Francois Hollande’s 75% “Super-Tax” Passes…Sort Of

Anyone following France’s Ligue 1, European tax law, or both should be fairly familiar with the law that France’s constitutional council passed on Sunday.  It is a law that has been discussed, debated and protested against since its initial and eventual unconstitutional introduction just over a year ago.

During current French President Francois Hollande’s election campaign, he made what was at the time an audacious promise to back a 75% super tax on the wealthy of France in an effort to reduce the rising national deficit and stimulate a stagnant economy.  Right off the bat there was quite a bit of backlash with famed French actor Gerard Depardieu going so far as to move and take up Russian citizenship in protest.

At first the law was written to tax individuals earning over €1 million, (roughly $1.4 million) annually.  This hit a few snags and was found unconstitutional on the basis of the inability of the state to tax individually higher than 66% as well as issues surrounding double taxing on households.  This didn’t dissuade Hollande though and he went back and revised the law to instead levy the tax against companies and their payrolls.

It has been a tense period since this revised version was introduced with a number of French Ligue 1 clubs expected to be heavily affected if nothing else for not having the ability to prepare for the tax and in some cases as a result find themselves with the dilemma of paying their payroll obligations or the tax itself.

What has been passed though is somewhat more nuanced than a simple blanket tax.  Specifically, the tax will be a 50% rate on the portion of wages above €1 million but it will not be allowed to exceed more than 5% of a company’s annual revenue.  Another provision, and probably the most important one, is that this only lasts for 2013 and 2014.  That tax income and social contributions will equate to roughly 75%.

The state has asked the league to collect the tax on behalf of the state and big spending clubs like PSG will take a hit while smaller clubs will more than likely feel that hit a little harder.  At the moment AS Monaco has been exempt from the law despite participating in the country’s national league due to the fact that the constitutional council did not want to take the “judicial or constitutional risk” by taxing a company that was not technically registered in France.

That standing could very well change in the coming year as AS Monaco has lost its first round of legal proceedings about the LFP’s ability to force French national registration of the club.  Overall it seems like Hollande kept his campaign promise while not crippling French soccer.

Overall I wouldn’t expect the feared exodus of big name players out of France because of this law, if for no other reason than it only lasts 2 years.

Reporting on the business side of the world's game.