Date:2009 March 5, 07:06 (Thursday) Canonical ID:09PARIS321_a
Original Classification:UNCLASSIFIED,FOR OFFICIAL USE ONLY Current Classification:UNCLASSIFIED,FOR OFFICIAL USE ONLY
Handling Restrictions:-- Not Assigned -- Character Count:5808
Executive Order:-- Not Assigned -- Locator:TEXT ONLINE
TAGS:ECON - Economic Affairs--Economic Conditions, Trends and Potential | EFIN - Economic Affairs--Financial and Monetary Affairs | EINV - Economic Affairs--Investments; Foreign Investments | FR - France | PREL - Political Affairs--External Political Relations Concepts:-- Not Assigned --
Enclosure:-- Not Assigned -- Type:TE
Office Origin:-- N/A or Blank --
Office Action:-- N/A or Blank -- Archive Status:-- Not Assigned --
From:France Paris Markings:-- Not Assigned --
To:Argentina Buenos Aires | Australia Canberra | Brazil Brasilia | Canada Ottawa | China Beijing | Department of State | Department of the Treasury | Group Destinations European Political Collective | India New Delhi | Indonesia Jakarta | Japan Tokyo | Mexico Mexico City | Saudi Arabia Riyadh | South Africa Pretoria | South Korea Seoul | Turkey Ankara
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1. (SBU) SUMMARY: In the context of the international financial
crisis, President Sarkozy has repeatedly cited the need for
international action on "tax havens," a point on which he recently
said he sees "zero room to negotiate" in the G20 (ref A). Sarkozy
appears to have garnered substantial European support for this
position. END SUMMARY.
2. (U) The GOF and President Sarkozy, in particular, have given high
priority to the issue of tax havens based upon both domestic
political and technical considerations. On a political level, the
president's efforts to reform and modernize the economy necessitate
firm action against tax fraud and evasion by the wealthiest parts of
society, and the establishment of safeguards. President Sarkozy
came into office promising to "moralize" a capitalism that had
become "perverted", a broadly if vaguely appealing notion easily
personified by tax cheats. The Liechtenstein scandal in February
2008, said to involve one billion euros in tax fraud by French
citizens, brought this issue to the fore. French Budget Minister
Woerth quickly partnered with German Finance Minister Steinbrueck in
pushing this issue, including at their co-hosted international
conference in Paris in October. In parallel, Interior Ministry
Aliot-Marie called for the end to the "naove approach" to dealing
with economic bad actors and the establishment and enforcement of
common ground rules in finance as part of a global approach to
security that included economic security (Ref. C).
3. (U) The economic rescue package combined with highly visible
increases in the government budget deficit have put the government
under additional pressure to improve tax compliance. With revenues
stagnating, the 40 billion euros (estimate of the Cour des Comptes,
France's GAO equivalent) in annual tax fraud and evasion, 15 - 20
billion of which is linked to tax havens, is an obvious target, even
for purely budgetary reasons. The opposition, notably former PM
Fabius (PS) and National Assembly Finance Committee Chairman Megaud
(PS) have needled the government for not formally forbidding
activity in tax havens by banks receiving GOF support. The GOF has
also made the technical argument that lack of transparency and
prudential supervision of financial actors in non-cooperative
centers aggravated the crisis and slowed its resolution. At a joint
press conference with German Finance Minister Steinbrueck on March
3, 2009, Economics Minister Lagarde proposed requiring "heightened
risk" disclosures and possible increased prudential requirements for
financial institutions that did business in such non-transparent
financial centers.
GOF Focus on Transparency
-------------------------
4. (U) While the GOF has in the past sought greater tax
harmonization, President Sarkozy stressed in a March 1 Brussels
press conference that his persistent concern about non-cooperative
financial centers is their lack of transparency regarding the origin
and destination of funds, rather than differences in tax rates or
tax systems. He and his Economics Minister have stressed this in
joint statements with counterparts from London, Rome and,
especially, Berlin. Bilaterally, the GOF is pursuing accords
allowing it better access to tax-relevant information, e.g., in
Jersey and the Isle of Man. Multilaterally, Minister Woerth has
indicated the GOF's intention to "endorse" the new OECD list of
non-cooperative centers, due out in the first half of 2009, in a
second multilateral forum on fighting tax fraud and tax evasion,
scheduled to occur in Berlin on June 23, 2009.
