Sarkozy Readies Fiscal Strategy

by Ulrika Lomas, Tax-News.com, Brussels

26 January 2012

Hoping to avoid an electoral defeat in the forthcoming presidential elections, French President Nicolas Sarkozy intends to unveil concrete details of proposed fiscal measures designed to stimulate the country’s economy on January 29.

The French President will outline his plans for reforming the funding of welfare in France, for improving the competitiveness of businesses in France, together with plans for a financial transactions tax.

Explaining that the measures will be specifically targeted to fight unemployment, and to address the issue of housing and competitiveness, Sarkozy underscored that the initiatives would be applied immediately, with the exception of provisions pertaining to professional training.

Among the key measures currently envisaged by the President are plans for the introduction of a social value-added tax (VAT) in France (une TVA sociale) to fund welfare. A planned, albeit limited, rise in the 19.6% standard VAT rate would serve to finance a reduction in employers’ social contributions, Sarkozy maintains.

According to Sarkozy, a VAT increase, which could be introduced in France ahead of the presidential elections in April, will generate revenue to cut labour costs, thus boosting the attractiveness of the nation’s tax regime for businesses.

President Sarkozy has also denounced plans unveiled recently by his Socialist rival for the Elysée, François Hollande, as an unrivalled attack on the middle class in France.

During a recent campaign rally at Le Bourget, Hollande announced plans to raise taxes on the rich, namely by creating a new income tax rate of 45% imposed on income in excess of EUR150,000 (USD194,000). Such a measure is expected to affect around 60,000 households in France and to generate approximately EUR400m for the state.

Provoking outrage from the current President, Holland also unveiled plans recently to abolish the independent authority currently responsible for the protection of rights on the Internet in France (Hadopi), and replacing the body with a law providing for a tax on or contribution from stakeholders in the digital economy to fund artistic creation.

According to Hollande, the proposed system would serve to support artists in France, by promoting legal Internet offers, and by ensuring that Internet stakeholders contribute.

Defending his proposal, Hollande underscored that the country’s current anti-piracy or Hadopi law has, since the outset, been the subject of controversy, confrontation and opposition. Hollande stressed the importance of striking a balance between the protection of copyright, and providing opportunities for individuals to access culture via Internet platforms.

Under Hollande’s outline proposal, Internet service providers (ISPs), equipment manufacturers and Internet users would be required to contribute. If successful in his election campaign, Hollande aims to draw up proposals for a concrete new law in collaboration with industry stakeholders.

In stark contrast, President Sarkozy envisages a new law, currently dubbed “Hadopi 3”, to extend the fight against Interntet piracy to online streaming.

In accordance with Hadopi's “three strikes” graduated response process, designed to bring about a change in consumer behaviour, and to encourage the development of legal online services, warning emails are initially dispatched to Internet users caught illegally downloading works protected by copyright, including films or songs.

If Internet users who have already received a warning email once again come under the radar of TMG, the company mandated with supervising peer-to-peer networks on behalf of rights holders, they are then sent a registered letter in addition to a further email.

The issuing of the letter signals the beginning of the penal phase as it will be included in the individual’s judiciary file in cases where the Internet user is summoned before a judge (third and final phase of the process).

Punishment includes a fine of EUR1,500 and the suspension of the individual's Internet account for a period of up to a month.

France’s anti-piracy law, which established Hadopi, entered into effect on January 1, 2010.

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