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French Report Highlights 'Falsified' 2012 Tax Shield Costs

by Ulrika Lomas, Tax-News.com, Brussels

12 December 2012


General rapporteur Christian Eckert has recently presented details of the French National Assembly finance committee’s report on France’s 2012 supplementary finance bill, highlighting the fact that the tax shield mechanism (le bouclier fiscal) is expected to cost almost EUR300m (USD389m) more this year than initially forecast by the former French government under Nicolas Sarkozy.

Eckert explained that the estimated cost of the tax shield in 2012 has been revised upwards from EUR162m to EUR450m.

According to Eckert, the re-evaluation of the tax shield costs leads two conclusions to be drawn. Firstly, that the former French government’s 2011 reform of wealth tax (ISF) was partially financed by debt, despite claims to the contrary that the cost of the reform was entirely neutral. Secondly, that this "particularly surprising" under-estimation appears to prove that the former government "deliberately" distorted the initial spending forecast figures to conceal the financial imbalance of the ISF reform in spring 2011.

France’s controversial tax shield mechanism, limiting direct taxation to 50% of income, was finally abolished in July 2011, within the framework of a supplementary finance bill providing for the reform of the taxation of wealth.

The ISF reform increased the threshold for application of the wealth tax from EUR800,000 to EUR1.3m and provided for a reduction in the number of tax rates to two: a 0.25% tax rate imposed on individuals with net taxable wealth in excess of EUR1.3m and a 0.5% tax rate levied on individuals with net taxable assets above EUR3m.

At the time, former French Budget Minister François Baroin emphasized that there had not been a fiscal reform of this scale in France for over 20 years.

TAGS: individuals | Wealth | tax | France

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