International Tax Lawyers France, Finance Act 2026, DAC9 & Pillar Two for Funds

Last reviewed: 6 May 2026

France’s Loi de finances pour 2026 (Finance Act 2026) has introduced a suite of measures that demand immediate attention from international tax lawyers France-based fund managers rely on for compliance and structuring advice. The legislation transposes DAC9 into French law, embeds domestic Pillar Two mechanisms, including the Domestic Minimum Top-up Tax (DMTT), the Income Inclusion Rule (IIR) and the Under-Taxed Profits Rule (UTPR), and tightens interest deduction rules that directly affect leveraged fund structures. Alongside these structural changes, the Act extends and recalibrates France’s exceptional corporate surtax, widening the universe of onshore fund vehicles and management companies caught by additional charges.

For tax heads, fund general counsel, CFOs and asset managers operating through French entities, the next 90 days represent a critical compliance window, one that requires mapping reporting obligations, recalibrating intra-group financing and, in many cases, revisiting fund architecture altogether.

Executive Summary & Immediate Actions for Funds

The Finance Act 2026 creates four concurrent workstreams for investment funds tax France stakeholders must address without delay:

• DAC9 reporting. French-domiciled financial institutions, including AIFMs, UCITS management companies and certain fund vehicles, must identify reportable accounts and investors, collect prescribed data fields and transmit annual reports to the Direction Générale des Finances Publiques (DGFiP) under the transposed directive.
• Pillar Two implementation. Constituent entities within multinational enterprise (MNE) groups that include French fund management platforms or onshore corporate vehicles must calculate jurisdiction-level effective tax rates (ETR), file a Global Information Return (GIR) and, where the ETR falls below 15 %, pay the domestic top-up tax.
• Interest deduction tightening. The Act narrows the scope of deductible interest on related-party and intra-group loans, reinforcing thin-capitalisation limits and introducing additional anti-abuse provisions that affect subscription credit facilities and shareholder-loan-financed acquisitions.
• Exceptional corporate surtax. The temporary surtax on large corporates has been extended and its thresholds adjusted, catching more management companies and onshore fund vehicles than in prior fiscal years.

Quick Compliance Checklist, 30 / 60 / 90 Days

What France’s Finance Act 2026 Changed for Funds, Legal Summary

The Finance Act 2026, published on Legifrance, represents the most significant set of international tax changes for the French funds industry in over a decade. Fund managers need to understand four distinct legislative pillars and their interaction.

DAC9 Transposition, Key Provisions and Effect on Fund Reporting

DAC9 (Council Directive amending Directive 2011/16/EU on administrative cooperation) extends automatic exchange of information to cover additional categories of income and account holders. France’s transposition, enacted through the Finance Act 2026, requires French reporting financial institutions, a category that captures most AIFMs, UCITS management companies and certain fund special-purpose vehicles, to collect and report enhanced investor data fields to the DGFiP. The French tax administration has published initial guidance notes outlining which entities qualify as reporting financial institutions and the data fields required, which include investor tax identification numbers, jurisdiction of tax residence, account balances and income categorisation.

The practical effect for fund managers is a material increase in the volume and granularity of investor data that must be captured at onboarding and maintained throughout the investment lifecycle.

Pillar Two Domestic Measures, DMTT, IIR and UTPR

France’s Pillar Two implementation follows the OECD/G20 Inclusive Framework model rules and the EU Minimum Tax Directive. The Finance Act 2026 codifies the domestic minimum top-up tax (DMTT), which allows France to collect the top-up tax on French-located constituent entities before any foreign jurisdiction applies its own IIR or UTPR. Concurrently, the IIR, which allocates top-up tax liability to the ultimate parent entity, and the UTPR, a backstop rule denying deductions in jurisdictions where constituent entities are under-taxed, are embedded in French law. For fund structures, the critical question is whether the management company, the GP entity or the fund vehicle itself constitutes a “constituent entity” within the meaning of the rules.

The OECD’s Global Minimum Tax Implementation Toolkit provides interpretive guidance, and France’s implementing decrees, published alongside the Finance Act, follow the model rules closely.

