France exploring tax harmonisation with Germany

EU Observer (Link) - Valentina Pop (August 26, 2010)

France is looking to bring its fiscal system closer to that of Germany, French budget minister Francois Baroin has said after visiting his German counterpart Wolfgang Schaeuble.

�Germany is a model which should be a source of inspiration for us. The political consensus in the German society on reducing the deficits is quite spectacular,� Mr Baroin said Wednesday (25 August), Les Echos reports.

French President Nicolas Sarkozy intends to accelerate the harmonisation of both fiscal systems, on corporate as well as personal income taxes, the minister added.

Mr Sarkozy has requested the French court of auditors to issue a report looking at areas of fiscal convergence with the German system. The report is due by the end of the year, but a pre-report will be published at the end of September.

�In Germany, there is no wealth tax and no tax shield, but still their economy is flourishing. These are topics which are useful,� Mr Baroin said.

Mr Sarkozy�s government has introduced a �tax shield� capping the country�s wealth tax at 50 percent of income, a move strongly criticised by the Socialist opposition.

Germany abolished its wealth tax in 1997, a tax on those earning above a certain threshold, after a negative ruling by the Constitutional Court. Just a year before, the German wealth tax brought in about �4.6 billion to the state coffers.

Harmonising tax systems is one way of closing competitiveness gaps within the eurozone which exacerbated the sovereign debt crisis earlier this year.

In the longer term, Paris is also looking at harmonising value-added tax (VAT), which is higher in France � 19.6 percent compared to the German 19 percent - while some services such as hotel and restaurant businesses are benefitting from more exemption in the French system than in the German one.

Mr Baroin also sought support from Germany on capping the EU budget, as governments are forced to slash their own spending and do not want to see an increase in their contribution towards the Union�s coffers.

From the German side, Mr Schaeuble said there is consensus between the two capitals on seeking European harmonisation on bank profits taxation.

�We don�t want to see a regulatory patchwork in Europe,� a spokesman for Mr Schauble said, according to DPA.

A special meeting of finance ministers in September will discuss the matter further.

The German cabinet on Wednesday approved a bank restructuring bill, which includes plans for a bank levy, with proceeds going into a bank restructuring fund that would be used only in the event of future crises.

Berlin estimates revenues of about �1.2 billion a year from this bank tax, aimed at protecting the taxpayer from bailing out big banks, as was the case after the collapse of Lehman Brothers in 2008.