April 14. 2024. 7:29

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France one of the worst EU countries for company taxation, survey finds

A new Europe-wide survey found France has one of the most burdensome fiscal frameworks for companies, where taxes other than corporate tax represent 3.8% of the country’s GDP in 2021, compared to a 2.5% EU average.

The survey, published on Wednesday (15 February) by French think tank Institut Montaigne, in partnership with auditing firm Mazars, found that taxes on companies’ production processes and value-add – so-called ‘production taxes’ – were second highest in Europe, behind Sweden.

“France is very, very far behind,” Lisa Thomas-Darbois, policy officer at the Institut Montaigne and survey coordinator, told EURACTIV.

Production taxes are a complex category of tax levers that apply to the entire production chain of a company, with the aim of financing local government services. Unlike corporate tax, which applies only to a company’s profits, production taxes apply regardless of how a company is fairing – and France is taxing production more than almost all of its EU counterparts.

Bar Sweden, which stands as an outlier, production taxes in France as a fraction of GDP are the highest in the EU – with negative externalities on French companies’ productivity and competiveness.

Ultimately, such taxes reduce companies’ competitiveness and growth – a view shared almost unanimously by economists. “They create distortions across the entire production chain”, a note from French economic think tank Conseil d’Analyse Economique (CAE) already highlighted in 2019.

One specific tax, for instance, implemented in France in the early 1990s to help finance the welfare state, was deemed so bad it actually acted “as a tax on export and subsidy on imports”, according to the CAE. Another was created to encourage–and enable – companies to put together tax optimisation schemes.

Altogether, such taxation schemes are “stupid and inefficient”, Economy Minister Bruno Le Maire once said.

Sweden is an outlier, with production taxes reaching 9.9% of GDP – but the fiscal framework is radically different to other member states, and such taxes are one of the only sources of cash for the country’s welfare state.

The French 2021 recovery and resilience plan enshrined the government’s willingness to eventually get rid of such taxes to “enhance competitiveness”, according to a ministry note.

The most distortive taxes have already been cut by half since 2021, and some are due to disappear altogether by 2024 – for a competitivity gain worth €9.3 billion, the ministry note reads. Five hundred thirty thousand companies should benefit.

This ultimately fits within a broader European effort to cut production taxes. Their weight as a fraction of French GDP went down from 4.5% in 2020 to 3.8% in 2021 – the year with the most up-to-date data. This represents a fall from €113 billion to €95 billion. A similar trend can be seen in almost all other member states.

The government is also working hard to find new ways to compensate for this revenue loss. A review of all existing tax abatements is ongoing, and revenues should be on the up again once the global minimum tax on multinationals, adopted in an OECD agreement in 2021 and approved as an EU directive by EU member states in 2022, is implemented.

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