French government increases efforts to tackle tax avoidance

Version française

Tax avoidance and evasion has been one of key topics for the G7/G20 and EU for several years. It has featured on the agendas of François Hollande, David Cameron and, perhaps ironically, EU Commission President and former Prime Minister of Luxembourg Jean-Claude Juncker. High profile stories including Google and McDonalds, as well as LuxLeaks, SwissLeaks and PanamaPapers, have made tax front-page news.

This has led to:

• Efforts to reform international tax rules, involving unprecedented analysis and consensus building at the OECD and EU.
• An increasing climate of mistrust in large multinational businesses.

The tax avoidance debate, and in particular this climate of mistrust, has been loudest in the UK. This is partly due to the number of multinationals headquartered there, and partly due to the pressure applied by UK tax campaigners and the media. The latest survey by the Institute of Business Ethics shows corporate tax avoidance to be the top ethical issues for the public for the third year in a row.

As a result of recent tax audits, a small number of high profile companies have paid additional tax to the UK tax authority. In the case of Google, this was followed by a fierce public debate as to whether enough extra tax was collected. All large UK businesses now find themselves operating in a climate of mistrust. And that includes those proven not to have broken any law.

Large UK businesses will soon face a new requirement to publish their tax strategy. Many businesses are starting to be more transparent about their approach to tax, and the taxes they pay.

And now, the focus is spreading to France. The French government is taking a much more proactive approach to tackling tax avoidance by large businesses.

Will large French companies soon feel the same pressure?

In January 2016 it was reported that the French tax authorities had discovered more than 38,000 secret French accounts in the Swiss bank UBS containing €12 billion worth of assets.

In his Le Monde blog in March, leading economist Thomas Piketty discussed a report by Oxfam, CCFD and Secours Catholique-Caritas France, which suggests that French banks make a third of their profits in “tax havens”.

Last month the French tax authority raided the premises of Google in Paris as part of a tax investigation reportedly worth €1.6 billion. Also, it is reported that McDonalds is being chased for €300 million in French taxes.

And just last week we saw the latest announcement. The online hotels service bookings.com disclosed to the SEC in the USA that it receive a French tax assessment in December 2015 for €356 million in income tax and VAT. Bookings.com insist they are compliant and plan to contest the assessment, but in the meantime it is another case that will be in the spotlight.

France picked up on the criticism levelled at the UK government following their £130 million settlement with Google. Some have suggested that this was a bad deal for the UK government. French finance minister Michel Sapin said he won’t “do deals like Britain” and will follow the letter of the law. "We'll go all the way.”  He also said that “there could be other cases", which will worry other multinationals.

What does this mean for large French businesses?

I discussed this issue with Bernard Miyet*, formerly Deputy Secretary General of the United Nations, and with a career spanning French business and politics. He told me, “this is clearly a hot issue on the political side and going to become a much more important issue for French businesses in the future.”

So what should French multinationals expect?

• They should expect to start coming under the sort of scrutiny currently aimed at UK and US multinationals. That may mean mandatory tax transparency rules, in France or elsewhere. For example, the new UK rules on the publication of a Tax Strategy also apply to non-UK businesses with large UK operations. Of course, this will apply to several large French companies.

• They should start briefing their Boards of Directors about challenges they may face, possibly as a result of tax planning in the past. What might have been considered acceptable some years ago, may be challenged in the current environment.

• Also, French companies can learn from the UK experience. UK businesses are becoming increasingly aware that they need to get better at talking about tax. Businesses need to be able to tell their story. If they don’t, the danger is that someone else will.

What is absolutely certain is that the tax avoidance debate is not going away. The French government wants to be seen to be taking a strong approach. Piketty sees country-by-country reporting as an “indispensable tool of financial and democratic transparency”. Clearly his message is relevant to French businesses.

Large French businesses need to start thinking about these issues. It is not just a concern for US and UK multinationals anymore. It is a concern for all large businesses.

*Bernard Miyet is now a Senior Policy Advisor at gplus Europe http://www.gpluseurope.com/en/people/bernard-miyet.php