France cleared to impose controversial 'millionaire tax'

PARIS Mon Dec 30, 2013 12:02am IST

France's President Francois Hollande addresses a news conference during a European Union leaders summit in Brussels December 20, 2013. REUTERS/Laurent Dubrule

France's President Francois Hollande addresses a news conference during a European Union leaders summit in Brussels December 20, 2013.

Credit: Reuters/Laurent Dubrule

PARIS (Reuters) - France's Constitutional Council gave the green light on Sunday to the government's controversial 'millionaire tax', to be levied on companies that pay salaries of more than 1 million euros ($1.38 million) a year.

The measure, introduced in line with a pledge by President Francois Hollande to make the rich do more to pull France out of crisis, has infuriated business leaders and soccer clubs, which at one point threatened to go on strike.

It was originally designed as a 75 percent tax to be paid by high earners on the portion of annual income exceeding 1 million euros, but the council rejected it last year, saying it was unfair. France's top administrative court later said that 66 percent was the legal maximum for individuals.

The Socialist government has since reworked the tax to levy it on companies instead, raising the ire of entrepreneurs.

Under its new design, which the council found constitutional, the tax will be a 50 percent levy on the portion of wages above 1 million euros in 2013 and 2014.

Including social contributions, the rate will effectively remain about 75 percent, though the tax will be capped at 5 percent of a company's turnover.

The tax is expected to affect about 470 companies and a dozen soccer clubs, and is forecast to raise approximately 210 million euros a year.

The Constitutional Council, a court comprising judges and former French presidents, has the power to annul laws if they are deemed to violate the constitution.

ANTI-BUSINESS

Tax increases designed to reduce France's budget deficit have fuelled rising discontent in the country, with recent polls giving Hollande the lowest approval rating of any French president on record.

His 2012 supertax election pledge infuriated high earners in France and prompted actor Gerard Depardieu to flee the country. It has also alienated entrepreneurs and foreign investors, who have accused Hollande of being anti-business.

Hollande has said that the wealthy should contribute more to help to repair the country's finances, arguing that the supertax should also encourage companies to curb excessive executive pay.

In Sunday's ruling, the Constitutional Council rejected planned wealth tax measures that it said imposed levies on potential gains - such as those on life insurance policies - and thus risked overestimating a taxpayer's actual resources.

It also quashed several measures designed to crack down on tax avoidance schemes through which individuals and companies use legal loopholes to minimize their tax bills.

One of the proposed measures required consultants and firms offering tax planning services to disclose such schemes before marketing them. The council found the provision was too vague and ran counter to freedom of entrepreneurship. ($1 = 0.7258 euros)

(Additional reporting by Yann Le Guernigou; Editing by Mark Trevelyan and David Goodman)

Monetary Policy Committee

Reuters Showcase

Microfinance

Microfinance

Funding the unfunded: India helps small business borrow to grow  Full Article 

Insurance Sector

Insurance Sector

UK healthcare firm Bupa sees strong growth in India  Full Article 

Sensex Rises

Sensex Rises

Sensex edges up; consumer and healthcare stocks rise  Full Article 

Market Eye

Market Eye

FTSE adds nine Indian firms as large-caps in Asia-Pacific ex-Japan index   Full Article 

Indian Ocean Diplomacy

Indian Ocean Diplomacy

PM Modi to ramp up help for Indian Ocean nations to counter China influence  Full Article 

ECB Bond-Buying

ECB Bond-Buying

ECB raises growth forecasts, to start printing money next week  Full Article 

China Economy

China Economy

China signals "new normal" with lower annual growth target  Full Article 

Pharma Sector

Pharma Sector

Panel recommends waiving late-stage trials for some drugs  Full Article 

E-commerce

E-commerce

China backs e-commerce expansion in win for Alibaba, JD.com  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage