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What if going to live in Portugal, Belgium or any other country no longer allowed you to escape the tricolor tax?
A major element of Jean-Luc Mélenchon's program, this proposal was proposed to us by a reader, as part of our "Proposals Lab" in view of the presidential election: to introduce a nationality tax.
We tried to see if it was really possible to put this measure in place and what its benefits would be.
What is it about ?
Nationality tax, or “universal tax”, is the tax process whereby everyone should pay tax in the country of their nationality.
In other words, a French person, whether he lives in France or in China, should declare his income in France and pay taxes on this same income.
The objective of the nationality tax is simple: to fight against tax evasion.
Voluntarily or not, French people can move to countries where, for the same salary, they pay less tax.
The thing is easy: France is one of the countries where the tax rate is the highest.
With such a system, it would remain for politicians to determine at what level and to what extent the French expatriate is taxed.
One thing, however: taxation in the country of residence must be taken into account, so as not to be penalized by double taxation.
"The gain provided by an expatriation for tax reasons in a low-tax country is thus canceled automatically since the lower the taxation of the destination country, the greater the tax due to the French tax authorities will be", present in a report on the subject published in September 2019 the deputies of the Finance Committee.
However, this measure would require a complete change of mindset with regard to taxation: it would no longer finance the services and infrastructures to which we are entitled, but those to which we were entitled and whose people of the same nationality benefit.
What are the costs and benefits?
The nationality tax would not cost the authorities a priori anything, except to set up a new system and take the time to make new agreements.
The benefits do exist since tax revenues would be inflated, but they are impossible to quantify.
“In a country where the tax rate is the highest compared to other countries in the world, we would have a lot of money to recover”, explains to the Parisian Sophie Alexander, lawyer at Cadji, specialist in tax subjects.
According to the Ministry of Foreign Affairs, 1,614,772 French people were registered on January 1, 2022 in the Register of French people living outside France.
However, this registration is not compulsory: it is estimated that 2.5 million of our compatriots actually live outside the country.
It is impossible to know in detail to what extent these expatriates pay less tax than they would pay in France.
Is it doable?
The measure is applicable… if we launch a huge gas machine.
First, the Treasury should be able to be in contact with each of these fellow citizens, wherever they are in the world.
The challenge is considerable: the obligation to declare oneself during one's expatriation does not exist today.
And if the tax authorities ever managed to identify French people residing abroad, they should be able to ask them directly for a tax return or obtain them in one way or another.
In their report, the deputies Éric Coquerel (La France insoumise) and Jean-Paul Mattei (MoDem) also mentioned the need for new tax treaties with foreign countries, which could give rise to "difficulties" and "risks of retaliation ".
"It means imposing a decision against the sovereignty of countries and it can be considered by other countries as an attack on sovereignty," explains Sophie Alexander.
The problem would be all the more difficult since it would be necessary to be able to check the tax declarations of each of the compatriots.
In this report, the deputies did not hide the titanic work that such a measure represents: “It should be realized that this fundamental modification of the principles of the taxation of natural persons would lead to cascading modifications of all the taxes which derive from it. , they wrote.
This involves considerable legal work, for a result in terms of tax revenue and the fight against tax evasion which depends on other parameters (tax rate, cooperation from other States, ability to recover the information, etc.).
»
Another pitfall that the tax administration could encounter: the level of public services abroad... Thus, a French person can pay less tax in one country - and therefore logically pay some in France -, but must pay the school, health, etc.
At the same time, a Frenchman living abroad could have the same level of taxation as he would have in France – and therefore owe nothing to the French tax authorities – but benefit from more public services.
What about abroad?
There are only two countries in the world to have implemented a nationality tax: Eritrea and the United States.
The system in this second country is the most documented.
It dates back to… 1864!
Since then, every American, wherever he is, must declare his income to the American tax authorities and in certain cases, pay a tax.
The American model was truly set in motion at the global level with the Fatca law, which came into force in 2014. It requires all banks in the world to provide them with the contents of the accounts held by their citizens, otherwise they can be sanctioned.
But the United States allows itself…because it is the United States.
"Most transactions are in US dollars and as such the United States has leverage that no one else has," notes Sophie Alexander.
With the American system, if the tax authorities are informed of the nature of the accounts of all its citizens, not all are taxed.
From their income, US citizens can deduct a certain amount of income received and the tax they pay in their country of residence.
The US Treasury then sees if its fellow citizen owes it anything.
What are the candidates saying?
The candidate of La France insoumise, Jean-Luc Mélenchon, is the only candidate for the Élysée to propose such a system.
Its measure?
"Introduce a universal tax on companies and on personal income to fight against tax evasion", as he wrote in his program.
" You're French ?
You pay your taxes wherever you are on the planet.
In the country where you are, you pay what you owe to the country and then you tell the French tax authorities.
And the taxman says:
Ah bah that's good, you don't owe us anything
.
Or he says:
Ah well if you lived in France, you should pay more, so you pay more
”, had described in 2017 Jean-Luc Mélenchon.
In the past, Nicolas Sarkozy had put forward the idea, during the 2012 presidential campaign. what he paid as tax abroad.
And if it is less than what he would have paid on his income from his capital in France, he will be made to pay the difference, ”he explained.
In summary
Nationality tax forces us to review the way we see tax today since it invites us to pay for services that we cannot immediately benefit from.
If it appears to be a good idea, implemented in particular by the United States, it can encounter various technical, political, diplomatic and equality pitfalls between French people living abroad.
France should have enormous means of pressure, like the United States, to adopt such a measure...