French Finance Commission Approves Controversial Tax On Compensation

by Ulrika Lomas, Tax-News.com, Brussels

11 November 2009

The French Finance Commission has voted to impose a tax on the daily compensation paid out by the social security department to those who have suffered an accident at work.

Under the proposed initiative, the daily compensation received by individuals in 2010 following a work-related accident will become liable for income tax (l’impôt sur le revenu – IR).

Defended by the president of the parliamentary group Union for a Popular Movement (l’Union pour un Mouvement Populaire – UMP) Jean-François Copé, the plans have received the full support of President Nicolas Sarkozy, Budget Minister Eric Woerth and Finance Minister Christine Lagarde.

The decision by the Finance Commission to adopt the highly controversial proposal has, however, once again sparked outrage from both the Left and from trade unions and other organizations. Only recently, France’s Economic and Social Council (le Conseil économique, social et environnemental – CESE) called for the government to abandon its plans.

According to the CESE, compensation paid out for job-related accidents should be treated in exactly the same way as other forms of compensation, such as that paid out to road accident victims. It also emphasized that to impose a tax on compensation for work-related accidents would be to further penalize workers, already deprived of pension rights, and for whom compensation is capped at 60% of salary.

Plans to impose a tax on compensation received for work-related accidents are not new, however. A previous attempt was made to include the initiative in the 2008 budget bill. Given the fierce opposition, however, the proposal was finally rejected.

The expected gain for the government from this measure is estimated at around EUR150m.

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