

French tax on startups - VSerge
http://flirtatiouslabs.com/post/33951039177/french-tax-on-startups-eternal-bullshit-of-the-clueless

======
snippyhollow
I'm tired of this BS being spread by ppl who didn't even read the finances law
in question (at least bullet points). It's not true, the 60% tax rate comes
from the creation of a new bracket in the income tax and the treatment of
selling your startup as income. To attain 60% you 1) need to sell for more
than 150k 2) count all the acquisition money as instant revenue 3) do not
intend to invest. And in fact, you have decreasing income tax if you sell
assets you were bound to for 2 years (5%) and increasing up to 40% (on the 45%
income tax...) for 12 years and more. If you invest 80% or more of the amount
you earn, you don't have this tax, the same if you sell to retire... And don't
even get me started on the "auto-entrepreneur" status which is a joke (that
needs to end).

~~~
yummyfajitas
VCs make nearly all their returns off a few big hits. So on the big hit, they
will certainly:

1) make > 150k.

2) Sell out instantly, or at the very least in chunks considerably bigger than
150k. Even if they do sell out in 150k chunks, that will drastically reduce
their returns - returns = log(outcome/investment)/t, so increasing t will
lower returns.

3) Return the funds to investors.

Sounds like this law will, in fact, cut returns by roughly 50%. Or maybe 30%
if the exit takes a long time.

~~~
fab13n
VC are companies, not people, so what they earn is counted as benefits, not
revenue. Moreover, in their P&L, they can subtract the L from their P, and
average their money streams over several years.

There are legitimate issues with this law:

* it creates a lot of gratuitous bureaucracy and complexities, where you need to apply to some byzantine exceptions to the exception to the common law to keep a decent share of the wealth you produced; this kind of unproductive BS drives genuine entrepreneurs crazy and disincentivize them, probably more than the tax bracket in which they fall;

* it creates a very legitimate sense of insecurity among small businesses;

* it sends an overall message that France is not a startup-friendly environment, and that if you can help it, you should rather incorporate in another European country.

This last message is, unfortunately, very true: both the corporate and
political French elites come from the same few schools, mostly ENA; so
politicians have many executive friends in the private sector, but they all
only worked in huge companies. They wish that the next Google would appear in
France, but they can't realize that Google-like wealth creation never comes
from dinosaurs on the scale of AT&T or GM (or Orange, or Peugeot). Moreover,
this cluelessness is shared by conservatives and liberals equally.

~~~
ovi256
There is no conservative/liberals differenciation in France. All French senior
politicians and civil servants have exactly the same life trajectory, are
educated in the same school, ENA, and share the same values. There is a lot of
opportunist movement from a party to another, showing that party ideology has
zero weight.

PS: you may bring Nicolas Sarkozy as a counter-example. He, indeed, did not go
to ENA because he failed to graduate from IEP Paris, which is a prerequisite.

------
flyinglizard
France is doing us foreigners a big favor by taking on an experience in wealth
redistribution through extreme taxation. It takes some balls to do something
that may destroy your economy to this extent.

We should all thank the French voters who took on the risk to put this
government in control.

(I think it'll end in tears, but it will serve to deter the voters in other
countries the next time they think of starting a class warfare against their
entrepreneurs)

~~~
btb
Yeah the new 75% income tax bracket in France really is putting the Laffer
curve theory to the test. Will be very interesting to see how it pans out. I'm
sure socialist governments elsewhere in Europe is following this grand
experiment closely.

~~~
adrr
US had a 92% tax rate for a few years and 70%+ during our great economic
expansion after WWII, which was highest GDP grow in our history.

[http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Doc...](http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=213)

