Quick someone, get the smelling salts. Ryanair’s Michael O’Leary has fainted at the news that a group of 16 influential and rich French businesspeople has written an open letter to their Government to seek the introduction of a temporary new tax on high incomes until such time as the French deficit is eliminated. And today the French government obliged and announced a temporary 3% levy on incomes over €500,000 which would apply until 2013 when the deficit is due to come back down from 5.7% today to 3% (by the way 3% is the ceiling in the EuroZone’s Stability and Growth Pact and although it’s not the same as eliminating the deficit, 3% is seen as a safe deficit level). It is not clear how much the new tax will raise as part ofFrance’s €10bn fiscal adjustment in 2012, but the letter and the new tax would certainly seem to promote solidarity.
The original letter in French is published today by the French weekly magazine, Le Nouvel Observateur. This is my translation
“We, the presidents or CEOs of industry, men or women in business, financial, professional or wealthy citizens, want the establishment of an “exceptional contribution” that would affect the most well-off French taxpayers. This contribution would be calculated within reasonable proportions, in order to avoid adverse economic effects such as capital flight and increased tax evasion.
We are conscious of having fully benefited from a French model of doing things and a European environment to which we are committed and which we want to help preserve. This “contribution” is not a solution in itself: it must be part of a broader effort to reform State expenditure just as much as taxation.
At this time when our fiscal deficit and the prospect of worsening government debt threatens the future ofFrance andEurope, when the government asks everyone for solidarity, it seems to us necessary to make a contribution.”
The letter was signed by 16 of France’s prominent business people, Jean-Paul Agon, CEO L’Oréal, Liliane Bettencourt, shareholder L’Oréal, Antoine Frérot, CEO Veolia Environnement , Denis Hennequin, CEO Accor, Marc Ladreit de Lacharrière, President Fimalac Maurice Lévy, CEO Publicis, Christophe de Margerie, CEO Total Oil Frédéric Oudéa, CEO Société Générale, Louis Schweitzer, President Volvo and AstraZeneca, Marc Simoncini, President Meetic, founder Jaïna Capital Jean-Cyril Spinetta, President Air France-KLM, Philippe Varin, President PSA Peugeot Citroën, Claude Perdriel, président du conseil de surveillance du Nouvel Observateur, Jean Peyrelevade, Président de Leonardo & Co France Franck Riboud, CEO Danone, Stéphane Richard, CEO Orange
I wonder will we see a similar letter from the great and good of Irish business and commerce in September 2011 in advance of Minister Noonan’s publication of his three-year plan in October 2011 which will set out in some detail the spending cuts and new taxation needed to eliminate the Irish deficit. I don’t recall seeing such a proposal in the Ireland First manifesto published in March 2011.
Michael O’Leary has threatened to be outtahere if the Government increases taxes on “the wealthy” to what he calls an “exorbitant level” but in the interview published in last week’s Sunday Independent he does say that he would be prepared to pay a top rate of tax of 50%. The present top rate of income tax is 41% but the Universal Social Charge and PRSI might bring that to over 50% so it’s not clear if he is saying he would in fact be willing to pay more or if he is saying that present rates are high enough. Regardless of Michael’s view though, the question needs to be asked if there is scope for a tax increase which in the words of the French above would avoid capital flight and tax evasion but at the same time contribute to the elimination of the deficit?
UPDATE: 28th August, 2011. Odd that in the week that gave us the French letter above which grabbed the headlines in France, that an Irish letter has created as many headlines here. The Irish Times on Thursday published a letter from someone who signed the letter M.P. Mac Domhnaill who is from Co Kerry. This is the text of the letter
“Sir, – As I write this letter I am hoping that sleep can provide me with some escape from the anxiety and pain that the economic situation is wreaking on me and my family.
Until recently I have been able to meet my mortgage repayments and provide for my young children. At this juncture, seeing as the part-time work on which I depended has entirely ceased, I have found myself and my loved ones having to cope with a new torment – hunger.
Today I have had nothing to give my children only bread and cereal. My dole payment is completely servicing my mortgage and my savings have run dry on essentials. I dread what each day will bring.
The wolf that I have been keeping from the door has finally moved in. – Yours, etc,”
On Saturday, the Irish Times carried a follow-up report having contacted the letter writer by phone. It’s a heart-breaking story, and today the Minister for Social Protection, Joan Burton asked that the man might contact his community welfare officer as there might be entitlements not presently being claimed by the man and his family. The Society of St Vincent de Paul aslo expressed concern and offered its emergency number to the man – 087 784 8825.
