
   • Finland
   • France
   • Greece
   • Ireland
   • Italy
   • Luxembourg
   • Malta
   • Netherlands
   • Portugal
   • Slovakia
   • Slovenia

Nine countries are members of the European Union but are not part of the single currency at present. Most are however members of the European Exchange Rate Mechanism (ERM II), which means that their currency is linked to the Euro, although its exchange rate is not fixed.



» Reporting Requirements

The applicable rules for drawing up annual accounts are taken from the following texts:

Commercial Code

The relevant articles are L123-12 to L123-28 resulting from the law of April 30th 1983 and from the application decree of November 29th 1983.


Chart of Accounts

The Chart of Accounts (Plan Comptable Général - PCG) is approved by the decree of June 22nd 1999. The definitions, principles and items provided by the PCG are of a compulsory nature and are applicable to all individuals or industrial and commercial companies, together with other entities that are legally bound to draw up annual accounts.

These texts form a whole that groups all the accounting rules for drawing up and presenting annual accounts that traders must comply with.

These rules must be observed in the establishment's accounting procedures and the drawing up of the annual accounts, even if they are not obligatory from the taxation viewpoint and even if they differ from taxation rules.

Any individual or company with the status of trader must:

    • Chronologically enter the accounting transactions that affect the company's assets.

    • Check the existence and value of the assets and liabilities by inventory at least every 12 months.

    • Draw up annual accounts (regular and genuine, giving a true image of the capital, the financial situation and the results of the company) at close of the fiscal year, in the light of the entries and the inventory. These annual accounts include the balance sheet, the profit and loss account and notes to the accounts; they form an inseparable whole.


All traders are obliged to keep the following books of account:

    • A "general journal" (or book of original entry) in which all the transactions affecting the company's capital must be entered in chronological order. The content varies depending on whether or not the company uses an auxiliary journal.

    • A "general ledger" in which the company transactions are reflected, broken down according to the Chart of Accounts.

    • An "annual accounts book", which groups the assets and liabilities noted down during the inventory.


Other special obligatory books apply to certain professions. The accounting documents are drawn up in euros and in the French language.
These accounting documents and the relevant supporting documents are kept for 10 years.



» Financial Statement Requirements

Corporate Income Tax Return Forms

These include the declaration of the results accompanied by attached documents. The fiscal result is established in compliance with the accounting policies enacted by the General Tax Code. These documents must be transmitted to the French Tax Authorities within the 3 months following the close of each fiscal year. When the fiscal year closes on December 31st, the period for presenting returns is usually extended and established on April 30th at the earliest.


Annual Accounts

The annual accounts include the balance sheet, the income statement and notes to the account. They form an inseparable whole. These items are established at the close of the fiscal year in the light of the accounting entries. They are addressed, or made available to the directors, shareholders and auditors.

Individuals are not bound to draw up notes to the accounts.

Company fulfilling one of the following criteria must draw up forecasted financial documents comprising an income statement, a cash-flow statement and the situation of debts and creditors:
    • Number of employees equal to or greater than 300
    • Turnover equal to or greater than 18 million euros.

Companies will have to comply with the following annual obligation:
    • To hold an annual general meeting of shareholders within six months of the closing date.
    • To file the following documents with the Commercial Court within one month of their approval by the Shareholder's General Meeting:
     - Financial statements: balance sheet, income statement, notes to the accounts;
     - Management report;
     - Auditor's opinion;


It should be noted that the financial statements, the auditor's opinion and the management report have to be made available for inspection by the public.



» French /USA GAAP Differences

The influence of taxation rules on French accounting figures is one of the main differences between these and American accounting standards.

In France, the purpose of accounting is to constitute legal proof and to establish taxable income. For an expense to be deductible, it must have previously been entered into the books. Thus, articles 39-1-2° and 5° of the General Tax Code render it compulsory to enter all the accumulated depreciation for deduction. In order not to penalize the company at taxation level, accumulated depreciation that is not the result of real amortization (accelerated for example) is therefore entered into the books.

Furthermore, fiscal accounts (balance sheet and income statement) are identical to accounting figures (the annual accounts presented to company members). However, the fiscal result is established in accordance with rules decreed by the General Tax Code on a separate statement.