~~~
galactus
How you dare questioning the sacred idea that an income tax bracket of 70%+
would destroy the economy?

~~~
flyinglizard
What should be considered is not the maximal tax rate but the effective tax
rate (after deductions, evasions and so forth).

Do you have any doubt that with the paper accounting of the 50's it was
significantly easier to evade paying taxes? Do you really think anyone
actually paid 70%?

------
riffraff
For those who may have no idea what the author is actually talking about:

[http://grenouillebouillie.wordpress.com/2012/10/01/explainin...](http://grenouillebouillie.wordpress.com/2012/10/01/explaining-
geonpi-to-non-french-entrepreneurs/)

[http://www.rudebaguette.com/2012/10/01/the-pigeon-
movement-f...](http://www.rudebaguette.com/2012/10/01/the-pigeon-movement-
frances-last-hope-for-startups/)

The latter, posted/discussed previously on HN

<http://news.ycombinator.com/item?id=4595869>

------
spindritf
> Talking about what other measures the government put in place, or what
> tweaks the government made to lower taxes for entrepreneurs is besides the
> point, as NO FUNDING MEANS THERE WILL NO LONGER BE SUCCESSFUL FUNDED
> STARTUPS from which to exit.

It doesn't matter because you cannot show a start-up that never came into
existence on TV, so there is no way to hold politicians responsible for that.
Nothing has changed since Frédéric Bastiat wrote "What is Seen and What is
Unseen"[1].

[1] <http://www.econlib.org/library/Bastiat/basEss1.html>

------
mehdim
Instead of whining, use your valuable time to make start-ups that solves big
pains, bring value to users and customers, with a good UX, which will then
make $millions revenues and valuated $billions. Then your voice will have
power and audience to make things change if you want so, and you'll become
politician from the do-ers side. I'll even vote for you, but lot of work
before... I'm a french startup entrepreneur and I approve this message. :)

------
andrewcooke
so if the money is reinvested, as it presumably would be by vcs, this doesn't
apply?

~~~
VSerge
VCs have funds with limited timespan. They can't reinvest endlessly. And
either way, an investor needs to have a decent measure of liquidity in order
for said investment to be attractive, so locking it down even more than it
already is would be counterproductive.

------
louisdorard
It's worth noting that equity sales taxes don't concern French companies that
have the "JEI" label, i.e. young innovative companies.

There is an issue in the State's definition of "innovative", though. JEIs are
companies that spend at least 15% of their resources on R&D, so we're talking
about technological innovation. It seems to me that most people agree that
other sorts of innovation need to be accounted — either with the same label,
or a new one.

------
rayiner
This seems to affect VC's and people here are acting like you can't have
startups without VC's. There are these things called banks...

~~~
VSerge
At least in France, banks never invest in startups. And I mean absolutely
never.

------
sterling
I've lived in France 12 years and run a web consultancy in Paris. The
government is completely out to lunch - and I feel the international media has
not covered this story sufficiently. Unemployment is going to rise, investment
will drop and extreme political movements are going to become even more
popular.

------
martinced
France is destroying its future wealth and its destroying it fast.

It's already one of the country with the most obstacles when you want to
create a business: there are laws at basically every "level of power" and
because it's one of the most socialist country of the planet (despite them
always saying neo-liberal are supposedly in power) there are a great many
level of powers. It's mad. Consider yourself lucky if you want to start a
technology startup: it's relatively "easy" compared to, say, wanting to create
a factory.

Why are there no french Google, FaceBook, Oracle, IBM, Microsoft, Amazon,
eBay, etc.?

And the people defending these socialists are intellectually dishonest: we're
assisting at the utter failure of the nanny-state (think socialist Greece and
socialist Spain that skyrocketed the debt and drove the country into the wall)
and yet the socialist manage (by propaganda, being basically in control of
both written and televisualized press) to make believe it's all the fault of
the liberals.

This is sick. Just sick.

Now I'm fighting teeth and nails to get my point across: if you're a french
entrepreneur, do like me: leave your country. We're in a world where,
thankfully, people are still free to move. So move while you can. Incorporate
your startup in Luxembourg (like Skype did). Incorporate in Switzerland.

Flee France. That country doesn't deserves you nor the future wealth you're
going to create.

