Lagarde Explains French Dwelling Tax Changes

by Ulrika Lomas, Tax-News.com, Brussels

24 August 2010

In response to demands from the French Mayors Association (l’Association des maires de France), French Finance Minister Christine Lagarde has explained the effects of the reform of local taxation in France on dwelling tax.

Within the framework of this reform, adopted as part of the country’s 2010 finance law, dwelling tax, previously distributed between departments and towns in France, will be collected exclusively by municipalities from January 1, 2011. Consequently, the share of the tax currently collected by departments will be transferred to municipalities. In return, departments will be allocated alternative sources of revenue corresponding to an equivalent amount.

According to the finance ministry, this transfer will neither affect the global tax burden on taxpayers nor local authority resources, which, it explains, are guaranteed by the state. Revenues from the dwelling tax are set to remain constant, it adds.

In accordance with the redistribution of local taxes, any tax reductions accorded by councils at department level, designed to decrease the fiscal burden on families and individuals on modest incomes, will cease to apply, the ministry notes, and will be replaced instead by those decided upon by municipalities.

While acknowledging that this change may indeed result in either a slight increase or decrease in dwelling tax contributions in some circumstances, Lagarde emphasized that the majority of taxpayers on modest incomes would remain unaffected, noting that in effect more than ten million households are either exempt from the tax or benefit from a ceiling on the amount of tax levied.

The finance ministry points out that where the system of tax reductions accorded by a department was previously less favourable than that decided by the municipality, the dwelling tax paid by individuals in 2011 will be less. The ministry also assured that this will not result in any lost revenues for the municipality concerned, as it will be entirely compensated by the state. In the reverse case, it adds, municipalities will be able to adapt their policies of tax reductions accordingly to ensure that the fiscal burden remains constant for individual households.

The government is due to propose to parliament that, within the framework of the 2011 finance bill, the deadline for this decision be extended by one month, until November 1, in order to allow local executives sufficient time for deliberation and for the necessary recalculations to be made.

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