Compliance & Regulation

AFIC: Budget 'could collapse' French PE

The French private equity association has attacked France’s proposed budget claiming it could strike a deadly blow to the industry.

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“The [private equity] industry, already impacted by the downturn, will collapse in France should these measures take effect,” said AFIC president Louis Godron in a statement referring to proposals outlined in France’s 2013 budget.

The proposals, unveiled last week, introduce tough measures on carried interest, which Godron claims will prevent France from attracting top talent. In the proposals capital gains (the current tax classification for carry in France) would be taxed at up to 45 percent, with an additional 15.5 percent in social contributions – more in line with French income tax.

“There is no basis for comparison between an income received at the end of every month and the long-term risk taken by investment professionals,” said the AFIC’s statement.

The trade body warned the proposals could discourage international investors from entering France as they would portray a “devastating image of a country that doesn't like success and hammers them with a confiscatory tax system.”

The writing has been on the wall for a clampdown on the French private equity industry for quite some time. President Francois Hollande promised to increase taxation for top earners in France as part of his successful election campaign.

And earlier this month French finance minister Pierre Moscovici outlined his plans to increase the tax rate on capital gains.

However, the French private equity industry did get a break from the French tax authority. In a letter to the AFIC from the Direction de la Législation Fiscale (DLF) it was confirmed that following implementation of the Alternative Investment Fund Managers’ Directive (AIFM) funds outside France, but under French management, will not be taxed in France.

The DLF said French management of a fund established in a different jurisdiction shall not result in having taxable economic activity in France within the meaning of Article 209, I of the French tax code. Therefore any gains realised by the fund will remain outside of the French tax net.