Taxation and its negative impact on business investment activities

France’s fiscal recovery following the 2008 crisis has been slowing down ever since 2012. Although it is evident that this slump in tax revenue is due to slower activity, this can no longer be explained by the crisis context. Indeed, most foreign trade partners have recovered more strongly than France, and French exports are now at higher levels than before the crisis.(1) Worse still, the first half of 2015 saw a 48% drop in corporate income tax revenue.(2) It is true that this is partly due to tax rebates under the CICE, a programme meant to encourage competitiveness and employment. But the decline is much sharper than the anticipated rebates. This suggests that the broadening of the tax base expected under the rebate programme is not really occurring and that corporate taxation remains a problem.

WHAT IS CORPORATE TAXATION AND WHY IT IS IMPORTANT ?

Where corporate taxation is concerned, what often comes to mind is the 33.3% corporate income tax rate. However, this is not the only tax that entrepreneurs consider when deciding whether to create a company, expand an existing firm or invest in a particular country. At present, the corporate tax burden imposed on a small or medium business in France can amount to over 60% of its pre- tax net profit(3) (see Figure 1). Indeed, corporate taxation comprises all taxes paid by a business. In addition to the corporate income tax paid on earnings, it also includes employer-borne social security contributions paid on payroll, real estate taxes and many other minor taxes. Each one of these taxes may have different treatments, interpretations, and allowances that add up to greater tax complexity.

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