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French Households Pay For Local Business Tax Reform

by Ulrika Lomas,, Brussels

13 November 2012

The reform of local business tax (la taxe professionnelle – TP) in France has proven disastrous, as it has not only led to a shift in the fiscal burden from companies to households, but as it has also created a widening disparity of wealth among local authorities, according to the association of mayors in France (AMF).

Citing key findings from a government report, the AMF highlighted the negative effect of local business tax reform on local authorities, notably as regards the “massive transfer” in the fiscal burden onto households.

According to the AMF, the abolition of local business tax reduced the burden on corporations by around EUR7.4bn (USD9.4bn) in 2010, benefiting primarily small- and medium-sized companies in France as well as the country’s industrial sector.

However, the reform merely transferred the burden of taxation onto households, the AMF said, noting that in 2011, individuals paid a massive 77% of local tax compared with just 59% in 2009.

Alluding to the fact that local authorities in France were able to modulate the TP, the association explained that the local finance committee (CFL) has now entered into talks with the government aimed at increasing local authority fiscal autonomy by allowing local authorities to determine the rates of a greater number of taxes.

The former French government abolished local business tax within the framework of the 2010 finance law, arguing that the tax was unjust, harmful to growth and employment and a key factor in company relocations.

The controversial levy was replaced with a new economic contribution for businesses comprising a land tax levied on companies (la cotisation foncière des entreprises – CFE) and a new levy on the value added by a company (la cotisation sur la valeur ajoutée des entreprises – CVAE).

The government’s report on the reform of local business tax has now been presented to the French National Assembly.

TAGS: individuals | tax | business | property tax | law | real-estate | France | tax reform

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