France Sexy No More for Entrepreneurs Escaping Hollande: Taxes
Jean-Emile Rosenblum, a 34-year-old e-commerce businessman, is quitting France.
With President Francois Hollande’s government readying a vote this month on its first annual budget law that seeks to raise 24.4 billion euros ($31.7 billion) in additional taxes, some of France’s entrepreneurs and wealthy are heading for the door. Hollande’s hitting businesses and individuals with at least a dozen new measures, including a 75 percent levy on income of more than 1 million euros, to narrow the budget gap.
“France is no longer a sexy place to be,” said Rosenblum, founder and former owner of Pixmania, an online seller of computers. “To attract and keep business and jobs you have to put on your best face, especially in tough economic times. With all the costs, the taxes and the social pressure, France looks more like an old maid to me.”
Rosenblum -- who says he’s leaving France with his wife and two little children this month to open a new business in a country he won’t disclose -- is among people fleeing a slew of levies announced by Hollande since the Socialist president was elected in May. The 75 percent millionaire tax was followed by new levies on capital gains, an increased tax on income and wealth, a boost to inheritance charges and an exit tax for entrepreneurs selling their companies.
The weight of the levies is prompting a wave of departures, said Philippe Kenel, Geneva-based tax lawyer at Python, Schifferli, Peter & Associates.
“It’s impossible to measure yet how many people are leaving or have left as no one wants to go public,” Kenel said. “But frankly, I’ve doubled the number of relocations this year with a sharp increase since Hollande unveiled his new fiscal rules in September. Retirees go to Switzerland. Entrepreneurs go to Belgium or to London.”
The government is seeking to bolster revenue through taxes on large companies, Internet startups and private fortunes to make its budget-deficit target of 3 percent of gross domestic product next year. Hollande, the first Socialist president in France since 1995, has called on those “with the most to show patriotism” in tough economic times.
C’est trop, some Frenchmen are saying.
“Those leaving will save so much in taxes that it’s impossible to refuse to go,” said Francois de la Villardiere, a former local politician and businessman, who sold his stake in an advertising company he co-founded to Publicis SA. (PUB) He is disposing of his Paris residence and his vacation home near the Rambouillet forest outside the French capital, before moving to somewhere in Europe or the Americas.
“The new tax system is a call from the government to break the law,” de la Villardiere said. “I have nothing against paying my share of the burden or being ‘patriotic’ as Hollande calls it, but when all you do is pay taxes, you hit a ceiling.”
While the trickling out of French people began when former President Nicolas Sarkozy started increasing levies and went back on a measure that capped all taxes at 50 percent of income, it’s Hollande’s fiscal regime that has accelerated departures. [bn:URL=http://www.portaildudeveloppementcommercial.com/users/didier-delmer-1.html]
Didier Delmer , who helps French entrepreneurs relocate and create companies in London, says his business has skyrocketed, from five transfers a month to an average 80 since May 2012.
U.K. Prime Minister David Cameron promised in June to roll out the “red carpet” for fleeing French people. Unlike France, the U.K. has no wealth tax. Also, while Hollande is creating a new 45 percent income tax for earnings above 150,000 euros a year to add about 700 million euros to the government’s coffers, the U.K. cut the 50 percent tax rate for income over 150,000 pounds ($242,500) to 45 percent from April.
Delmer, who founded Business Booster Ltd. 12 years ago, said his clients include only about two or three millionaires a month. Most of them are young French entrepreneurs who want to get away from their country’s stifling business climate, he said.
“They want to escape France’s tax red-tape, escape the crappy attitude toward those who are successful, get lower corporate taxes and be in a place with a better reputation than Paris,” he said.
They are the kind of people France needs at home to create jobs as it grapples with an unemployment rate that’s at a 14- year high.
“Hollande has created a system where profits, wealth and most of the money gets sucked up by the state to fund bottomless public finances,” de la Villardiere said. “Instead of looking for creative, new options to spur growth, they went with old recipes that have reached their limit.”
