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France To Undo Sarkozy's Wealth Tax Reform

by Ulrika Lomas,, Brussels

20 September 2012

Despite having originally planned major wealth tax reforms, the French government is now resigned to the idea of merely re-establishing the previous wealth tax scale of between 0.55% and 1.8%, and to introducing a fiscal cap of 80% of income to accompany the measure.

It is said that the EUR1.3m (USD1.69m) entry threshold for application of the country’s solidarity tax on wealth (ISF) will also be maintained under the plans.

The government is therefore planning to restore the ISF tax to the scale that was applied prior to former French President Nicolas Sarkozy’s 2011 reform. Prior to the reform last year, the tax scale comprised six tax rates varying between 0.55% and 1.8%. This compares with the current simplified ISF tax of 0.25% imposed on assets of between EUR1.3m and EUR3m and 0.5% on assets in excess of EUR3m. The government forecasts additional fiscal revenues from the measure of around EUR1.3bn.

Given the constraints that it has been working under, the government aims to re-establish a cap of 80% of income, to ensure that taxpayers do not pay more than 80% of their income in ISF, income tax or social contributions.

The Constitutional Court had warned the government at the beginning of August that any plans to restore the former ISF tax scale would have to be accompanied by a cap mechanism to ensure that the tax is not confiscatory.

The economy ministry has also reportedly renounced plans to target existing ISF tax breaks (niches fiscales). The ISF tax shelter benefiting small- and medium-sized companies in France (ISF-PME), which the government had planned to halve within the framework of the reform, will be maintained in its current form.

TAGS: Wealth | tax | investment | tax rates | France | tax breaks

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