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France May Ease Proposed 75% Income Tax

by Ulrika Lomas, Tax-News.com, Brussels

11 September 2012


Determined to ensure that the measure does not lead to a massive exodus of top executives, the French government reportedly now plans to soften conditions for its 75% tax on top earners, although the final decisions have not as yet been made.

Emblematic of French President François Hollande’s presidential election campaign back in April, the shock pledge to impose a 75% tax on annual income in excess of EUR1m (USD1.28m) is gradually taking shape. Some members of the Socialist party are already referring to a betrayal and to a government climb down, however.

Reports indicate that the 75% tax will only apply to income from work. Income derived from capital, notably from the sale of shares, property, dividends and interest, would then be exempt from the levy. If this is indeed the case, it would be a huge relief for entrepreneurs in France, as it would mean that capital gains from the sale of a company would not be subject to the tax.

To ensure that the tax does not dissuade risk taking and hinder either creative or economic activities, the exceptional income of artists and sportsmen will also be exempt from the tax, according to reports.

Further softening the blow, and to ensure that the tax is not confiscatory in the eyes of the Constitutional Court, it is said that the 75% tax will not now take the form of an additional income tax rate (IR), but will instead be introduced as a surtax.

It is said that the tax will be imposed on individuals with annual income in excess of EUR1m, and on couples or a family with household income in excess of EUR2m a year, although no tax breaks would be accorded for children.

Consequently, it is believed that the controversial levy will only target a very small part of the population in France, around 1,000 households, predominantly top executives. It is also currently expected that the measure will remain in place for two years.

Refuting the claims, however, French Finance Minister Pierre Moscovici has insisted that President Hollande’s pledge to create a 75% tax on income in excess of EUR1m a year made before his election will be “strictly respected”, underscoring that any other interpretation is simply non-founded.

All will be revealed shortly. The government is due to unveil details of the 2013 finance bill to the council of ministers at the end of September.

TAGS: individuals | tax | artists | entrepreneurs | sportsmen | tax rates | France | tax breaks | individual income tax

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