Interest Deduction and Anti-Abuse Changes

The Finance Act 2026 tightens interest deduction rules applicable to related-party loans and intra-group financing arrangements. The legislation reinforces existing thin-capitalisation rules under the Code général des impôts (CGI) while introducing new anti-abuse provisions that target hybrid mismatch arrangements and certain back-to-back lending structures commonly used in fund subscription financing. Industry observers expect these changes to compress the deductibility envelope for leveraged fund acquisitions, particularly where French blocker entities are used to hold portfolio investments. Fund finance teams should review all existing loan documentation against the revised statutory thresholds published on Legifrance and model the tax cost of any curtailed deductions.

Finance Act 2026, Summary of Key Measures for Funds

DAC9, Who Reports, What to Report and the Operational Flow for Funds

DAC9 reporting represents one of the most operationally intensive new obligations facing international tax lawyers France fund clients will need to address. The directive broadens the scope of automatic exchange of financial account information within the EU, requiring reporting financial institutions to collect and transmit standardised data sets to their home-country tax authority, which then exchanges that information with the tax authorities of the investor’s country of residence.

Entity-by-Entity DAC9 Reporting Obligations

The identity of the “reporting financial institution” depends on the legal form and regulatory status of each entity in the fund chain. The following table maps the most common fund entity types to their likely DAC9 obligations:

Practical Steps for Fund Managers

Operationalising DAC9 compliance requires a structured data-collection and systems-integration programme. Fund managers should take the following steps:

• KYC enhancement. Revise onboarding questionnaires and subscription documents to capture all DAC9-mandated data fields at the point of investor admission.
• Data mapping. Audit existing investor databases against the required fields; identify gaps (particularly around tax identification numbers for non-EU investors).
• IT integration. Evaluate whether existing fund-administration platforms can generate DAC9-compliant XML reports or whether a specialist reporting vendor is needed.
• Record retention. Establish a retention policy aligned with the directive’s requirements and the DGFiP’s administrative guidance on document preservation.
• Internal controls. Assign clear ownership (typically the compliance officer or CFO) and build an annual reporting calendar with internal deadlines well ahead of DGFiP submission windows.

Pillar Two, Scope, Reporting and Domestic Top-Up Tax Implications for Fund Structures

The Pillar Two implementation in France follows the architecture established by the OECD’s Global Anti-Base Erosion (GloBE) rules and the EU Minimum Tax Directive. Its core mechanism is straightforward: where the effective tax rate on the income of constituent entities located in a given jurisdiction falls below 15 %, a top-up tax is levied to bring the rate to that minimum. For investment funds, however, the application of these rules is anything but simple.

Which Fund Entities Are Constituent Entities?

A “constituent entity” under the GloBE rules is any entity that is included in the consolidated financial statements of an MNE group with annual revenue of €750 million or more. In fund structures, the analysis turns on whether the fund group meets the revenue threshold and, if so, which entities within the structure are consolidated. The likely practical effect will be as follows:

• Management companies and GP entities. Where the management company or GP is part of a larger asset-management group that exceeds the €750 million revenue threshold, it is almost certainly a constituent entity. It must be included in GIR calculations and may be subject to domestic top-up tax.
• Fund vehicles. Many investment funds are structured as transparent or semi-transparent vehicles for tax purposes. The OECD model rules and the French implementing decrees contain specific provisions for “investment funds” and “real estate investment vehicles” that may exclude them from constituent-entity status, provided they meet certain conditions (e.g., being the ultimate parent entity of the group, diversification requirements). Fund managers must test each vehicle against these conditions.
• Portfolio companies. Where a PE fund holds a controlling stake in portfolio companies that are themselves part of an MNE group exceeding €750 million, those portfolio companies may be constituent entities in their own right, potentially triggering top-up tax obligations at the portfolio level.

GIR Filing Process, Timelines and Payment Obligations

The GIR is the standardised return through which MNE groups report jurisdiction-level ETR data and compute any top-up tax. France’s implementing rules, consistent with the OECD Administration Guidance, set the following framework:

• Filing window. The GIR must be filed within 15 months of the end of the fiscal year to which it relates. For the first fiscal year in which the rules apply, an 18-month filing window is available.
• Domestic top-up tax payment. Where the DMTT applies, the top-up tax is due alongside the GIR filing. Fund entities must compute their French-source ETR and, where it falls below 15 %, pay the difference.
• Notification obligation. Constituent entities located in France that are not the filing entity must submit a notification to the DGFiP identifying the entity that will file the GIR on behalf of the group.
• Penalties. The French tax administration has published guidance on penalties for late or incomplete GIR filings, as well as for failure to pay the domestic top-up tax by the prescribed date.

