Tax Break

John Fisher, international tax consultant

Archive for the tag “Hollande”

The lion that squeaked

How doting parents view the school play

How doting parents view the school play

We all remember those excruciatingly painful dance sequences in end of year school plays. As a long-in-the-tooth tweed jacketed teacher attacked the untuned keys of the upright piano while simultaneously pumping furiously at the worn pedals, budding Nureyevs and Fonteyns would take to the stage. With eyes adamantly fixed on their neighbours the children would twirl to the right and swing their arms to the left in accidentally syncopated time with the music. One of the incontrovertible Laws of Motion was that there was always one  twit lacking rhythm who would insist on twirling to the left and swinging his arms to the right; he couldn’t help himself – the act was as involuntary as breaking wind in the headmaster’s study.

I have waited 40 years to observe similar ineptitude on the world stage. Thank you France. Or should I say, Andorra?

Last week, the Co-Monarch of Andorra met with his joint and several Prime Minister. It was a cordial meeting. Because there are only 85,000 citizens of Andorra,the microstate stuck in the Pyrenees between France and Spain, there is no need for a full-time monarch  let alone two full-time monarchs (the other is a Bishop, confirming the Combination of Church and State). In his spare time  the non-ecclesiastical one is President of France. As everyone who reads a newspaper with more words than pictures knows, there is a worldwide move spearheaded by the EU, G8, G20, OECD United Nations and every other populist organization in the world  to force greater transparency (exchange of information, withholding tax on deposits etc.) in traditional tax havens. This is a logical approach to ensuring that the governments of home countries are able to catch and tax earnings that would probably otherwise escape their grip (unless, as if often the case, it is members of the governments themselves that are depositing the money offshore).

Where's Wally?

Where’s Wally?

It was, therefore, yet another out-of-step move for President Wally (unfortunately we know where HE is) when he proudly announced that the Prime Minister had agreed to institute a personal income tax. Duh? There were no details of the extent of the tax (surprise, surprise) and similarly no mention what the tax would be used for – tiny Andorra has generally been doing quite nicely from tourism, duty-free and “financial services”. There is no moral obligation on any country to impose an income tax unless it needs to – and Andorra patently doesn’t need to.

I admit (proudly) that I have never had any dealings with Andorra – until a few years ago I thought it was a fictitious state in a black-and-white movie, but when I saw that they had instituted company tax in 2012, I knew that I could have written the script for them.  The company tax was set at 10%, a low but no longer crazy rate. However, if the company is in the finance industry or holds IP or is involved in international trade (in practice, almost every company except for the Candy Store in Andorra High Street), there is an 80% reduction. I truly admire those adherents of “you can fool all of the people some of the time” who genuinely believe that the average OECD economist doesn’t understand that an 80% reduction on 10% is ALWAYS 2% . But what a tragedy it would be if everybody had to pay a horrific 2% tax – so they instituted Holding Company status, which pays no tax at all. To all intents and purposes they managed to get back to where they started – plus ca change, plus c’est la meme chose.

So what is the, as yet unannounced, income tax rate likely to be?

From Half-Prince-President Wombat’s point of view, if the aim is to prevent wealthy French from hiking it over the Pyrenees, the number to beat is 75% which, despite being stubbed out by the Supreme Court, is still on his agenda. But Andorra is one of those countries that likes to fall below the radar. Indeed, after declaring war on Germany in World War I, it was forgotten in the Treaty of Versailles and continued in a state of belligerency with Germany until 1958 – despite having declared neutrality in World War II (Hitler was never one for the intricacies of international law so he didn’t have the place turned into a car park for a Panza Division). So my guess is that when the Prime Minister gets back to his mountain lair he will give himself a few months to return to anonymity and then quietly come up with a rate that warmly hugs a Very Round Number.

Half-mad King?

Half-mad King?

Meanwhile the Royal President is presumably very proud of his day’s work last week and hoping his decisive action will lift his ratings in the polls. At the last count his popularity rating was 24% (even Louis XVI would have beaten that) – proving beyond all reasonable doubt that nearly a quarter of all French are stupid. Methinks the man is  Half-Prince and  Half-Wit. I wonder what he would have  looked like 40 years ago in the Dance of the Sugar Plum Fairy?

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.

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