Friday, May 13, 2011
During a recent council of ministers meeting, French Budget Minister François Baroin presented the country’s 2011 supplementary finance bill, providing for the profound reform of the taxation of wealth in France.
Defending the measures contained in the bill, the government emphasizes in its release that the aim of the reform is to ensure that the taxation of wealth is fairer, simpler and more economically pertinent. Indeed, the government argues that the existing solidarity tax on wealth (l’impôt de solidarité sur la fortune – ISF), which is often considered a French anomaly, merely serves to lessen the attractiveness of France.
The government’s proposed reform aims to abolish the highly controversial and untenable tax shield mechanism, limiting direct taxes in France to 50% of income, and to simplify ISF and to adapt the tax to current economic realities.
Under the proposals, from 2012 the ISF tax on wealth will in future comprise of only two tax brackets: 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. Existing rates currently vary between 0.55% and 1.8% and the entry threshold at which wealth tax is currently applied is EUR800,000.
Eager to highlight the fact that cost of the proposed reform is to be financed to the nearest euro, the government specifies in its release that the reform is to be financed by a greater taxation of donations and very large inheritances and by the introduction of a tax imposed on the secondary residences of non-residents, by way of a contribution to national public services from which they benefit. The government has also outlined measures designed to combat international tax evasion, notably an “exit tax” and the taxation of trusts.
Determined to assure the electorate that the reform does not merely constitute a gift to France’s wealthiest, the government made known during the ministerial meeting that it is currently considering the idea of introducing a specific tax on top earners and on banking bonuses, which could be included in the 2012 finance bill.