French President Hollande’s 75% Tax on Rich – Will Investors Bid Au-revoir?


FranceFrance went to the polls on Sunday, a poll which resulted in the dumping of the incumbant Nicolas Sarkozy for a new left-wing Frech president, Francois Hollande. This election paves the way for Francois Hollande’s Socialists party to introduce a new approach in handling the harsh austerity measures being enforced by EU leaders, an area where former-president Sarkozy was seen to be overly submissive. As with most country leadership changes, it is likely to bring a different approach in economic policies aimed at combating the EU’s financial crisis and bringing growth for France.

One particular campaign promise, which the President elect had made, is drawing widespread attention across financial circles: a new 75% tax on top earners (annual income of Euros 1m+ euros (approximately USD$1.3m). But rather than benefitting France, could this put off potential investors and high income professionals from wanting to live and work in France? There is the potential that this could lead to an exodus of talented working professionals and business owners to other tax-friendly countries. The BBC has coverage of the election and the new parties policies.

An article by the Guardian has shed some light on how efforts to fight tax evasion are progressing. It provides an update of the offshore banking sector, after numerous bilateral tax treaties that countries signed with offshore centres in the last couple of years. Contrary to most expectations, the OECD’s bid to control monetary flow to tax havens may not have succeeded, as data from the Bank of International Settlements (BIS) show that offshore tax centres held USD$2.7 trillion (£1.7 trillion) in 2011, similar to the numbers in 2007, however it illustrates that growth has been halted.

Some experts believe this is due to weakly worded tax treaties between jurisdictions that only allow authorities to scrutinise accounts when sufficient evidence of tax evasion is presented. This is understandable as the majority of entrepreneurs & investors who use offshore banking do use legitimate strategies with low-tax jurisdictions as part of their investments and banking operations.

Furthermore, data shows that deposits are simply shifting from one offshore centre that is more compliant to tax treaties to others that are less compliant. Bank deposits in Jersey fell USD$110 billion over four years, as the island signed 15 tax treaties with other countries, while Cyprus, which signed only two tax-treaties to meet OECD criteria, saw a rise of 60%. This shows that offshore bank accounts and offshore companies are still popular and viable options for corporate bodies to keep their financial assets.

Over in the US, President Obama is planning to introduce a new five-point “to do” list for lawmakers that entails job creation and business cost-saving ideas to turn around the country’s dwindling employment rate. A business tax cut that provides a 20% credit for companies who move operations back to the United States is an attractive lure; as well as a 10% income tax credit to SME’s that increase their employee head count.

This shows that setting up a company in the United States could provide business owners and entrepreneurs with attractive tax breaks that can lower the overall costs of their business operations.

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