Consumers Shoulder Tax Burden that Jet Set can Avoid
--------------------------------------------- -------
5. (SBU) French tax revenues come primarily from VAT (49.9%),
personal income tax (21.4%) and corporate taxes (17.3%), placing the
principal tax burden on consumers, generally, and not so much on
those in higher income brackets. While residents of France are
taxed on worldwide income, non-resident French citizens are not
subject to income tax. Because "non-resident" is defined as having
principally foreign sources of income and residing outside France
183 days of the year, some high income citizens organize their
PARIS 00000321 002 OF 002
schedules and business affairs in order to be exempt. At least some
of the GOF's vehemence on this issue stems from the perceived
injustice of French gliteratti decamping to Switzerland and other
"havens" to avoid the heavy individual tax burden. This allows them
to avoid not only income tax (maximum rate 40%, on income above
69,505 euros) but also the annual French wealth tax (0.55% for those
with to net worth exceeding 790,000 euros and increasing to 1.8% on
wealth over 16.5 million euros).
6. (SBU) Comment: GOF contacts believe the USG has taken an
arms-length position over the last eight years, following early
partnership with France on tax havens in the OECD. They also note
that Senator Obama co-authored legislation on tax havens and believe
that he is sympathetic to the French and German position. The GOF
pushed hard for U.S. participation in the (virtually OECD-wide)
international conference on the fight against international tax
fraud and tax evasion and used the pending November elections to
explain our absence. There is a high expectation, particularly in
light of recent U.S. actions on UBS, that the U.S. will join the
follow-up conference in Berlin on June 23, 2009.
PEKALA
FRANCE/G20: FIXATION ON TAX HAVENS
Date:2009 March 4, 18:16 (Wednesday) Canonical ID:09PARIS320_a
Original Classification:UNCLASSIFIED,FOR OFFICIAL USE ONLY Current Classification:UNCLASSIFIED,FOR OFFICIAL USE ONLY
Handling Restrictions:-- Not Assigned -- Character Count:5810
Executive Order:-- Not Assigned -- Locator:TEXT ONLINE
TAGS:ECON - Economic Affairs--Economic Conditions, Trends and Potential | EFIN - Economic Affairs--Financial and Monetary Affairs | EINV - Economic Affairs--Investments; Foreign Investments | FR - France | PREL - Political Affairs--External Political Relations Concepts:-- Not Assigned --
Enclosure:-- Not Assigned -- Type:TE
Office Origin:-- N/A or Blank --
Office Action:-- N/A or Blank -- Archive Status:-- Not Assigned --
From:France Paris Markings:-- Not Assigned --
To:Argentina Buenos Aires | Australia Canberra | Brazil Brasilia | Canada Ottawa | China Beijing | Department of State | Department of the Treasury | Group Destinations European Political Collective | India New Delhi | Indonesia Jakarta | Japan Tokyo | Mexico Mexico City | Saudi Arabia Riyadh | South Africa Pretoria | South Korea Seoul | Turkey Ankara
ContentRaw contentMetadataPrint
Share
Find
Show Headers
1. (SBU) SUMMARY: In the context of the international financial
crisis, President Sarkozy has repeatedly cited the need for
international action on "tax havens," a point on which he recently
said he sees "zero room to negotiate" in the G20 (ref A). Sarkozy
appears to have garnered substantial European support for this
position. END SUMMARY.
