French ISF Tax Comes Under The Spotlight

by Ulrika Lomas, Tax-News.com, Brussels

26 July 2010

According to figures released by the French finance ministry, the number of wealth tax declarations in France (l’impôt de solidarité sur la fortune – ISF) was around 562,000 at the beginning of July, as compared to 539,000 declarations for the same time last year. Figures also reveal that the total amount of wealth tax declared in France this year was approximately EUR3,290m, compared to EUR3,130m in 2009.

The French finance ministry notes that the number of wealth tax reductions, granted in accordance with the law in favour of work, employment and purchasing power (la loi Tepa) has also increased, with 140,043 having been declared this year for investments either in small- and medium-sized enterprises (SME) or for donations to charitable organizations, amounting to total ISF tax reductions of EUR838m. More than EUR1.1bn has been invested in SME equity as a result of the tax break, the finance ministry states, while noting that final definitive figures for wealth tax will be established at the beginning of 2011.

Publication of these latest figures coincides ironically with revelations that the French taxpayers’ association Contribuables Associés has submitted a request to the country’s constitutional council (le Conseil constitutionnel), urging the council to rule on whether or not wealth tax in France is constitutional. If the council declares that certain ISF provisions are unconstitutional, this may well signal the end to ISF tax in its current form. Such a ruling would require substantial modifications to be made, and within a specified timeframe.

Given that a number of parliamentarians have already called for the abolition of wealth tax, such a ruling would serve as certain ammunition. The president of the French Senate finance committee, Jean Arthuis, has already called for wealth tax to be replaced by a rise in the top rate of income tax to 45% (from 40% currently). Arthuis has also called for the controversial tax shield to be removed and for the tax levied on capital gains derived from fixed and transferable assets to be increased.

Wealth tax in France is imposed on individuals whose wealth is deemed to exceed EUR790,000. Taxpayers must notify the French tax authorities of all their assets located or held either in France or abroad on January 1 (such as property, bank accounts, savings accounts, furniture, jewellery). There are certain exceptions, however, including for example art and antiques. All assets must then be evaluated to determine their value as of January 1. Once this evaluation has taken place, any debt can be deducted. Individuals investing in an SME or donating to a charitable organization may benefit from corresponding ISF tax reductions.

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