REINFORCING
INCOME TAX
EQUALITY FOR
CITIZENS
Executive Summary
October 2024
CP
prélèvements
obligatoires
conseil des
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Executive Summary - Conseil des prélèvements obligatoires
g
NOTICE
This document is intended to make it easier to read and analyse the
Council of Mandatory Contributions report.
Only the French text of the report is binding on the Council.
Both the general report and the individual reports are made public
and can be consulted on the website www.ccomptes.fr/CPO.
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Executive Summary - Conseil des prélèvements obligatoires
Sommaire
Introduction
� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 5
1
A progressive system...…
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
2
...taking account of the family structure
. . . . . . . . . . . . . . . . .
11
3
Tax differences between different types of income
. . . . . . .
13
4
Tax credits and reductions concentrated on certain
taxpayers with sometimes uncertain justifications
. . . . . . . . .
19
5
A «tax compact» undermined by tax fraud and evasion
. . . .
23
6
The fight against fraud is a key aspect of the
«tax compact» .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25
List of recommendations � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 29
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Executive Summary - Conseil des prélèvements obligatoires
Introduction
France has two main types of personal income taxes:
l
Personal income tax (IR) and the exceptional levy on high incomes (CEHR) are
progressive taxes allocated to the State’s general budget. They are based on
income net of the expenses required to acquire them, and they take account of
the taxpayer’s family situation;
l
Social levies (PS), which include the general social security levy (CSG), the social
security debt repayment levy (CRDS), the solidarity levy on capital income, and
the solidarity and autonomy contribution (CSA), are designed to finance social
welfare through a tax which, in principle, is proportional, paid individually and
based on gross income.
In 2023, these taxes and levies generated revenue of €262.8 billion, or 9.3% of the
GDP, compared to €143.7 billion (7.2% of the GDP) in 2010. Therefore, the overall
increase in compulsory taxation since 2010 (from 41.4% to 43.2% of the GDP, i.e.
+1.8 points) can be explained by the rise in income tax. This increase is due to
a spontaneous rise in revenue from Personal income tax (IR) and new measures
aimed at increasing ocial levies, including a 1.7 point increase in the CSG in 2018
to replace social security contributions.
Income tax (2010-2023)
Source: Insee, 2020 baseline. Net revenue from tax credits
However, the level of revenue from personal income taxes in France remained
close to the average figure for OECD Member States in 2021 (8�3%) and lower
than most of its main partners and neighbours:
Germany (10.5%), Belgium
(11.3%), Italy (11%), the United Kingdom (10%) and even Luxembourg (10.1%).
Only Spain and Switzerland had a lower level (8.6%).
Taxation
Revenue in 2010
Revenue in 2023
In €
billion
IR-CEHR
47.4
2.4%
88.6
3.1%
CSG
84.0
4.2%
148.0
5.2%
Solidarity levy
3.3
0.2%
14.2
0.5%
CRDS
6.6
0.3%
8.9
0.3%
CASA/CSA
2.4
0.1%
3.1
0.1%
Total
143.7
7.2%
262.8
9.3%
As a % of
the GDP
As a % of
the GDP
In €
billion
Introduction
These taxes apply to different types of income, which are treated differently
under tax rules�
In 2023, €841 billion of earned income, €411 billion of replacement
income, €84 billion of self-employed income and €138 billion of capital income
were declared as subject to Personal income tax (IR). The composition of income
between these different sources varies widely according to the income level.
Replacement income (pensions and unemployment benefits) accounts for 49%
of the income for tax households in the second tenth of the population in terms
of income, but only 7% of the income for tax households in the wealthiest tenth
of income. Conversely, the share of capital income rises with the income level,
reaching 30% of the income for households in the last hundredth of income,
61% of those in the last thousandth of income, and up to 86% of the income for
the 4,000 tax households in the last ten thousandth of income.
Composition of declared income by tenth of income
Source: Belkhir, Garrigue, Personal income tax progressivity, CPO, «Reinforcing
income tax equality for citizens», October 2024
Insofar as there are no public financial documents that present an overall view,
the CPO has chosen to examine whether personal income taxes, when analysed
together, continue to meet the objective that they were intended to achieve, i.e.
does their combination result in a coherent contribution, using all the income
to fund public spending, and divided equally among all citizens according to
their means?
0%
20%
18%
14%
7%
59%
49%
46%
46%
38%
60%
61%
36%
37%
35%
31%
5%
8%
11%
12%
30%
6%
35%
54%
14%
17%
18%
7%
22%
60%
61%
63%
60%
57%
45%
55%
51%
47%
40%
60%
80%
100%
0-10 %
10-20 %
20-30 %
30-40 %
40-50 %
50-60 %
60-70 %
70-80 %
80-90 %
90-100 %
95-100 %
99-100 %
Total
Salaries
Capital
No income
Remplacement
Self-employed
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Executive Summary - Conseil des prélèvements obligatoires
A progressive system...