2. (U) The GOF and President Sarkozy, in particular, have given high
priority to the issue of tax havens based upon both domestic
political and technical considerations. On a political level, the
president's efforts to reform and modernize the economy necessitate
firm action against tax fraud and evasion by the wealthiest parts of
society, and the establishment of safeguards. President Sarkozy
came into office promising to "moralize" a capitalism that had
become "perverted", a broadly if vaguely appealing notion easily
personified by tax cheats. The Liechtenstein scandal in February
2008, said to involve one billion euros in tax fraud by French
citizens, brought this issue to the fore. French Budget Minister
Woerth quickly partnered with German Finance Minister Steinbrueck in
pushing this issue, including at their co-hosted international
conference in Paris in October. In parallel, Interior Ministry
Aliot-Marie called for the end to the "naove approach" to dealing
with economic bad actors and the establishment and enforcement of
common ground rules in finance as part of a global approach to
security that included economic security (Ref. C).
3. (U) The economic rescue package combined with highly visible
increases in the government budget deficit have put the government
under additional pressure to improve tax compliance. With revenues
stagnating, the 40 billion euros (estimate of the Cour des Comptes,
France's GAO equivalent) in annual tax fraud and evasion, 15 - 20
billion of which is linked to tax havens, is an obvious target, even
for purely budgetary reasons. The opposition, notably former PM
Fabius (PS) and National Assembly Finance Committee Chairman Megaud
(PS) have needled the government for not formally forbidding
activity in tax havens by banks receiving GOF support. The GOF has
also made the technical argument that lack of transparency and
prudential supervision of financial actors in non-cooperative
centers aggravated the crisis and slowed its resolution. At a joint
press conference with German Finance Minister Steinbrueck on March
3, 2009, Economics Minister Lagarde proposed requiring "heightened
risk" disclosures and possible increased prudential requirements for
financial institutions that did business in such non-transparent
financial centers.
GOF Focus on Transparency
-------------------------
4. (U) While the GOF has in the past sought greater tax
harmonization, President Sarkozy stressed in a March 1 Brussels
press conference that his persistent concern about non-cooperative
financial centers is their lack of transparency regarding the origin
and destination of funds, rather than differences in tax rates or
tax systems. He and his Economics Minister have stressed this in
joint statements with counterparts from London, Rome and,
especially, Berlin. Bilaterally, the GOF is pursuing accords
allowing it better access to tax-relevant information, e.g., in
Jersey and the Isle of Man. Multilaterally, Minister Woerth has
indicated the GOF's intention to "endorse" the new OECD list of
non-cooperative centers, due out in the first half of 2009, in a
second multilateral forum on fighting tax fraud and tax evasion,
scheduled to occur in Berlin on June 23, 2009.
Consumers Shoulder Tax Burden that Jet Set can Avoid
--------------------------------------------- -------
5. (SBU) French tax revenues come primarily from VAT (49.9%),
personal income tax (21.4%) and corporate taxes (17.3%), placing the
principal tax burden on consumers, generally, and not so much on
those in higher income brackets. While residents of France are
taxed on worldwide income, non-resident French citizens are not
subject to income tax. Because "non-resident" is defined as having
principally foreign sources of income and residing outside France
183 days of the year, some high income citizens organize their
PARIS 00000320 002.3 OF 002
schedules and business affairs in order to be exempt. At least some
of the GOF's vehemence on this issue stems from the perceived
injustice of French gliteratti decamping to Switzerland and other
"havens" to avoid the heavy individual tax burden. This allows them
to avoid not only income tax (maximum rate 40%, on income above
69,505 euros) but also the annual French wealth tax (0.55% for those
with to net worth exceeding 790,000 euros and increasing to 1.8% on
wealth over 16.5 million euros).
6. (SBU) Comment: GOF contacts believe the USG has taken an
arms-length position over the last eight years, following early
partnership with France on tax havens in the OECD. They also note
that Senator Obama co-authored legislation on tax havens and believe
that he is sympathetic to the French and German position. The GOF
pushed hard for U.S. participation in the (virtually OECD-wide)
international conference on the fight against international tax
fraud and tax evasion and used the pending November elections to
explain our absence. There is a high expectation, particularly in
light of recent U.S. actions on UBS, that the U.S. will join the
follow-up conference in Berlin on June 23, 2009.
PEKALA