A Capital Flight
- Iconic French actor-director Gerard Depardieu (right) moved to Russia, where he was granted citizenship by Vladimir Putin.
- Louis Vuitton chairman and France’s richest man, Bernard Arnault, left Paris for Belgium. His applications for citizenship have been unsuccessful thus far.
- Electronic music composer Jean Michel Jarre is among several French emigres to London.
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.
For many in France, the tax law raises questions on the way the govt and society has handled the economy post World War II.
While no one disputes the logic that those earning the highest should also pay the most taxes—and even more so in times of crisis, says Pierre Jean Bonnat, a Paris-based business consultant, the tax rates cannot be simply pulled out of thin air to confiscate income. Bonnat, like many other French citizens, believes Hollande made the promise in the midst of a presidential debate to merely destabilise his opponent Nicholas Sarkozy and that the proposal had not been thought through. When Hollande reaffirmed his intent to carry it through after his victory, it spread panic among France’s super-rich. For many, the trigger wasn’t simply the tax, but Hollande’s phrase, “I don’t like the rich.”
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
- Analjit Singh 99.7
- Asim Ghosh 75.4
- Andrani Patnaik 75
- Ashish Dhawan 55
- K.S. Ahluwalia 46
- Mahesh Garodia 39.3
- G. Raja 30.5
- Radha S. Timblo 30.8
- Vikram Akula 14.2
Mumbai’s top income-tax payers up to March 2012, based on advance tax payouts
- Dr K.H. Garda 28
- Akshay Kumar Bhatia 20
- Taiyab Junas Khatri 16.10
- Manna B. Agarwal 15
- Sachin R. Tendulkar 11
- Mahendra Prasad 10.3
- Nanu Noratram Gupta 9.1
- Rajeev Gupta 9.1
- Sanjeev Vadilal Shah 8.65
- Rajeev Vadilal Shah 8.34
- Ranbir Rishi Kapoor 8.15
- Katrina Kaif 7.40
- Zia Jaydev Mody 7.25
- Aamir Hussain Khan 7
- Amitabh Bachchan 6.7
- Hrithik Rakesh Nagrath 5.6
- Kareena Kapoor 5.6
- Saif Pataudi 5.5
Tax-free dividend income of India’s top promoters
- Azim H. Premji 1,345.1
- Mukesh Ambani 1,240.7
- Rahul Bajaj 917.4
- Anil Agarwal 790.2
- Keshub Mahindra 312.2
- Shiv Nadar 304.9
- Gautam S. Adani 304
- Narendra K. Patni 291.7
- Dilip S. Shanghvi 268.4
All figures in Rs crore; Source: ET & Outlook