French Government Stalls On Reform Of Local Business Tax

by Ulrika Lomas, Tax-News.com, Brussels

14 July 2009

Reform of local business tax in France or “taxe professionnelle” is proving highly problematic for the French government: due to unveil specific details of the plans, Minister for the Economy Christine Lagarde was forced instead to announce a regrettable delay.

Endeavouring to make up the expected EUR23bn shortfall in tax revenue for local authorities and towns, arising from the long-awaited reform of local business tax, President Nicolas Sarkozy and Prime Minister François Fillon are yet to complete final arbitration work.

Among several avenues currently being explored is the possible introduction of a new tax base for the 'contribution sociale additionnelle'.

At the moment, only those companies realising a turnover exceeding EUR7.6m are liable to pay the contribution sociale additionnelle. However, the French government is considering extending this measure to companies realising a turnover of EUR500,000. The contribution would be progressive and capped at 1.5% of the value added.

The carbon tax or “contribution climat-énergie” could also serve to generate around EUR5bn.

Designed to increase the competitiveness of French businesses, President Sarkozy announced the abolition of part of France’s local business tax – the tax on productive investments – back in February. Local business tax represents around half of all resources for local authorities in France.

The government intends to complete the reform by the end of July, in order to present the details to the Cabinet before the end of September.

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