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French Senate Adopts Local Business Tax Reform

by Ulrika Lomas,, Brussels

09 December 2009

Following a series of key amendments, the French Senate has finally adopted the second part of the country’s local business tax reform, establishing the redistribution of tax revenue for local authorities from 2011.

The senate had already approved the first half of the reform, aiming to abolish local business tax in France from 2010, and to replace the tax with another economic contribution (une contribution économique territoriale – CET), comprising a land tax levied on companies (une cotisation locale d’activité – CLA) and a new levy on the value added by a company (une cotisation complémentaire – CC).

Details regarding the future allocation of resources for towns, departments and regions in France have also now been agreed, following much controversy and speculation, and three legislative review meetings planned – the first of which is due to take place at the end of June 2010.

Among key amendments to the original text, proposed by the Senate, is the decision to impose the value added contribution on companies realizing a turnover of more than EUR152,500 (previously EUR500,000). Companies with a turnover of between EUR152,500 and EUR500,000 will, however, be entitled to tax relief.

As a result of the latest amendment, the amount of revenue arising from the introduction of the new value added contribution will rise from an estimated EUR11.8bn to around EUR16bn.

Regarding the redistribution of resources, the senate has proposed that towns and municipalities (le “bloc communal”) will receive 26.5% of the value added contribution, and that they will also receive revenue arising from the land tax contribution.

At departmental and regional level, the contribution will be collected by a national fund, which will then redistribute resources according to certain criteria.

A national guarantee fund will also be established in order to guarantee resources for local authorities.

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