Overall, the calculation of the IR and
CEHR taxes is based on a «real» scale
that comprises seven bands (0% to
49%) for a single person, with the
highest bands focused on the highest
incomes�
In 2023, it is estimated that
only 18.5 million of the 40.2 million
tax households will pay this tax, and
12.7 million of them were in the first
11% band. Only 5.5 million households
saw part of their income taxed in the
30% band (14% of all tax households),
and only 300,000 households in the
41% or higher bands (0.75% of tax
households).
Consequently, it can be estimated
that
73�5% of personal income tax
(before tax credits) was paid by the
wealthiest 10% of the population in
2023�
Overall, the distribution in the
personal income tax burden has hardly
changed since the Conseil des Impôts,
forerunner of the Council of Mandatory
Levies, published its report on the
subject some 50 years ago (1974).
1
Share of certain categories of taxpayers in personal income tax (1974-2024)
Sources: Council of Mandatory Contributions, 1974 and 2024
1974
2024
Wealthiest tenth of income
68.1%
73.5%
1%
29.3%
32.5%
0.1%
13%
0.016%
3.6%
0.01%
5%
However, social levies are paid by
everyone who receives labour or
capital income�
These types of income
are subject to proportional taxation
on a broader base, starting from
the first euro, at rates of 12.8% and
17.2% respectively. Only replacement
income is entitled to a reduced social
levies rate (and even exemption for
households on the lowest incomes).
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Executive Summary - Conseil des prélèvements obligatoires
Combining these two taxes results
in high theoretical rates that only
imperfectly reflect the tax burden on
households�
Taxpayers with the lowest incomes are
likely to be taxed from the first euro,
whereas other countries (Belgium,
Spain
and
the
United
Kingdom)
have taken measures to exonerate
the
lowest
incomes
from
tax.
Nevertheless, the average effective
tax rate for households in the first
tenth of income remains below 5%.
Baking personal income tax equality for citizens
Average tax rate per declared tenth of income
0%
5%
10%
15%
20%
25%
30%
0-10%
10-20%
20-30%
30-40%
40-50%
50-60%
60-70%
70-80%
80-90%
90-100%
95-100%
99-100%
IR
PS
IR+PS
Source: Belkhir, Garrigue (2024), CPO, RP2, op. cit.
Trend in the average rate of mandatory taxation paid by
individuals, excluding employers’ contributions, by wage level in
the target countries (2022)
Source: Besly, Legros, International comparison of personal income tax sys-
tems, CPO, «Reinforcing income tax equality for citizens», special report no.
3, October 2024
10
20
30
40
50
0
50%
of the average
salary
100%
of the average
salary
167%
of the average
salary
250%
of the average
salary
Belgium
Denmark
Germany
United-Kingdom
France
Spain
Estonia
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Executive Summary - Conseil des prélèvements obligatoires
Baking personal income tax equality for citizens
The wealthiest taxpayers may be
subject to a high marginal rate on
their income net of expenses of up to
61% in the case of salaries. However,
in light of the scale and composition
of income, the average tax rate for
the wealthiest 1% is 30%.
Overall, the calculations performed
when preparing this CPO report
show
that
France
occupies
an
intermediate
position
in
terms
of
the
progressivity
of
payroll
taxation within a sample group of
seven countries with very different
social protection models�
However,
the
overall
observation
of progressivity down to the last
hundredth of income applies only
to income declared by households�
Recent
studies
show
that
some
taxpayers may have an "economic
income" that is equal to the sum of
their income and the income from
the companies that they control, and
which is potentially much higher than
the declared income. That explains why
the finding presented in this section
does not contradict recent studies
showing that the tax rate relating to
such "economic income" is lower, or
even decreases for very high incomes.
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Executive Summary - Conseil des prélèvements obligatoires
Joint taxation of members within
the same tax household is a defining
feature of the IR and CEHR taxes.
However, social levies are calculated
and paid individually. Only reduced
rates on replacement income are
subject to income thresholds, which
take
account
of
the
household’s
overall income and tax units, based on
the personal income tax model.
Couples with high but mixed incomes
benefit from the full effect of the
marital quotient system (QC)�
Joint
income taxation is associated with
the allocation of two QC shares, which
results in tax savings for couples
with different incomes compared to
tax calculated on an individual basis.
This tax saving, which aims to take
family expenses into consideration, i.e.
mutual civil obligations resulting from
marriage or civil partnership, can be up
to €35,355 per household. In total, the
tax saving from the QC effect alone is
estimated at €12.5 billion, including
€5.9 billion for households in the last
tenth of income, and even €1.9 billion
for those in the last hundredth of
income.
On the other hand, middle-class
couples
are
at
a
disadvantage
compared to single people due to
the French tax haircut (“décote”)
mechanism�
This
“décote”
is
a
complex
mechanism
that
was
originally intended to provide childless
single people with a smooth entry
into the tax system. Consequently,
they benefit from a «real scale» that
is more favourable than the scale set
out in the General Tax Code. However,
couples with a per-unit income of
between €11,294 and €28,797 are
subject to an alternative «real scale»,
which is less favourable than the scale
for single people. This means that a
couple with an income of €20,000
each will have to pay €304 more tax
than two single people on the same
income.
As a result, three million
middle-class tax households lose out
with the joint taxation system�
To overcome this issue, the CPO is
proposing that the “décote” should
be fully couple-based,
which would
cost the public finances €1.3 billion,
but would also help remove what
is a highly complex mechanism and
benefit middle-income households.
This reform, which would give full
effect to the marital quotient system
for the middle classes, would go
hand in hand with a limitation in its
effects at the end of the distribution,
in the form of a ceiling on the tax
savings associated with the QC for
the
wealthiest
households�
The
increase in revenue for the State
would equate to €1.1 billion with a
ceiling of €10,000. To calculate the
tax savings and check for compliance
with the ceiling, only income already
declared on an individual basis (labour
income and pensions) would be taken
into
consideration.
Alternatively,
other
income
could
be
declared
separately, but this would increase
reporting obligations for the taxpayer
and
complicate
tax
management
procedures for the authorities.
...taking account of
the family structure
2
12
Executive Summary - Conseil des prélèvements obligatoires
The CPO also proposes that child
maintenance costs should be better
valued�
Making the “décote” fully
family-based would cost €1.5 billion
(in addition to the cost of making
the relief couple-based, as discussed
above) and would benefit families,
with a tax saving of almost €1,000
for a single parent with one child
and an income of €40,000. Similarly,
increasing the ceiling for the family
quotient (QF) could be considered,
since this is reached by tax households
on intermediate incomes, which are
situated in the eighth tenth of the
distribution. However, this measure
would entail significant costs, i.e.
€0.8 billion to raise the ceiling on
the family quotient half-share from
€1,759 to €2,000.
Lastly, the allocation of «additional»
QF half-shares should be harmonised
and restricted to taking account of
actual
expenses. On the one hand,
these half-shares are capped at variable
levels without any justification or
overall vision. On the other hand, some
additional half-shares do not always
correspond to current expenses. This is
the case for the half-share benefitting
to single people who have raised a
child alone for five years continue to
receive.
This tax expenditure, which
cost around €0�6 billion in 2023, could
be abandoned�
Baking personal income tax equality for citizens
13
Executive Summary - Conseil des prélèvements obligatoires
There
is
no
legal
or
economic
principle
that
requires
different
income categories to be treated
identically
in
terms
of
income
taxation�
However, ever since the
personal
income
tax
(1914)
and
CSG (1990) systems were created,
legislators
have
endeavoured
to
balance the tax burden between the
different types of income.
In practice, there are still variations in
the tax rates applied to different types
of income�
To assess the consistency of
the applicable tax schemes, the CPO’s
rapporteurs calculated the cumulative
tax rates applied to the different types
of income by taking income taxation in
the strict sense of the word and adding
the upstream taxation on distributed
profits to corporation tax as well as
non-contributory social welfare levies.
For example, the average cumulative
economic tax rates for a single person
earning 20 times the average salary
are: 49.4% if exclusively dividends,
56.5%
self-employed
income,
59%
property income or 60.7% salaries.
Tax differences between
different types of income
3
Cumulative economic tax rates on dividends, property income,
income from salaried employment and income from self-employment, at different
income levels (from 1 minimum wage to 20 times the average salary)
38% 38%
39%
45%
48%
49%
19%
26%
31%
43%
50%
60%
15%
29%
33%
46%
52%
61%
13%
22%
29%
42%
48%
56%
0%
10%
20%
30%
40%
50%
60%
70%
SMIC
0,75
AS
1 SM
2,5
AS
5 SM
20
AS
SMIC
0,75
AS
1 SM
2,5
AS
5 SM
20
AS
SMIC
0,75
AS
1 SM
2,5
AS
5 SM
20
AS
SMIC
0,75
AS
1 SM
2,5
AS
5 SM
20
AS
Dividends
Property income
Employee
Self-employed
Corporate tax
Non-contributory levies
CSG-CRDS-PS
IR-CEHR
Source: Melot, Repetti-Deaiana, Differences in treatment between income categories,
CPO, «Reinforcing income tax equality for citizens», special report no. 1, October 2024.
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Executive Summary - Conseil des prélèvements obligatoires
Salaries: additional remuneration
subject to favourable schemes
Salaries may be subject to highly
progressive cumulative tax rates (from
15% to 61%), but the development
of tax-exempt salary supplements is
eroding tax equality�
Some ancillary
or supplementary employee income is
exempt from Personal income tax (for a
total tax expenditure of €5.7 billion) and
even from social levies in some cases
(€1.5 billion), such as profit-sharing and
incentive
schemes,
overtime,
bonus
shares, luncheon vouchers and holiday
vouchers. There is also the wealth-
sharing bonus, which is not assessed
as a tax expense, even though it comes
with
various
advantages,
including
exemption from Personal income tax
and social levies for remuneration of less
than three times the minimum wage
paid by a company with fewer than
50 employees.
