(Feb. 2, 2011) Law 2010-1657 of December 29, 2010, on Finances for 2011 contains measures aimed at reducing France's public deficit from a level of 7.7% of the gross domestic product to 6%. The ultimate goal is to reduce the deficit to 3% by 2013. The government hopes to achieve its goal through drastic cuts in public spending, increases in tax rates and social contributions, the introduction of new taxes, and a reduction in tax credits. (Loi 2010-1657 du 29 décembre 2010 de finances pour 2011, LEGIFRANCE.GOUV.FR, http://www.legifrance.gouv.fr (last visited Jan. 28, 2011) [File: Les textes législatifs et réglementaires]).) Below is a summary of the key provisions of the Law.
The highest rate of income tax that applies to income exceeding €70,830 (about US$96,422) is increased from 40% to 41%. The other rates remain unchanged, but all the income brackets have been adjusted by 1.5 % to take inflation into account. The beneficial tax treatment received by couples for the year in which they get married is abolished. The reduced rate of 5.5% that applied to “triple play” services (i.e., television, telephone, and Internet) is replaced by the VAT standard rate of 19.6%. The Law also increases by 1% the tax rate levied on dividends, interest, and capital gains (from 18% to 19%).
The tax rate on the employee's monthly social contribution to the “retraite chapeau,” a pension received by top executives of banks and corporations in addition to the basic state and complementary pensions typically received by salaried workers, will be raised to 7% for the portion between €400 and €600 (about US$545-$817). For the portion in excess of €600, the contribution rate will be 14%. A single rate of 14% will apply to future pensions.
The employer social contribution levied on gains deriving from the exercise of employee stock options is raised from 10% to 14%, while the employee contribution is increased from 2.5% to 8%.
The Law creates a tax of 1%, referred to as the “Google tax,” on the purchase price of online advertising services. It will take effect on July 1, 2011. A tax of 0.25% will be charged on high-risk activities carried out by banks and financial institutions. Finally, investment service providers will have to pay two types of contributions to finance the Autorité des Marchés Financiers (Financial Market Authority), France's independent authority tasked with investors' protection.
Several tax credits will be reduced by10%. They include, among others, the income tax credits granted for investments in the French overseas départements and territorial collectivities, for investments in new residential premises intended for lease, and for investment in research venture capital funds and in proximity venture capital funds.
The Law also reduces from 75% to 50% the wealth tax credit granted for investments in small and medium-sized enterprises in France. It also subjects these tax credits to new conditions concerning the nature of the investment activity, the size of the assets, and the number of employees. The existing research and development tax credit is maintained, but the tax credit rate is reduced for companies investing in research for the first time, from 50% to 40% for the first year and from 40% to 35% for the second year.
Several tax credits are abolished, including the income tax credit of €115 (about US$157) for a single person (€230 for a couple) on dividends and the credit for loan interest paid for the taxpayer's main residence.
Compensation exceeding €1 million (about US$1.36 million) granted by the courts for moral damages will be taxable as salary income. The Law also abolishes the deferral of social taxes on proceeds paid under certain insurance life contracts (contrats d'assurance vie multisupport). Finally, the €25,830 (about US$35,240) threshold below which capital gains derived from the disposal of shares and securities are exempted from income tax has been abolished.