Reassessing France's 2011 Capital Tax Reforms after the Parliamentary Battle

La Revue de Droit Fiscal, No. 30-34, July 28, 2011

17 Pages Posted: 29 Aug 2011

Date Written: July 28, 2011


The two emblematic measures of the bill purporting to reform France’s capital tax system – involving a dismantling of the country’s tax shield and a simplification of its ISF Impôts de Solidarité sur la Fortune wealth tax schedules – have been left untouched by the national Parliament. At the same time, the main amendments brought up during the second reading of the 2011 budget - namely the elimination of any tax on French residences owned by non-residents, higher levies on life insurance policies and above a greater taxation of assets acquired through the division of property - have substantially modified the spirit of this bill, even if the financial architecture basically remains the same. In light of this ex post analysis (and after an ex ante analysis from June 2011), we have concluded that even if the reform of capital taxation in no way constitutes the “enormous gift to the rich” that its critics described, contrary to Government statements it is anything but “fully funded” and will probably cost the State €350 million once it is fully operational. We can add to this certain indirect costs associated with the delocalisations that will inevitably occur as a result of measures eliminating current capping mechanisms (and costing around €200 million), meaning that the total annual cost is likely to amount to about €550 million. Less than one year from France’s next presidential election, what is politically even more dangerous for the country’s current Conservative majority is the reform’s surreptitious but substantial deviationism, in spirit at least, as manifested by the twofold rise in property division taxes. This means that the reform is no longer being funded by ISF wealth taxpayers alone but also by middle and upper middle class citizens who are exempt from this tax. In short, the reform offers an open goal to critics denouncing it as a “gift to the rich” and something detrimental to female divorcees. France’s parliamentary Conservatives are running a risk of reviving 1986’s politically disastrous elimination of the IGF Impôt sur les Grandes Fortunes tax, the first version of today’s ISF wealth tax.

Keywords: wealth tax, tax reform, capital tax, tax competition, tax justice, tax efficiency

JEL Classification: H22

Suggested Citation

Pichet, Eric, Reassessing France's 2011 Capital Tax Reforms after the Parliamentary Battle (July 28, 2011). La Revue de Droit Fiscal, No. 30-34, July 28, 2011, Available at SSRN:

Eric Pichet (Contact Author)

KEDGE Business School ( email )

Domaine de Luminy - BP 921
BP 921
Marseille, PACA 13288

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