These advantages now account for
13�2% of the total payroll, but for
some employees they may represent
a more significant share of their salary�
For example, for a salary equal to
1.25 times the minimum wage, salary
supplements can represent up to 46%
of the total income by law. The tax
benefits derived from the cumulative
use of salary benefits as a substitute for
wages are greatest around the average
wage, where they reduce the cumulative
«economic tax» rate by 12 points, or
almost a third.
The decision to not extend the wealth-
sharing
bonus,
which
continues
to be a legally fragile and poorly
managed system, would provide a
partial solution to this problem
of
accumulation,
generating
between
€220 million and €330 million in
additional tax revenue.
In
the
medium
term,
the
CPO
considers that a review is required
into the other salary supplement
schemes
examined in this section,
based on an assessment of their
efficiency (i) in achieving public policy
objectives where applicable, and (ii) in
terms of the risk of substituting the
employee’s basic salary.
Pensions: tax benefits that warrant
better targeting
Firstly, pensions benefit from a 10%
allowance, which has the effect of
reducing the taxable income�
This
advantage, which can produce tax
savings of over €1,850 a year and has
a total cost of €4.6 billion, benefits
almost 30% of the households in the
wealthiest tenth of income. The CPO
considers that the aim of this measure,
which is to «help retired people», is too
general and poorly targeted, in light of
the wide range of situations for retired
people and the constant rise in the
standard of living for this category of
the population compared to younger
people.
This allowance for pension income
alone is combined with an allowance
on the overall income base for income
tax
purposes
for
taxpayers
aged
over 65 or with disabilities, which is
effectively subject to not exceeding
a certain income level (€27,670 for a
single person).
Baking personal income tax equality for citizens
15
Executive Summary - Conseil des prélèvements obligatoires
Secondly, retirement and disability
pensions
benefit
from
a
double
advantage in terms of social levies�
On the one hand, they are entitled to
lower CSG rates, subject to income
conditions: a single person on a
pension of up to €29,094 will be eligible
for the reduced CSG rate of 6.8%. On
the other hand, above this threshold, a
special CSG rate of 8.3% (compared to
9.2% for working people) continues to
apply: for a person receiving pensions
equal to 2.5 times the average wage,
the benefit granted by this special rate
can be close to €1,000 a year.
The CPO recommends refocusing
the benefits granted in terms of
personal income tax in the form of a
single mechanism that could be re-
centred on modest and intermediate
households�
It could take the form of
a single deduction from categorical
income (pensions and life annuities),
at a flat rate and capped at a certain
level of income. If this deduction were
calibrated in such a way as to exactly
replace the two previous mechanisms
for households up to the ninth tenth
of income (where households above
this level would only lose the benefit
of the allowance), this reform would
bring a budgetary gain of at least
€1.3 billion. In terms of the CSG, the
standard rate (9.2%) could also be
applied for pensioners belonging to
the wealthiest tenth of income, with
a yield of €0.5 billion.
Property income: ending the
distortion between furnished and
unfurnished tenancies
Unlike
income
from
unfurnished
tenancies,
income from furnished
tenancies can be reduced by applying
depreciation to the rented property,
i.e. an amount that is supposed to
reflect its loss of value. The advantage
is highly substantial: the typical cases
examined by the CPO show that the
authorised deductions can exceed 75%
of the rental income or even lead to the
artificial creation of a property deficit.
The Finance Act for 2024 did not
substantially rectify this disparity�
Following on from the CPO report
on housing taxation (2023), this Act
may have reduced the advantages of
the micro-BIC scheme by allowing a
flat-rate deduction of 70%. However,
the micro-BIC scheme only applied
to a minority of furnished tenancy
income: less than 20% of the rental
income in the last decile was subject
to this scheme, compared to 80%
under the «real» scheme, since the
advantage of deducting depreciation
was greater. However, the loss of
the property asset’s value (building
envelope, fixtures and fittings, front,
equipment, etc.) is identical in the case
of an unfurnished or furnished tenancy,
whereas in the case of an unfurnished
tenancy, it is not recognised by tax
law.
Therefore, the CPO recommends
challenging the very principle of the
option for depreciating property in
the case of a furnished tenancy�
Baking personal income tax equality for citizens
16
Executive Summary - Conseil des prélèvements obligatoires
Dividends and capital gains: limiting
concurrent benefits
Since the 2018 Finance Act became
effective, dividends and capital gains
on securities have been subject, on
option, to a single withholding tax
(PFU) of 30%, to which the CEHR
tax may be added�
Although the
cumulative tax rate on dividends in
France still ranks among the highest
in OECD member countries, France is
now one of the countries that taxes
capital relatively less than labour
for very high incomes (-11 points at
20 times the average salary). 91 % of
the advantage of being taxed under
the PFU instead of the tax scale
is concentrated on the wealthiest
hundredth
of
the
population.
