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Archive for the category “France”

Who wants to live forever?

Obamacare

Not quite the tax doctor I had in mind

There was a time, not long ago, when the ideal higher education of a tax specialist was a combination of law and accounting. With the gradual death by asphyxiation of income tax planning, the ambitious young prospective practitioner might  add a third arrow to his bow – doctor of medicine.

Many would argue that, despite frustrating bureaucracy,  the gathering pace of intergovernmental cooperation in the war on tax evasion and money laundering is one of the great advances of twenty-first century society. However, the process has also brought to the surface long dormant legalities that most governments would have been happy to leave as long dormant.

Take American Estate Tax. A foreigner who dies  holding (not literally) more than $60,000 worth of  US securities, invites a bill to his estate in respect of US Estate Tax. That rule has been in place since, I believe, 1913, but has only been inadvertently enforced since FATCA rules forced international banks, on pain of lynching, to handle all withholding tax obligations on behalf of the IRS. The upshot is that savvy investors (especially those past the waterfall three-score-and-ten years) are deserting US securities, or finding obscure ways to invest indirectly.

But the problem does not stop there. In an increasingly negotiable world, where the successful can remain in daily touch with their homebound families and visit regularly, estate and inheritance taxes are often the death knell for staying put. And if that is not enough, some countries impose an insidious wealth tax.

If you wanted an example of a country that has, for years, seemed to encourage their citizens to get on their onion-laden bikes and seek comfort elsewhere, you need look no further than France.

A combination of estate tax and wealth tax (helped along by an aborted 75% top income tax rate) sent packing the likes of actor Gerard Depardieu (Belgium, and thence to Russia with love), and singer Florent Pagny (Portugal, who?). The typically French defense against the mounting exodus (some reports suggest some 10,000  since the turn of the century) was typified by the Defense Minister stating that those who love their country stay in France. Sacre bleu. To an Englishman like me, pro patria mori has never stood out as a French sentiment.

waterloo-bridge1

France’s sixth biggest city

Well, it looks like Fortress France, at least, is finally taking baby steps forward under its exceptionally young new president’s tutelage.

A few weeks ago the prime minister proposed a severe curtailing of the wealth tax – restricting it to real estate. But, there is some doubt as to whether that will be enough to encourage wealthy French to return home – especially given that estate tax still remains.

Ultimately, unless the current passion for Balkanization (Spain, UK, Iraq) takes hold – creating a dampening of global mobility – there can be no room for estate taxes or wealth taxes in the future world order. Despite their political attraction as a component in the fair distribution of everything (optical rather than actual), they create a drain on national coffers.

In the meantime, expert tax planners will try to keep their clients alive long enough to move them out of undesirable post-mortem jurisdictions. Is there a tax doctor in the house?

Did you hear the one about..?

23cnd-marceau1.600

French comedy at its (silent) best

This year’s Booker International prizewinner, ‘A horse walks into a bar’, follows the routine of an over-the-hill stand-up comic as he coaxes and manipulates his audience, painfully aware that one failed joke could send the entire act crashing through the stage floor.

I often wonder why modern politicians don’t take their cue from stand-up comedians. While much of what they say and do is laughable, they never seem to be afraid of wheeling out the old, failed one-liners. And, unbelievably, far from throwing rotten tomatoes, their constituents and the international community at large lap up their corny nonsense.

For example, did you hear the one about the French Finance Minister who walked into a press conference …?

Following five years of clownish misrule by socialist Francois Hollande, last month France’s independent auditor uncovered a budget shortfall of seven billion euros. Meanwhile, France has failed to meet the EU maximum deficit requirement of 3% of GDP every year for the last decade – a target that is particularly important for the stability of the single currency. And, then there is the protected labour market, with maximum working hours and early retirement, to name but two loony-left policies.

All that misery led the new Prime Minister to announce earlier this month that President Emmanuel Macron’s campaign-promised tax cuts would have to wait until 2019 while the government set about balancing the books. That invited an immediate reaction, not from the opposition, but from the government’s Finance Minister, evidently acting with the backing of his boss’s boss. According to the quickly revised script, the first stage of the planned reduction of corporate tax from 33% to 25% would go ahead next year – down to a cordon bleu, mouth-watering 28%. Meanwhile, housing taxes would be reduced, and there would be a reform of wealth tax (the latter would be delayed).

