France Adopts 2011 Finance Bill

by Ulrika Lomas, Tax-News.com, Brussels

17 December 2010

The French parliament has definitively adopted the country’s 2011 finance bill, providing for a historic deficit reduction of EUR60bn and for a reduction of existing tax breaks in France of almost EUR10bn. French senators voted in favour of the final text by 179 votes to 152.

Among the key fiscal measures contained in the bill are plans to introduce a 1% tax (dubbed ‘Google tax’) on the purchase of online advertising space from July 1, 2011, expected to generate in the region of EUR20m in additional revenues for the government. Initially due to enter into force on January 1, the decision to delay entry into force of the measure was to allow sufficient time for both the country’s tax administration and for professionals in France to adequately prepare.

The budget bill also provides for the introduction of a so-called ‘Tapie’ tax to be levied on compensation in excess of EUR1m, and for an increase in the rate of value-added tax (VAT) levied on ‘triple play’ offers (Internet, telephone and television services) from 5.5% to 19.6%, a measure expected to yield in the region of EUR1.1bn for the state.

Other measures contained in the bill include plans to reduce from 75% to 50% the reduction in wealth tax (ISF) accorded for either direct investment in small- and medium-sized enterprises (SMEs) in France, or for investment in SMEs via a holding. This tax reduction will also be capped at EUR45,000 per household, compared to EUR50,000 currently.

Although the government aims to maintain the 5% research tax credit (le crédit d’impôt recherche) accorded for spending on research exceeding EUR100m, the tax break benefiting companies investing in research for the first time is to be reduced from 50% to 40% for the first year and from 40% to 35% for the second year.

As regards enhanced pensions, pensions currently paid out of between EUR500 and EUR1,000 a month will be subject to a social contribution of 7%. For pensions in excess of EUR1,000 a month, the contribution rate will rise to 14%. Regarding future pensions, a unique 14% tax rate will apply.

The budget aims to reduce the public deficit to 6% of gross domestic product (GDP) next year, from a record level of 7.7% this year, and is based on expected economic growth of 2% in 2011, compared to 1.5% this year. The government intends to achieve its 3% deficit target by the end of 2013.

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