France's supertax and the flight of the rich

PUBLISHED : Monday, 24 September, 2012, 12:00am
UPDATED : Sunday, 23 September, 2012, 11:58pm

At the Louis Vuitton flagship store on the Champs-Elysées, the Japanese tourists jostle over the famous monogrammed leather bags as if they are going out of fashion.

France may be caught up in the global economic crisis, but there is no sign of it in Paris. LVMH is a leader in a still-flourishing luxury goods market and its chief executive, Bernard Arnault, is in the enviable position of being the richest man in France.

Louis Vuitton is a French success story, which should make Arnault something of a local hero. Instead, the tycoon was treated like a social pariah recently after accusations that he was trying to cut his tax bill by seeking Belgian citizenship.

The news that the billionaire businessman might head to the land of moules-frites generated headlines, insults, a lawsuit and divided France roughly down right-left lines: those who see Arnault as a symbol of the "selfish rich" and those who see him as a standard bearer for the tax-bludgeoned entrepreneurs trying to create jobs and wealth.

Arnault, 63, a friend of former right-wing president Nicolas Sarkozy (he was a witness at Sarkozy's second marriage), denies he is planning to up sticks to get out of paying a new 75 per cent "supertax" on the rich, one of the vote-winning pillars of socialist François Hollande's election campaign in May.

The explanation from an LVMH spokesman is that Arnault was seeking dual citizenship to make "sensitive" investments in Belgium, a response shot down by the Belgian authorities, who say foreign investors enjoy the same fiscal treatment as locals.

Living in Belgium, which Arnault - net worth an estimated at US$24.4 billion - says he has no intention of doing, would conveniently free him of French taxes on income, inheritance and wealth.

However, the mayor of Uccle, a chic suburb of Brussels where Arnault has a property, says the billionaire had voiced his dislike of the French tax system even before the presidential election.

"Mr Arnault came to see me at the end of last year, wanting to be domiciled here, to live here," says Mayor Armand de Decker. "He has a feeling about the policies of his country, which he considers unfriendly to business."

Was Arnault paving the way to Monte Carlo, the French press wonder. The route to Monaco via Belgium is a well-trodden one: once he has dual nationality, the businessman could theoretically renounce his French citizenship and move to the Riviera principality where Belgian nationals - but not French citizens - may live tax-free.

Shortly before the Arnault scandal erupted, the businessman had met French prime minister Jean-Marc Ayrault to tell him exactly what he thought of the new tax band. Early this month, Hollande went on television to reiterate: the 75 per cent tax band for those earning more than €1 million (HK$10.1 million) was on its way.

"There will be no exceptions," he said. "Everyone has to make an effort, play their part. We all have to be patriots, especially them [those earning over €1 million a year]."

A 75 per cent tax band will give France the highest tax rate in Europe - overtaking Sweden - and possibly the world.

Hollande has also warned that households will have to come up with an extra €10 billion to help bring down the country's public deficit.

The president, who once admitted: "I don't like the rich", certainly has France's wealthiest citizens in his sights, but the French middle class is likely to be pummelled too.

Hollande is also said to be considering a fiscal law, similar to that in the US, under which French taxpayers would be subject to French taxes even if they leave the country.

For socialists, the 75 per cent supertax is considered the vote-winner in May's presidential elections. Even though a small number of French people, probably fewer than 30,000 in a country of 64 million, will be affected, it is hugely symbolic for the left-wing president.

However, Jean-Philippe Delsol, a tax lawyer and member of an economic think tank that supports "economic freedom", says the tax is populist and plays on a historic Gallic antipathy to the rich.

"If you are wealthy in the UK, there is no hatred. There may be envy and scorn, but there is no hatred, real hatred, as there is in France. We like everyone to be the same, and if they are different, we detest them," Delsol says.

"Maybe it's because we are a Catholic country and have a lot of rural people who don't like the rich, or because of the idea of egalitarianism, which came out of the French Revolution, or from Marxism, which gained a foothold in France."

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