Nevertheless, assessments into the
introduction of the PFU have shown
that the reform, given the increase in
dividends and capital gains (+157%
in
dividends
between
2017
and
2022), has not led to any losses for
public finances. Implementing the
PFU, combined with other reforms
(reducing
corporate
income
tax,
transforming wealth tax into a tax on
personal property assets), has also
been accompanied by a fall in the
number of expatriates and a rise in the
number of wealthy impatriates. Initial
evaluations for the period 2017-2022
do not show any other significant
effects
on
the
financing
of
the
economy.
For tax stability reasons,
the CPO recommends keeping the
PFU tax as it stands and continuing
evaluations�
However, a number of adjustments
would be desirable�
Payments into a PER (retirement
savings plan) can be deducted from
taxable income, but the annuity or
lump-sum payment is reintegrated
into the taxable income when it
is released. However, if the PER is
transmitted on to heirs, and in addition
to the inheritance benefits that they
are likely to enjoy, they will not be
subject to income tax when the sums
are released.
To avoid concurrent
benefits and refocus the PER on its
function as a true retirement savings
mechanism, the CPO recommends
regulating
the
age
required
to
release the sums�
Since a company’s non-distributed
income
(constituting
«unrealised
capital gains») is not subject to
income tax, its shareholders may
see a substantial difference between
their
«economic
income»
and
their effectively taxable disposable
income�
This
means
that
they
can control their taxable income,
particularly when holding companies
are involved.
In light of constitutional constraints,
income taxation does not appear to
be the most appropriate instrument
for addressing the issue of non-
distributed income from cash boxes�
However, income taxation should not
facilitate tax avoidance, unlike what
can be seen today with the transfer
of assets regime (150-0 B ter of the
General Tax Code)�
This system, which
is not monitored as a tax expenditure,
allowed €13 billion in new capital gains
to be exempt from taxation in 2021
alone in the form of deferred taxation,
which
was
concentrated
almost
exclusively on the wealthiest 0.01% of
tax households (99.99%). This system
Baking personal income tax equality for citizens
17
Executive Summary - Conseil des prélèvements obligatoires
is used to encourage capital gains
to be reinvested in the economy, but
the conditions for continuing to defer
taxation are not restrictive enough. In
2021, the capital gains actually taxed
(when the deferral period expired) only
represented 3.8% of the new capital
gains deferred.
Therefore,
the
CPO
recommends
broadening
the
situations
where
tax
deferral
is
terminated
when
the holding company disposes of
the
securities
contributed:
(i)
by
significantly
extending
the
period
during
which
the
condition
for
reinvestment is verified, currently set
at three years, (ii) by establishing the
rule that tax deferral is only maintained
in proportion to the sums reinvested -
whereas under the current framework,
reinvesting 60% of the sums is enough
to maintain 100% of the deferral.
Similarly, the decision not to tax the
capital gains realised before a gift
or inheritance for personal income
tax and social levies is only justified
if the inheritance taxes (DMTG) are
capable of ensuring a satisfactory
level of taxation of the corresponding
enrichment�
Unlike several European
countries, the rules for calculating
capital gains in France mean that the
enrichment arising from the increase
in an asset’s value is not subject to
personal income tax if the asset is
donated or inherited. However, such
enrichment is taxed under the DMTG
scheme at the time of transfer. However,
overall tax fairness is undermined when
the DMTG on the transfer of shares and
securities is reduced. Therefore, the
overall tax rate (for personal income
tax and then for the DMTG duty) on
earned income that would have been
saved and then passed on can, in some
circumstances, exceed 70%, while the
tax rate on business assets passed on
can be limited to 5.65% under certain
schemes.
Broaden the reference taxable
income (RFR) to take better account
of taxpayers’ ability to pay when
accessing social welfare benefits and
local taxes
The RFR, which is determined from
income tax returns, is aimed at
measuring taxpayers’ actual ability
to pay tax� It is broader than taxable
income for income tax purposes and
is widely used for applying certain
taxes
(property
tax,
CSG,
CEHR,
etc.), accessing certain social welfare
benefits, or pricing public services
(school meals, etc.). However, the CPO
notes that 177 examples of income
tax-exempt resources or income are
not included in the RFR, such as social
welfare benefits, salary supplements
(profit-sharing
and
luncheon
vouchers) and income from assets
(income
from
regulated
savings,
share savings plans, capital gains on
property). Although some constraints,
such as the administrative burden
of having to declare certain types of
exempt income, may justify the reason
for disregarding them in the RFR,
this decision must be the result of an
explicit choice by the legislature.
The
CPO recommends establishing the
rule that all income net of expenses
should fall within the scope of the
RFR, except where tax law provides
otherwise�
Baking personal income tax equality for citizens
19
Executive Summary - Conseil des prélèvements obligatoires
The tax credit for employing someone
to
work
in
the
taxpayer’s
home
(€5�9 billion in 2023)
is equal to 50% of
the expenses incurred and is capped in
principle at €6,000 (i.e. €12,000 of eligible
expenses). This tax credit is concentrated
in the wealthiest households. The use of
this scheme is less than 10% at the 70th
percentile, 20% at the 90th percentile,
30% at the 95th percentile and over
50% at the 99th percentile. In line with
the recommendations issued by the
Cour des comptes (2024), it would be
appropriate to reduce support for the
activities of daily living to a level that
is sufficient to tackle undeclared work,
while preserving activities relating to
independent living or childcare.
