The Constitutional Court found that because the 75% rate was based in part on an “exceptional” additional contribution of 18% (that is, the 18% exceptional contribution together with a new 45% rate of individual income tax, plus the existing 4% exceptional tax on high income earners and the 8% social security contribution, would have resulted in an overall tax rate of 75%) would have been imposed on each individual person—and not on each “fiscal unit” (foyer fiscal)—this provision would violate the French tax principle of equal treatment for all taxpayers. Accordingly, the exceptional additional contribution rate will not be enacted.
Also, some additional “minor” articles—concerning the taxation of stock option plans, undeveloped land, “anonymous bonds,” and certain retirement plans (retraites chapeau)—were found to be invalid by the Constitutional Court because these new tax provisions would result in a tax rate considered to be “too high.”
Tax professionals with FIDAL* anticipate that the government may offer a new provision in 2013 that would effectively impose the 75% rate on certain income of individuals, but for the time being, the 75% rate will not apply for the 2012 tax year. In addition, it has been noted that the maximum 75% tax rate (introduced with respect to limiting the impact of an increase in wealth tax) assessed on worldwide net income has been challenged because some potential (but not actual) income would be included in the definition of “worldwide income.”
Read a discussion of the tax provisions: TaxNewsFlash-Europe France - Year-end tax changes affecting corporations, individuals, VAT rates
For more information, contact a tax professional with FIDAL*
+33 (0)1 55 68 14 76
+33 (0)1 55 68 15 93
French Tax Center, KPMG LLP, New York
* FIDAL is an independent legal entity that is separate from KPMG International and its member firms.