Reporting Obligations by Entity Type, Combined DAC9 and Pillar Two

Interest Deduction Rules, Intra-Group Loans and Model Clauses for Fund Financing

The tightened interest deduction rules in the Finance Act 2026 represent a direct challenge to many common fund financing structures. Under the revised provisions, which amend existing CGI articles on thin-capitalisation and related-party interest, the deductibility of interest paid on loans between related parties is subject to stricter caps and new anti-abuse tests. These changes interact with the existing EU Anti-Tax Avoidance Directive (ATAD) interest limitation rule, which caps net borrowing costs at 30 % of tax EBITDA (with a safe-harbour floor), and add France-specific restrictions that target hybrid instruments and back-to-back arrangements.

For fund structures, the practical consequences are significant. Subscription credit facilities, typically drawn by the fund and secured against uncalled LP commitments, must be reviewed where the lender is a related party or where the facility is structured through an intra-group treasury vehicle. Similarly, shareholder loans used to finance portfolio acquisitions through French blocker entities should be stress-tested against the new deductibility thresholds published on Legifrance.

Early indications suggest the new provisions will compress the effective leverage benefit of debt-financed structures. Fund finance teams should work with their international tax lawyers France counsel to model the tax cost of reduced deductions and explore alternative structuring, such as replacing debt with equity-like instruments or relocating financing functions to jurisdictions with more favourable interest-deduction regimes (subject to substance requirements and transfer-pricing rules).

Model Loan Clauses

The following model clauses are provided for illustrative purposes only and must be adapted by qualified counsel to the specific facts and legal requirements of each transaction.

Model Clause A, Intercompany loan covenant (tax-deductibility compliance):

“The Borrower covenants that, for the duration of this Agreement, (i) it shall maintain arm’s-length documentation supporting the interest rate applied to the Loan, consistent with the requirements of Articles 39 and 212 of the Code général des impôts as amended by the Finance Act 2026; (ii) it shall promptly notify the Lender of any change in French tax law or administrative guidance that would reduce the tax-deductibility of interest payments hereunder; and (iii) upon such notification, the parties shall negotiate in good faith to restructure the Loan terms so as to preserve, to the maximum extent commercially practicable, the Borrower’s ability to deduct interest payments for French corporate income tax purposes.”

Model Clause B, Subscription credit facility (DAC9 and Pillar Two compliance undertaking):

“The Fund hereby undertakes that it shall (i) maintain accurate records of all Investor commitments and capital calls sufficient to comply with its reporting obligations under DAC9 as transposed into French law; (ii) provide to the Facility Agent, upon reasonable request, such information as may be necessary for the Facility Agent to verify that the Fund’s reporting obligations have been discharged; and (iii) promptly notify the Facility Agent of any Pillar Two top-up tax liability arising in connection with the Fund’s constituent entities that could materially affect the Fund’s cash-flow projections or the collateral base securing this Facility.”

Exceptional Corporate Surtax & Surtax Extensions, Exposure and Mitigation for Funds

France’s exceptional corporate surtax, originally introduced as a temporary measure, has been extended by the Finance Act 2026 with adjusted thresholds that widen the net of affected entities. The surtax applies as an additional percentage on the corporate income tax (impôt sur les sociétés) liability of companies exceeding specified turnover thresholds, as set out in the Finance Act published on Legifrance.

For fund structures, the practical exposure arises primarily through French management companies and onshore corporate vehicles. A management company earning significant performance fees or management fees may exceed the threshold, triggering the surtax on its entire IS liability. Similarly, onshore société vehicles holding portfolio investments that generate taxable income in France could be caught.

Mitigation strategies may include:

• Fee-splitting. Distributing management and performance fees across multiple entities in different jurisdictions (subject to substance and transfer-pricing constraints).
• Entity conversion. Converting opaque vehicles to transparent ones (e.g., from SA to SLP), where the fund’s investor base and regulatory status permit.
• Timing of income recognition. Deferring or accelerating income recognition to manage the turnover threshold in any given fiscal year, though anti-abuse doctrines limit the scope for artificial deferral.

