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French Finance Commission Ratifies Change To Controversial Tax Shield

by Ulrika Lomas, Tax-News.com, Brussels

23 October 2008


The finance commission of the French National Assembly, prompted by proposals from its president Didier Migaud, has ratified a change to the 2009 budget, which imposes new limits on the government’s much trumpeted “bouclier fiscal”, or tax shield.

The tax shield, extolled by French President Nicolas Sarkozy, and indeed emblematic of his era, aims to protect taxpayers and prevent them from paying more than 50% of their income in tax.

Yet the tax shield has proven highly controversial from the very start, and has been relentlessly and vehemently criticised by the left-wing opposition since its adoption in 2006.

Migaud has openly denounced what he considers to be the “anomaly” of the tax measure, arguing that the tax shield was not directly applied to actual earnings but instead to income that had already been subject to numerous tax deductions. This loophole, according to Migaud, enabled certain taxpayers to reduce their taxable income without bounds and, in some cases, exonerated them completely from tax.

Previously individuals could make deductions to their taxable income for renovation works undertaken in a safeguarded sector or on monuments of historical value, and also on certain rental income. Such deductions have now been limited in value, and are henceforth capped at EUR10,700.

This controversial decision marks a setback for the government, which has justified the tax shield as a fair tax measure, citing the need to encourage workers to return to live in France.


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