On Dec. 19, France’s National Assembly is expected to vote to approve the government’s draft budget for 2014. It will contain a two-year 75% tax on high earners, a centerpiece of Socialist president Francois Hollande’s economic policy but which has turned from one of his perkiest campaign pledges into a political nightmare bordering on farce.
Late last week, the Socialist-controlled National Assembly agreed that AS Monaco, a soccer team that plays in the French league but is based in the neighboring tax-haven from which it takes its name and which lies outside France’s tax regime, would be subject to the new supertax. Within hours, at the instigation of Budget Minister Bernard Cazeneuve, the Socialist government overturned the decision.
The status of AS Monaco, owned by the Russian potash billionaire, Dmitry Rybolovlev, has become a lightening rod for France’s debate over tax and the 2014 budget. As things stand (at least at time of writing), the club will be exempt from a 75% tax on the earnings of any of its employees paid more than €1 million ($1.4 million) a year, which covers most of its first-team players. It is a precedent that other sets of high-earning French employees will want to emulate.
Cazeneuve says the reason for the government’s latest about-face on the tax is that “we did not want to take a judicial or constitutional risk” in imposing the tax on a company not registered in France. A first version of the tax was ruled unconstitutional at the end of 2012. A rapid redrafting so it could still be included in the 2014 budget shifted the tax burden from the employee to employer to satisfy the constitutional concerns.
It also required the French soccer league, the LFP, to collect the tax on behalf of the state. The hope was this would push it into making some rules that would consequently get AS Monaco to set up as a French company for tax purposes. The LFP has, though, only said clubs should be domiciled in France for tax purposes, not that they are required to be.
Other top French clubs have long been irritated by the advantages that a rival in the same league receives by being based in a tax haven. That irritation turned into infuriation once those advantages were amplified by Rybolovlev’s wealth. AS Monaco is now one of the top-spending clubs in Europe, bringing in big stars on tax-fee salaries other French clubs can’t match. Rather than strong arming the league to require all its teams be based in France for tax purposes, some French clubs have threatened to join Monaco in tax-exile, adding to the ridiculousness of the situation.
By the time the National Assembly votes on the final reading of the 2014 budget, it will have been voted on by the upper house of the legislature, the Senate, which is expected to keep AS Monaco’s exemption from the supertax intact. Some of the more leftist Socialists in the lower house may make a twelfth-hour play to reverse the decision yet again, but the clock is running down fast.
This being France, though, that is not necessarily the last of it. Earlier this year, AS Monaco took its case that the LFP couldn’t require it to be domiciled in France to continue to play in the French league to the Council of State, France’s arbitrator of administrative justice. The club lost the first round of rulings, so it could still find itself subject to French taxes long after its exemption from the two-year supertax expires with President Hollande’s unpopular tax bill. A final decision is expected from the Council of State early next year.