The amazing thing is that the Finance Minister declared that the required budget deficit target would still be achieved in 2018 – the gap evidently to be closed by the expected additional tax revenues from the economic growth arising from the change. You can fool some of the people all of the time. History is full of no-hope fiscal promises from governments. A larger than expected deficit, plus labour rigidity that will take years to unravel, would be a no-brainer to any tenth-grade pupil who could think past his infatuation with his teacher. Short of a miracle – like the bonanza of more than a billion euro back-taxes the French courts refused to sanction from Google last week, or the Finance Minister getting lucky with the country’s foreign currency reserves on the tables at Monte Carlo – the deficit target is going to be missed once more.

I realize that politicians, more than most, do not like to be bearers of bad tidings, but what about the French equivalent of the man on the Clapham omnibus? Do people really just hear what they want to hear?

While governments and their cohorts can, at a price, mess with the money supply and the amount of fiscal spending, as well – in fairness – as tax policy, they clearly cannot micromanage the annual tax-take.

Lousy one-liners aside – in politics, like in stand-up, it is all a matter of timing…..

 

A dope makes a hash of things

Not funny? Charlie Chaplin was a genuine fan

Not funny? Charlie Chaplin was a genuine fan

Depressingly, whenever I mention British Humour (sic) to an American  I receive the stock response: “Benny Hill!” I used to fight back, arguing that Hill’s humour was cheap smut eventually only permitted for export (to America), while true British Humour was a cerebral affair of the utmost sophistication. Balderdash!  I was kidding myself. Benny Hill was a late 20th century take on the Bedroom Farce genre that had been highly popular since late Victorian times and reached its zenith in the 1960s in the person of Brian Rix and his famously dropping trousers. One of the main ingredients of a Bedroom Farce is that the acting is frenetic with the audience  not given time to think; all laughter is on impulse, à la Benny Hill.

They are generally a lot worse

They are generally a lot worse

The one and only time I attended a Farce was at the impressionable age of 14,  in August 1972.  All I can remember is that “The Man Most Likely To..”  staged that summer season at the end of Bournemouth Pier, involved lots of slamming bedroom doors and Henry McGee, Benny Hill’s long-suffering straight man, displaying his naked derrière to a guffawing audience. On leaving the theatre, apart from a roaring trade in beach balls and rock candy, there was an ample selection of Robert McGill’s saucy postcards featuring cartoon depictions of leering men and buxom ladies from a bygone era – quintessentially British smut. (If you are ever looking for a sure way to get an Englishman to snigger, just say the word “Bottom” in a suggestive tone – disappointed punters guaranteed their money back).

While Lord Rix’s 90th birthday next week would be reason enough to bring Bedroom Farces and Benny Hill to mind, I admit that the recollection  had more to do with the antics of the current hapless occupant of the Élysée Palace. It is apparent that President Wheredidiputmyshoes  has – Ooh La La! – been banging rather too many bedroom doors in the course of his career, and has lately been having acute difficulty  deciding where to wake up. This moral confusion must surely be taking its toll on his already abysmal record in running the country. Take, for example, his New Year speech in which he had an epiphany and all of a sudden said that everyone was paying too much tax. A noble line for any sane Frenchman but, lest we forget, he is actively clobbering high income earners this year with a 75% marginal tax rate (albeit levied on employers) that was finally approved by the Constitutional Court as they kissed goodbye to 2013. This ordinary man  never actually married so, technically free to wander, does not appear to have any guiding star. If France is not careful, he could lead the entire nation into the River Seine (the Left Bank of which God is unlikely to split for those Gitanes-smoking Parisian intelligentsia).

"I said POT Shop!"

“I said POT Shop!”

Across the pond, the Americans are having their own problems with their moral compass. On January 1, Colorado became the first State to permit recreational marijuana. I don’t know whether  weed is a good thing or not (I do really, but I don’t want you to think that I am a narrow-minded tax accountant). What is clear , however,  is that this thing has not been thought through. Because growing, processing and selling pot are still Federal offences, and despite Washington stating that the Feds will hold off – if you are a Coloradoan wanting to feed your habit with a little sideline in cultivation, you will not be able to open a bank account due to federal money laundering rules. If you cannot open a bank account, you will have difficulty running a kosher business in the stuff – meaning that you are unlikely to pay tax. And while we are on the subject of tax, Big Brother has to decide where pot should be classified in the  excise tax hit parade. Does the fact that alcohol leads some people to kill while marijuana leads others to float, mean that it should be taxed more lightly than alcohol, which for some (like me) is a little hard to swallow? At present the state tax on cannabis is much higher than on alcohol. And what about when comparing a joint to a publicly ostracized cigarette?

When I read about Western Government decisions these days – from muted reactions to Syria and Iran to juvenile brawling on Capitol Hill – I  picture the entire Western World on its back  floating calmly down a river late at night, reefer in mouth and girl at each side, not quite managing to focus on the shining stars in the clear night sky and blissfully unaware of the waterfall ahead. There must be a moral in there somewhere, or maybe not.

