French Assembly Votes to Hike Financial Transactions Tax

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By Rick Mitchell

Oct. 27 — French business groups are lamenting a National Assembly vote to increase the financial transactions tax and reinstate a tax on free shares, warning the measures could hurt the economy.

During Assembly debate before the Oct. 25 vote, the Socialist-led government failed to convince members of its own party to halt an amendment that would increase France’s financial transactions tax on intra-day trades to 0.3 percent from the current rate of 0.2, and extend its base to the acquiring party’s account, starting Jan. 1, 2017.

The approval prompted the French bankers group, Federation Bancaire Francaise, to comment via Twitter that the increase “hurts Paris’s ability to attract big investors.” In particular, the FBF said it would hurt the city’s ability to attract London-based institutions looking for new EU headquarters as a result of the U.K.'s vote to leave the European Union.

Oxfam France hailed the change, predicting it could raise 2 billion ($2.17 billion) to 4 billion euros more to finance development.

The bill also calls for voiding a tax cut for stock-based compensation for key staff, or so-called free shares, that was included in the government’s recent Macron economic reform bill. The bill states that those shares will be treated as income and taxed accordingly. Business federation MEDEF tweeted that the change will hurt employees.

Proposed Corporate Rate Cuts Survive

The amended draft budget bill, approved on first reading Oct. 25, also would extend a 15 percent reduced corporate rate that was originally proposed to apply only to the very smallest companies beginning in 2017. Starting in 2019, the 15 percent rate also would apply to companies with sales under 50 million euros ($54.6 million) starting in 2019. The assembly also approved a proposed cut that would reduce the current 33.33 percent rate to about 28 percent for larger companies that would become effective in 2020.

The government was able to fight off a push by its own party members to eliminate the rate cut for big companies to pay for more tax reductions for small and medium-size companies.

Video Ad Tax Nixed

The Assembly rejected an amendment that would have created a 2 percent tax on advertising and other revenue of online video sites like YouTube and Daily Motion, and media streaming sites such as NetFlix Inc.

The government’s budget proposed raising taxes on diesel to align them with taxes on gasoline within two years. But the National Assembly voted to stretch that increase out over five years.

Next Steps

The Assembly’s party-line vote adopting the amended budget bill was 285 to 242, with 24 abstaining. The text now goes to the opposition-controlled Senate, where it faces more debate and amendments. Both houses must also consider a second half of the budget bill that addresses spending measures, and then they must vote on the full budget, comprising both halves.

MEDEF noted that Socialists could get many more chances to eliminate the tax cut for big companies, or raise their taxes, before 2020.

The French Constitution sets out an accelerated political process for implementing annual budgets, allowing 70 days from the date the government issues its draft bill for Parliament to approve a budget. If necessary, a compromise committee is formed with members of both houses, to try to resolve conflicts. The Assembly is Parliaments lower house but the Constitution gives it final say over the Senate if the two houses cannot agree. It also gives the government authority to implement measures by decree if Parliament fails to meet the 70-day deadline.

National laws, decrees and other legal acts take effect when published in the Journal Officiel, the official gazette.

To contact the reporter on this story: Rick Mitchell in Paris at correspondents@bna.com

To contact the editor on this story: Rita McWilliams in Washington at rmcwilliams@bna.com

For More Information

Text of the bill that the National Assembly adopted, in French, is at http://www.assemblee-nationale.fr/14/ta-pdf/4061-6.pdf.

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