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French Parliament Waves Through Year End Collective Budget

by Ulrika Lomas,, Brussels

28 December 2011

The French National Assembly (lower house) has definitively adopted the end of year 2011 supplementary finance bill, containing a number of targeted tax rises. The bill had recently been rejected by the French Senate (upper house) during its last reading.

The fourth supplementary finance bill includes the fiscal measures announced by French Prime Minister François Fillon on November 7, amounting to around EUR5.2bn (USD7bn), and completes the measures contained in the country’s 2012 budget, providing for a public deficit of 4.5% in 2012.

The end of year bill provides crucially for an “exceptional” 5% increase in 2012 and 2013 in the corporation tax imposed on large companies in France realizing a turnover in excess of EUR250m, expected to yield around EUR1.1bn for the government.

The bill also provides for the creation of a second reduced rate of value-added tax (VAT) of 7% for certain goods and services, generating additional income for the state of approximately EUR1.8bn.

Given the exceptional circumstances, and in accordance with government plans, the income tax scale in France will be frozen at its current level in 2012 and 2013. The tax scale for the country’s solidarity tax on wealth (l’impôt de solidarité sur la fortune – ISF) together with reductions pertaining to inheritance and gift taxes, will also be frozen until the public deficit returns to below 3% of gross domestic product (GDP).

These measures are expected to yield around EUR3.4bn, of which EUR1.7bn will be raised next year.

Finally, the bill abolishes the 2% tax on overnight accommodation in luxury hotels in France, and significantly increases the withholding tax rate levied on income from capital from 19% to 24%.

Unveiled on November 7, the second wave of austerity measures were deemed necessary to enable the government to consolidate its fiscal path and to achieve its deficit reduction objectives, in the context of a slowdown in global growth.

The government currently expects the public deficit to return to 3% of GDP by 2013.

TAGS: tax | value added tax (VAT) | gross domestic product (GDP) | budget | corporation tax | withholding tax | gift tax | France | services

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