For the
first category of expenditure, the tax
credit rate could be reduced to 40%,
which would save the State around
€770 million�
The
tax
reduction
for
donations
(€1�7 billion in 2023)
is equal to 66%
of the amount paid, up to a limit of
20% of the disposable income. The
CPO notes that a number of criticisms
have been levelled at this mechanism:
in
comparison
to
other
European
countries, this scheme has the highest
rate, it does not benefit non-taxable
households, and finally it is the only tax
break or tax credit scheme without a
value cap. However, due to the scheme’s
concentration, imposing a value cap
would be likely to cause a substantial fall
in donations from high-income earners
to associations, for a limited return to the
budget. A €2,000 ceiling on the impact
of tax breaks for donations, for a budget
saving of €0.5 billion, would have the
result of withdrawing tax relief from 25%
of all donations declared by households.
The CPO recommends reducing the
amount of the benefit to 50% of the
donation, supplemented by a gift aid
mechanism
whereby
the
donation
from a taxpayer who does not benefit
from a tax break triggers a public
subsidy of a proportional amount paid
to the beneficiary association�
The
tax
break
for
investments
made in French overseas territories
(€589 million in 2023)
is by far
the
largest
support
scheme
for
investments by individuals. This tax
expenditure is highly concentrated at
the top of the distribution: 84% of the
28,935 beneficiaries in 2020 belonged
to the last tenth of income, and even
52% in the last two hundredth of
income. A report by the Inspectorate-
General of Finance (2023) shows
that
this
system
is
plagued
by
abusive practices. Finally, preferable
alternative
schemes
are
already
available, especially a tax credit that
directly benefits companies making
productive investments.
Therefore,
the CPO recommends abolishing
the tax break scheme benefiting
individuals�
Tax credits and reductions
concentrated on certain
taxpayers with sometimes
uncertain justifications
4
20
Executive Summary - Conseil des prélèvements obligatoires
The
tax
break
for
school
fees
(€433
million
in
2023)
is
highly
concentrated
at
the
top
of
the
distribution,
unlike
the
allowance
for the start of the new academic
year: the three
highest
deciles
of
income taxpayers account for 66% of
beneficiary households for secondary
school, 67% for college and 75% for
higher education. This concentration
can be explained by the tax reduction
mechanism, which only benefits taxable
households, but also by a probable
lack of use.
This concentration, when
combined with its lack of incentive and
low amount, justifies the abolition of
the tax break scheme�
Tax breaks and credits
Main tax credits and
breaks
Number of
beneficiary
households
Amounts
granted
Average
amount per
beneficiary
household
Units
In millions
In € billion
In euros
Tax credits: Total
8.1
8.4
1,046
Employing someone to
work in the taxpayer's
home
4.6
5.6
1,204
Out-of-home childcare
costs
1.9
1.6
857
Payment of union fees
1.3
0.1
113
Tax breaks: Total
7.0
8.3
1,175
Taxation of foreign-
source income
0.4
2.6
7,324
Donations to charitable
organisations
3.3
1.3
411
Pinel tax break for buy-
to-let investments
0.3
1.4
4,026
French Overseas
territories productive
investments
0.1
0.7
14,566
Scellier scheme for buy-
to-let investments
0.1
0.4
3,413
Children's school fees
2.5
0.5
183
Donations to people in
need
1.9
0.5
246
Dependency costs
0.2
0.3
1,180
Duflot scheme for buy-
to-let investments
0.0
0.1
3,506
SME capital subscription
0.1
0.1
2,291
Tax credits and breaks:
Total
12.0
16.7
1,388
Source: Mazeau, Suard, Tax expenses and other tax benefits, CPO, «Reinforcing income tax
equality for citizens», special report no. 5, October 2024
Baking personal income tax equality for citizens
21
Executive Summary - Conseil des prélèvements obligatoires
Baking personal income tax equality for citizens
There is a lack of consistency in the
overall ceiling for the tax credits
and breaks that a tax household
can benefit from�
At first sight, the
overall ceiling appears to be rigorous:
in the absence of any revaluation,
the €10,000 ceiling created in 2009
has fallen by 68.4% at constant
euro rates. In reality, however, 20 tax
breaks or credits escape the overall
€10,000
ceiling
(investments
in
French overseas territories, Sofica,
Malraux, Denormandie, expenditure
on accommodation in a long-term
care facility, school fees, etc.), without
any justification or overall coherence.
Furthermore,
the
ceiling
is
not
adjusted to reflect the composition of
the tax household, which puts couples
and families at a disadvantage.