Shooting at goal

I would have voted for him

I would have voted for him

I love municipal elections. Two weeks ago the incumbent mayor of my sleepy town (population 70,000 – the locals insist on calling it a city even though they would not fill Wembley Stadium) was lawnmowered into political oblivion by his predecessor, who decided to stand for the only apparent reason that he could not think of anything better to do.

The local political scene is the crucible of pork belly politics – nothing, but nothing, gets done for four and a half years of a five year term and then, miraculously, the new kindergartens appear, the children’s playgrounds swap dooda infested sand for state-of-the-art rubber and the garbage collectors start churning the rubbish three times a week instead of two.

Years ago I went to my one-and-only parlour meeting. To the abject horror of the assembled Ra Ra girls and their compliantly docile husbands, I dared to ask the ineffable: “Why did you not deliver on your promises in the last election?” Without flinching, the porcine head of the party we were expected to vote for looked me straight in the eye and retorted: “Because I am a politician”. A liar who had the honesty to tell the truth. I voted for him.

Mr Magoo

Mr Magoo

I do wish President Popularity-Disappearing-Up-His-Derrière had a little more guile. I don’t think the actions of France’s First Citizen are the result of unswerving honesty; rather, they fuel the suspicion that he is Forrest Gump, Mr Magoo and Chance the Gardener rolled into one.  His latest gaffe was to persist with his election-promised  75% marginal tax rate for the wealthy  even after the courts had deemed it unconstitutional. Any normal human being not desperately chasing a single digit approval rating would have grabbed the chance to dump the idiotic proposal and blame the judiciary. Not Francois the Great. Similar to the Irish prisoner who showed his executioner why the guillotine was jamming, he curved the ball around the constitution and proceeded to pronounce that, subject to parliamentary approval,  the  two-year 75% tax rate on the estimated 1,500 individuals earning more than a million euros still left in France will now be levied on the companies paying the salaries. Plus ça change, plus c’est la même chose.

Income taxes should achieve one of two things – either be neutral in their effect on the economic decision-making process, or redistribute income to the less well-off. President Einstein’s plans boldly seek to achieve neither. Many wealthy individuals have buggered off to Belgium (one or two via Russia) while even a 110% tax on the earnings of 1,500 individuals does not a balanced budget make.

To add insult to injury, it turns out that an awfully disproportionate share of the 75%  burden will fall on the unavoidably labour-intensive football league. The soccer supremos  had been keeping schtum since the announcement of the revised tax back in March because they assumed that they would be exempt (this was, after all, a tax aimed at fatcat businessmen). It now transpires that the major clubs will need to pump-up their already obscenely high salary costs since the players cannot realistically kick off to Bruges. The threat of a weekend-long shut-down (not a WHOLE weekend, surely?) at the end of November has failed to move the tumbrel chasing population of France who still remember the last time French football closed down – on the pitch at the 2010 World Cup.

Trawling the Parisian sewers  of the internet (even the stuff in French, in case there was information hiding there) I could not find a single explanation of exactly how this bombshell of a tax is to be calculated. My hunch (and it is no more than a hunch) is that the employer will simply make up the difference between the employee’s marginal rate (currently an effective 49% including surcharge) and the 75% rate. If that is the case, the damage is a hell of a lot less than 75%. For example, take a fictitious player – Xenophobia Burka of FC Beaujolais in Ligue 1 who gets €2 million a year for kicking a leather-encased pig’s bladder around a large, enclosed garden which does not even have a flower-bed.  His second million is currently liable to 49% tax (for simplicity, let’s call it 50%) , which means he currently takes home € 500,000. If his employer, FC Beaujolais, is required to pay 25% (the difference between 75% and 50%) on the second million, that is an additional € 250,000. This implies an effective marginal tax rate to the employee of 60% (his net pay of € 500,000 is 40% of € 1,250,000)  although, in this case, the entire burden falls on the employer – an approximate 16% penalty after expensing for corporate tax purposes – a lot less frightening than the 75% headlines.

Alternatively, if under their contract the club could pass the tax cost on to Burka, the second million would come down to € 800,000 (the employer would pay 25% tax on that bringing the cost up to a round million) and Burka would take home € 400,000 – effectively 60% marginal tax again. Given that the enhanced tax rate is only to apply for 2 years, this is hardly a reason to sell the Ferrari.

Is the Great French Football Tradition about to be consigned to the history books?

Is the Great French Football Tradition about to be consigned to the history books?

