French National Assembly Agrees To Global Ceiling On Tax Breaks

by Ulrika Lomas, Tax-News.com, Brussels

20 November 2008

The French National Assembly Finance committee has ratified a parliamentary change to the 2009 Finance Bill, aiming to impose a global ceiling on tax breaks for any one individual.

Presented by parliamentary budget rapporteur Gilles Carrez, the amendment limits the total amount that can be claimed by any one individual to EUR25,000 plus 10% of gross taxable income. Deductions for a household disposing of a taxable income of EUR100,000 would, for example, therefore be capped at EUR35,000, and at EUR45,000 for those with an income of EUR200,000.

Extolled by the French government, the Carrez initiative matches a similar rule recently imposed on tax relief for property investments in 'DOM-TOMs' (French Overseas Departments and Territories) for which there is a limit on tax deductions of EUR40,000 in net returns or 15% of gross taxable income.

The global ceiling on deductions will only apply to specified tax breaks, most notably to relief granted to aid employment at home or overseas and also includes the tax deduction allowed on property interest, adopted in the summer of 2007. Some deductions will be outside the cap, including the 'quotient familial' or family tax allowance.

Certain tax breaks will be transformed into tax credits thus limiting their effect on the 'bouclier fiscal' or tax shield. This will apply for instance to the Malraux Law pertaining to renovation works carried out in protected zones. The tax credit in that case will correspond to 25% of the cost of works carried out in urban and rural zones of architectural heritage protection and to 35% in safeguarded sectors, up to a limit of EUR100,000. According to Carrez, the credits may be applied cumulatively over a three year period.

Other proposals outlined by Carrez include the introduction of a system designed to reduce the amount of tax levied on landlords renting professional property, particularly as regards investments in new 'service' residences, such as retirement homes and student accommodation. The tax reductions will represent 5% of the sum involved, up to a limit of EUR25,000.

Renovation work undertaken on historical monuments will remain exempt from the global cap on deductions. Although the finance committee has expressed its wish to impose a ceiling of up to EUR200,000 for monuments not open to the public, the government is opposing the move. Provided that the property is conserved for a minimum of 15 years, and that joint ownership tax does not apply, the existing tax relief will remain.

President of the Finance Committee Didier Migaud, had opposed the concept of imposing a cap expressed purely as a percentage of income, emphasising that would benefit the most wealthy and go against the progressive notion of income tax.

The text of the law will be examined this week and has the full support of Budget Minister Eric Woerth.

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