Part II

Developments in the Member States

amount of tax incentives (niches fiscales) that a taxpayer may obtain during a fiscal year for individual income tax
purposes has been further capped on the level of the household (foyer fiscal) to 18 000 (2011: 18 000; 2010:
20 000) plus 4 % (2011: 6 %; 2010: 8 %) of the net taxable income. Many tax credits were abolished or reduced as
part of a government plan to reduce the budget deficit. As of 2010, certain passive income became fully subject to
SSC at an overall rate of 12.1 % (prlvement social sur les revenus du patrimoine et produits de placement). This
social contribution was raised from 2 % to 2.2 % and further to 3.4 % in 2011. As a result, the overall rate of social
taxes (i.e. social levies, CSG and CRDS) applicable to passive income is now 13.5 %. This overall rate will be
increased to 15.5 % as of July 2012. The final levy on gains derived from the exercise of employee stock options
exceeding 152 500 was increased from 40 % to 41 % (53.3 % with the social taxes, plus 8 % of employee
contribution). The employer SSC due on gains derived from the exercise of employee stock options was increased
from 10 % to 14 %. The tax shield (Bouclier Fiscal) has been abolished. Several measures have been proposed by
the government including a freeze in tax brackets and an increase in withholding rates on dividends and interests.

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In VAT, a new reduced rate of 7 % has been introduced as of 2012. It covers all products and services previously
taxed at 5.5 % (including restaurants), bar those for disabled, food and subscriptions to gas and electricity which
remain taxed at 5.5 %. A specific contribution of 7.16 per hectolitre has been introduced on suppliers of
beverages (sodas) with added sugar or sweeteners.
The main initiative in corporate taxation is the German-French cooperation to make their corporate income tax
converge, which led to the publication of a Green Paper in February 2012 discussing options. France also
introduces a temporary CIT surcharge of 5 % on companies with (group) gross income exceeding EUR 250
million. France also announced the introduction of a Financial Transaction Tax to be operational in August 2012.
Its rate will be 0.1 % on the transaction of shares of publicly traded resident companies whose capital exceeds EUR
1 billion and 0.01 % on High Frequency and automated Trading and on 'naked' Credit Default Swaps for European
sovereign debt.
France also announced a tax shift from labour towards consumption. This TVA Sociale would raise the standard
VAT rate from 19.6 % to 21.2 % from October 2012. The social contribution rate would be raised from 3.4 % to
5.4 % for certain types of income (prlvement social sur les revenues du patrimoine et produits de placement). In
counterpart, the 5.4 % family contribution paid by employers would be fully or partially abolished.

Main features of the tax system

Personal income tax
The PIT (IR) is levied annually on worldwide income according to a single progressive scale. For 2012 the top
marginal rate is 41 % (applicable above 70 830). The system takes into account the specific situation of each
household by applying a family quotient. A noteworthy feature is the high number of thresholds and exemptions
applied. In response to the crisis, in 2009 a temporary PIT reduction for low income households was introduced
resulting in a cut of the PIT of 2/3 for these households. Investment income, such as bank and bond interest, and
qualifying capital gains from the sale of monetary investments are taxed at a flat rate of 19 %. Real estate gains are
taxed at a 19% rate as well. Capital gains realized by individuals on the disposal of shares are subject to SSC
(CSG, CRDS) at an overall rate of 13.5 % since October 2011 (previously 12.3 %). France also applies a payroll
tax on employers who are not liable for VAT on at least 90% of their turnover, therefore including the financial
sector (taxe sur les salaires). This tax, which shares similarities with a Financial Activity Tax, raised 11.35
billion in 2010 (about 0.6% GDP).
In 2006, the income tax scale was overhauled through the reduction in the number of brackets, and simplification
and lowering of the rates. The earned income tax credit was increased by 50 %. The total amount of taxes paid by
individuals, including income, wealth and local taxes, was capped at 50 % of their income (bouclier fiscal). This
system will be abolished as of 2013.

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Taxation trends in the European Union