French Businesses Want Reboot on Withholding-at-Source Plan

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By Rick Mitchell

French business groups called for “completely rethinking” a planned withholding-at-source system for which the new government has announced a one-year postponement, keeping a promise that President Emanuel Macron made during his campaign.

The plan will now take effect Jan. 1, 2019, instead of in 2018, the country’s minister of public action and accounts, Gerald Darmanin, said in a June 7 statement.

When the government unveiled the plan in August 2017 under then-President Francois Hollande, it said it would modernize France’s tax collection, which it said creates difficulties for certain taxpayers because of a year-long time lag between when income is earned and when it’s taxed. But business groups protested that the plan to require withholding for taxpayers’ earned income starting Jan. 1, 2018, didn’t allow enough time, and would be especially burdensome for small and medium-sized enterprises.

France’s federation of business associations (MEDEF) said in a statement that Macron’s decision to postpone the system “goes in the right direction,” but the delay should be just a “first step to completely rethink the plan.”

Darmanin said the delay will allow for an audit “examining the technical and operational robustness of the system and to evaluate the reality of the burden caused for collectors, particularly companies.” It will also allow for testing, he said.

Taxing Income as It’s Earned

The government said that the withholding plan will use the same IT system underlying France’s new “declaration sociale nominative” system that lets companies electronically transmit payroll data via their payroll software programs or through their third-party payroll providers or certified accountants. Darmanin said the system will be “progress for French workers,” because it will allow adapting to a person’s job changes and life events in real time.

In particular, the IT system will allow for taxing income as soon as it’s earned. However, he said the delay will allow for considering business concerns more thoroughly.

Darmanin said the government’s audit will be conducted by a team from the General Finance Inspectorate and an independent team. Testing of the system under “real conditions” will begin in early July with voluntary participants. He said he will also be consulting business, public employers, labor unions, and software publishers, as well as government experts who worked on the system.

MEDEF said that when its representatives recently met with Macron, getting the withholding system delayed was one of its biggest priorities, to avoid “a potential economic and organizational disaster” linked to a costly, time-consuming system.

If it is necessary to collect tax in real time, rather than with a one-year delay as done currently, the government should find a way to do it without forcing SMEs to be collectors, it said.

MEDEF said the government’s digitalization of income tax declarations and payments makes it possible for the tax authority to instead implement a system to directly collect taxes on a monthly basis from individuals, a system that would not require companies’ participation.

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

To contact the editor responsible for this story: Molly Moses at mmoses@bna.com

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