Taxing the Rich in France

So let me get this off my chest. I dislike Hermès scarves. Much too busy-looking and blazing with symbols—stirrups, horse heads—that by rights belong in a Godfather film. So I’m not looking for the ravenous Bernard Arnault, head of LVMH, which owns 22 percent of Hermès, to send me a few silky souvenirs any time soon (champagne is a different matter, of course). But he’s right about this tax thing, even though Arnault, a resolute grabber of luxe, stoutly denies that his motivation for altering his identity is the tax thing. He’s right, in other words, to acquire another nationality— even if it means becoming Belgian.

Why would any Frenchman, especially France’s richest (Arnault is worth some $41 billion thanks to LVMH’s burgeoning sales in Asia, which makes him the world’s fourth most prosperous earner) choose to acquire another form of identity? Here’s a hint. Both during his campaign and after winning the French presidency, François Hollande remained consistent: he was, he insisted, going to tax the wealthy 75 percent on any revenue exceeding 1 million euros.

Hollande, a Socialist, had well before the election declared his long standing distaste for the rich, argued in just those terms, and now that he’s victorious he proposes to gratify that prejudice by appropriating most of their earnings in order cut France’s public deficit to 3 percent of economic output.

Many have been those who questioned the wisdom of soaking the successful. In June, the UK’s prime minister, David Cameron, infuriated his French counterpart (not for the first time) by promising a British safe haven (actually he used the term “red carpet”) for those Frenchmen who chose self-imposed exile. And it’s worthy of note that Hollande himself couldn’t have been unaware of the intentions of some of France’s wealthiest. Especially Arnault, who effectively put his own country on notice. Over three decades ago, during the presidency of François Mitterand (France’s last socialist head of state), Arnault actually emigrated to the United States, choosing to build condominiums in Florida rather than cough up cash in Paris.

Now he has apparently chosen Belgium over the Anglo nations. Belgium happens to be a nation with a disastrous economy and, of late, a more benign attitude than France toward money-makers: holding-company taxation is relatively sweet, along with some other perks. There are, for instance, no withholding taxes on outgoing dividends, royalties, or loan interest, unless the recipient is a resident. Arnault of course proposes to remain in France.

Of course the entrepreneur pretends that the motive behind his sudden passion for Belgium is not what it seems to be: i.e., more money in his wallet. And he’s welcome to whatever stories he wishes to spin. But consider this: Arnault is precisely the kind of taxpayer a country like France should try to keep. He is not a coupon clipper, some wastrel who inherited his billions. It was Arnault who abandoned his father’s fusty focus on civil engineering, concentrating instead on acquiring the luxury names: Dior, Céline, Guerlain, Moët & Chandon, Bulgari, and Pucci. And it was Arnault who made many of these brands once again profitable, even during dismal economic cycles.

So here’s a little hint to Hollande: Arnault was the guy who bought LVMH’s initial Hermès stake for 80.5 euros two years back, and he bought them on the sly with cash equity swaps, so family shareholders would be none the wiser for quite some time. Those shares have since tripled.

Why would France, with 13 percent unemployment, want to alienate Arnault? The entrepreneur, snaps a frightened Hollande,  “should have taken into account what it means to be French” before choosing another citizenship.

But actually, that’s just what Arnault did. He took it into account, and he didn’t like the numbers.


Photo Credit: Garitan






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