France To Emulate German Tax System

by Ulrika Lomas, Tax-News.com, Brussels

30 August 2010

French budget minister, Francois Baroin, has expressed admiration over Germany’s “spectacular” economic performance following a recent visit to Berlin, and suggested that France should become more fiscally aligned with its neighbour.

Citing Germany as “a model” and “source of inspiration”, the minister has announced plans to emulate the country’s fiscal system, on both corporate and personal income tax policies, in a move towards harmonizing the two economies.

Germany’s dramatic second quarter GDP growth rate (2.2%) and significantly lower expected deficit – almost half of France’s – have inspired the French government into more urgent fiscal reform.

If the two tax systems are to be brought closer together, France may have to address the controversial “tax shield”, introduced by President Sarkozy’s government to Socialist opposition. The tax shield, or “bouclier fiscal”, aims to protect taxpayers and prevent them from paying more than 50% of their income in tax. Germany by contrast abolished its wealth tax altogether in 1997.

President Nicolas Sarkozy has requested an inquiry be made by the French court of auditors into areas of potential convergence with the German fiscal system, due by the end of the year.

Finance ministers are set to meet in September to discuss issues further.

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