~~~
davidw
Don't the Nordic countries have a lot of taxes? They seem to do ok in the
startup scene. My wild guess - I don't know how things are 'on the ground' in
either France or the Nordic countries - is that France tends to have more
_bureaucracy_ like here in Italy. So that it's not just a matter of "make some
money, pay X in taxes" which is pretty easy to reason about, and somewhat
"fair" (even if we all have different opinions) if you're paying taxes on
profits, but rather feeling like the system is full of obstacles and people
who are either indifferent or actively hostile towards the idea of someone
opening a business.

~~~
yummyfajitas
_Don't the Nordic countries have a lot of taxes?_

Not on corporations. They do tend to have rather high taxes on middle class
individuals, however.

[http://blogs-
images.forbes.com/kenrapoza/files/2011/09/Corpo...](http://blogs-
images.forbes.com/kenrapoza/files/2011/09/CorporateIncomeTaxRates.jpg)

[http://www.forbes.com/sites/kenrapoza/2011/09/09/a-cross-
cou...](http://www.forbes.com/sites/kenrapoza/2011/09/09/a-cross-country-
comparison-of-corporate-income-taxes/)

~~~
xyzzyz
Ah, I live in one of these countries with low corporate income tax (it's 19%
here), and yet right wing here wants to make it even lower to increase
entrepreneurship, and everybody complains how hard it is to do business here,
because taxes and insurance contribute additional ~13-15% cost to base salary,
so that they have to use law loopholes to escape that (which is very
widespread, and recent attempts by government to fixed it resulted in an
public outcry).

Hearing all that, one could imagine that in countries like France, with >30%
corporate tax and high employment cost, no business can take place at all, and
it must have fallen in a deep economic depression a long time ago.

~~~
yummyfajitas
_Hearing all that, one could imagine that in countries like France, with >30%
corporate tax and high employment cost, no business can take place at all, and
it must have fallen in a deep economic depression a long time ago._

That is generally the case. Unemployment rates in the 8-12 neighborhood are
considered a disaster in the US. In France they are normal.

France is as poor as Arkansas and Idaho, two of the poorest US states. If the
US in general fell to this level, we'd definitely be calling it a deep
depression.

[http://mjperry.blogspot.com/2010/01/paul-krugman-extols-
euro...](http://mjperry.blogspot.com/2010/01/paul-krugman-extols-europes-
economic.html)

The only reason France isn't described as being in a recession is because it's
always been this way, so they are used to it.

~~~
cdavid
France is not (much) different from other comparable countries in Europe on
the quoted measure (i.e. Germany, UK and Italy are equally "as poor" as
Arkansas and Idaho, using GDP-PPP/inhabitant). So it most likely doesn't have
much to do with the original statement, given that Germany has e.g. a much
lower unemployment. I am not sure per-state comparison of GDP-PPP per capita
are really that meaningful: you would most likely need to adjust parity within
the US. This is a weak argument, but I can't really see how France would be
significantly poorer than Louisiana.

Describing France as perpetually in recession is rather nonsensical: I can't
see any measure by which it would not be true for nearly every country if true
for France.

~~~
guylhem
Start with a very rich country - a former superpower that fought with its
rival for world domination. I'm not talking about USA and USSR but France and
England.

The #1 spots comes with lot of advantages like accumulated wealth, educated
workforce, etc.

Now start to introduce socialist reforms - little by little, and watch the
country bleed itself out while its voters supports this self destructive
streak being proud of the equality they are achieving.

This "equality" makes me think of thermodynamics. Yes they are increasing
entropy, destroying the country.

It can be achieved in a small amount of time (Zimbabwe managed to turn itself
from very rich to very poor in a record amount of time!) or a long time - as
France is showing.

At the moment, France can only take advantage of the size of its economy as a
refuge in the eurozone for those who don't want to put all their eggs in
Germany

If France keep destroying its economy that way (or if say the UK gets in the
eurozone) the end of the ride is near.

[I wonder if it will need food help to fight famine, like Zimbabwe, after
after being a net food exporter]

~~~
cdavid
What makes you think France is destroying its economy ? And what makes you
think UK or Germany is that much better ? When you scratch behind the
superficial discourses around european economy, some underlying issues are
systemic and shared across all big European economies. One of them is the very
weak capitalization of banks, and high asset/gdp of the private banking system
[1]. This by itself explains a large part of the current European policies
(for example, those countries don't/can't recognize that they will need to re-
capitalize their banks at taxpayer-expense).

This is much, much more critical than changes in taxes which effects are at
best very disputed, and mostly explained by political biases of each side.

[1] (asset / gdp is > 6x GDP for switzerland, > 3x GDP for UK and France, to
compare to 0.6 x GDP for the US:
[http://www.zerohedge.com/sites/default/files/images/user3303...](http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2012/03/20120322_eu1.png))

