France Seeks EUR10bn To Plug Budget Gap

by Ulrika Lomas, Tax-News.com, Brussels

22 June 2012

The French Minister responsible for Parliamentary Relations Alain Vidalies has recently conceded that EUR10bn (USD12.7bn) is needed to balance the country’s budget this year, to be achieved notably by means of implementing a number of emergency tax measures.

Underscoring that the government is currently awaiting the findings of the French Court of Auditors to confirm the figure, the minister unveiled details of possible measures to enable the government to generate EUR7bn of the EUR10bn sought.

The government plans to abolish the exemption from social contributions applicable to overtime hours, expected to yield a gain for the state of around EUR3.2bn, and to subject overtime hours to taxation, predicted to realize approximately EUR1.4bn in additional revenues.

Other proposed measures include plans to reform the country’s solidarity tax on wealth (ISF), to cap tax breaks at EUR10,000, to impose a 3% tax on dividends and to increase inheritance tax as well as the tax on donations.

In a bid to encourage companies to reinvest their profits rather than reward shareholders, the French government recently revealed plans to introduce a new 3% tax on dividends this summer.

In accordance with the government’s plans, the new tax on dividends will be paid at source by companies distributing payments to their shareholders, and will serve to generate in the region of EUR800m annually for the state. The tax is predicted to yield approximately EUR300m this year.

Groups receiving dividends from their subsidiaries will be exempt from the new tax, however, provided that they hold more than 5% of the capital.

French President Hollande announced plans during his election campaign to reform ISF. Holland intends to restore the wealth tax scale of between 0.55% and 1.8%, in place before the former government’s 2011 reform, to be applied on wealth in excess of EUR1.3m. Currently a 0.25% rate is imposed on net taxable wealth in excess of EUR1.3m and 0.5% on net taxable assets above EUR3m.

Despite the legal and technical problems associated with the reform, the government plans to increase ISF from 2012, to be achieved possibly by means of imposing an exceptional wealth tax contribution on taxpayers, akin to the exceptional contribution imposed on top income earners in France at the end of 2011.

The proposed emergency tax measures are to be integrated into the collective budget due to be examined by the National Assembly during an extraordinary parliamentary session on July 3.