The
CPO recommends that all tax breaks
and
credits,
with
the
exception
of
tax
breaks
for
donations,
should be included under a single
ceiling adjusted according to the
composition of the tax household
and the existence of any dependent
adults or children�
23
Executive Summary - Conseil des prélèvements obligatoires
Progress may have been achieved,
but greater efforts are needed to
tackle international personal income
tax avoidance�
Firstly,
arrangements
have
not
been
sufficiently
developed
for
exchanging
information
between
countries
about
the
beneficial
owners of companies�
While the
European Union (DAC-5 Directive)
now requires Member States to collect
and share this information, this is not
the case at a broader level, despite
ongoing work. Firstly, the OECD has
not established any standards for
automatically exchanging information
in this area. Secondly, when it comes
to «on-demand» exchanges, as of
8 November 2023 only 50% of the
countries
assessed
by
the
OECD
Global Forum were in a position to
exchange information to a satisfactory
standard.
The CPO believes that information
about beneficial owners is needed to
stamp out international strategies
for avoiding personal income tax.
To encourage the work carried out
within international and European
bodies, France could
add States with
an insufficient level of information
sharing to the «blacklist» of non-
cooperative countries and territories
(NCCTs)�
Secondly, competition has intensified
between countries to attract the
tax residence of wealthy taxpayers,
which is having a detrimental effect on
the ability to lead public policies�
On
the one hand, countries are witnessing
the
development
of
«preferential
schemes», where the total number of
beneficiaries in Europe is estimated
to have climbed from 50,000 to over
250,000 since 1994. France is not
exempt from similar mechanisms that
are already in place or in the pipeline
(impatriation scheme, planned personal
income tax exemption for employees of
sports federations, etc.). On the other
hand, many countries have no income
tax at all (United Arab Emirates), apply
a set tax rate (Switzerland) or exempt
major components of this income for the
most affluent, such as non-professional
capital gains (Belgium). As far as this
last point is concerned, although EU
Member States have the option of
introducing a defensive mechanism to
tackle such harmful competition, i.e. the
exit tax, France is struggling to come up
with a lasting and effective mechanism.
The CPO recommends launching work
within the OECD as part of a three-step
process:
(i) define harmful tax practices
in the area of personal income taxation,
(ii) set up a peer review and establish a
related «blacklist», and (iii) ultimately
launch a project on minimum personal
income taxation.
A «tax compact» undermined
by tax fraud and evasion
5
25
Executive Summary - Conseil des prélèvements obligatoires
Tax fraud is an offence committed
through the intentional behaviour to
fraudulently evade tax�
The French
have a paradoxical view of fraud:
only 44% of those polled believe that
there can never be any justification
for cheating on tax and social security
contributions. However, 55% of the
French people questioned were in
favour of increasing public funds to
tackle the various types of fraud (and
only 10% wanted to reduce them).
In terms of income taxation, this
phenomenon is still something of a
grey area: France does not produce
any assessments into tax evasion or
the tax gap in this area (unlike 38% of
high-income countries as defined by
the IMF).
For both personal income tax and
social levies, there was a downward
trend in the total number of audits
carried out by the DGFiP (Directorate
General
of
Public
Finance)
and
URSSAF
(national
social
security
organisation)
respectively
up
to
2023�
On the one hand, programming
increasingly uses data mining. On the
other hand, when it comes to social
levies,audits are being refocused on the
fight against unlawful employment.
Even though this strategy appears to
be fully warranted, the CPO calls for
vigilance due to the very low rate of
amounts that have been recovered
through efforts to eliminate unlawful
employment: between 4% and 10%
recovered within two years, compared
to between 60% and 80% for other
URSSAF audits.
These challenges
mean that the DGFiP and URSSAF
need to continue coordinating their
efforts when it comes to audits,
rectifications and tax debt collection�
Lastly, anti-fraud procedures require
greater
coordination
between
the
courts�
Firstly,
automatically
referring the most serious cases to
the public prosecutor’s office has
given the criminal courts a central
role in the fight against income tax
fraud. However, constitutional case-
law requires improved coordination
between tax judges (who may be
appointed to settle disputes about the
amount of tax due) and the criminal
courts
responsible
for
punishing
tax
fraud
offences.
Secondly,
tax
collection litigation continues to be
an excessively complex process for
taxpayers. In this respect, the CPO
proposes that tax collection litigation
should be brought under the sole
jurisdiction of the tax judges.
The fight against fraud is a key
aspect of the «tax compact»
6
27
Executive Summary - Conseil des prélèvements obligatoires
The CPO believes that income tax equality for citizens could be reinforced
in four areas:
l
Improve how tax takes account of the family structure, while allowing for
greater progressivity;
l
Ensure greater consistency in the tax treatment for different income
categories ;
l
Limit the concentration of income tax credits and breaks;
l
Step up the fight against fraud and establish an international framework to
tackle harmful tax practices�
Depending on the parameters used, the proposed measures will provide a
targeted way of maintaining or increasing the yield from income tax and CSG,
while reinforcing both horizontal and vertical equality in terms of income
taxation. The «winners» from these reforms will be spread between the sixth
and ninth tenths of income, while the «losers» will be concentrated mainly in the
last two tenths of income. Still, the tax burden will not become confiscatory for
these households.
