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France’s Parliament definitively adopted a bill that forces large businesses and multinational groups to pay a one-off “contribution” to help cover a multi-billion euro budget gap stemming from an October ruling that voided a controversial tax on dividends.
The National Assembly Nov. 14 voted to pass a revised 2017 budget bill whose principal measure hits about 320 of France’s biggest groups with the “exceptional” contribution.
Romain Pichot, a Paris-based partner at the law firm Cazals Manzo Pichot AARPI, told Bloomberg Tax Nov. 15 the surtax is 15 percent on revenues. For groups with more than 1 billion euros in annual revenue ($1.18 billion), it raises corporate taxes from the standard 33.3 percent to 38.3 percent, and for groups with revenues over 3 billion euros, the rate jumps to 43.3 percent.
The Senate Nov. 13 rejected the bill, but in France, the National Assembly has the last word, so the text is passed. Nevertheless, with hundreds of big companies now facing a much bigger tax bill before Dec. 20, several groups of opposition lawmakers said they will file a challenge to the law at the Conseil d’Etat, the country’s top administrative court.
“This tax is a very bad signal for business” from the Macron government, Arnaud Delaunay, a spokesman for France’s biggest employer federation, MEDEF, told Bloomberg BNA Nov. 15 via telephone.
Several companies that have to pay the exceptional tax won’t get any reimbursement of the dividends tax. Pichot said the measure “confirms a cruel lack of visibility in French taxation,” but it seemed the ”least bad choice the government had to solve a difficult budget problem.”
The government said the tax will help offset the estimated 10 billion euro-plus ($11.8 billion) cost of an Oct. 6 ruling by the Constitutional Council. That ruling voided France’s controversial 3 percent corporate surtax on dividends after the European Court of Justice ruled in May that it violates EU law.
Released Sept. 27, the government’s draft 2018 budget eliminates the dividends tax as of Jan. 1, 2018, and provides 5.7 billion euros in reimbursements, spread out over five years, to companies that have paid the tax since 2012. The exceptional contribution will help defray about 5.4 billion euros in costs, raising 4.8 billion euros for 2017 and 600,000 million euros in 2018, according to the government.
President Emanuel Macron promised during his campaign to avoid tax measures that take companies by surprise. But his government has complained that he inherited the dividend tax problem when he took office in May, even though Macron was a deputy secretary-general for economy in then-President Francois Holland’s government when the dividends tax was implemented.
MEDEF president Pierre Gattaz told reporters at a Nov. 14 news conference that “the government had plenty of warnings that the dividends” would not get past the EU and French top courts, “but it ignored them all.” And he said the new exceptional “surtax” compounds the initial error of the dividends tax.
On Nov. 13, Economy Minister Bruno Le Maire presented the General Finance Inspectorate’s 72-page report aimed at identifying “lessons” from the dividends tax fiasco to avoid a similar problem in the future.
A 2012 revised budget law imposed the tax on dividends paid out by companies with sales of more than 250 million euros ($294.9 million) and subject to French corporate tax. Hollande said the idea was to give a strong incentive for businesses to invest in production and employment.
But the tax was immediately on shaky legal ground, and on Sept. 30, 2016, the Constitutional Council voided as unconstitutional its exemption for dividends paid when both parent company and any subsidiary are integrated under France’s tax unity regime, because it was limited to French companies.
Then, on May 17, the European Union Court of Justice found the tax violates the EU Parent-Subsidiary Directive of 2011. The council’s Oct. 6 ruling that voided the tax then put the government on the hook for billions in reimbursements.
Gattaz said the inspectorate’s report doesn’t identify the most obvious lesson, that the government failed to adequately consult business about the tax before it implemented it. “You have to listen to the people who are affected by the measures you put in place,” he said.
He said the Macron government is making the same mistake by planning to launch withholding at source in France beginning Jan. 1, 2019, despite strong objections by MEDEF and other business groups.
The Hollande government initially intended withholding-at-source to begin on Jan. 1, 2018, but the Macron government delayed it, it said, to consult with business and run pilot systems in the summer of 2017. On Nov. 15, the government said its second revised budget bill, which it presented in the Nov. 15 Council of Ministers, takes business recommendations into account and sets a Jan. 1, 2019, date for withholding at source to begin.
Gattaz said he continues to maintain that “business should not be the government’s tax collector.”
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