If I have got this wrong and President We-Will-Never-Win-Another-World-Cup-As-Long-As-I-Can-Help-It really does intend to put the boot in with full gross-ups for the 75% calculation, assuming player contracts are sacrosanct, it looks like the teams of the Ligue really might have to hang up their boots. That would be yet another magnificent Own Goal for the President of the Fifth Republic. Keep ’em coming, Frankie.

Chanson d’Amour

2006 Eurovision Song Contest winners. Real class act.

2006 Eurovision Song Contest winners. Real class act.

I don’t think it is a coincidence that the French Government proposed a new Culture Tax in the same week as tonight’s Eurovision Song Contest.

The Europeans have  made some pretty bad mistakes over the years such as two World Wars, the Euro and Belgium. On the other hand, like the Common Market and the Division of Germany, the Eurovision Song Contest seemed like a good idea  at the time. Back in 1956, the concept of an entire continent seeing a live TV broadcast was the stuff of science fiction – but so was going to the Moon, and the Americans had got that out of their system by 1973 when Anne-Marie David won the competition for Luxembourg with “Tu te reconnaitras”.

French, that language of haute culture, has always had a special place at the Contest. Scoring is in French and English just to needle the Germans and , as recently as 1962 when France won with “Un Premier Amour”, no fewer than 5 of the 16 entries were sung in that beautiful tongue.  In 1967, although the winner was Britain’s barefoot Sandie Shaw, Luxembourg’s 4th placed ” L’Amour Est Bleu”  became by far the bigger international hit (The Austrians came inexplicably nowhere with a ditty entitled: “Warum Es Hunderttausend Sterne Gibt”).  It seems that, as long as the French and their satellites were singing about their favourite cultural pastime “Amour” they were in the ascendant. Fifty-odd years later, with the annual contest resembling a circus freak show, the 2013 songlist only includes one French entry: “L’enfer et moi”  performed by Amandine Bourgeois (you couldn’t make it up) with the recurring refrain (translated): “I’m gonna give you hell”. No chance. The Gauls should have stuck to what they know best – surrendering to love (or should that be, loving to surrender?).

Although the Eurovision Song Contest is no longer a bellwether of a country’s musical prowess – the British have even taken to using it as a Testimonial for hard-up-and-over-the-hill artists such as last year’s 76-year-old Engelbert Humperdinck and this years 61-year-old Bonnie Tyler – the poor French really are losing the international culture wars. Even the language of international diplomacy is being continually eroded as English marches on.

However, it is heartwarming to observe the stubbornness and tenacity of the French people in standing alone with North Korea in rejecting the spread of US  culture across the globe (although accounts suggest that Kim Jong-un is a far more ardent consumer of American everything than his “Let’s go Armageddon” image portrays). Even the Chinese have just elected (in the most obtuse sense of the word)  a Ronald Reagan hairdo look-a-like  as their president.

I genuinely hope not

I genuinely hope not

A French Government commissioned report issued last week – President Dumbo-L’Elephant  likes reports as they buy him time – recommended a 1% tax on the sale of internet hardware products such as smartphones and tablets in order to help fund the “French Cultural Exception” policy.  For the Philistines among us (which really means “the Philistines among YOU” but, unlike the French, I am being polite), the French Cultural Exception policy is designed to protect France from  market forces (sacre bleu!) and foreign competition. “Foreign” is a barely disguised euphemism for “American.” The justification provided by the French Culture Minister, Aurelie Filipetti (who I picture making her announcement in a Christian Dior silk gown, her ears and neck dripping with diamonds) was that the tax would compensate for the fact that so little revenue is contributed to State coffers by digital content, which is probably true since most of it is in English.

With the annual inflow of an estimated €86 million, perhaps French directors will be able to afford music in some of their films while dubbing Hollywood classics like “The French Lieutenant’s Woman”, “French Connection”, “Le Deuxiemme French Connection” and  “Minuit in Paris” (pronounced Pareeeee).

Meanwhile distinctive Paris architecture (amazingly untouched by the ravages of 20th century wars mainly because they were ravaged elsewhere), a national commitment to the eccentricities of French cuisine, loyalty to French-built cars (consumer masochism), a violent reaction to the use of English and a commitment to a work ethic that should safely bring the country to its knees within two years,  result in a truly distinctive French experience for the visitor to France.

Of course, they are not totally immune. A walk down the Champs Elysees, host over the years to a multitude of foreign-made jackboots, reveals a quiet invasion by multinational retailers that have replaced many of the quaint Cafes of old – but at least they are trying.