This would strengthen the «tax compact» that places personal income taxation
at the heart of our social contract, without damaging our public finances.
Conclusion
28
Executive Summary - Conseil des prélèvements obligatoires
Financial summary of recommendations
Conclusion
Guideline
Impact on public finances
(in € billion)
Improve how tax takes account of the family
structure, while allowing for greater progressivity
Where the tax relief is couple-based and
family-based
Where the dependent spouse allowance is
capped (€10,000)
Where the family quotient ceiling is increased
Between -1.9 and -3.2
-2.8
+1.1
From -0.8 (€2,000) to -2.1 (€2,500)
Ensure greater consistency in the tax treatment for
income categories
Where pension benefits are means-tested
Between +1.7 and +2.1
From +1.4 to +1.8
Limit the concentration of income tax credits and
breaks on certain taxpayers
Where the tax credit rate for human services is
reduced to 40%, excluding childcare and
dependency care
+1.5
+0.8
Step up the fight against income tax fraud and
establish
an
international
framework
to
tackle
harmful tax practices
No figures
SUMMARY
Between 0 and +1.7
Source: CPO, 2024
29
Executive Summary - Conseil des prélèvements obligatoires
Guideline 1: Improve how tax takes
account of the family structure,
while allowing for greater
progressivity
Recommendation 1:
Give full effect
to the dependent spouse allowance
for the middle classes by making the
“décote” couple-based and limit the
advantage enjoyed by the wealthiest
households by setting a ceiling.
Recommendation 2:
Improve how
personal income tax takes account
of family expenses by making the tax
relief mechanism family-based and
increasing the ceiling on the family
quotient.
Recommendation
3:
Abolish
the
additional
half-share
that
benefits
people living alone who have raised
children for five years that are no longer
dependent on them, since it does not
correspond to any actual dependents
covered by the tax household at the
time that the tax is paid.
Guideline
2:
Ensure
greater
consistency in the tax treatment
for different income categories
Recommendation 4:
In the short
term, do not extend the wealth-
sharing bonus beyond 31 December
2026. In the medium term, conduct
an assessment into the tax benefits
associated with the other salary
supplements.
Recommendation
5:
Means-test
tax benefits for people receiving a
pension.
Recommendation 6:
In the future,
abolish the option of depreciating
property as part of the income tax
treatment of furnished tenancies.
Recommendation 7:
Refocus the
retirement
savings
plan
on
its
function as a true retirement savings
mechanism by regulating the age
required to release the sums.
Recommendation 8:
Broaden the
cases for challenging the transfer of
assets scheme when the securities
contributed
are
transferred
in
exchange beyond the sole condition
of reinvesting 60% of the sums
within three years.
Recommendation 9:
All income net of
expenses should be reintegrated into
the reference taxable income, with the
exceptions provided for by law.
Guideline 3: Limit the concentration
of income tax credits and breaks on
certain taxpayers
Recommendation 10:
Reduce the
«human services» tax credit rate
to 40%, excluding childcare and
dependency costs.
Recommendation 11:
Abolish the
tax break for school fees, since it
overlaps with the new academic year
allowance.
Recommendation
12:
Streamline
tax benefits for French overseas
territories by prioritising tax credits
for
companies
making
direct
investments.
List of recommendations
30
Executive Summary - Conseil des prélèvements obligatoires
List of recommendations
Recommendation 13:
Reduce the
rate of tax breaks on donations from
66% to 50% of the value of donations
made and combine this tax break
with the payment of a public subsidy
adjusted to reflect the amount of
donations received from resident
individuals who have not benefited
from a tax break.
Recommendation 14:
Include all
tax breaks and tax credits, with the
exception of tax breaks for donations,
under
a
single
ceiling
adjusted
according to the composition of the
tax household and the existence of
any dependent adults or children.
Guideline 4: Step up the fight against
income tax fraud and establish an
international framework to tackle
harmful tax practices
Recommendation
15:
Finalise
the
process
of
incorporating
the
transparency
obligation
for
beneficial owners into the criteria
for inclusion on the «black list»,
if necessary based on the rating
established by the Global Forum of
the Organisation for Economic Co-
operation and Development (OECD).
Recommendation
16:
Encourage
international work on harmful tax
practices relating to personal taxation.
Recommendation
17:
Improve
coordination between the DGFiP
(Directorate
General
of
Public
Finance)
and
URSSAF
(national
social
security
organisation)
in
terms of audits, rectifications and
tax debt collection.
Recommendation 18:
In criminal
matters, ensure greater coordination
between the tax and criminal courts.
Simplify the division of powers with
regard to collection litigation by
entrusting such cases to the tax
judge rather than the enforcement
judge.