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France to tax companies 5% more in second austerity package

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The French government has announced that companies with revenue over €250 million ($344 million) will be hit with an additional corporate tax equal to 5% of their assessed tax, for the fiscal years 2011 and 2012.

It is estimated it will bring in €1.1 billion in each of the two years.

The set of austerity provisions comes in the midst of European turmoil over debt and deficit levels, with France keen to avoid falling into a situation similar to those which have befallen some of its neighbours.

“French people must roll up their sleeves,” said Prime Minister Francois Fillon. “We have one goal: to protect the French people from the severe difficulties faced by some European countries.”

Rating agencies Moody’s and Standard & Poor had warned that France’s AAA credit rating could be at risk.

“It’s because of this debt crisis that we find ourselves in a situation of having to defend France’s AAA,” said President Nicolas Sarkozy.

This second austerity package follows a previous announcement by Fillon.

“The tax measures amount to €10 billion, against the overall austerity budget of €11 billion,” Nicolas Jacquot of Taxand France told International Tax Review in August when the first package was unveiled.

Apart from the increase in the corporate tax liability incurred by companies, the second package also sees the repeal of many tax breaks and an increase in the reduced rate of VAT from 5.5% to 7%, which should yield an extra €1.8 billion.

Some advisers are concerned about the lack of stability in the country, further evidenced by this second raft of rule changes.

“No stability in a jurisdiction like France is not good news for business and for investments,” said Pierre-Henri Revault, of Deloitte France. “People want a stable environment and this cannot be achieved when the rules are changed in the middle of the game. Maybe companies would not have made certain decisions or acquisitions if they had known some of these changes would be made.”

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