A special tax at 75% on employment income of high earners was one of François Hollande’s campaign promises in the run up to the French presidential elections in 2012. Rejected by the French Conseil Constitutionnel in the Finance bill for 2013, draft legislation is currently under review by the French Supreme Administrative Court. The aim is to introduce the legislation before the end of 2013.
The French government announced in December 2012 that the 75% tax would be back, and here it is! It took almost a year to come up with a proposal that would not trigger the veto of the Conseil Constitutionnel on the grounds that it constituted an excessive tax burden as was the case last year. If implemented, the new 75% tax will be paid by employers on remuneration of employees which exceeds EUR 1 million. The special tax will apply for two years, 2013 and 2014 (thus with a retroactive effect for this year), and will affect around 1,000 employees in France according to the Government’s projections.
Many outstanding questions
Pending the publication of the draft Finance Bill, many questions arose following the various Government announcements.
How will the new tax be calculated?
The 75% rate will be a fixed rate, the rationale being that it is an additional 50% tax on the 25% average of social contributions already paid by French employers employees’ salaries at this level of compensation (many social contributions are currently capped at 8 times the annual social security cap, i.e. EUR 296,256 for 2013).
What type of income will be caught by the new tax?
Very little information was given in this respect. It will certainly cover base salary, any kind of bonuses (welcome bonus, long term incentives), but also share awards (which are already subject to a 30% upfront employer’s contribution upon grant). It is not clear whether severance indemnities, retirement indemnities and profit-sharing will be included.
Will there be a limit?
The Government has indicated that there will be a cap calculated by reference to a company's turnover .Although the cap will apply to all companies, it is clearly and openly aimed at protecting "sometimes fragile" French football clubs...
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