President Francois Hollandeâ€™s 75 percent millionaire-tax is unconstitutional because it doesnâ€™t guarantee equality for taxpayers, Franceâ€™s top court ruled.
Hollandeâ€™s plan would have added extra levies of 18 percent on individualsâ€™ incomes of more than 1 million euros ($1.32 million), while regular income taxes and a 4 percent exceptional contribution for high earners would have been based on household income, the court said today in an e-mailed statement. As a result, two households with the same total revenue could end up paying different rates depending on how earnings are divided among members of those households, which runs counter to a rule of equal tax treatment, the Paris-based court said.
The tax, one of Hollandeâ€™s campaign promises, had become a focal point of discontent among entrepreneurs and other wealth creators, some of whom have quit French shores as a result. Movie star Gerard Depardieu, 64, said he was leaving Franceâ€œbecause you consider success, creativity, talent, anything different are grounds for sanction.â€
French billionaire Bernard Arnault, chief executive officer of LVMH Moet Hennessy Louis Vuitton SA (MC), filed an application for Belgian nationality in September. While he promised to continue paying taxes in France, the action prompted fierce criticism from Hollande and his supporters.
â€œPolitically, this has an impact because it was a symbol for French public opinion, and was considered abroad as the emblem of French tax excess, of French tax hell,â€ saidDominique Barbet, senior economist at BNP Paribas SA in Paris.â€œIn deficit terms, itâ€™s truly negligible.â€
The decision could be positive for Franceâ€™s bond market because it shows there is a limit to the governmentâ€™s ability to raise taxes on the wealthy and may decrease the flight risk of more rich French citizens, Barbet said.
The constitutional court lowered a series of other tax increases, calling them excessive or saying they also violated equality of treatment for taxpayers. The tax rate on stock options and free shares was lowered to a maximum of 64.5 percent from a rate of as much as 77 percent. The marginal tax rate on a type of private retirement benefit, known as â€œretraites chapeau,â€ was cut to a maximum of 68.34 percent from a planned rate in 2013 of 75.34 percent.
Looking at Franceâ€™s wealth tax, the court said that unrealized gains couldnâ€™t be included in assessing the tax because it ignores the requirement to take into account a payerâ€™s ability to meet his obligations.
Hollande called on the â€œpatriotismâ€ of the countryâ€™s rich to do their part during Europeâ€™s more than three-year-old financial crisis.
French Prime minister Jean-Marc Ayrault said in an e-mailed statement that the government â€œtakes noteâ€ of the court decision and for the 75 percent tax band â€œwill present a new proposal in line with the principles laid down by theConstitutional Court.â€
The new proposal will be part of the next budget law, Ayrault said in the statement.
The courtâ€™s decision will lower tax revenue by less than 500 million euros in 2013, according to a spokeswoman for the prime ministerâ€™s office who declined to provide her name.
Former President Nicolas Sarkozyâ€™s opposition Union for a Popular Movement political party had asked the court earlier this month to overturn the measure.
The tax, which Hollande said would be in place for two years, is part of the 2013 budget law and would have gone into effect starting on Jan. 1.
Hollandeâ€™s 2013 budget relies on 20 billion euros in additional taxes: 10 billion euros from companies and 10 billion euros from individuals. In addition to the millionaire tax, Hollande has added new charges on capital gains, an increased tax on wealth, a boost to inheritance charges and an exit tax for entrepreneurs selling their companies. His government has also created a new 45 percent tax bracket for incomes exceeding 150,000 euros per year.
The moves come as Hollande seeks to cut Franceâ€™s public deficit to 3 percent of gross domestic product next year from a projected 4.5 percent this year. The courtâ€™s decision doesnâ€™t call into question deficit targets or the path set out to get there, Ayrault said in the statement.