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How to End Tax Exile


French magnate Bernard Arnaud's desire to acquire Belgian nationality has reignited the debate over tax exile and the refusal of similar large estates to fulfill their fiscal responsibilities. There is, however, a simple and effective solution to end legal tax avoidance.

Bernard Arnaud, Europe's richest individual and the world's fourth richest person, possesses a fortune of some 40 billion euros. Arnaud's annual salary amounts to 10 million euros and his investments bring in an additional 200 million annually. Arnaud recently presented a request for Belgian citizenship.(1) There are those who suspect the richest man in France of wanting to escape his duty as a citizen, as tens of thousands of tax exiles before him have done by choosing to settle in Belgium, Switzerland, the United Kingdom or elsewhere, all countries that offer significant tax advantages for the very rich.(2)

Between 1988 and 2006, 0.01% of the richest French, some 3,500 taxable households, saw their real income increase by 42%. By way of comparison, the less affluent 90% received an increase of only 4.6% over the same period.(3) Thus, legal and illegal tax avoidance costs the French state some 50 billion euros annually. With such a sum, 500,000 social housing units priced at 100,000 euros each could be built annually, or the same sum could create over 1.5 million jobs in education, health and the social and cultural spheres.

In some Swiss cantons, foreign residents are not taxed on their income and wealth, but rather on their lifestyle. This makes them very attractive territories for the wealthy. In Switzerland, where nearly 2,000 French tax exiles reside, the 43 wealthiest families alone have accumulated a fortune of 36.5 billion euros.(4)

To address the problem of tax exiles, the dominant argument in France, one championed by the business community and the political right, as well as a certain element of the center-left, has been to argue for a lower tax rate for the more affluent classes. Indeed, immediately upon his election in 2007, former President Nicolas Sarkozy passed a "tax shield" – a capping device that insures that taxpayer's income cannot be taxed at more than 50%.(4)

However, there is an applicable and effective mechanism to put an end to legal tax evasion. Currently, tax is linked to place of residence. Thus, a French tax exile who chooses to live more than six months per year in Switzerland automatically becomes a Swiss taxpayer and benefits from its advantageous legislation. It is the same for the French national who would settle in Luxembourg, the United Kingdom or Belgium.

To halt this drift that deprives the French state, and therefore its citizens, of significant resources, it would suffice to simply link the imposition of taxes to nationality, not to place of residence, and then apply differential tax rates. This device would automatically end this scourge. For example, a French taxpayer who sought refuge in Switzerland would be required to pay only 35% in his new place of residence instead of the 41% he would be required to pay in France. But he would nonetheless be legally obligated to pay the 6% difference to the French state, thereby rendering unnecessary any expatriation for tax avoidance reasons.

This practice already exists in countries such as the United States. U.S. citizens living abroad pay exactly the same amount of taxes as do their compatriots who remain in the country, and they are taxed on the basis of their worldwide income. From a technical point of view, all countries of the world provide the Treasury Department annually with a list of U.S. citizens established on their territories. Thus, tax exile is no longer possible and the only alternative remaining to escape taxation is illegal tax evasion.

To combat this type of crime, the U.S. Congress passed a law that allows anyone – but especially employees of large banks – to provide information on cases of tax evasion and receive up to 30% of the amounts recovered by the state. Thus, Bradley Birkenfeld, a former employee of the Swiss bank UBS, was awarded the sum of 104 million dollars for delivering information "exceptional both in scale and scope" on the offenses committed by American tax evaders who were customers of his bank. This information enabled the U.S. Treasury Department to recover the sum of five billion dollars and to receive a list of all defrauders with a UBS bank account.(5)

France and the community of European nations, as well as all nations of the world, would be well advised to adopt a model that allows for differential taxation and the linking of tax to nationality and not to place of residence. Also, to combat illegal tax evasion, which is characterized by the plunder of national and individual wealth, white-collar criminals must be punished more severely, in a manner commensurate with the damage they have caused. The wealthy will then need to make a choice: their nationality or their money.

Notes
1Ivan Letessier, « Bernard Arnault, première fortune de France », Le Figaro, September 9, 2012.
2France Info », Exilés fiscaux : de quoi parle-t-on ? », March 13, 2012.

3L’Humanité, « C’est la loi qui autorise l’évasion fiscale, elle peut donc aussi l’empêcher », March 9, 2012.
4Bilan, « Les Français, réfugiés politiques en Suisse ? », December 14, 2011.
5Le Figaro, « Bouclier fiscal : 750 millions d’euros en 2012 », July 4, 2012.
620 minutes, « Récompense record de 104 millions de dollars pour le dénonciateur d’UBS », September 11, 2012.

Translated from the French by Larry R. Oberg

 

Docteur ès Etudes Ibériques et Latino-américaines at the University of Paris Sorbonne-Paris IV, Salim Lamrani is also Associate Professor at the Université de la Réunion, and a journalist who specializes in relations between Cuba and the United States.

His latest book is The Economic War Against Cuba; A Historical and Legal Perspective on the U.S. Blockade, Monthly Review Press, 2013 (prologue by Wayne S. Smith; forward by Paul Estrade; translated by Larry R. Oberg).

Contact : [email protected]

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