French Tax Shield Cost EUR679m In 2009

by Ulrika Lomas, Tax-News.com, Brussels

21 September 2010

According to official figures released by the French Budget Ministry, the controversial tax shield (le bouclier fiscal) cost the state almost EUR679m in 2009, up by 21% from the previous year.

Contained in a report that was recently submitted to the Finance Commissions of both the French National Assembly and the French Senate, the figures reveal that 18,764 individuals benefited from the tax shield last year. The average sum reimbursed by the French tax authorities was reportedly EUR36,186 per taxpayer.

These figures nevertheless disguise significant disparities among tax shield beneficiaries in terms of their income and wealth. At one end of the scale, 9,789 of those least well off received an average reimbursement of EUR559 from the treasury, whereas at the other end of the scale, 1,169 of the most well off pocketed an average cheque of EUR362,126, effectively equating to around 62% of the total sum reimbursed.

Emblematic of French President Nicolas Sarkozy’s era, the much trumpeted, yet increasingly controversial tax shield limits direct taxes in France (income tax, wealth tax, and local taxes such as dwelling and real estate tax) to 50% of income, including social contributions, honouring the President’s pre-election pledge that no-one will pay the tax authorities any more than half of what they earn. Once the total amount of these taxes and contributions exceeds 50%, the taxpayer may then recover the excess from the tax authorities.

Vehemently challenged by the Opposition since its adoption in its present form in July 2007, (previously the tax shield limited taxes to 60% of income and did not include social contributions), following Sarkozy’s election as President, the tax shield continually re-emerges at the top of the political agenda, shocking public opinion and whipping up anger.

Indeed, opposition to the fiercely unpopular tax shield mechanism has continued to intensify this year, given the exceptional level of public debt in France and revelations that the French treasury reportedly reimbursed a total of EUR100m to the L’Oréal heiress Liliane Bettencourt over the past four years by virtue of the tax shield. In 2008 alone, the amount of tax reimbursed is estimated at EUR30m.

At a time when the French government is eager to identify potential sources of savings for its 2011 budget, the spotlight is once again on the tax shield. Indeed, according to parliamentary budget rapporteur Gilles Carrez, who has called for the abolition of both the tax shield and wealth tax (ISF) in France, the tax shield has become emblematic of a certain form of fiscal injustice. It is certainly an increasing source of embarrassment for the government.

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