The Eurovision Song Contest has, over the years, moved from an elegant boast of the continent’s popular music, to inane tosh (the all-time classic of which was “Boom-Bang-a-Bang”) to a competition fit to be sponsored by national garbage collection companies.

That was the day

That was the day

The high-water mark of its nearly 60 year history was definitely 1974, when a young Swedish group decided not to sing in Swedish; future artists, putting  two and two together,  worked out that there was a reason – other than being hated by the Greeks -that  Turkey always seemed to gravitate towards “no points”, and started to follow suit.

The French would have done well to note the title of the winning song for Sweden that night. It was, of course, “Waterloo”.

The 2012/13 Overture

Brezhnev was not the only superpower leader to have difficulties with Sharansky

Brezhnev was not the only superpower leader to have difficulties with Sharansky

In the ’70s and ’80s  there was a major movement worldwide to gently nudge the Soviet authorities to “Let my people go”. Mass rallies, protests and disruption of Russian cultural events were the order of the day from London to New York to Sydney. With the collapse of Communism, the ’90s saw the influx to Israel of   close to a million Soviet Citizens, by no means all of whom were descendants of Pharaoh’s slaves, while oligarchs started popping up in the unlikeliest of places, like the directors’ box of an unimpressive London football club.

I, therefore, found it quite dizzying when former French  actor Gérard Depardieu was spotted  bear-hugging former KGB officer Vladimir Putin on receipt of his gleaming new Russian Passport. Until last week, the only people who ever thought of moving into Russia had Christian names like Kim, Guy, Adolf and Napoleon.

The story hardly needs retelling. French bête noire  most recently remembered for urinating on the floor of a plane awaiting take-off in Paris, is so incensed by Mad Hatter President’s  intention to apply a humongous tax rate on the wealthy that he contemplates joining the rest of Peter Pan’s  lost (rich) boys in a Belgian town near the French border.

In what initially appears a stroke of tax genius, at the last-minute he diverts his attention eastward and makes a play for Russian citizenship. By moving tax residence to Russia he can swap the 75% (and then some) tax rate for 13%. Although France now has an Exit Tax for those perceived to be betraying the Fifth Republic,  the French/Russian Double Taxation Treaty refers in its nondiscrimination clause to nationals rather than residents implying that Exit Tax might not be charged.

Nice theory, but it ignores one critical factor. Depardieu is ethnically, if no longer nationally, French. Too rational.

Tailless amphibian

Tailless amphibian

Not satisfied with the  royal welcome that turned this tailless amphibian (use your imagination)  into a Russian Prince, Depardieu proceeded to chuck  his French citizenship into the Seine  while spouting nonsense about Russian democracy. The Russians, for their part, warmly welcomed their new comrade who had recently shown his Motherland credentials by appearing in a movie as Rasputin. Now, I know little about Russian history and, with all that has happened in the last hundred years,  I have great difficulty in keeping track of who is currently welcome on the podium in Red Square,  but  if there is one thing all Russia is agreed on, it is that Rasputin does not get a look-in.

In short, Depardieu just appears to have been on a typically French emotional bender that was planned as well as the Soviet economy.

Had he not been such an exhibitionist, he might have gone for one of the more traditional tax havens. Switzerland, with its lump-sum expense based system, is a particular favourite for sportsmen and actors while the UK, with its non-domiciliary status is excellent for those well planned in deriving income  outside the UK. Monaco and Andorra (wherever that is) tend to be more liberal in their residency requirements. The Channel Islands and Isle of Man offer a peculiarly British middle-class environment which would have surely suited our hero – they particularly appreciate Gauls who pee on carpets.

And if all he wanted was a new passport, for a suitable fee he could have picked up citizenship in the Dominican Republic or St Kitts, two countries even the French could have conquered had they managed to find them on the map.

As yet it is impossible to know what the unpredictable Comrade Depardieu will do. Does he really intend to sit out 183 or so days each year in Mother Russia?  Has a man who lives by the French language not realised that, whilst in Tolstoy’s St Petersburg Soirées, Pierre and his friends chatted happily in French, it is not only Napoleon who has moved on since then? Or, is he just attempting to become another of the modern world’s “Tax Tourists” who thinks he can swing  the residence tie-breaker clause in the  double taxation treaty by popping in for  an occasional  vodka while en route from London to Los Angeles? Fat chance, fat boy.

One can sympathise with Depardieu’s desire to make a break for it from France. Its economy is by all accounts (apart from that of its clownish Government) heading down a bidet’s drain. Rather than attempting to avert the crisis, the Government has adopted a policy of assisted national suicide while offering the wealthy the choice between the guillotine and exile.

