How the French PLF 2014 affects the startup ecosystem

Oct 25, 2013
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The following is a guest post by Aurélie Daniel, Cofounder & CEO of Beyond Croissant & blogger at En 20 Lignes, who has a Master’s in Business Law from the Institut d’Etudes Politques de Paris. You can find her on Linkedin or follow her on Twitter @aureliedaniel.

Earlier this month, the French Government announced its finance bill for 2014 (in French PLF 2014 or Projet de loi de finances pour 2014), which has provoked a passionate reaction in the French media. Last year’s proposal saw the movement “Les Pigeons” defend the French entrepreneurs, ultimately forcing concessions by the government in terms of the severity of Capital Gains taxation; nonetheless, the French Ministry for the Economy and Finance seemed determined to impose a new tax unfavorable to the French capital-investment this year.

Unfortunately, foreign investors represent about 50% of funds raised by French private equity, amounting to € 3.6 billion in the first half of the year 2013, according to the AFIC. This amount pales in comparison to the needs in stockholders’ of French small and medium-sized enterprises estimated at €11 billion.

Article 11 of the finance bill for 2014 worries the French private equity. This article proposes a 30% tax rate on all the income paid by French companies of venture capital into which the foreign institutional investors have invests

President of AFIC Louis Godron explained:

“it is a real problem for the French funds of private equity that still succeed in raising capital with international investors”.

On October 21st, under the basis of “encouraging long term investment and risk-taking,” the French Assemblée nationale approved the alignment of income tax and capital gains tax, and also removed the tax break on Capital Gains that are reinvested into other Ventures. Nothing was said during the debate regarding the foreign investors issue.

The parliament needs to realize that Article 11 is not favorable to the growth and employment, which is nevertheless one of the Government priorities (see PLF 2014, page 14).

But a French socialist government will always put salaries and purchasing power before investments and entrepreneurship in order to favor growth and employment. On his blog, socialist deputy and reporter of the budget Christian Eckert expressed a good example of that position last year, writing concerning the movement of the pigeons “within a few hours, a good slogan, an excellent communication and numerous relays allowed a squadron of skillful entrepreneurs to accredit the idea that the enterprising mind, the investment of their money, the relevance of their ideas, gave to these people the right to pay fewer taxes on the resale of their modest wads of actions, than the employees who valued the price of the same shares.”

Fortunately, there are also discussions between Christian Eckert and Jean-David Chamboredon, spokesman of the movement “Les Pigeons”, in a way that French deputy recently asserted “being opened to any suggestion of improvement for the second reading of the finance bill, on the only condition that it is without new loss of resources for the budget”. But such modifications would not be without consequence, as they “would be necessarily compensated with measures questioning other accumulations or advantages as for example the reduction ISF PME”, which is the reduction of the wealth tax in connection with small and medium-sized enterprises.

The finance bill still needs to be voted by the French Sénat in order to be approved. Let’s wait for the pigeons to spread their wings.

Photo courtesy of Atlantico