UPDATE: 6th September, 2011. Apparently Italy is now set to follow the lead in France and introduce its own 3% levy on incomes over €500,000.
NAMA Wine Lake 
@NWL
ROTFLMAO :-)
In fairness to Michael O’Leary, and as an explanation of the seeming irrationality of wealthy French people supporting higher taxes, it may be that the French believe higher taxes will be managed and spent efficiently. Who in Ireland believes that paying higher taxes to give it to the HSE, FAS/SOLAS, the Department of Agriculture, the OPW, semi-states or any number of quangos, etc., etc. would be money well spent?
I have no problem with people leaving the country for tax reasons, or claiming non-resident status for tax purposes.
Just so long as they leave their passports at the airport on the way out. Passports not to be returned.
With the tax and levy changes in Ireland during the past three years there has been a much higher marginal tax increase than 3% on incomes over €500000.
It would also be very interesting to compare salary and pension levels for politicians and senior public servants in France and Ireland.
Right idea – lead by example from the top!
Tom Paine
@bunbury you left out Nama….unless you think that is money well spent !
In reading the full article, instead of the attention grabbing headline, he said if the rates went up to 75 or 80% he would have no problem in leaving. Which is understandable and French rates are not near those levels.
The reality is if you wish to raises significant taxes, you have to raise the lower rate of tax. It is roughly a 7:1 ratio of revenue generation between both rates (using various election manifestos from various parties, including the (extreme) left, SF. i.e. to get an equivalent tax receipt gain from 1% raise in the lower rate, you would have to raise the top rate by 7%.
And finally, @Joseph Ryan – how do you define define people leaving the country for tax reasons – many people leave for economic reasons, including myself, but am proud to retain my Irish passport. “tax reason” leavers are also making an economic decision, and hard to separate the two.
@jj “In reading the full article, instead of the attention grabbing headline, he said”, you’re referring to the Sunday Independent article here I presume which was headlined
“O’Leary: ‘I’ll quit Ireland if they raise income tax’ with a byline “Ryanair boss threatens to leave the country over rates for high earners”
Yes that was misleading becaise as stated in the above blogpost he discussed an apparently higher rate of 50% as acceptable but said “I start to get pissed off when tax rates get to 60 per cent or up to 80 per cent.”
I think the curiosity of the French story is the apparent sense of solidarity, where the rich are proactive in offering to make a contribution. Now the cynics might say that the rich are not being foolish with their wealth; after all if the French economy is restored to a safe fiscal position, then the economy is better placed to grow which means L’oreal can flog more cosmetics, for example – take a bow, letter signatory, Mme Bettencourt. So maybe these French pluto-philanthropists aren’t as liberal with their long term wealth as some might assume. You have to admire their approach though.
Mr. O’Leary or Ryanair are highly unlikely to leave Ireland because of a number of different reasons.
Firstly in relation to the aircraft. There is a little scam going on around double claiming for capital allowances. It is called “double dipping”. The lessor claims capital allowances and the lessee (in a different country also claims the capital allowances on the same or piece of an aircraft. I am sure you will find that Ryanair’s aircraft are leased from a company, which is not based in Ireland, despite Ireland being the world centre of aircraft leasing.
Secondly there is the issue of Social Insurance. EU Social Insurance rules pre- date Irish membership of the EEC, dating from 1971. Effectively employees of an airline or a shipping company are deemed to be resident in the country where the plane or ship is registered. Guess which country in the EU has the lowest rate of Employer SI, approx half the rate in most other EU countries.
Thirdly, Ryanair benefit from very lax Irish tax rules and the 12.5% rate on the little bit of income deemed to be taxable. Therefore the company itself is not going to move its residence from here. There is an old Irish tax case called Tipping v Jeancard, which held that a director was liable to tax on the emoluments arising from his office where the company is registered. Therefore he can move but his remuneration from Ryanair will remain taxable here.
There are far more but I think those three reasons will suffice for now
Since when did 16 CEO’s speak for the entire community of wealthy people in France (population circa 62 million)? Oh let me guess, these are CEO’s of no ordinary companies.
Does Mr O’Leary not understand that after the marginal rate, there is a VAT rate of 21%. Does that not add up to 71% when spending money earned?
As Bunbury writes, the state has a responsibility to spend taxpayers money is a responsible manner. If the institutions of the State are incapable of this then one has to make the decision would it be better to emmigrate.