Erstwhile French Icon

Erstwhile French Icon

However, it really is beginning to look like the Asterix star might live to regret his decision. One of the attributes of a tax haven is that it leaves the tax exile to get on largely unhindered with his or her life. While, as M Depardieu has proudly stated, Russia is undoubtedly a great democracy, it would be interesting to see what would happen if he chose to relieve himself on the floor of an Aeroflot airliner or, for that matter, not to turn up in court to answer a charge of driving under the influence, as was the case this week in France.

Left luggage

Hitler or just the bloody tyrant next door?

It was during the Bosnian War that the BBC’s Martin Bell and his colleagues developed the concept of Journalism of Attachment.  While war correspondents stretching back  to William Howard Russell a century and a half earlier had reported the good and evil of war, it was this new generation that took sides and, effectively, became unarmed combatants on behalf of  the chosen good guys.

I am, personally, not entirely comfortable with this approach since the arguments surrounding war are often complex. The future of world peace would be better served by presenting the stories dispassionately and letting the public decide. Having said that, at least the underlying morality of each situation is normative.  Judeo-Christian morality, that has finally evolved into what Judeo-Christian morality was supposed to be before nasty little men spent thousands of years distorting it beyond recognition, has little difficulty identifying the rights and wrongs of war and conflict.

But when Journalism of Attachment reached the battlefield of taxation  last week,  moral compasses went spinning out of control.

For many of you, this will be the first sighting of the Belgian ruler

The French left-leaning newspaper Liberation ran a story about Bernard Arnault, the founder of LVMH the luxury goods group who happens to be France’s richest dude. It transpired that he had applied for Belgian nationality  to add to the French one that came free of charge with his birth certificate. Apart from the affront to Liberation’s French sensibilities that one of France’s favourite sons wants to be associated with a country that many French view as nothing more than a playground for European wars incapable even of sporting its own King (Whateverhisname  is King of the Belgians – not Belgium), they smelt a tax exile in the making.

Reading the headline, I dusted off my 40 year old French textbooks to try and work out the meaning, but to no avail. The reason for this became clearer when the Economist informed its readers (I am one of them) that, allowing for poetic  licence, it meant “Sod off, you rich bastard”. Mr Arnault is using some of what defines him as France’s wealthiest individual to sue Liberation out of existence.

Now there is nothing strange in a newspaper having a clear political philosophy and taking a stand against anyone whose actions diverge from that philosophy. Newspapers have, after all, been recognized since as far back as the 18th century as the “Fourth Estate”  in  parliamentary (or, more generally, democratic) systems.

What is worrying in the case of Liberation is that the self-righteous outburst is not just the statement of an opinion, it is a critical (and probably the only) component in ensuring the success of the Government’s policy. Liberation has become a combatant in Francois Hollande’s ill-advised war on the rich.

The French budget, unveiled last Friday, included, as expected. a provision taxing earners of over €1 million at the incredibly punitive rate of 75% – put another way, it is telling top executives to work for the Treasury who will , in turn, give them pocket money. This was a significant Hollande campaign pledge along with other  Disneylike  fantasies . The concept is completely unworkable because France is unable to impose a meaningful exit tax on individuals escaping to other EU countries and some of those, especially Britain, have remarkably cosy tax regimes for tax residents who are not domiciled there. The only way to stop a brain-drain is to use moral pressure. Since modern governments are not good at the morality thing  (politicians are not high on the international ethics league table) and France’s dominant Catholic Church is having a bit of a moral crisis of its own, it falls on left-obsessed journals like Liberation to do the Government’s bidding. The big problem is that the moral issue here is anything but normative – there are widely differing views under the circumstances as to whether there is anything wrong with Mr Arnault leaving. Indeed,  Freedom of Movement is one of the EU’s central freedoms.

Hollande has been at pains to paint himself as Mr Normal after 5 years of Sarkozy who, it is implied, was abnormal. What the president does not seem to comprendez-vous is that, while France may be pleased to have a leader who LOOKS like a bank clerk , they do not want a leader who THINKS like a bank clerk. They like their presidents to be intelligent. Even a bit foxy.

The French President reading his watch strap

Mr Hollande seems to have had sufficient intelligence to restrict the tax hike to 2 years, but that could still be a critical 24 months when France is trying to get back on its feet. Top executives will delay coming to France (if they come at all) and some of those already there will do their utmost to leave – even if only for a few years. One weapon the French do have in their armory is their language. While monolingual Americans can strut the planet asking for a Big Mac and Fries everywhere they go, French who want to venture beyond Belgium, Luxembourg, Monaco and select bits of Switzerland without resorting to their phrase books will need to head for such desirable locations as Democratic Republic of Congo and Burkina-Faso.

