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TAX NEWS - 2010

France Tax: France Tax Break For Catering Industry

Despite plans to impose sweeping cuts to existing tax breaks in France (les niches fiscales), Budget Minister François Baroin has confirmed that the reduced 5.5% value-added tax (VAT) rate accorded to the country's catering industry will, categorically, be maintained.

Having recently presented details of 150 new measures designed to modernize the state and to save the government in the region of EUR10bn from now until 2013, Baroin nevertheless emphasized that there will be no question of amending the controversial tax break accorded to restaurateurs in July 2009.

Up until now, Baroin has been clearly and openly in favour of reviewing - and reducing - the controversial tax break, referring to it as a "very, very large tax break", in stark contrast to Finance Minister Christine Lagarde, a staunch supporter of the measure. Indeed, Budget Minister Baroin had previously stated his intention, provided that he was allowed to do so, to include the shelter in the general paring down of tax breaks proposed by the government.

Only very recently, French Prime Minister François Fillon announced a general paring down by 10% of all tax breaks in France, albeit with a few "exceptions" so as to not increase labour costs, and also confirmed plans to abolish some tax shelters on a "case-by-case" basis, reiterating that the overall aim of the government is to reduce existing tax breaks in France by around EUR5bn over the course of two years.

The decision to maintain the tax break will, nevertheless, undoubtedly provoke fierce criticism, particularly given the government's latest series of 150 proposed austerity measures. Among the key measures contained in the plans, constituting the second phase of the general review of public policy (la Révision générale des politiques publiques - RGPP), presented recently by Baroin to the council of ministers, are the non-replacement of one in two retiring civil servants, a 10% reduction in spending on the functioning of the state and on operators, as well as a 10% cut in government intervention (spending on economic and social aid).

Launched by French President Nicolas Sarkozy following his election in 2007, the RGPP programme is designed to enable the government to realize savings by rationalising assets and by simplifying administrative procedures. The first phase, launched at the end of 2007, enabled the government to generate savings of around EUR7bn.
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