During the annual budget discussions end-October, the National Assembly, the lower house of the French parliament, considered two proposals that would have fundamentally reshaped France’s tax system for multinational enterprises (MNEs) and for ultra-high-net-worth individuals. The debates provided a unique snapshot of the political divisions in France when it comes to international tax policy. A first proposal revolved around local profits of MNEs established in France. A second one, a.k.a. “Zucman tax”, consisted in a top up tax on individuals owning over EUR100m in assets and whose total taxation does not reach the equivalent of 2% of their assets held.
The proposal to shift MNE taxation from the OECD standard “arm’s length” principle to the unitary taxation system would fill in a tax gap of EUR20-30bn per year and would address the unequal tax treatment between MNEs and SMEs in France, according to left-wing MPs. The government and right-wing MPs strongly opposed to proposal, pointed to legal obstacles and economic pitfalls. Finance Minister Roland Lescure led the charge, branding the amendment a “middle finger” to the 125 countries with which France has tax treaties based on the OECD standards.
The session on the Zucman tax was framed by left-wing MPs as a much-needed step towards tax justice and social cohesion. While median households pay over 5% of their wealth in taxes, they argued, billionaires often pay far less through tax planning, with the risk of creating an “oligarchy” that would betray “republican ideals”. They saw it as an essential, outcome-oriented tool to combat “armies of tax lawyers” and decades of policies favouring the ultra-rich.
The government and right-wing MPs, by opposition, branded the Zucman tax as “confiscatory”, and hence unconstitutional. The tax, they believe, would trigger a catastrophic flight of capital and investors, “disgust the France that works” and technically fail by taxing “illiquid wealth”, including startups and tech businesses. The Minister of the Budget predicted the Constitutional Council would not let it pass.
Looking back at the two parliamentary sessions and the media coverage surrounding them, three problematic framings did not help ensure an informed and balanced debate:
- Both proposals were most often portrayed as additional taxation rather than a redress of the under-taxation of billionaires and MNEs.
- A false distinction was created between “productive” and “unproductive” assets, suggesting that taxing business-linked income or assets (“appareil productif”, “biens professionnels”) should be avoided at all costs.
- Tax justice principles were buried under debates about the alleged overall tax burden of France, which was repeatedly cited as one of the world’s heaviest, despite controversies over such kind of comparison.
The legal uncertainty of the proposals was a central argument for opponents. The case of the MNE taxation was a potent one. The legal case against the Zucman tax was far weaker. Ironically, the more legally fragile proposal on MNE taxation passed the lower house, while the more robust Zucman tax was rejected.
Both law proposals probably will not survive the budgetary process under the current government coalition, yet the issues are unlikely to fade away. France is clearly “outperforming” worldwide by the success of its billionaires and millionaires. While France is ranked seventh world-wide in terms of GDP size, it is third by the number of millionaires, and fourth by the wealth of its billionaires. At the same time, France ranks among the most affected countries by the tax revenue lost due to tax evasion and tax avoidance practices.
Speaking of tax justice, France happens to have one of the most regressive tax policy mix of all OECD countries, meaning that tax revenues disproportionately rely on French labour and French domestic consumption, by opposition to taxation on personal income, profits and capital gains. The comparison with the OECD average and neighbouring countries is staggering.