Angry birds attack French tax on entrepreneurs

[October 06, 2012]  PARIS (AP) -- France's government is under attack by a flock of furious "pigeons." And the angry birds have won the first battle.

A group of entrepreneurs calling themselves "pigeons" -- French slang for someone who has been taken advantage of -- have mounted a campaign on Facebook and Twitter against a new law that will tax investments along the same lines as salaries -- on a sliding scale -meaning they would have to pay a lot more.

In less than a week since the measures were announced as part the French government's budget for 2013 -- the same package of measures that slapped a 75 percent tax on annual income earned over (EURO)1 million -- the furor the "pigeons" have stirred up has persuaded the government to backtrack.

But the group isn't giving up its fight. And the debate has renewed concerns that Socialist President Francois Hollande's administration is anti-business -- just as France is desperate for new growth. The French economy, the second largest among the 17 countries that use the euro, has not grown for three straight quarters. Unemployment has been on the rise for more than a year and stands at 10.2 percent.

France is struggling to reduce massive debts and a large deficit amid a stagnant economy and rising unemployment. It is raising the taxes to fill a (EURO)30 billion hole in the budget and meet a deficit target set by the eurozone of 3 percent of its (EURO)1.8 trillion ($2.2 trillion) gross domestic product.

Small and medium-sized companies are the biggest creators of jobs and drivers of economic growth, and make up 99 percent of businesses in France and the EU as a whole. France can't afford to be seen as a place where risk is penalized by punitive taxes.

In the hours after the budget was released Friday, accounts appeared on Facebook and Twitter slamming the taxes. The accounts' hosts -- who say they are entrepreneurs but have kept themselves anonymous -- complain that the budget law would kill off investment in small businesses.

In the high-risk, high-reward world of start-up companies, the "pigeons" argue, owners work day and night without pay and often only make their first profit the day they sell to a larger company.

Currently, most investment gains are taxed at a flat rate of 19 percent, which works out at about 35 percent once other social charges are added, according to tax lawyers Jessie Gaston and Sandra Hazan of Salans.

The 2013 budget means that entrepreneurs will now have to pay anything from 5.5 percent to 45 percent on the profits from their investments. The bigger the capital gain, the bigger the tax. In comparison, the U.S. charges a 15 percent capital gains tax, while in the U.K it is 28 percent.

The entrepreneurs calculate that under the new government measures, most of those profits will disappear. Experts say the effective tax rate on money made in such a sale could reach as much as 64 percent including capital gains tax and other government charges. To tax that profit so heavily would dissuade people from taking such risks in France.

"If you have someone who takes 60 percent of your profits at the door, he's a 60-percent shareholder in your company," Marc Simoncini, who started the popular online dating website Meetic and now runs investment firm Jaina Capital, told French television station BFM Business. "Psychologically, that's terrible."

On their Facebook page, the pigeons pressure group warned that the budget needed to be revised otherwise it would "become an example of hostility to entrepreneurism in Europe and in the world." The page has attracted more than 52,000 "likes." The hashtag "geonpi" -- a kind of French pig Latin for pigeon -- has been in the top trends for Paris on Twitter. And every national newspaper has covered the phenomenon.

It remains unclear who these pigeons are. Someone responding to a message sent to their Facebook account by The Associated Press said the group represents 40,000 entrepreneurs but refused to grant an interview or identify their members.

But other entrepreneurs have come forward publicly in recent days to talk about how difficult it is to start a business here.

"This budget, in its essence, at its heart, negates the development of business. That incontestable," said Jean-Claude Volot, head of Dedienne Aerospace and a former state-appointed mediator for companies. "The whole environment is negative."

On Thursday morning, the movement, not even a week old, clocked its first success. Finance Minister Pierre Moscovici and Budget Minister Jerome Cahuzac promised concessions after meeting with a group of young entrepreneurs.

Moscovici even seemed to be stealing from the pigeons' songbook when he told reporters after the meeting that money made from selling a company you started shouldn't be considered passive profit. "That's remuneration for work," he said. "Risk can be rewarded."

The government now says that that people who are selling their own businesses, as opposed to investors selling shares in a company, would pay the former flat tax rate of 19 percent.

Moscovici said other concessions are being considered, like improving the exemption for people who reinvest their gains.

But the fight isn't over. The group posted a statement on the Facebook page Friday saying that they welcomed the government concession but that they will remain vigilant and "not be satisfied with a handful of dried bread."

France's capital tax regime

And other entrepreneurs said that the law was just another drop in the bucket of anti-business sentiment they feel in France.

Tony Ca'Zorzi, who has founded a company that is creating city guides for mobile devices, said high taxes are only half the battle in France.

"There's a lot of red tape, a lot of small rules here and there," he said, estimating that 25 percent of his time is spent on dealing with regulations. "It's a mess."

Agnes Clement-Yamakado, who started a furniture company with her husband in 1986, said that of her eight employees, one is dedicated to handling all the onerous administrative tasks. "It costs a fortune," she said -- and that's just to figure out how much you owe.

[Associated Press; By SARAH DiLORENZO]

Sarah DiLorenzo can be reached on Twitter at http://twitter.com/sdilorenzo.

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