'Millionaire tax' cleared in France

Euro banknotes are seen in this picture illustration taken in Prague January 21, 2013....

Euro banknotes are seen in this picture illustration taken in Prague January 21, 2013. REUTERS/David W Cerny

Emile Picy and Natalie Huet, Reuters

, Last Updated: 3:32 PM ET

PARIS - France's Constitutional Council gave the green light on Sunday to the government's controversial 'millionaire tax', to be levied on companies that pay salaries of more than 1 million euros ($1.38 million) a year.

The measure, introduced in line with a pledge by President Francois Hollande to make the rich do more to pull France out of crisis, has infuriated business leaders and soccer clubs, which at one point threatened to go on strike.

It was originally designed as a 75 percent tax to be paid by high earners on the portion of annual income exceeding 1 million euros, but the council rejected it last year, saying it was unfair. France's top administrative court later said that 66 percent was the legal maximum for individuals.

The Socialist government has since reworked the tax to levy it on companies instead, raising the ire of entrepreneurs.

Under its new design, which the council found constitutional, the tax will be a 50 percent levy on the portion of wages above 1 million euros in 2013 and 2014.

Including social contributions, the rate will effectively remain about 75 percent, though the tax will be capped at 5 percent of a company's turnover.

The tax is expected to affect about 470 companies and a dozen soccer clubs, and is forecast to raise approximately 210 million euros a year.

The Constitutional Council, a court comprising judges and former French presidents, has the power to annul laws if they are deemed to violate the constitution.

ANTI-BUSINESS

Tax increases designed to reduce France's budget deficit have fuelled rising discontent in the country, with recent polls giving Hollande the lowest approval rating of any French president on record.

His 2012 supertax election pledge infuriated high earners in France and prompted actor Gerard Depardieu to flee the country. It has also alienated entrepreneurs and foreign investors, who have accused Hollande of being anti-business.

Hollande has said that the wealthy should contribute more to help to repair the country's finances, arguing that the supertax should also encourage companies to curb excessive executive pay.

In Sunday's ruling, the Constitutional Council rejected planned wealth tax measures that it said imposed levies on potential gains - such as those on life insurance policies - and thus risked overestimating a taxpayer's actual resources.

It also quashed several measures designed to crack down on tax avoidance schemes through which individuals and companies use legal loopholes to minimise their tax bills.

One of the proposed measures required consultants and firms offering tax planning services to disclose such schemes before marketing them. The council found the provision was too vague and ran counter to freedom of entrepreneurship.


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