Hitler

Perhaps the biggest irony in this story is that Bernard Arnault, as founder of LVMH, makes some of the best luggage in the world. Just as nations  rarely amass weapons for peaceful purposes, would  it be so strange if Mr Arnault were to consider using some of his suitcases for his personal use? In the meantime he is reported to have categorically denied that he is considering a change of fiscal residence.

French toast

Indignant Frenchman

The French are the masters of indignation. Staring at an offender from the top of his Gallic aquiline nose,  a Frenchman can turn any opponent to blancmange faster than a speeding escargot. You don’t cross the French.

Marking Bastille Day last weekend with a cafe-au-lait and croissant in the comfort of my salon,  my mind wandered back to Mrs Thatcher’s run-in with the last socialist president and his entourage at the bicentennial celebrations in Paris in 1989.

World leaders getting focused for photo shoot at 2010 G20 summit. Mrs Thatcher should be grateful Mitterand put her in the back row

Determined to be cast in the role of the wicked fairy at the feast, even before celebrations started she had told French journalists that the ideas  fought for in the Revolution were filched from the ancient Greeks and less ancient British. In gratitude for her kind words she was stuck in the back row of world leaders for a photo shoot and her car was only allowed to leave the Opera after that of the President of Zaire. It would not have been lost on Mrs Thatcher that, being France – the flag bearer of  “Liberté egalité fraternité” –  President Mobutu of Zaire was only allowed to leave after everybody else, although – to be fair – that may have been because he wasn’t even invited and chose to crash the party.

1812 is ancient history. Russian with French luggage

After five years of Sarkozic bling-bling, the French are back in their sanctimonious “We may not rule the world any more, but we will show you the moral high ground by finding someone to be indignant about” mood. Since the revolution it has gone: Louis XVI, the British, the Russians, the Germans,  Dreyfus, the Germans, the Germans, the British, the Algerians, the Rosbifs (British), the British. Having booted Sarkozy out of the Elysé Palace, over the last couple of months when he wasn’t being indignant at his serial concubines and children for tweeting each others eyes out, Francois Hollande has been frantically consolidating power in the National Assembly while downsizing his own and ministers’ cars and salaries.  Two weeks ago he was finally ready to resume the national sport with  the announcement of the new government’s budget which passed the Lower House last Friday. Bored with the British and with a morganatic marriage to the Germans , the new president went gung-ho for the hammering of the filthy rich.

This man has blurred vision

Hollande having been elected on the back of a promise of a 75% individual tax rate on people earning more than € 1 million, renewed that pledge immediately after the election. The Budget contains proposals for an  increased wealth tax, tightening of inheritance tax provisions and an additional 3% on most dividends. Taken together with the additional 5% surcharge on major corporate profits (a Sarkozian legacy) which makes France among the highest taxing jurisdictions on the planet, it is no wonder that there has been an exodus of French men, women and the undecided to that cultural backwater, London. Then there is the levy on oil inventory and the souped up Banking Levy (can’t you just see the executioner holding up the banker’s corpseless head as the guillotine’s blade is raised ready for the next happy financier?). Companies employing more than 20 people used to be entitled to give a tax exemption for overtime. Not anymore – why would a socialist president want to encourage the exploitation of the proletariat by the owners of capital, even if it was the proletariat that benefited?  One thing that did come out looking better  was CFC legislation – which is probably because Hollande doesn’t have a clue what it is. Meanwhile, transfer of tax losses between group companies will be subject to various restrictions. The general expectation is that rich-bashing  has only just started while various instruments of torture have been retrieved from museums and are being oiled for use.  An employers’ union leader, reacting to the Budget, suggested a state of “systematic strangling” which is more reminiscent of Spanish garrotting than the preferred method of disposal in France.

Despite the suicidal tendencies of several of the new edicts there is some light at the end of the tunnel. Indignation is not Fury. An indignant person still acts rationally and will calm down. Within five years the French Revolution had imploded. Within five weeks of election, Francois Hollande had received the report of the State Controller (a socialist) telling him what everyone else already knew – that to meet this year’s 4.5% and next year’s 3% deficit reduction targets as well as reducing the mammoth public debt standing at 90% of GDP,  tax has to go up or spending has to go down. And the Controller sided with the reduction of spending.

