|
The tax shield is a tax system some countries apply to put a limit on maximum tax liability. The goal of this measure is to provide a ceiling for a sophisticated tax system in application of which the addition of various taxes can, in certain cases, reach an amount the lawmaker judges excessive.
The tax shield system has existed in France since 2006, at which time the effective ceiling of the tax shield was set at 71%. During the 2007 presidential campaign, Nicolas Sarkozy announced that he wanted this rate to be reduced to a 50% ceiling. Although the left-wing parties opposed the idea, this measure has now been implemented and, since 1 January 2008, the French taxpayer's liability cannot be higher than 50% of his orher income.
The tax shield system is based on a claim by the taxpayer to be reimbursed by the tax authorities for excessive payment. All evidence provided may therefore be inspected. Generally speaking, the various taxes are reported on the basis of the income of the previous year and paid during the following year; a claim for reimbursment of excessive payments can only be filed the year after that by sending a form to the Authorities. For instance, the tax on the 2007 income is paid in 2008 (therefore including 2007 income tax) and the reimbursement claim is filed in 2009.
As a consequence, unlike the exemptions applicable to wealth tax, the taxpayer cannot deduct his or her excessive wealth tax on his return, but must claim for a refund.
The beneficiaries of this system are mostly: modest households who mainly have real-estate assets or very rich households with little income.
In 2007, only 23,179 refund claims based on the tax shield were filed with the Tax Authorities. Tax reimbursment amounted to 222 million euros, i.e. 16,623 euros per tax household. Approximately 20% of the claims were rejected.
In 2008, the Tax Authorities foresee the number of possible beneficiaries of the tax shield system to be 93,000 and the reimbursment amount for a full year to 400 million euros.
Advocates of the tax shield say this is a sensible and equitable system, since a taxpayer should not be deprived of income because of the addition of all the existing taxes. Moreover, from a supply-side point of view, these measures make a development revival possible. Indeed, in the United States, the tax reductions on the highest brackets in 2004 and 2005 led to an 8% and 9% increase in tax income, as well as 3.9% yearly growth.
Moreover, the tax shield also settles the case of some low-income taxpayers who end up, in some specific cases, with a tax liability higher than the income they have received. However, these taxpayers must advance every year a payment exceeding 50% of their income.
For more information
Please contact Eric Rollin at Groupe Synerga
|