French tax on startups | Hacker News Reader

French tax on startups

flirtatiouslabs.com

37 pointsVSerge58 comments

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).

Let's be clear: I'm not agreeing with the government's policy (at least it's now not blatantly racist): I'm not agreeing with everything in the proposed tax scheme, I'm not agreeing with the entirety of the distribution of the spending, and I'm not agreeing with their lack on direction. I'm also not agreeing on bullshit being spread by a group of clueless persons on Facebook and being spread by rudebaguette and the like for clicks. If you want to tell tall stories, good for you, it can be interesting, you'll have plenty of stories to count because the combinatorics are gigantic, but don't call yourself a journalist. /rant

Thanks Gabriel Synnaeve for the great comment - it's a great example in how it's always cool to be for something, as long as you clarify that your not for it "the same way everyone else is."

The "bullshit" that we spread on Rude Baguette cites sources, so if you have a problem with the way they're being talked about, that's called a "spin." We also wrote that "bullshit" about 36 hours after the creation of the #geonpi fan page, because we felt the "bullshit" was worth talking about.

I don't think the blogger her, who also write for RB, is calling himself a "journalist," writing in the blog of his startup's website - at best he's expressing his opinion.

PS: ending a comment with "/rant" doesn't make it any more justified - although thanks for clarifying that it was written with no forethought, afterthough, or thought at all.

Yours Rudely,

-Liam Boogar Editor @ The Rude Baguette

I did read the article 6 of the finances law on which my article comments. I'm unsure you have. I am sure however that you neither read my article, or any of the many explaining why this 60% top bracket is significant, ie for investors who are an essential part of the startup ecosystem, and make their money only on a few big hits with large payouts.

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.

Institutional VCs will likely be able to account for the income such that they are, at least on paper, re-investing a good portion of the income.

No. A VC fund invests each dollar precisely once and then attempts (over the next 10-15 years) to return those funds to investors when they cash out.

Maybe VCs in France will completely restructure their business to avoid this massive tax (presumably incurring lower returns in the process). Or maybe they will just invest outside France. Either way, this is not a small problem for them.

Money is fungible and people are creative; My expectation is that, in the middle-run, that they will be make this no more than a small problem for them.

What are their investors doing with the money? If they intend to pile up a bunch of dollars and swim in it like Scrooge McDuck, then yes, that pile might shrink as a result of this law, but I expect that represents a relatively small fraction of institutional VC money.

As the parent said, if they sell to retire, the income isn't taxed so highly; if they sell to cash out of this investment and put (at least 80% of) it into something else, then the money is being reinvested, and hopefully can be handled as such in the accounting.

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.

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.

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)

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.

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...

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

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%?

This number is ignoring that the tax structure of the time was quite a bit different than today. It's more enlightening to look at effective tax rates, which depending on the year were around 20-40%. (Edit: Actually very rarely far from 20%. http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Doc... shows effective personal tax rates on the 1% from 1979, and this http://www.freeby50.com/2010/08/effective-tax-rates-1934-to-... shows average effective taxes from before then (and after match the first link fairly closely).)

Almost the entire economic expansion after WWII came from the middel class. The rates you link to are referring to the top marginal rate which do not affect the middle class.

There is also a rather important paragraph at the bottom that I think you missed.

> "This table contains a number of simplifications and ignores a number of factors, such as a maximum tax on earned income of 50 percent when the top rate was 70 percent and the current increase in rates due to income-related reductions in value of itemized deductions. Perhaps most importantly it ignores the large increases in percentage of returns that were subject to the top rate".

The US tax code is so complicated you can't just look at some percentage and come to any sort of accurate conclusion. I would say the main factor in how much a given person pays in taxes depends mostly on their accountant.

You should also take into account most of the world was in shambles was when the war ended which gave the US a huge economic advantage.

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

http://grenouillebouillie.wordpress.com/2012/10/01/explainin...

http://www.rudebaguette.com/2012/10/01/the-pigeon-movement-f...

The latter, posted/discussed previously on HN

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

> 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

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. :)

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

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.

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.

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...

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

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.

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.

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.

Ha! On the ground in France, it's not really hostility, it's more indifference and rigidity. Some are hostile indeed, but some are helpful as well so it balances out. It's still a general pain in the backside though, and boy do they know about not communicating between services, losing papers you sent, and asking you 5 times for the same stuff... But to our problem it is the actual tax rate increase. From 30 to 60% overnight on investors' exits. Not neutral for business.

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://www.forbes.com/sites/kenrapoza/2011/09/09/a-cross-cou...

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.

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...

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.

France, like Arkansas and Idaho, has a high percentage of the country engaged in agriculture. A sensible comparison would be PPP GDP per capita growth rate.

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.

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]

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...)

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

Except that the way the unemployment rate is calculated is different in both countries, economists say that you should add 3 or 4% to the American unemployment rate to have comparable numbers.

According to a quick look at Wikipedia, the only apparent difference is that Eurostat requires an unemployed person to be able to start work in the next two weeks, while the US BLS requires an unemployed person to have been able to start work last week.

Is it your belief that the difference between "are you able to start work in the next two weeks" and "if a job were offered, could you have started work last week" is 3-4%?

You have to work less hours in the US to be considered employed, you are considered employed if you work 15 hours a week (my source is Jacques Sapir)

That is incorrect. All of Europe defines unemployment in accordance with the ILO, and the ILO counts a person who has performed any work as "employed".

http://stats.oecd.org/glossary/detail.asp?id=778

Which country is that?

And in return provide extensive middle class services.

