France tries to reverse the flow of tax exiles

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The French government is concerned that it is losing some of its most entrepreneurial and potentially high-earning citizens to countries whose tax regimes are less onerous than its own.Although it does not keep statistics of departing citizens and describes reports of increasing numbers of tax emigrants as "apocryphal", the government is worried enough to have quietly put in place incentives to attract the exiles back.

The Finance Ministry confirmed yesterday that measures used to encourage foreign investment in France, and special terms available to foreigners, such as making transfer and removal costs tax deductible, now applied also to returning French citizens. It confirmed, too, that there are special provisions for brokers moving to France - "they apply to all brokers, foreign and French", said a ministry spokesman.

France has always had its super-rich who retreated to Monaco or Switzerland to avoid the wealth tax, but this is something new. "It's the buzz of the Paris salons," said one weekly magazine recently. "Their voices atremor, they whisper the names of the seriously rich individuals who have chosen to escape to London, Geneva or even Brazil...'

Among the most mobile and tax conscious groups are bankers and brokers, and the self-employed. They are among the groups that have found the French tax system not just burdensome, but avoidable. The finance ministry confirmed this, saying that emigration for tax reasons now involved "not mainly the 170,000 people who are subject to the wealth tax, nor the 300,000 people in the top tax bracket, but independent entrepreneurs".

According to the weekly l'Evenement du jeudi, some dealing houses are trying to buck the system by setting up subsidiaries in London and moving staff there to benefit from lower income tax rates - but it declined to name names. France's top tax rate is more than 56 per cent; Britain's is 40 per cent.

The most immediate reason for the tax emigration are two measures introduced by the Prime Minister, Alain Juppe, last year, which increased the wealth tax by 10 per cent and abolished a rule that set a ceiling on the proportion of income any individual paid in tax.

But the wealth tax is not the only factor. To the generally high rates of tax and national insurance contributions have to be added the recent possibility for all EU citizens to work in each others' countries and a weakening of French inhibitions about working abroad.

In the final communique of this year's summit of the Group of Seven industrialised countries in Lyons, France stressed a clause deploring the proliferation of tax havens.

Since then, Mr Juppe has added a reduction in the top rate of tax to the outline of his five-year fiscal reform programme, starting with a 2 per cent reduction in 1997. In France, where polls put unemployment and poverty at the top of voters' worries, reducing taxes at the upper end would hardly have been considered without evidence that it was needed.