A Capital Flight
Third time’s the charm for Bernard Arnault? The chairman of luxury goods group Louis Vuitton Moet Hennessy—and France’s richest man—had decided to pack his bags move across the border to Belgium last year. Arnault has since had to face the ignominy of having his application to be naturalised as a Belgian citizen rejected not once, but twice, by that country’s government. But now, according to the latest reports in the Belgian media, the government is finally giving him the go-ahead.
Arnault is amongst several high-profile super-rich French citizens to have upped and left France after Francois Hollande’s victory in the presidential elections last year. The reason, of course, is Hollande’s decision to follow through on his electoral promise to tax the super-rich—individuals who earn
1 million euros or more a year—at the rate of 75 per cent. (It appears India is looking at some form of taxing the rich in its forthcoming Budget). Though the Conseil Constitutionnel, the highest body for the interpretation of France’s Constitution, has rejected the new law, terming it unconstitutional, Hollande and his government have promised to come back with a revised law.
According to Francois Mecheri, a lawyer specialising in fiscal matters, the Conseil Constitutionel had rejected the earlier version of the law as it did not take into account household income, which is the norm in France. “I was surprised that the drafters of the law at the Bercy (the French finance ministry) overlooked such a basic flaw in the law,” Mecheri told Outlook. The government, however, is resolute in its efforts to bring in the tax. “The law is not dead and done with. We will revise it and present it in Parliament as soon as possible,” the official spokesperson of Victorin Lurel, the minister of the Overseas French Territories, told Outlook in a telephonic conversation.
Hundreds of the approximately 15-20,000 super-rich French have decided to leave the country. According to the London office of Knight Frank, a real estate firm consultancy, since the beginning of 2012, the French had become the second largest buyers of prime properties in the British capital. It’s a similar situation in Belgium and Switzerland as the wealthy French hunted for safe, tax-light havens for themselves and their wealth. Marc Smoncini, an IT magnate and founder of online dating site Meetic, said he would relocate to Belgium. Among those who have fled France are entrepreneurs Jean Emile Rosenblum, Pierre Chappaz, and Loic LeMeur. Along with iconic French actor Gerard Depardieu, perhaps the most high-profile departee, is noted music composer Jean Michel Jarre who has decided to move to London.
Among the tax’s opponents is Jamy Tivoly, chairman of the supervisory board of Tivoly, the largest manufacturer of precision tools with units in Europe, US and China. “This 75 per cent tax is an act of frightening naivety and self-indulgence. Mon dieu! What an image it communicates of France! What is the tax gain in the short-term and loss of capital in the long term as investors flee the country and invest elsewhere?” Tivoly said.
The super-rich aside, even those who are fairly well to do in France also feel the heat often from taxes as the government desperately tries to keep its deficit down. Marc Seviran is a retired professional who has invested his savings in buying 10 apartments across various chic quarters of Paris. On paper, it makes him an extremely wealthy man, as each apartment is valued between 3,00,000 and 6,00,000 euros. Yet, with the taxes and social charges that his investments attract, Marc is left struggling to make ends meet. “I would have loved to be able to lead the lifestyle that someone in my position ought to. However, the French fiscal rules mean that I have to monitor my expenses closely. I would certainly encourage my two sons to look to build their lives elsewhere than here in France. I don’t want their wealth to be expropriated by the State in the same manner mine was,” he says.
For many French, super wealthy and otherwise, the new tax law also raises basic questions about the way the French government and society have been dealing with business and the economy over the six decades since the end of the Second World War. The high tax rates in France stem from the fact that the government is huge and omnipresent and, therefore, very expensive to maintain. At 56.1 per cent of the GDP in 2011, government spending in France is amongst the highest in the OECD countries and a good chunk of this goes toward paying the salaries and other benefits of government employees.
Having spent the entire poll campaign blaming Sarkozy’s policies for the crisis, Hollande’s team is now beginning to discover the reality. The solutions being proposed are the usual: creation of new committees to analyse reasons for the lack of French business competitiveness. Lately, a movement coordinated through the social media has been attacking Hollande’s economic policy. And the divisions in French society look likely to spread. Over a third of the French are employed by the government in its many avatars and they will not give up their privileges without a fight. And that’s the troubling truth.
Meanwhile In India, A Taxing Debate Before The Budget
Even if FM Chidambaram leaves the basic tax slabs untouched, there’s plenty that he can do. Like bringing dividend income, currently tax-free, into the net and imposing long-term capital gains on the sale of equity.
India’s top income-tax payers in 2010
Mumbai’s top income-tax payers up to March 2012, based on advance tax payouts
Tax-free dividend income of India’s top promoters
All figures in Rs crore; Source: ET & Outlook
Your story Noblesse Oblige? Non! (Feb 18) seems to suggest that in France all the rich have to pay 75 per cent tax on their income if they earn a million euros a year. In reality, though, the proposed tax is a marginal tax, the 75 per cent operative only above 1 million euros. I doubt the rich are bothered too much. I also cannot understand why the author has to bash the French situation highlighting the ‘high tax rates’, and then press for the Indian government to adopt the same.
These people are social and cultural French icons.
Is it not interesting that Honourable SHRI RAJAN RAHEJA, Billionaire, Industrialist, who has business interests from Batteries to ceramic tiles to Media to hotels is not any of these lists.. Hmm....
"Tax-free dividend income of India’s top promoters"
wow! Perhaps, there comes funding for the elections
I have always wondered what does France (and the French) really have? Is it really just old wealth since the colonial days that still funds their 1st world lifestyle. Can cheese, wine, perfumes, and tourism be enough to fund this 1st world lifestyle? Is it the "arms" industry?
Arun Maheswari >> I have always wondered what does France (and the French) really have? Is it really just old wealth since the colonial days that still funds their 1st world lifestyle?
France may be famous for its style, fashion, tourism and film festivals but this nation of 60 million is not going to be running on these frivilous things. The real strength of French economy are its huge MNCs - LOreal, Danone, Alsthom, Areva, Aventis - all MNC giants in traditional engineering/technological and pharmaceutical domains where French MNCs dominate because of first mover advantage and branding. The MNCs no doubt employ and operate globally but the base is France, the higher management is dominated by French and these MNCs support so many small businesses in France in so many ways which are not easy to fathom.
France puts a good outward appearance of a modern, developed, socialist welfare state republic with high standards of Human rights and equality but the reality is much more complex - The country's ruling elite do everything for their nation and the people but outsiders are exploited in many different ways . France's biggest success story is its nuclear power industry but that also means cutting unfair deals with former french colonies (Niger is a big supplier of uranium and needless to say the benefits of french tecnology and all dont reach to that poor black nation).
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