Removal of the tax on dividends : a look back at a fiasco of a tax

The ministry of Economy, Industry, Budget, public Accounts and the civil Service. Populated by énarques, it is the high place of the inventiveness of taxation.


In 2012, the government Ayrault, whose frenzy tax is no longer to demonstrate, and has instituted a 3% tax on dividends paid by companies. This is the second amending finance law of August 16, 2012, which introduces an “additional contribution” to the corporate tax (IS) in respect of the amounts distributed.

This new tax applied only to French and foreign companies subject to corporate tax in France. However, the SMES, that is to say, firms with less than 250 employees and whose annual turnover did not exceed 50 million euros or whose total balance sheet was less than € 43 million, have been exempted from this tax.

A beautiful far ” left “…

As IS, the tax on dividends was not considered as an expense deductible for the calculation of the taxable income to this tax. The case of a charge to the company making the distribution and not of the recipient company, as in the case of a withholding tax – this tax was not reduced by the amount of dividends paid by the shareholders. So it was a new tax burden which weighed on the medium-sized and large companies.

Naturally, this new tax was denounced in its time by the managers of large enterprises, but without effect. The government Ayrault and president Hollande remained deaf, all the more that taxing dividends would appear as a beautiful ” far left “. Yes, tax the generous dividends paid to their shareholders, large companies could only demonstrate the willingness of this government to show its anchoring to the left. And then, 3 %, that is what it is for the companies that pay more than 50 billion euros to their shareholders ? The government played on velvet, and filled the coffers of the State at a low cost !

… but unconstitutional !

Friday 6 October 2017, the constitutional Council invalidated completely the 3% tax on the dividends of the government Ayrault. This decision was anticipated, therefore, that the Court of justice of the european Union, seized by French companies, had retoqué tax on dividends received from a subsidiary established in the european Union. But the dividends from subsidiaries established in France or in the States outside of the european Union were still subject to this tax.

Therefore, it was foreseeable that the constitutional Council retoquerait permanently the 3% tax on dividends on the grounds that this difference in treatment was contrary to the Constitution since this situation was contrary to the ” principles of equality before the law and before public burdens “.

According to the constitutional Council : “In the absence of a difference in the situation, only one reason in the general interest could justify the difference in treatment contested. However, in establishing the contribution in question, the legislature has pursued a goal of budgetary performance. “Since the introduction of this contribution aimed to compensate for the abolition of a tax on undertakings for collective investment in transferable securities (UCITS) foreign the Association française des entreprises privées (Afep) had expressed its strong reservations both about its economic consequences for the French companies on compliance with european law.

Today, the constitutional Council has finally given their due and the Afep has taken note of this decision that ” was extremely unfavourable to the location of the seats in the national territory, and investment in French companies “.

Time bomb

With the decision of the constitutional Council, the State will now have to settle an invoice the amount of which, still uncertain, would be between 9 and 10 billion euros. A beautiful ticking time bomb left by the president Hollande and his government to his successor.

Read also The ticking time bomb, to 9 billion euros of François Hollande

Thus, after having benefited from the manna of the tax on dividends, the State is now having to make money. The problem is that the budget for 2018 is drawn with the chalk line and that the margins of manoeuvre are practically non-existent. In fact, register a new expense for an amount of € 10 billion would not meet the commitment to return below the 3 % of GDP public deficit.

Anticipating the decision of the sages of the constitutional Council, the government of Édouard Philippe had deleted the recipe of the tax challenged on its budget for 2018 and even provisioned for € 5.7 billion over five years for the repayment. But this provision will not be sufficient, has recognized the minister of the Economy Bruno Le Maire. Taken by the throat, the government of Édouard Philippe would be planning to return to the companies, asking them to negotiate a “spreading in time” of the refunds owed to businesses.

But, if that should prove insufficient, Bruno, The Mayor does not hesitate to brandish an outstanding contribution to a small number of major groups involved, as ” the major French companies also have a responsibility vis-à-vis the nation “. Thus, the tax on dividends that has been paid unduly by the companies should be compensated for by a special contribution ; the art of returning the ball in the camp of companies.

The unbearable lightness of the State in tax matters

In February 2012, François Hollande, then socialist candidate to the presidency of the Republic, and launch his campaign by promising to impose a 75% share of the income exceeding one million euros per year. Immediately, the professional football League denounces a measure that would seal the ” death of French football “, british Prime minister David Cameron says it is ready to roll out the red carpet to companies and executives involved in the project, and Gérard Depardieu left France for Belgium and expatriates in Russia. An early departure will be considered “pathetic” by Prime minister Ayrault, which will not score the points expected from the French people saw the popularity of the actor.

On December 29, 2012, the constitutional Council retoque tax of 75 % on the ground of his character ” thereof: confiscatory “, which does not prevent the president Hollande, who ” does not like the rich “, promised in march 2013 a new tax that will be paid by businesses. Once again, companies are making a contribution to a tax which, in the beginning, do not concern. But the argument is found : this will encourage companies to moderate the levels of remuneration of their executives.

Except that, for large global firms, the level of such remuneration is determined on the basis of the world market leaders, as for the footballers. Finally, this new tax, although validated by the constitutional Council, will not be re-appointed by the Prime minister Valls, and it will disappear in early 2015. This tax, which caused much ink to flow and kindled the political class is not reported in fine than € 400 million in two years. But as everyone knows, the symbols do not have a price.

Flops in series

Another fiasco State taxation could be recalled here : the tax on heavy trucks, flagship measure of the Grenelle environment forum in 2007, which should help to finance and maintain the transport infrastructure. This tax that was never put into service was suspended in October 2013 after the revolt of the red bonnets. The State has been ordered to pay almost one billion euros in compensation to the consortium franco-Italian Ecomouv’, which was responsible for the implementation of the gantries to collect the ecotax. A failure of public policy that will be pinned by the report 2017 of the Court of auditors.

Court of auditors : the fiasco of the écotaxe poids lourds

Thus, after the fiasco of the tax to 75 % on salaries above one million euros and that of the environmental tax, the State finds itself once again caught with this 3% tax on dividends. For a State that can rely on a high distinguished public service, populated by énarques, that’s a lot. Beyond the character preposterous of these situations, the substantive issue raised by these misfires tax is the extreme lightness of the behavior of the State in tax matters. Everything happens as if the State could afford everything and anything, even in defiance of our fundamental laws.

Fiscal instability

Today, the State is incarnated by the president of Macron and his Prime minister who, naturally, blame it on previous governments. It is of good war. However, this raises the question of the governance of the State and of the excess of the latitude and discretion to its most senior leaders. How to ensure that such acts do not recur ? Should we not, prior to the publication and implementation of a new tax or tax raise the question of their constitutionality ?

Moreover, this lightness is fueling the instability of tax in which businesses and households are struggling. The energy that is expended in these legal battles and tax is so much less that could be spent on the development of our business, and this is unfortunate. Each new government has taken the habit from too many years of reform, still, the tax so as to make it ” fairer “, ” more efficient “, ” easier “, etc, It must be said that this helps to show that the government is active to lower the costs…

Indeed, it is much easier to create a new tax than to put in place the conditions that allow businesses to create jobs and grow. The result of this tireless activity is a heap of taxes and evolving regulations which do not allow the economic actors to project themselves in the long term. Hope, without much hope, that lessons will be learned by future governments. One can always dream !

*Michel Albouy is professor of finance at Grenoble ecole de management (GEM).

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