Two months ago, in the wake of the Brexit vote, then UK chancellor George Osborne announced his plans to lower corporation tax to 15% in a bid to convince businesses to stay. The move was roundly condemned by many EU countries, but particularly vociferously by French finance minister Michel Sapin, who said it was “not a good way to start a negotiation.” While the UK’s plans have been put on hold, the recent news that France plans to lower its own corporation tax from 33% to 28% indicates a change in attitude. But what does it say about the UK’s position in Brexit talks, and what’s the rationale behind the move for France?
The lower rate of corporation tax has actually gone under the radar slightly given the other measures in the 2017 budget. The headline news is that income tax is also falling by 20% for middle-income families, an average saving of €200 a year. President Francois Hollande has been in damage control mode ever since he was forced to abandon his flagship 75% income tax on high earners, which was blamed for an exodus of the rich and famous from France.
Glacial growth rates and a stubbornly high unemployment rate have dogged his presidency, with the latest in a €6bn round of tax cuts designed to reduce the country’s deficit in line with EU targets. The aim from a PR standpoint is more transparent: there’s an election next year, and although the President may not even run, he will be aiming to save face for whoever takes the nomination.
The corporation tax cut may look less appealing, but it could be the ace up Hollande’s sleeve. In the post-Brexit climate, most of Europe is battling to attract businesses wavering over the prospect of operating outside the Single Market. The head of the Parisian regional government was among the first to contact businesses in London, extolling the virtues of his city. Luxembourg has been vocal about its prospects as a potential new financial capital, while Frankfurt’s local government is looking to loosen employment laws to favour big banks.
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While the current French government has been less than favourable towards banks so far with its tax policies, this could spell a turnaround in fortunes. It’s hardly the lowest level of corporation tax in Europe - in fact it brings France in line with the average - but the country’s growing tech prowess and cultural clout could make it a far more tempting prospect. And big earning businesses may be buoyed by polls suggesting a change in government next year.
Where Brexit is concerned, France’s change of stance may reflect shifting attitudes across the continent. While all is far from rosy where the global markets are concerned, recent statistics have suggested much less of a fall out than was anticipated. Consumer confidence in the UK remains high, and a combination of optimism, barriers to movement and sweet-talking from the British government is keeping big business in place for now. There is still significant scepticism around the idea that the UK can secure membership of the Single Market and still have any more control over its borders, but the economy seems like it will remain fairly stable for at least the two year negotiating period.
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This might not seem like great news for Hollande who would not get to reap the benefits of business friendliness until well after the French election. But there’s equally a recognition that Europe is still in the midst of its own crisis, and may benefit significantly in economic and political terms without the UK’s often destabilising influence on EU policy. There’s a sense of ‘wait and see’ about Brexit’s impact on the UK and EU economies, but in every other regard it’s a case of full steam ahead. With a meeting of EU leaders (minus Britain) imminent, this is perhaps the time to stop talking and start planning. Like the UK’s own corporation tax cut, France has put its Brexit opposition on ice.
If you have any queries on how to take advantage of this new corporation tax cut and open a company in France, or if you'd like to know how to find an English-speaking chartered accountant, you can download our free guide below and either email us via our contact page or call us on 0033 (0) 1 53 57 49 10.
