Controversial French Business Tax To Be Abolished

by Ulrika Lomas, Tax-News.com, Brussels

10 February 2009

Endeavouring to assuage fears and re-establish public confidence in the wake of one-day nationwide strikes, French President Nicolas Sarkozy has announced that local business tax or ‘taxe professionnelle’ will finally be abolished in 2010.

Expressing his determination to uphold his predecessor Jacques Chirac’s promise to end the highly controversial tax, President Sarkozy has underlined the importance of the measure – vital to maintaining industry in France and ultimately to the preservation of jobs, despite a total cost to the state estimated at EUR8bn.

Created in 1975 – ironically by the then Prime Minister Chirac – business tax forms one of four direct local taxes collected by councils, and represents around half of their tax revenue.

The tax has two bases: the rented value of property on the one hand, and equipment and movable assets, dedicated to production, on the other.

Sarkozy’s dramatic decision follows a rather more cautious initiative unveiled at the end of October to temporarily exonerate firms from business tax on fresh investments – a move designed to shelter small businesses from the effects of the economic storm and to kick-start investment.

Nevertheless, the announcement has been met with mixed response. Facing criticism – rather unsurprisingly – from the association of mayors and other local councillors, who are calling for immediate negotiations with the government, and for a reform of taxation in France – the President is all too aware of the need to urgently redress the resulting shortfall for local authorities, evoking carbon tax as one possible solution.

President of the employer’s federation Medef Laurence Parisot has, however, welcomed Sarkozy’s announcement to remove the burdensome tax, provided that businesses are not then penalised by the imposition of another.

Nicolas Sarkozy has also proposed a series of additional tax measures aimed specifically at boosting spending power, targeted at the lower middle classes. His proposal involves the suppression of the first level of income tax (currently 5%). Sarkozy has, however, once again vehemently rejected calls for a general reduction of value-added tax, preferring instead targeted reductions of the tax to benefit ‘clean’ and 'cultural' products and the catering industry.

Given the extent of the economic crisis, Sarkozy has also called for hedge funds to be closely regulated, and once again publicly reiterated his opposition to ‘tax havens’, stating that he will be reviewing France’s future relations with Andorra, Monaco and Luxembourg in particular.

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