Rosenblum, who sold the last of his shares in Pixmania to Dixons Retail Plc (DXNS) in July, says most of the 250 jobs his new business will create will be outside France.
“And that’s unfortunate,” he said.
Hollande’s plan to double the top capital-gains tax to about 64 percent for entrepreneurs selling their business, provoked an outcry. It also spawned in October an entrepreneurs’ group dubbed “Les Pigeons,” who used the bird’s role in French slang as the “sucker” to show they were being made the fall guys for France’s economic woes.
As the group rallied thousands of protesters, Finance Minister Pierre Moscovici met with them, and less than two weeks after unveiling the bill, Hollande watered down the plan and maintained an “exit tax” determined by the period of time a stake is held and whether proceeds from a sale are reinvested.
“The measure on capital gains was a direct attack on the motors of entrepreneurship, the aspiration to make money in case of success, which is necessary for taking risks,” said Philippe Marini, the Senate Finance Committee president and member of the opposition Union for Popular Movement party.
Exactly how the new capital-gains tax will work remains unclear. The 75 percent tax was also modified. After first leaving it open-ended, Hollande said the tax would only last two years. The tax, which was supposed to include bonuses and dividends, is now limited to the base salary.
Some of the details on the levies will be clearer after the budget law is voted in. It will be debated and voted on in the Senate until Dec. 11 and in the National Assembly by Dec. 20.
“The uncertainty surrounding Hollande’s first budget law, the moving target with changing tax rates on capital gains, and the general signal that it sends: ‘if you make money we’ll take it’ is very stressful,” said Charles-Marie Jottras who heads the luxury real estate company Daniel Feau in Paris. “Instead of waiting to get slapped, they leave.”
The 75 percent tax, announced primarily to appease Hollande’s political base during the election campaign, may raise only a few dozen million euros.
“The rate is so outrageous and we see so many top earners leaving that I doubt there will be many left to pay it,” said Jottras. “It’s the Laffer curve: too much taxation kills taxes.”
Jottras, who also works with the Christie’s real estate network, says he already has evidence of people leaving in the top-end property market. He has 30 percent more high-end homes for sale in France now than in March, when Hollande first mentioned the new levy on the campaign trail. Jottras sells homes that cost 1.5 million euros or more.
Nathalie Garcin, daughter of Emile Garcin, the founder of the eponymous luxury property firm, said she has seen a doubling of Paris homes valued at between 3 million euros and 15 million euros being put up for sale.
“The first thing lawyers tell those who want to leave France is to sell their primary residence, ” she said in an interview. “My clients tell me they’re fed up and don’t want to work for the state. All this is temporary, I hope.”
To be sure, not all wealthy people are planning to leave. Matthieu Pigasse, deputy chief executive officer of investment bank Lazard Ltd. (LAZ), told French magazine Challenges that he’s not going anywhere.
“They’re exceptional measures for an exceptional crisis,” he told the magazine. “I’m showing solidarity.”
Also, only half those who get in touch with tax lawyers or relocation consultants actually make the final move, Python, Schifferli’s Kenel said. Language barriers, homesickness, food, family and social life are often strong incentives to abandon a move, he said.
Additionally, the stigma attached to leaving for tax reasons also keeps people from acting.
A decision by France’s richest man, LVMH Moet Hennessy Louis Vuitton SA (MC) Chief Executive Officer Bernard Arnault, to seek Belgian citizenship created a media frenzy over tax exiles, prompting the newspaper Liberation to run a front-page headline that read: “Get lost, rich bastard.”
Arnault had to quickly come out and say that he plans to retain his local residence and will continue to pay French taxes.
French citizens aren’t the only ones seeking to escape the country’s new tax regime. Steve Horton, who runs an eponymous tax service company in Paris to advise Americans in France, says the state has lost 7 million euros in receipts for next year from such taxpayers. First Sarkozy and now Hollande have taken tax decisions that create collateral damage, he said.
“France can hardly compete now with Moscow, New York and other capital cities for elite workers,” Horton said. “They are skilled, speak many languages and are mobile. They were sad to leave but they are gone now. France has killed the goose that laid golden eggs.”
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