Pointless to try and come up with a caption for this

The Budget Minister said recently that the problem with public spending is that it is like “slowing down a supertanker – it takes time”. As a Frenchman he might have bettered the metaphor by saying it is “like starting up a Renault – it takes time” ,which is part of  France’s real problem. However, he also stated last week that the proposed 75% top tax rate might only be temporary until the deficit is brought under control. That is more like it mon cher. You are starting to talk like a pragmatist. Keep on like this and within a few years you will be able to go back to being indignant about the British. It is much more fun and gives British newspapers so much to talk about.

Vive L’ Hollande

The quiet ones are the worst

The swashbuckling  Alexandre Dumas  coined the phrase “cherchez la femme” (literally: look for the woman) that has haunted French culture ever since. In the run up to the French Presidential election it is generally agreed that, had Dominique Strauss-Kahn not fumbled in the wrong pocket of his bathrobe  for the gratuity for the chamber maid of his New York hotel room, he would now be  a shoo-in to the Elysee Palace and the rest of Europe would be nodding approval at the  election of a former head of the IMF. Instead, Europe is aghast at the prospect of an old-style left-wing candidate (more of that nonsense below) who is about as exciting as a stale baguette and, whilst by all accounts of high intellectual ability, brings  recollections of Lyndon Johnson’s comment about that other President-by-mistake,  Gerald R Ford – “He cannot fart and chew gum at the same time”.

HE left HER!

But, however daft and outdated many of Francois Hollande’s policies are, and however unlike Maurice Chevalier and Alain Delon this slightly owlish chap is – judging by the two women in his life, there has to be some magnetism somewhere. Although he seems to have never got round to paying for a wedding licence, the mother of his four children is none other than the delectable Segolene Royale who is best remembered for losing the presidency the last time to little Sarkozy. Not satisfied with his lot, he started up with a drop-dead-gorgeous Paris Match journalist two years before he finally split up from Royale and it is Valerie Trierweiler  who is expected to become First Lady (or First Mistress, or whatever they call girlfriends in the Elysee Palace).

And SHE took HIM!

Among Hollande’s policies are: the renegotiation of the latest Eurozone treaty which is what has led European leaders from Merkel to Cameron to refuse photo-ops with him; the batty idea to return the retirement age to 60 from 62; and, battiest yet, a proposal to tax people making over € 1 million at a new 75% rate earning him the nickname “Monsieur 75%”.

The background to the 75% top rate is not economics. In 2012 everybody knows that punitive rates (and that does not even take into account wealth tax and social taxes that get dumped on top) do not bring in significant revenue. No. Mr Hollande is out to take revenge on the rich, especially the demonic financial sector- as he speaks you can hear the cart rattling into the Place de la Concorde, the hapless aristocratic occupant being pelted by the rabble as he approaches his doom at the hands of Madame La Guillotine.

Apart from the effect on the incentive to work, mad tax rates on the highly paid simply cannot work in the European Union. Shortly after making his madcap announcement Hollande traveled to London to canvass the 300,000 plus French living there ( London is the 6th largest French city). The French no longer buy left wing panic mongering about life beyond France’s borders, normally accompanied by Gitanes smoke and the fruity aroma of  un bon vin rouge; instead they master English and go abroad.

The one policy that might have prevented a wholesale decamping from Gaul is the imposition of an Exit Tax – the crystallization of  a capital gains tax liability on assets on the day of departure irrespective of  if, and when, the asset is disposed of and the capital gain realized. The European Union has been playing with this concept for years – most recently in the November 2011 European Court of Justice decision in the National Grid Indus case. The problem with exit taxes is that they tamper with a basic freedom of the EU – The Freedom of Establishment . On the other hand, the EU is concerned not to deny members the right to a balanced allocation of taxing rights (territoriality). As such, the Court considered the imposition of an immediate Exit Tax as not “proportionate” – instructing that, if an exit tax is to be imposed, the assessee should have the option to pay the tax at a later date when the asset is realized.

The French government, in fact, prophesied this situation when advancing new exit tax legislation in 2011. The legislation applies to shareholdings in companies, does not require immediate payment if breaking residence for another EU country and – in the event that the asset is not sold within 8 years – eliminates the liability. As one commentator noted, the new exit tax does not appear to have had any effect on slowing emigration.

Thank heaven for little girls

Of course, the peculiarities of the French election system could see Mr Hollande crowned but unable to enact his manifesto. If the elections to the National Assembly, a month after the second round of the presidential election, return a right wing majority (the current composition is heavily tilted to the right) , the Fifth Republic will enter into its fourth period of Cohabitation – a President and Prime Minister from opposing parties sharing government.  Mr Hollande has already proven himself a master of Cohabitation – cohabiting successfully with Ms Royale and Ms Trierweiler – so he is well placed to make a go of things at the national level.

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