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Fitch Comments On French Life Insurance Tax Changes

by Ulrika Lomas,, Brussels

18 September 2017

French government plans for a flat tax rate on withdrawals from life assurance contracts over EUR150,000 (USD179,000) are "a marginal negative" for the French life sector, according to Fitch Ratings.

With favorable tax treatment of withdrawals from life assurance plans set to end under the Government's proposals, Fitch said in a press release on September 14 that some customers may as a result be deterred from taking out such contracts in future.

In France, withdrawals after eight years from a life assurance contract are usually taxed at 23 percent on their investment return component. For contracts exceeding EUR150,000, this rate is set to be increased to 30 percent, starting in 2018, under tax reform proposals being presented in the finance bill on September 27. At the same time, the tax rates of 50.5 percent for withdrawals from these contracts in years 1-4 and 30.5 percent in years 4-8 will be cut to a flat rate of 30 percent.

However, Fitch expects that the move will not have a major impact on France's life savings sector because there are relatively few existing contracts exceeding the EUR150,000 threshold, which account for three to four percent of the market.

"We estimate these may represent up to 15 percent of volume but the fall in business should be much less than this, given the lack of readily accessible alternatives with favorable tax treatment outside the life sector. This is in contrast to the situation in the Netherlands around 10 years ago when the life savings market declined sharply as a consequence of tax changes allowing banks to compete on equal terms with insurers," the ratings agency said.

Fitch added that the tax treatment of withdrawals under the EUR150,000 threshold, which represents the "vast majority" of the market, will be unaffected. Life assurance will also retain its tax advantages for estate planning, it noted.

However, the ratings firm suggested that customers' confidence in the stability of the favorable tax framework for life assurance "may be damaged by the proposals, even though they only affect contracts over EUR150,000."

TAGS: tax | investment | business | Netherlands | insurance | insurance tax | tax rates | France | tax reform

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