Restructuring Checklist for Private Equity and Real-Asset Funds

The cumulative effect of the Finance Act 2026 changes may make restructuring not merely advisable but commercially necessary for certain fund structures. International tax lawyers France fund managers consult should assess each structure against the following trigger tests:

• Trigger 1, ETR below 15 %. If French constituent entities have an ETR below the Pillar Two minimum, the top-up tax cost alone may justify restructuring to increase the ETR (e.g., by repatriating profits or converting deductions).
• Trigger 2, Interest deduction shortfall. If the revised interest deduction limits reduce the after-tax return on a leveraged acquisition by more than a material threshold (e.g., 50 basis points), alternative financing structures should be modelled.
• Trigger 3, Surtax exposure. Where a management company or onshore vehicle has been caught by the exceptional surtax for the first time, fee-splitting or entity conversion should be explored.
• Trigger 4, DAC9 operational burden. If the cost of DAC9 compliance for a particular entity type exceeds the benefit of its current legal form, consolidation of reporting entities should be considered.

Worked Example, PE Fund Converting a French Blocker Entity

Consider a private equity fund that holds French portfolio investments through a French SAS blocker. Under the pre-2026 regime, the blocker deducted intra-group interest, resulting in minimal taxable income and an ETR well below 15 %. Under the Finance Act 2026:

• Before restructuring: The blocker’s interest deductions are curtailed under the new rules, increasing taxable income. The Pillar Two DMTT applies, bringing the ETR to 15 %. The exceptional surtax may also apply if the blocker’s fee income or consolidated turnover exceeds the threshold. Total effective tax burden: significantly higher than pre-2026 projections.
• After restructuring: The fund converts the blocker from a SAS (opaque) to an SLP or SCS (transparent partnership). Income flows through to investors and is taxed at their level. The entity is no longer a constituent entity for Pillar Two purposes (subject to meeting the exclusion conditions). Interest deduction issues fall away because the transparent entity does not bear IS. The surtax no longer applies. The trade-off: increased compliance complexity at the investor level and potential withholding-tax exposure on distributions, which must be modelled against treaty relief.

Compliance Workflow, Governance, Documentation and Data

Effective compliance with the Finance Act 2026 measures requires clear governance structures and robust documentation. Fund boards and management committees should formally assign cross-border reporting obligations to named individuals and establish a compliance calendar that integrates DAC9 and Pillar Two deadlines with existing French corporate tax filing dates.

Key governance steps include:

• Board resolution. Formally designate the entity responsible for GIR filing and DAC9 reporting within the group.
• Internal controls. Implement data-quality checks at the point of investor onboarding and at each capital call or distribution event.
• Audit trail. Maintain complete records of ETR calculations, GIR data inputs and DAC9 submissions for the statutory retention period.
• Annual review. Schedule an annual post-filing review with external counsel to assess compliance gaps and anticipate regulatory changes.

Vendor & Data Checklist

• Reporting software. Evaluate vendors offering GIR-compliant and DAC9-compliant XML generation; confirm that the software maps to the data fields specified by the DGFiP.
• Data owners. Identify the internal team (fund administration, investor relations, finance) responsible for each data field; document data flows from source systems to reporting output.
• API integration. Where investor data is held across multiple systems (CRM, fund-admin platform, transfer agent), establish API connections to automate data aggregation and reduce manual-entry risk.
• Third-party fund administrators. Where fund administration is outsourced, amend service-level agreements to include DAC9 and Pillar Two reporting deliverables, with contractual deadlines aligned to DGFiP submission windows.

Next Steps, How Global Law Experts Can Assist

The Finance Act 2026 changes require fund-level legal analysis that goes beyond generic compliance alerts. Through the Global Law Experts lawyer directory, fund managers and tax heads can connect directly with international tax lawyers France specialists who provide tailored advisory services, including:

• Legal opinions on DAC9 reporting-entity classification and Pillar Two constituent-entity status.
• Drafting and review of intercompany loan agreements, subscription facility documentation and LP side-letters reflecting the new rules.
• Design and implementation of GIR and DAC9 reporting workflows, including vendor selection and IT-system integration.
• Restructuring advisory, modelling the tax, regulatory and commercial trade-offs of entity conversion, fee-splitting and substance reallocation.
• Ongoing compliance monitoring and annual post-filing reviews.

This article is published for general information purposes only and does not constitute legal advice. Readers should consult qualified legal counsel before taking any action based on the information provided.

Sources

1. French Tax Administration, Impots.gouv.fr