Sarkozy defends pledge to squeeze tax exiles

  • World
  • Wednesday, 14 Mar 2012

PARIS (Reuters) - French President Nicolas Sarkozy sought to reassure expatriate voters on Wednesday that they would not be hit by his promise of a crackdown on wealthy tax exiles if re-elected next May 6.

Beyond scornful reactions from left-wing rivals, tax specialists say the U.S.-inspired proposal Sarkozy announced on Monday is more symbolic than significant for public finances and would be hard, if not impossible, to implement.

In a radio interview, the conservative president defended his proposal to make tax exiles report to French authorities how much tax they pay on investment income in their country of residence and hand over the difference if they would have paid more in France.

"It's totally abnormal not to pay tax in France but to come back for healthcare and holidays," Sarkozy told Europe 1 radio.

He told one caller, a Frenchman working in Germany, that he was going after hardcore exiles who quit France solely to avoid tax but that he had no intention of targeting people who went abroad to work or set up a company.

Many French tax exiles go to neighbouring countries such as Belgium, Luxembourg and above all Switzerland, among them ageing rock star Johnny Hallyday, who publicly supported Sarkozy's election bid in 2007 but has stayed away this time.

Official estimates put the number of French expatriates at nearly 1.6 million at the end of 2011, with a significant rise in the last year of 10,000 in those residing in Switzerland, now more than 150,000.

Seeking to counteract Socialist allegations that he has been the "president of the rich", Sarkozy has also launched proposals to increase taxes on large French corporations. On Wednesday, he repeated a proposal to tax Internet companies such as Google on revenues generated in France.

"It is not fair that they generate several billion euros in France without contributing to taxes," Sarkozy told weekly magazine Le Point.


Patrick Michaud, a lawyer specialising in cross-border tax issues, said the distinction between expatriates and tax exiles would be hard to frame in legal terms, noting there is no such distinction in the U.S. law, from which Sarkozy drew his inspiration.

Valerie Harnois Mussard, another tax lawyer, said whatever Sarkozy planned would also have to comply with rules on the free movement of people and capital in the European Union.

A European Commission spokeswoman said of the proposal floated by Sarkozy: "In principle there's no conflict... but as always the devil's in the detail."

If implemented, the tax crackdown would probably concern 4-5,000 people, said Michaud, who suspects that Sarkozy's main goal was to avoid being left behind in a game of one-upmanship with Socialist challenger Francois Hollande.

Hollande, tipped in opinion polls to beat Sarkozy in the May 6 runoff, struck a chord with voters two weeks ago when he said he would introduce a stunning 75 percent top tax rate on incomes of more than one million euros.

That followed a report by financial consultancy Proxinvest that pay awards to bosses of France's top 40 listed companies rose 34 percent in 2010 and topped 4 million euros on average.

Opinion polls have shown a majority of French people approve of both ideas.

"It's all overdone," said Michaud, who said Sarkozy's and Hollande's proposals were "big-splash announcements" rather than far-reaching reforms. "The real tax exiles are already gone."

Sarkozy's opponents accuse him of hypocrisy after five years during which he took the opposite tack, introducing a "tax shield" or upper limit on the total amount of tax that wealthy people were required to pay. He abandoned it last year.

Hollande has said it remains to be seen if his rival's proposal is more than an "illusion". Sarkozy says the it would raise 500 million euros a year, a drop in the ocean compared to a budget deficit of 12.5 billion euros for January alone.

Former Socialist prime minister Laurent Fabius, who is campaigning for Hollande, said the proposed 75 percent tax rate, which has sparked fears that football stars among others will flee France, may only be temporary.

Regarding Sarkozy's plan, far-left presidential candidate Jean-Luc Melenchon went as far as to congratulate the president for taking on board an idea that he was first to float. "This is a triumph for me," said Melenchon, who has next to no chance of becoming president even if pollsters say he could garner a respectable 10 percent of votes in the first round on April 22.

Greens candidate Eva Joly issued a caustic verdict on Sarkozy's proposal after five years of shielding top taxpayers.

"If Mr Sarkozy wants to find tax exiles perhaps he should start by opening his address book," she said in a tweet message.

(Additional reporting by Jean-Baptiste Vey and Marine Pennetier; Editing by Paul Taylor)

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