French Election – Its Impact On Tax Policy

Given the upcoming presidential French elections, we have listed major tax and economic policy measures that could have an impact on businesses.

Emmanuel Macron’s proposals

Macron’s plan to cut corporate tax

Macron’s major proposal relative to tax policy is to cut corporate tax (Impôt sur les sociétés) rates gradually from the current 33,3% to 25%.

This substantial reduction would lower the level of corporate tax to the European average which currently stands at 25%.

This cut would be more significant than the one voted in the last Finance Act (Loi de finances 2017) that aimed at reducing the corporate tax rates to 28% by 2020.

For the moment, Emmanuel Macron has not announced his intentions regarding the existing reduced rate at 15% or what would happen for companies that pay an additional contribution.  

If the cut is supposed to occur “gradually”, no timetable has been fixed for the moment.

International context

The average rate of corporate tax in OECD countries has dropped from 38% in 1993 to 25%.

The tax rate on company profits is of significant importance for the choice of location of an investment, especially within the Euro area.

Many European countries have lowered their corporate tax rates. France has taxed fewer profits than Germany or Italy until 2007. Germany has lowered its nominal maximum corporate tax rate (taux nominal maximal d’IS) by 22% since 2000 and Italy by 10%.

The countries with the highest corporate tax rates in relation to their GDP are not countries with the highest rates, but countries with particularly low ones.

Donald Trump announced on the 25th of April that he wants to sharply reduce the tax rate for all businesses to 15% in the “biggest tax cut” in U.S history.

Success in the current economic climate

Lowering the corporate tax rates is a good start. Other reforms could also be implemented such as preferring a low rate with a wider plate or strengthening tax harmonization in Europe.

Corporate tax only represents 4.6% of tax revenues and this cut can be successful if it is implemented within a larger plan.

Emmanuel Macron wishes to implement news measures concerning social charges for companies and France rigid labour laws:

  • Transforming the CICE by 2018 (Crédit d’impôt pour la compétitivité et l’emploi) into a permanent reduction of social costs to obtain a reduction of 6% for employer’s social costs for salaries representing 2,5 SMIC, or minimum wage, to make it easier to hire poorly skilled employees. 
  • Reducing by 4% the employer charges for salaries between 1 and 1,6 SMIC and to reach the “zero charge” for wages at the SMIC level. This could represent, for companies, a reduction of more than 1,800 euros per year and per employee paid the SMIC.
  • Creation of “Emplois francs” to encourage the hiring of inhabitants of priority neighborhoods. A company that would permanently hire a resident of one of these districts would benefit from a premium of 15,000 euros over 3 years (which would equate to zero charge on this job).
  • Delete, for their first year of existence, the costs of microenterprises and allow, every year, for all artisans and tradespeople to opt, or not, for the microenterprise’s tax system.
  • The R&D Tax Credit – which is one of the main incentives in France – will be maintained and will benefit to all companies.

Other measures

  • He has pledged to cut public spending by 60 billion euros a year and cut 120,000 public sector jobs.
  • He plans a 50 billion euros public investment program on green energy, training of tradesmen to reduce youth unemployment, transport, public sector administration and justice.
  • He wishes to put an end to fiscal instability.

Marine Le Pen’s proposals

Merging the CET and the Corporate Tax

Marine Le Pen wishes to merge the CET (Contribution Economique Territoriale) and the corporate tax.

Three different rates would then exist:

  • The reduced rate of 15% for VSEs (TPE) would be maintained
  • An intermediate rate of 24% for SMEs (PME) would be created instead of the 33,3% rate
  • The rate of 33.3% for large companies would be maintained

Creation of a new tax on profits made in France by big companies that manage to avoid to pay corporate tax

Marine Le Pen considers that big international companies do not pay their fair share in taxes but has not given any further details on this measure. This suspicion towards large groups is also the reason she wishes to maintain the corporate tax rate of 33,3% for these companies.

Besides these proposals, Marine Le Pen outlined a range of trade policies, described as “intelligent protectionism”, that included measures to promote French businesses while protecting them from foreign competitors.

Creation of a new tax on companies that hire foreign workers

The candidate wishes to apply national priority on employment through an additional tax on all new contracts for foreign employers to pay for “unemployment benefit”. It could account for up to 10% of the salary.

However, this proposal seems contrary to European law, which guarantees freedom of movement of persons within the European Union, and French constitutional law which guarantees equality before the law and taxation.

Implementing additional taxes on imports

A 3% tax on imports would finance a purchasing power premium of 1,000 euros per year that would be allocated to employees and retirees earning less than 1,500 euros.

Marine Le Pen believes that protectionist measures will keep industrial employment on the national territory while its detractors consider that this will lead to an increase in the price of imported products and a decrease purchasing power.

In its forecast published in November 2016, the OECD suggested that protectionism and inevitable trade retaliation would offset much of the effects of any tax initiative on domestic and global growth, raise prices, harm living standards, and leave countries in a worsened tax position.

Reducing social contributions

Marine Le Pen proposes a reduction of social contributions only for the VSE and SME.

Merging the CICE with the other devices for contribution reduction under the condition that employment is maintained.

This measure aims at reducing the social contributions paid by micro-enterprises and SMEs.

Public Contracts

Deny access to public contracts to companies that practice tax avoidance and refuse to regularize their situation.

Withholding Tax

Remove the tax at source (if it is implemented) to “protect the privacy of the French” and “avoid additional administrative complexity for companies”.

R&D Tax Credit

The recipients of the R&D Tax Credit would be limited to VSE and SME.

Points of agreement between the two candidates

  • The two candidates propose to restore the exemptions on social contributions for overtime hours
  • Neither of the candidates intends to modify the VAT rates
Thomas Perrin

Thomas Perrin, Avocat Associé, est spécialisé en fiscalité internationale et a pris part à de nombreuses missions impliquant des groupes multinationaux tant français qu’étrangers. Après avoir créé en 2004, puis […]