French Tax Reform Slated For 2011

by Ulrika Lomas, Tax-News.com, Brussels

15 October 2010

French President Nicolas Sarkozy has reportedly announced his intention to undertake a comprehensive reform of taxation in France next year, and has made known that the first priority for the government will be to focus on the taxation of assets.

Faced with mounting pressure from within the ranks of his own ruling Union for a Popular Movement (UMP) party to abolish both the controversial tax shield (le bouclier fiscal), currently limiting direct taxes in France to 50% of income, and wealth tax (l’impôt de solidarité sur la fortune – ISF) in France, within the framework of the country’s 2011 budget, President Sarkozy has finally acknowledge the need for a comprehensive reform of taxation. 117 UMP party members recently signed an amendment to the government’s budget bill calling for an end to both mechanisms.

Following a meeting held at the Elysée palace to discuss the 2011 budget bill ahead of its forthcoming examination in the French National Assembly, Hervé Mariton (UMP) confirmed the government’s intention to conduct a debate on the issue within the framework of a supplementary budget planned for late spring.

President of the French National Assembly Social Affairs Committee Pierre Méhaignerie noted that the proposed reform would undoubtedly include the tax shield, ISF wealth tax, capital gains derived from real estate and securities, as well as income tax – in other words the whole of the country’s fiscal system.

Explaining that the government’s overall aim is fiscal convergence with Germany, French Budget Minister François Baroin also confirmed recently that the issue of the tax shield would be addressed within the framework of a supplementary finance law, possibly in June. Alluding to the tax shield as a mechanism that has “become a symbol of injustice”, Baroin nevertheless warned of the need to proceed with caution and to not act too hastily, but to take time to consider matters before removing the shield.

The government is hoping that the Court of Auditor’s report on fiscal convergence, which is expected in January, will serve as a basis for the proposed reform of taxation.

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