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France’s attractiveness depends on lower production taxes, according to a report

Despite recent progress in terms of attractiveness, France is still struggling to attract factories to its territory and would have liked to lower production taxes on companies to remedy this, suggested Monday the National Productivity Council (CNP).

In a report published on Monday, this body attached to Matignon welcomes the reduction in corporate tax (from 33.3 to 25%) operated during the first five-year term of Emmanuel Macron.

Generous tax incentives for R&D (research and development) also enable France to attract innovation centers to its territory.

But despite this tax environment that has become more attractive in recent years, France clearly remains a net investor abroad, more than the average for EU countries.

In other words, France’s foreign direct investment remains higher than foreign investment in France.

For the CNP, France’s lack of attractiveness is explained by a tax structure that weighs more heavily on the factors of production (capital and labour) than in other countries.

It would therefore be appropriate to further develop corporate taxation, by reducing production taxes.

These taxes, based on companies’ income rather than their profits, have a repulsive effect which would deter both production centers (factories) and head offices from setting up in France.

The CNP thus estimates that a reduction of 5 billion euros in production taxes would increase by 2.3% the probability that a company will locate a production center in France, and by 6.6% the probability that it will set up there. its head office.

The probability of relocating factories would jump to 25% if France brought the share of its production taxes in GDP to the same level as in Germany (0.6% of GDP in 2018).

Harmonization

By hosting numerous R&D centers on its soil, France nevertheless already has a sizeable asset for attracting factories.

The prior existence of an innovation center in France increases the probability of setting up a production center there by around 62%, according to the CNP.

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The report is published when Emmanuel Macron, re-elected in April for a second presidential term, promised to lower production taxes by 7 billion euros through the abolition of the contribution on the added value of companies (CVAE).

Its authors point out that France would greatly benefit from a European harmonization of corporate taxation.

If the countries of the Old Continent offered the same tax framework to companies, the number of decisions to set up head offices in France could thus jump by 131%.

Luxembourg (-33%) and Ireland (-43%), two countries with favorable taxation for businesses, would however be penalized.

At the present time, we observe that countries with favorable corporate taxation (Luxembourg, Switzerland, the Netherlands, Ireland, etc.) tend to specialize in (hosting) head offices, European countries central and eastern countries are more so in production, while western countries (including France) are more so in innovation, notes the CNP.

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