France Mulls Changes To Tax Shield

by Ulrika Lomas, Tax-News.com, Brussels

08 September 2010

Secretary General to the French President, Claude Guéant, has indicated that the government is currently considering plans to introduce a slight change to the controversial tax shield, in order to promote investment in small- and medium-sized companies (SMEs) in France.

Indeed, Guéant has inferred that the change could be similar to an amendment made to wealth tax (l’impôt sur la fortune – ISF) back in 2007, when a new provision (l’ISF PME) enabled individuals to reduce part of their wealth tax bill by investing in SMEs.

Special advisor to the French President, Henri Guaino, confirmed recently that the government is evaluating plans to take into account investments made by beneficiaries of the tax shield in SMEs. Taxpayers could be required, for example, to invest in SMEs in order to conserve their right to restitution via the tax shield.

Emblematic of President Sarkozy’s era, the tax shield (le bouclier fiscal) limits direct taxation in France to 50% of income. It currently benefits around 16,000 taxpayers, at an estimated cost to the government of around EUR600m.

Defending the principle of the tax shield, particularly difficult at a time when the government’s key priority is reducing the deficit, Claude Guéant underlined the fact that it is necessary to allow those in France who have money to remain in France and to continue to invest in France in order to create jobs.

Regarding the government’s plans to reduce existing tax breaks (les niches fiscales) by EUR10bn, Guéant announced that the government has already identified areas for cuts of EUR6bn. The precise measures are due to be unveiled at the end of November, he added, when the country’s 2011 finance bill is presented to the state council.

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