French Corporate Taxation Ineffective, Report Concludes

by Ulrika Lomas, Tax-News.com, Brussels

08 October 2009

France is suffering as a result of its complex and unstable tax and social systems, warns a recent report published by the Court of Auditors.

Attached to the Court of Auditors, the body responsible for compulsory levies in France, le Conseil des prélèvements obligatoires (CPO) has revealed that the country’s system of corporate taxation is not suitably adapted to enable French businesses to compete with foreign competitors on the international market. It has also concluded that government-approved reductions merely serve to reinforce the “complexity” of the system.

Presided by Philippe Séguin, the CPO has noted that the rate of tax and social levies in France remains “high” when compared to its European neighbours, even taking into account recent tax breaks accorded within the framework of the government’s stimulus package, specifically designed to improve France’s position.

Yet the report emphasises that it is the structure of these levies, more than the actual rates, which appears to be hindering companies in terms of their international competitiveness.

According to Philippe Séguin, who has now presented the report and its findings to the Senate’s finance commission, France is suffering as a direct result of the complexity and instability of its tax and social systems.

Focussing on corporate income tax (l’impôt sur les sociétés – IS), the report states that France now has the second highest corporate tax rate within the European Union (33.3%). Despite attempts to gradually reduce the tax base, the government’s strategy is against the current tide, the report adds.

Indeed, Philippe Séguin has noted in particular that the government’s decision to impose a high level of compulsory levies on companies, while at the same time granting businesses “massive” financial aid – estimated at almost EUR65bn – and spread out over more than 6,000 initiatives, is highly inefficient.

The CPO has also concluded that several recent government initiatives granting tax reductions to specific companies, in “sectors sheltered from international competition,” have only marginally contributed to increasing the attractiveness of France as a location for businesses. Citing the example of the government’s decision to introduce a reduced 5.5% VAT rate in the catering industry from July 1, the report also forecasts that this measure will, in reality, only result in the creation of 6,000 long-term jobs, instead of 40,000 as initially intended.

In its conclusions, the report suggests that the existing system of taxation be “re-orientated”. Instead of continuing to grant new tax breaks, certain existing measures need to be “re-examined”, the report states, including the measure granting aid to employers who recruit in very small companies (TPE).

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