Nobody who wants to get elected in the U.S. can say this, but the middle class here increasingly sees more benefits from government while paying less and less for them. The poor are screwed by regressive sales and payroll taxes, while the upper classes face much higher average rates due to income cutoffs on a variety of tax credits and deductions.

You can argue about payroll vs. state vs. income taxes, but it's indisputable that the income tax which funds government programs has become dramatically more progressive in real terms over the last few decades.

Will ACA help the upper class? Not really: they had a low uninsured rate to begin with. Will it help the poor? Not really: They already had Medicaid/CHIP. It's effectively a middle class benefit, and it's paid for largely by increased taxes on the rich.

There's nothing intrinsically wrong with taxing the upper class to help the middle class. Maybe it will solve the "problem" of inequality, but I'm not so sure. I think I'd prefer a system where a more generous government requires a more generous citizenry.

> The poor are screwed by regressive sales and payroll taxes

It's worth stating that Sweden has a 25% VAT, which is a bit higher than the average for Europe, but not that much.

For corporate taxes, effective tax rate is the relevant number. I could not find recent figures, but most rich countries had an effective tax rate in the 10-20 % rate, with Germany and Australia as outliers (below and above) in 2005. The US (well, states) are known to have a high official corporate tax rate, but the effective tax rate is much lower. In general, corporate taxes have significantly decreased on various measures (http://marginalrevolution.com/marginalrevolution/2011/11/cor...).

This is actually the main issue of this new law in France: distortions and waste around tax avoidance much more than the actual tax rates, which are mostly for political show (the tax will not raise that much money, even though France has the highest number of people > 1 million euros in assets/etc... within Europe).

The Nordic countries do have a lot of taxes, and Norway most of all. And that means Norway is not the easiest country to do business in, unless you're into oil, gas or fish. The one big killer in Norway, is taxation of working capital. Which is why a Norwegian Facebook or Twitter would be impossible at this moment. If you have a company valued at say $100 million, but you're losing money at a rate of $200k per year, you'd think you just need to raise those $200k somehow, which shouldn't be too hard. But guess what, since you're valued at $100 million, you'd have to somehow raise another $2 million each and every year, just to pay your taxes.

Rather than trying to tax companies based on some valuation, why doesn't the government just collect a small percentage of stock each year?

I might have been a bit unclear, but the tax I mentioned applies to the owners of the company, not the company itself. Which means that it's very hard for entrepreneurs to maintain control of their company, since they have to sell stock just to pay the taxes on their stock.

A report from The Confederation of Norwegian Enterprise (NHO) published this spring, showed that over 20.000 Norwegian business owners paid more in taxes, based on the company's valuation, than the entire revenue of said company.

"And that means Norway is not the easiest country to do business in [...]"

Well, the ease of doing business index says otherwise.

http://en.wikipedia.org/wiki/Ease_of_doing_business_index

Are you proposing that the socialist nanny-state in Spain has caused the Spanish financial crisis? or its crazy real estate boom?

Please stop this political propaganda on HN. There are valid reason to criticize this law without trying to damage France ("Flee France" as you say ...)

Don't call everything you don't like "socialist". It's as ridiculous as when French left-wing socialists call everything they don't like "libéral".

And don't mix Spain and Greece :

- Greece has a completely corrupt government for years (and not only socialist governments)

- Spain had budget surplus for years before the crises and was reducing its debt more than other EU countries (cf http://imgur.com/s1jVu , you can have more stats on http://epp.eurostat.ec.europa.eu/tgm/graph.do?tab=graph&...)

It's not "damaging" to France to say that the country is run by dishonest incompetents. France is a wonderful, beautiful country - any visitor can see that it in a few hours. But if a government is lowering people's incomes and increasing unemployment, we have a right as rational people to say as much as we can about it.

'martinced' doesn't say that the country is "runned by dishonest incompetents". He says :

- "leave your country"

- "Flee France. That country doesn't deserves you"

- "it's one of the most socialist country of the planet"

He use the word 'socialist' everywhere and in a meaningless ways.

We can perfectly have a rational talk about the problem with this law without all this nonsense.

Are you here Rexxar (in France)?

Yes

How is 'socialist' used in meaningless ways? Socialist in 2012 means someone who believes that wealth should be distributed from wealth-creators to the public sector, with the result that the country as whole grows more slowly than it should. Maybe you are thinking about what "socialism" originally meant, or what it "should" mean. Socialism has been defined by history.

I don't want to have a political discussion on HN. But the original claim that France is "one of the most socialist country of the planet" is ridiculous (http://en.wikipedia.org/wiki/Socialism)

There are problems in France (As there are in other countries). But just saying it's because France is socialist will not help to solve them.

Some people on right see socialism everywhere.

Some people on left see capitalism everywhere.

Some religious people see the devil everywhere

...

But all off this doesn't solve any real problem.

I recall a friend of a friend opening a hair salon, and from what I recall, it was a near-nightmare. Rules for illumination, taxes for how many lights you had outside the establishment. It's hard starting a business anywhere (the risk) but in France you have the added bonus of needing everything, permits, premises, etc to be ship shape before you open --even if it's not food, or drink. It seemed daunting.

I agree with martinced completely.

I've spent 12 years in Paris working on the web. Before that I spent 9 years in Russia - I know propaganda and lies. The French government is incompetent and dishonest.

Why do I write this? Because it's in all of our interest here in France that the rest of world know. These buffoons want to be taken seriously on the world stage, like Chernenko and Brezhnev. No reason to allow that to happen.

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