The other differences are the consequences of divergences of interpretation between French and American accounting standards, although the main concepts are identical between the two countries (going concern, consistency, conservatism, historical cost, materiality). Some substantial differences should be pointed out:
• Tangible Assets: Legal reassessment is allowed in France provided it affects all the tangible and financial assets, while it is not authorized in the United States.
• Intangible Assets: The Chart of Accounts (PCG) does not impose systematic depreciation of all the intangible assets and more particularly of those that are subject to legal protection (brands, market shares …). The American APB 17 standard makes systematic depreciation compulsory.
• Research and Development Costs: The PCG makes it possible to capitalize research costs and development costs that fulfill certain conditions (technical, commercial and financial). The American FAS 2 does not allow the capitalization or research costs or development costs.
• Financial Assets: the categories of securities defined in the two frames of reference are not exactly the same. Assessment at fair value is not allowed by the PCG (except for the banking sector). The PCG does not allow any latent gain or loss to be noted directly by equity capital. Depreciation of securities is obligatory in France if their market value has fallen below book value. According to the American standard, a temporary reduction of the value of securities held until expiration is not noted in the results.
• Stocks and Work in Process: The LIFO method authorized in the United States is neither contemplated nor allowed by the PCG.
• Assignment of Financial Expenses: The FAS 34 requires the capitalization of financial loan expenses for some specific assets that involve a certain production or construction period. The preferential treatment of the PCG is the noting down of financial costs in expenses.
• Depreciation of Long-Term Assets: The FAS 121 requires specific methods to be used for carrying out a depreciation test of long-term assets based on the value of future cash flows. The PCG indicates that the accounting value must be compared with the current value or the market value.
• Retirement Pension Cost: The PCG does not make it compulsory to enter a provision fully covering retirement commitments and does not establish any method for the assessment of retirement pension costs. According to the FAS the projected unit credit method is compulsory.
• Extraordinary result: The concept of extraordinary result held by French policy differs considerably from that of extraordinary result as defined by the FASB. Numerous items entered by French companies in the extraordinary results section would be entered as a result of ordinary transactions in an American presentation.



» Employees' Rights

The Labor Code, collective bargaining agreements, regulations and individual employment contracts govern relations between employers and employees.

For many years, France has provided for employee rights and protection. New laws will soon complete the already existing legislation.

Following is a list of the principal measures:

   • It is a prerequisite that an employer declare new employees to the Social Security office.

   • The employer must provide a work contract or a pay slip.

   • Every newly-hired employee is subject to an initial trial period varying from a few days to 3 months, depending on the position to be held in the company. During this period, the employer as well as the employee can break this work contract.

   • When an employee of a French company wishes to leave, s/he must give prior notice. The notice can be a few days or up to 3 months.

   • Once the trial period is over, an employer cannot lay off his or her employee without a real and serious reason. Otherwise, s/he will have to pay an indemnity to the dismissed employee.

   • The salaried worker and the employer take responsibility for mandatory Social Security cover jointly. The cover includes the state mandatory Social Security Plan covering health, accident, life insurance, family allowance, and old age pension; the state mandatory Unemployment Plan; and a private mandatory Retirement Scheme, including a supplementary pension scheme, and a complementary retirement scheme for executives. Additional non-compulsory schemes are possible, depending on the agreements between employers and employees.

   • The French law forbids all forms of discrimination on the basis of race, creed, sex or color.

   • Work conditions are subject to governmental control, and the intent of the legislation is to define the rights and obligations of the employee and the employer.

   • The work Inspection Bureau, the industrial Security and Hygiene Commissioner, and "Médecine du travail" (Occupational Medicine) may operate controls regardless of the business activity.

Other important measures have been taken and are worth mentioning:

   • Besides the French National Labor Market, there exists a collective bargaining agreement for each market sector, which both employers and employees must abide by and which defines the limitations on the relations between employer and employee.

   • Since January 1st 2000, all employers with an average workforce over 20 apply the legal working period of 35 hours per week. This legal working period will apply to the remaining employers on the January 1st 2006. Government grants are allocated to facilitate the application of the law. Overtime is due by the employer and is subject to a 10% to 50% increase on the salary base as agreed with the employer.

   • An employee cannot be remunerated below the minimum legal salary requirement (S.M.I.C.), which is revised regularly.

   • Every employee benefits from 5 weeks' paid holidays per annum, which is the legal requirement, after one year's presence in a company. Certain business and industrial sectors offer additional benefits.

   • Social Legislation on companies can also provide for optional or compulsory employee share taking in company performance, such as share taking on profits, company savings plan, and incentive bonuses. Employee share taking is calculated according to criteria defined by law.



» Social Charges

For many years now, France has sought to improve the social security cover of salaried personnel.

France has a national system of health, unemployment insurance, and retirement pension fund insurance, which applies to all employers established in France.

In the absence of a Social Security Treaty or other agreement, an employer established outside France, but with an employee working in France, is subject to the French system, as is the employee. In this case, the employee in France must file and pay his own as well as his employer's French contribution.

Social welfare covers health and life insurance and guarantees insurance in the event of unemployment, together with the allocation of a retirement pension. Social welfare is financed by the employer's social contribution as well as by the employee.

All employers (and this includes foreign employers, unless exempt by treaty) have a legal responsibility to account for health and unemployment insurance, and a mandatory and complementary executive pension scheme contribution relating to all amounts paid to employees.

"All amounts" include: salaries, reimbursements, bonuses and non-cash benefits.

Employers are liable for the employee's share of contribution as well as the employer's, since the employers are obliged to withhold employees' contributions.

Payment of Social Security and Unemployment Insurance is due monthly for companies with ten or more employees, quarterly for others.

Payment of Retirement Pension Contributions is due quarterly.

In general, employers also have Mutual insurance and Supplementary Schemes for their employees.



» Compulsory Social Charges - Year 2004

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