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French Deputies Approve 2013 Tax Barrage

by Ulrika Lomas, Tax-News.com, Brussels

26 October 2012


The French National Assembly has recently adopted by 319 votes to 223 the first part of the government’s 2013 finance bill concerning revenues, providing for EUR10bn (USD12.9bn) in expenditure savings, for EUR10bn in additional taxes on large corporations in France, and for a EUR10bn contribution from households, notably the country’s most wealthy.

The Socialist Party, the radical left and the ecology party voted in favour of the “courageous” text, while the opposition Union for a Popular Movement (UMP) party and the centre UDI group voted against, denouncing the barrage of taxes.

The 2013 finance bill provides notably for an exceptional 75% contribution to be imposed on income in excess of EUR1m per beneficiary. Defending the provision, French Budget Minister Jérôme Cahuzac insisted that the contribution is both “legitimate” and “not confiscatory”. The 75% tax, which is expected to affect 1,500 individuals in France, paying on average EUR140,000, is forecast to yield around EUR210m a year for the state.

Denouncing the exceptional solidarity contribution, Eric Woerth (UMP) warned that 75% is a “punitive rate”, and questioned the government’s motive for imposing such an enormous tax on such a small category of individuals, particularly given that the levy will yield very little in revenues and will undoubtedly result in relocations abroad.

The bill introduces a marginal income tax rate of 45% levied on income in excess of EUR150,000. Predicted to generate EUR320m a year, the provision is expected to concern around 65,000 households in France in 2013.

Although an effort will be demanded from all taxable households in France via the non-indexation of the individual income tax scale, the most modest households will benefit from a credit mechanism (décote) ensuring that those whose actual income has not increased, remain exempt from taxation.

Other key initiatives provided for in the text, include plans to align the taxation of income from capital with the taxation of income from work.

Bowing to mounting pressure from business leaders across France, the government revised its plans to subject all capital gains to the country’s income tax scale, announcing that entrepreneurs will continue to benefit from the 19% flat tax rate for the sale of a company.

To compensate for the resulting shortfall in revenues arising from the amendment, the government plans to extend for two years the exceptional 5% surtax on large corporations, a measure expected to yield EUR800m in fiscal revenues next year and EUR900m in 2014.

The bill aims to restore the yield derived from the solidarity tax on wealth (ISF), by overturning the 2011 ISF reform implemented by the previous government under former French President Nicolas Sarkozy. However, the threshold for application of the tax will be maintained at EUR1.3m and a cap on direct tax (income tax, wealth tax, and the general social contribution) will be introduced to ensure that the sum of tax due does not exceed 75% of income. Deputies voted in favour of plans to abolish the EUR300 ISF deduction accorded per child, while rejecting plans to subject works of art to ISF.

Initiating a shift towards ecological taxation, the bill extends the general tax on polluting activities to include five new polluting substances. The bill increases the rates and lowers the threshold for application of the levy. The tax levied on the most polluting vehicles is also increased.

France’s 2013 finance bill is intended to honour the government’s commitment to reducing the country’s public deficit to 3% of gross domestic product in 2013.

TAGS: individuals | capital gains tax (CGT) | environment | Wealth | tax | investment | business | entrepreneurs | corporation tax | environmental tax | tax rates | withholding tax | France | tax breaks | tax reform | individual income tax

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