There is currently a legislative ping-pong taking place between
the French Sénat and the Assemblée on the economics of the taxation
of wealth in France in the Finance Bill for 2018.
This newsflash summarises the position after the Sénat voted to
repeal ISF and not to replace it by the impôt sur la fortune
immoblière ("IFI") on 27th November, and sent the the emasculated
Bill back to the Assemblée.
In layman's terms, the changes to the French Wealth tax or
impôt de solidarité sur la fortune (ISF) and its
proposed replacement by a tax on immovable property wealth of
individuals: l'impôt sur la fortune
immobilière (IFI) were enshrined in article 12 of the Bill
initially sent up to the Sénat by the Assemblée.
To sum up, the Macron Government had proposed what amounts
to the removable of movable property and movable capital, i.e. for
the most part liquid capital or realisable movable capital from the
ISF, retaining the tax and it structure upon direct and indirect
residential property holdings, and to a lesser extent on certain
types of rental activity.
That was passed by the Assemblée, the lower house, at the
Bill's first reading, with some modifications.
The proposal was then roundly fustigated at the Senatorial
level, the thrust being led by no less than Albéric de Montgolfier,
who for the benefit of those new to this particular area, was a
tough and extremely vigilant juge d'instruction in
fiscal avoidance cases.
He basically stated that the ISF costs too much to control and
enforce in relation to the net benefit to the state it produced (€5
milliards), and that the restriction to immovable property would
make it harder to collect, owing to the difficulties of actually
isolating what was taxable and what was not, the issue of whether
companies and other structures owning property for their business
activities were within or outside the scope of the tax, and
the effect on the French economy. Heavy emphasis was laid
on the adverse effect on the French construction industry and the
potential loss of jobs. Hence the somewhat weak responses of
the Left to his arguments, which were limited to the usual
political griping about wealth and the wealthy in general.
In short, the Sénat performed its rôle as the senior house, by
criticising the actual economic effect and cost of the tax to
produce the €5 million which the ISF is booked into the
Finance Statements as producing. De Montgolfier was very
clear that the IFI would be more expensive to administer as the
definitions of taxable residential and non taxable property in
the industrial, commercial, professional and agricultural
sectors for economic purposes was not clear enough to avoid
declarative controversy with taxpayers. That leads to payment
I stress here that no mention was made at any stage of the
issues with foreign immovable property holdings of such property by
French resident held directly or indirectly, at that point of the
Even de Montgolfier had not realised that the definition abroad
of residential as opposed to non-residential use is unworkable if
determined according to current French definitions of industrial,
commercial, professional or agricultural activity definitions for
income tax. For example, agricultural user is determined under
OECD principles, and general international law practice normally by
the place where the land is; not by the jurisdiction where its
owner and exploitant may be resident. The lex
situs principle as a legal principle undergirds all tax
treaties based on the OECD model. France has an insular
habit of ignoring such fundamentals as niceties.
De Montgolfier's recommendation that ISF be removed and that no
IFI be introduced was followed by the Sénat. The Finance Bill
was then amended to reflect that and sent back across to the
Assemblée, further down the Seine.
However, the version of the amended Bill which is currently on
the Assemblée Nationale's website as at 28th November, contains
both the IFI clauses intheir form sent to the Sénat, the repeal of
ISF and the statutory modifications to include the taxes on luxury
items. See link. If the senatorial amendents are to
be take ninto account, they are not yet "on the table" in the
De Montgolfier also said that the idea of attempting to
create small focused taxes on luxury items was also a waste of
administrative ressources and energy, but that has not stopped
the Assemblée preparing proposals for such taxation
limited to luxury yachts, cars and other such politically
Those matters will be debated in the next Assemblée's
session this month , and it remains to be seen whether onthe
repeal of ISF, the Assemblée will send back the IFI proposal
to attempt to force it through, or whether it will axe both and
attempt to move the current income tax treatment of signs of
wealth (signes extérieures de richesse) from a means of
assessment for income tax on a priori evidence of undeclared income
into a separate set of independent taxes.
The feeling in France at the notarial level is that the IFI
will still be maintained.
The current version of the Bill on the Assemblée Nationale's
website (28th November, 2011) still contains the IFI, and also
introduces taxes on luxury items: see this link. That might best be
taken as an indicating that the inclusion of the new taxes
alongside the IFI is what is to be debated by the Assemblée , prior
to the final version being sent back to the Sénat for its vote.
Given the effect of the removal of the ISF on the Trust levy,
which will then become redundant, and was removed in de
Montgolfier's accepted proposal, that might enable trustees to
consider investing in French financial markets. However. note
that the proposal does not remove French financial assets from
succession or gift duty assessments, and that there is no hint
of removal of the current 2181 Trusts1 obligation to declare the
acquisition of French assets of any description within one month of
their acquisition. The gift and succession duty treatment of trusts
with French connections is not repealed by the new Bill.
That declaration would still entail the full trusts declaration
of settlors, beneficiaries, and assets, wheresoever situated.
That would remain a substantive obstacle to Mr Macron's stated
aim of bringing foreign capital into France.
In other words , the French expedient of encouraging investors
to place money in French companies through non-French stock
markets, or those companies using overseas or offshore quoted
captives or quoted designated funds to attract foreign capital
might notwithstanding have to re-assess the position.
I remain at your disposal for advice and formulating safe
initiatives in these areas, and for suggesting alternatives.