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Tuesday, September 11, 2012

The Hollande Tax and Emigration

Those pesky campaign promises.  During the 2012 French presidential elections François Hollande announced his intention to tax people earning over 1 million Euros a year at 75%.  Now that he's president, the pressure is on and his supporters want him to keep his word.

Hard times here.  Unemployment is up (9.7%) and at the beginning of this month the number of unemployed reached 3 million - something that Rue89 is calling "un électrochoc national."  It's not likely to get better soon and the idea that the rich should pay more taxes is pretty popular politically.

But now pressure is coming from another direction.  Bernard Arnault, the CEO of LVMH, has made a request for Belgian citizenship.  Mr. Arnault says that this move is not a result of tax policy and that he simply wants dual citizenship to take advantage of business opportunities.  He already has a home in Bruxelles though he remains, for the moment, a French resident for tax purposes.  I believe him.  It's not really about citizenship since France does not have a citizenship-based taxation system.  All Mr. Arnault has to do (provided he pays the applicable exit taxes) is to change his residence and he can do that as a French or a Belgian or a Martian.  He's an EU citizen and has the right to move to whatever country here will have him.

Nevertheless people are asking themselves if he will be the first of a wave of emigration out of France toward more fiscally interesting locales and that is making everyone a bit nervous.  What use is a 75% tax on the rich if the 2-3000 people it applies to pack up and leave?  Sure they will pay something on their way out but the state will lose all that potential revenue for the future.  75% of nothing is still zero last time I looked.

Quite a conundrum that the French government is taking very seriously. As this article in Le Parisien puts it:  "Dans ce contexte, tout recul sur la taxation des plus riches serait inacceptable aux yeux de l’opinion publique. Mais comment éviter un impôt « confiscatoire » et risquer un exil des talents?" (In this context, backsliding on taxing the richest would be unacceptable in the eyes of public opinion.  But how to avoid "confiscatory" taxes and the risk of losing talent?)

That is the question of the hour and one that is being asked in many countries all over the world who are struggling with troubled economies and high deficits.  The details of Hollande's plan will be only be known at the end of this month.  Can Hollande and his government find a compromise that satisfies everyone?  A suivre....


Christophe said...

Hi Victoria,

Another great post. My guess is that the French government is probably not expecting these people to leave, because what I think is one of the main big weakness of Europe, which is the lack of a common language. While you could get by with English in many European countries, especially for business, it might be more difficult for daily life.
This narrows down quite a bit the list of countries that these French families might want to emigrate to pretty much Belgium, Luxembourg, Great Britain and Switzerland.
Even British Prime Minister David Cameron told the world from Mexico in early summer that London was “rolling out the red carpet” for wealthy French seeking tax havens :-)
But with Hollande also wanting to redefine tax treaties with neighboring European countries to fight tax evasion, I am not sure the Exit tax would be worth it, especially if France enacts something like FATCA with its neighbors. The US gave these countries some pretty bad ideas...

An anecdotal point on how language and culture is a barrier to migration in Europe. My company has a plant in Hungary and we're having problems hiring people there. The plant is about 3 hours from Budapest where the main universities are. And apparently, Hungarians don't really want to move that far from their families and friends.
And it's hard to hire foreigners, even with the high unemployment in Spain and Greece. As I mentioned above, if you don't speak Hungarian, it's pretty hard outside of work. Who would want to move a family there? Great Britain has a big advantage in this sense, compared to the other European countries. Although I've read that lots of Spanish students start to learn German and are willing to move there.

Take Care,


Victoria FERAUGE said...

Hi Christophe, a very interesting article in Le Figaro that speaks to your comment.

Le Figaro says that the really rich French already went to places like Switzerland or London while those with some money go to Belgium. All these locations are close enough to France to allow for frequent visits to the family here.