PARIS (MNI) – The new French government intends to introduce a 3%
withholding tax on corporate dividends and a tax on financial
transactions in a mini-budget planned for next month, the business daily
Les Echos reported Tuesday.

In addition, the investment returns of shareholders will be taxed
in the future at the same rate as earned income rather than at a 21%
forfeit rate.

In itself, the dividend tax will not offset the disappointing
returns from corporate profit taxes, which have undermined the fiscal
outlook for this year. Instead, it will partly compensate the revenue
loss from the elimination of a tax on foreign mutual funds declared
discriminatory by the EU Court of Justice.

The mutual fund tax had brought in E800 million per year, which the
new dividend tax is expected to reap in a full year, the newspaper said.
This year dividend tax revenues are targeted at only E300 million.
Moreover, the Court ordered France to reimburse the foreign mutual funds
E4.3 billion for their losses.

The dividend tax will fall mainly on large firms, as Socialist
President Francois Hollande had promised during his campaign. The top 40
firms on the French stock exchange distributed E45 billion via dividends
and share buybacks last year, up 15% compared to 2010, Les Echos
reported.

The 0.1% financial transaction tax proposed by the previous
conservate government was expected to net E1.1 billion per year, but now
it appears unlikely to meet the target, the newspaper said, citing a
Finance Ministry source.

A higher tax rate is being considered, but market professionals are
already concerned that activity on the Paris stock exchange is likely to
suffer as long as no such tax is imposed at the EU level, which the UK
opposes.

Finance Minister Pierre Moscovici has estimated that France’s
public deficit was likely to overshoot this year’s 4.5% objective, “if
nothing is done” to correct the trajectory. This implies that some E10
billion in savings or addition revenues will be needed this year alone.

–Paris newsroom +331 4271 5540; e-mail: ssandelius@marketnews.com

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