France's Hollande promises tax stability to foreign businesses

Mon Feb 17, 2014 10:09am EST

* Hollande pledges tax burden visibility for foreign firms

* Says France seen as 'more complicated' place for business

* Business leaders say reforms and simplification needed

By Alexandria Sage

PARIS, Feb 17 (Reuters) - President Francois Hollande appealed to foreign business leaders to invest in France on Monday, offering them simpler and more stable tax policies as his unpopular government tries to spur growth and create jobs.

Hosting 30 heads of French units of foreign companies at his Elysee Palace, Hollande pledged to guarantee that taxes on an investment would not rise later - as has happened in the past - and VAT and duty rules for firms would be streamlined this year.

The Socialist president, who last month announced France would phase out 30 billion euros ($41 billion) in charges on companies by 2017 to reverse its slide in trade competitiveness, also said French business taxes would be harmonised with those of its neighbours, especially Germany, by 2020.

He did not indicate the legal basis for his pledge of stable taxes on investments in the euro zone's second-largest economy.

"The objective is to ensure the stability of tax standards and mechanisms," Hollande told leaders of Siemens, Samsung Electronics, Volvo, General Electric and Nestle, among others.

"A business, whether French or foreign, that wants to invest will have a commitment from the administration that the tax rules will remain the same, and that will be a guarantee."

The government believes a rebound in company investment can help boost growth in France's GDP to at least 0.9 percent this year after stagnation in 2013. It hopes that even such modest growth will help bring down joblessness from near 11 percent.

FRANCE "MORE COMPLICATED"

Monday's meeting aimed to reassure foreign business leaders unnerved by France's high overall tax rate, history of tense industrial relations and frequent run-ins with business such as his government's threat in 2012 to nationalise an ailing steel plant run by ArcelorMittal.

But his comments to the business leaders came the same day as a new law was introduced in parliament to impose tough fines on firms that shut operations still deemed economically viable.

The law was prompted by Hollande's 2012 campaign promise to steelworkers at ArcelorMittal's Florange blast furnaces in northern France that he would pass legislation to protect their jobs in case of a shutdown. Despite a government threat to nationalise them, the furnaces were later closed.

"I know that France, and this was confirmed by our discussions, is seen as a more complicated country than others," said Hollande, who last week delivered a pro-business message to entrepreneurs on a visit to Silicon Valley in California.

One participant at Monday's meeting, Austrian industrial investor Ernst Lemberger, said France needed to simplify its burdensome tax system and lower labour costs.

"The country has got everything it needs to succeed but still it's been behind neighbouring countries in taking the necessary economic reforms," Lemberger told LCI television.

The Foreign Ministry estimates on its website the total stock of foreign direct investment is around $1 trillion, behind only that in the United States, China and Britain.

But it also has over-protective labour laws and high and rising taxes, the two main deterrents to more robust foreign or domestic investment, according to employers and economists. ($1 = 0.7307 euros) (Reporting By Alexandria Sage; Editing by Tom Heneghan)