@ Joesph Ryan, many Irish people leave Ireland not for tax reasons, but because Ireland cannot provide them with a future. Not much point in hanging around if there is no work. Or if one does hang around in a country where there is no legitimate employment, then perhaps one has no alternative but to find a status in illigitimate forms of employment.
In addition for many professions, one has to go abroad to work to gain experience. Ireland is just too small to be a world leader in everything.
In the past many unskilled (but hard working) Irish men left their wives + families to work in the UK, sending money home every week / month. That was the reality then, and this reality has returned. Other countries such as the Philippines also have a large foreign working population sending money home to their families in the Philippines. This is how some countrys stay afloat.
To suggest that one renounce one’s citizenship because your country cannot provide you with work and you have no alternative but to emigrate is ridiculous.
@Sporthog
Point taken on your post. My ‘forfeit your passport’ call is specifically to ‘tax-exiles’.
I might add ‘pencil stealers’ to ‘tax-exiles’
@ Sporthog Taxation based on citizenship is a workable alternative option. In the case of Irish people working abroad in most countries no additional tax would be payable as the tax limits in Ireland are higher than in most countries.
Problems would arise for those working in non treaty countries (very few) or those such as Denis O’Brien up to no good.
@Niall, you need to be careful with your words when referring to an individual. I have no personal knowledge of Denis O’Brien’s tax affairs. He is by all accounts a wealthy individual and there has been discussion about where he pays taxes and how much. I have never seen any suggestion of tax evasion (which is illegal), though there has been much discussion about tax avoidance (perfectly legal). You might say the “no good” is a swipe at an apparent lack of patriotism in avoiding tax but even with that you need to be careful, because you’re unlikely to know the detail of Denis O’Brien’s tax affairs either. The same goes for the other 6,000 so-called tax exiles.
@ Niall,
And how did you come to the judgement that Mr Denis O’Brien is up to no good?
By viture of the fact that he does not pay income tax here?
If Mr O’Brien does not live here, then why should he pay income tax here? After all I don’t live or work in Germany, and guess what, I don’t pay German income tax. The Germans don’t look upon me “as up to no good”.
If taxation based on citizenship is a workable alternative, then why it is only the USA which implements it? What about the other 186 nations which exist?
@ NWL I am sorry for my selection of words, however I do remember that he went on the Late Late Show promising to pay his taxes on the disposal of his interest in Esat, but by various means he did not. I will be more careful in the future. Feel free to delete if you feel it to be necessary. He is I understand very quick to reach for the lawyer!
@ Sporthog Most countries within the OECD follow OECD model treaties, which normally tax on the basis of residence. There are other countries with forms of taxation on citizens who are not resident, Poland is one that comes immediately to mind. However, within the European model, Social Insurance is generally the main form of tax on income, income taxes are of less importance. There is also a greater degree of social solidarity. Even under current tax rules one can be liable to income tax on certain income even though no longer resident. Taxation on the basis of citizenship would be much cleaner.
In relation to the US, again it is not a country I would use as a comparison in the European context as many individual States levy income tax as well as there being a federal income tax. This is extremely messy in particular local income taxes are not covered by DTAs.
Interesting debate in US started recently by Buffett
http://www.nytimes.com/2011/08/15/opinion/stop-coddling-the-super-rich.html
@Sporthog
And do remember that if Mr O’Leary leaves because of higher personal taxation, Ryanair will still continue to benefit from the low corporate 12.5% rate.
One of the simpler ways for Mr O’Leary to avoid tax, is for Ryanair to buy AIB for buttons. Then pay himself with share options.
Now that might be a win-win situation for everybody. Except for about 2000 people at the top of AIB.
Taxes don’t necessarily have to be raised much higher, or even at all. Simply removing the tax reliefs aimed at the high earners has the potential to save/raise a few billion. It is proposed to reduce tax bands and possibly Paye tax credits over the next few budgets.
This affects those on lower and average wages the most. Greater tax income would be generated by removing the reliefs introduced by FF, which helped to convert tax evasion to tax avoidance and make it all look legal. Our politicians always promise to remove property tax reliefs for example, but all they do is carry out a review and then leave them in place.
In fairness to Joseph Ryan, I presumed he was referring to the approx 6,000 so-called “tax exiles” who are using the legislation specifically introduced to facilitate such evasion/avoidance, rather than those forced to emigrate. I agree that these 6,000 should be asked to surrender their passports. The residency rule isn’t aggressively applied, (by accident or design, you decide). If any of our wealthy elite threaten to leave, then let them go. It’s one of those pathetic cliches trotted out by our government to explain why they won’t tax the high-earners. We’ll survive without them.
