LDN - Business

France to hit firms with one-off levy to replace dividend tax

[October 24, 2017] PARIS (Reuters) - Big French companies will be forced to pay an "exceptional contribution" to make up for a dividend tax canceled by French and EU courts, Finance Minister Bruno Le Maire said on Tuesday.

Although President Emmanuel Macron's government is cutting corporate tax, it has little choice but to find an additional levy to make up for an up to 10 billion euros ($11.76 billion) revenue shortfall, and penalties left by the canceled tax.

Le Maire, a conservative who has repeatedly accused his Socialist predecessors of amateurism for creating the three percent dividend tax, described it as a "state scandal".

Companies such as insurer AXA and telecoms group Orange successfully challenged the tax in court.

"There will be an exceptional contribution," Le Maire told Europe 1 radio, adding it would ideally be levied this and next year, with penalty fees piling up as cases go unresolved.

The government was considering levying the tax on firms with revenues of over one billion euros and possibly increasing it for those with revenue above five billion euros, Le Maire added.

The exceptional tax runs against Macron's pro-business reform agenda which aims to ease payroll charges and gradually cut corporate tax from 33.3 percent to 25 percent over five years.

However, the hole in the budget caused by the scrapped tax jeopardizes Macron's ambitions of bringing the public sector budget deficit in line with EU rules, allowing France to exit an excessive deficit procedure to which it is currently subject.

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French Finance Minister Bruno Le Maire attends the questions to the government session at the National Assembly in Paris, France, October 3, 2017. REUTERS/Benoit Tessier

"If we don't show our European partners quickly how we plan to reimburse the 10 billion euros, we won't get out of the excessive deficit procedure and we'll remain the black sheep of Europe," said Le Maire.

The Socialist government of former president Francois Hollande introduced the 3 percent tax in 2012 on companies' dividends to encourage them to re-invest profits.

Because the tax covered dividends paid by the EU subsidiaries of French parent companies, the European Court of Justice (ECJ) struck it down in May on the grounds that ran against EU law by created double taxation within groups.

Macron's government is hoping to convince the European Commission that the case is a one-off event and that its deficit cutting plans remain firmly on track.

Ironically, the commissioner charged with considering the issue is Pierre Moscovici, who was none other than the French finance minister in place when the tax was created.

(Reporting by Leigh Thomas and Yann Le Guernigou; Editing by Sudip Kar-Gupta and Raissa Kasolowsky)

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