The proposed corporate tax increases are seen as a reversal of the trend towards reducing corporate tax rates in France, which may lead to a decline in foreign investment.
The fight against tax evasion is becoming a priority for the French government, with significant resources allocated to increase the workforce dedicated to this issue.
If the proposed tax increases are implemented, there may be a significant impact on the stock market, particularly for companies with high capital expenditures.
The government's reliance on Article 49.3 to pass the budget could lead to increased political tensions and challenges in future fiscal policies.
Corporate Tax Increases and Shareholder Impact in France
As the French Parliament debates the Finance Bill (PLF) for 2025, significant changes to corporate taxation are on the table, which could have far-reaching implications for shareholders and the overall economy. The bill proposes an increase in the corporate tax (IS) rate for companies with a turnover between 1 and 3 billion euros to 30.1% in 2024 and 27.6% in 2025. For larger companies, such as those in the CAC 40, the rate would rise to 35.3% and then decrease to 30.1%. This marks a shift from the previous trend of reducing corporate tax rates from 33.3% to 25% between 2017 and 2022.
The proposed tax increases are expected to raise the cost of capital for companies, potentially leading to reduced profitability and lower investments. Shareholders could bear the brunt of these changes, as decreased profits may result in lower stock market valuations and diminished dividend distributions. In addition, the introduction of an 8% tax on share buybacks for companies with a turnover exceeding one billion euros further complicates the financial landscape for investors. The increased single flat-rate deduction (PFU) will also affect capital gains and coupon distributions, compounding the challenges shareholders face.
Budgetary Measures to Combat Tax Evasion
In a related budgetary development, the Finance Committee of the National Assembly has voted to enhance the fight against tax evasion by creating 4,500 new positions, including 4,000 financial inspectors and 500 customs officers. This initiative is aimed at tackling major tax fraud and comes with a budget allocation of 230 million euros for inspectors and 26 million euros for customs officers. The committee's decision to reject the government's proposal to eliminate 550 posts in the General Directorate of Public Finances signifies a push for stronger enforcement against tax evasion.
The left-wing parties supported the amendments, arguing that the current services are overstretched and require additional resources to effectively combat fraud. However, government representatives criticized the amendments as excessive and misaligned with budgetary constraints. As the assembly prepares to vote on the revenue part of the budget, there are indications that the government may resort to using Article 49.3 to adopt the budget without a vote, highlighting the contentious nature of the ongoing budget discussions.