And in fairness to Niall, as for Mr O’Brien’s acitivities, unless I’m very much mistaken, I seem to remember a certain Tribunal raising some serious questions about his business methods.
Taking someone’s passport off them doesn’t stop them coming back anytime they feel like it – unless you think they should be ‘blacklisted’ and never allowed to darken our shores again?!!! What’s the point? In the UK they use their tax system to encourage the wealthy from around the world (including those from the UK itself) to live there. They think it’s great that someone with money would choose to live in London and spend in their shops, buy their houses, and pay low tax to the UK treasury, when they could be in Paris or anywhere else. I think we should encourage our home-grown successes to live here – and others too.
Agreed, provided they pay their taxes like other residents. Interestingly, the UK is clarifying what is involved in being a tax exile. See http://news.bbc.co.uk/2/hi/business/8519803.stm
If Irish rules were to follow the UK’s, we’d have very few tax exiles.
@Brian Flanagan
That BBC piece is from February 2010 – any idea if it was appealed or if it still stands?
If it still stands, we’d want to get in quickly before the bubble gains of 2006/7 are lost to Revenue (or does Irish Revenue have a longer clawback than six years?).
The matter is still a live issue in the UK. Here is an article from the Telegraph dated 17th June 2011:
http://blogs.telegraph.co.uk/finance/ianmcowie/100010602/treasury-to-clamp-down-on-tax-exiles-and-non-doms/
It mentions “HMRC has no set rules here so you need to demonstrate you have left the UK ‘permanently or indefinitely’. This may involve giving up the UK home and breaking most, if not all, financial and social links here. You must make a “clean break” from the UK. Any factors which demonstrate an ongoing link to the UK will weaken the position, including keeping a property available for use in the UK, having dependant relations in the UK and having ongoing business interests in the UK.”
Here is a link to a HMRC consultation paper on tax residency dated June 2011:
Click to access consult_condoc_statutory_residence.pdf
I wonder whether our Revenue is looking at this. Would not be surprised if it isn’t as they have only recently started to check on time spent by our exiles in country.
@ Brian Flanagan,
I think you will find that the document you refer to actually clarifys the residency rules. Far from being a crack down as the media like to portray, it actually reinforces the 90 day rule under a ABC test.
Recently the commission of taxation 2009 ( I think ) recommended keeping the present rules of days in / out which is 139 days / year. Not the 183 days the media like to portray.
As far as days in or out are concerned, it is up to the non resident person to prove to the Revenue that they have been out of the country. With each new tax year the non resident person is automatically deemed to be resident, unless the person can prove beyond any reasonable doubt that they have indeed spent 226 days out of the country in that tax year. You have to understand that the onus is on the person to prove, not the Revenue.
Spending 226 days in another country is not cheap (of course there are always some people who won’t accept this), it costs a lot of money and it can also bring one into the other country’s tax net etc.
As for the number of tax exiles, I believe it has increased, due to the number of foreign nationals who used to live and work here and now due to the economic situation have left Ireland to find employment elsewhere. Not because there is a new bunch of Irish millionaires who have decided not to pay tax and get out.
In addition the domicile levy (200K) applies even if one spends ZERO days in Ireland in any and/or every year.
Needless to say this levy will not be enough to placate the begrudgers.
In addition whether you are resident in Ireland or not, any money made in Ireland is subject to taxation. Even if you spend Zero days in Ireland.
Thank you, very interesting. Might put a post up on the ‘pin about it!
@ NWL,
I thought I would post this link here for a laugh!!!!
It is a FT article about the 75% tax rate on earnings above 1 million euro in France.
The FT went back to interview some of the 16 wealthy individuals who had put pen to paper and recommended a higher tax rate.
“I thought that, in difficult times, people with high salaries should contribute,” Mr Agon told the FT, who was one of France’s highest-paid businessmen last year with a total remuneration of €3.96m. Asked whether 75 per cent had been the level he had in mind, he replied: “No, clearly not.”
Source Financial Times 26th Sept 2012. By Scheherazade Daneshkhu in Paris
http://www.ft.com/intl/cms/s/0/21ac83e2-07db-11e2-9df2-00144feabdc0.html#axzz27iA2GFLY
It would appear that some of these 16 individuals are not such savvy business people after all!!!!