French Government Chastises Its Latest Tax Exile

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Place yourself in the shoes of Gerard Depardieu.

One of France’s best-known actors, Depardieu recently paid his French tax bill for 2012. The government’s total take? A whopping 85% of his income!

If you paid 85% of your income in tax to your government, wouldn’t you consider taking action to keep more of what you earn? That’s exactly what Depardieu did. Last month, he announced that he’s moved to a village in Belgium just across the French border.

Belgium is hardly a tax haven; the top tax rate in Belgium, excluding social security contributions, is 50%. However, unlike France, Belgium doesn’t have a wealth tax and doesn’t tax capital gains.

Depardieu joins hundreds of other wealthy French tax exiles in Belgium. Thousands more reside in Great Britain, where it’s relatively easy for a non-domiciled resident to arrange to pay tax only on domestic income and income remitted to Britain.

Depardieu didn’t stop there, either. He also announced that he’s renouncing his French citizenship. That might seem unnecessarily provocative, but former President Nicolas Sarkozy has called for the French government to nullify the citizenship of wealthy French citizens who leave France to take up residence in lower-tax jurisdictions. Perhaps Depardieu was simply acting proactively to avoid involuntary loss of French nationality.

I don’t know what other nationalities Depardieu possesses, but as news of his expatriation swept France, he received an offer of a passport from an unusual source: Russian President Vladimir Putin. Russia has a flat income tax rate of 13%. “If Gerard really wants to have either a residency permit in Russia or a Russian passport, we will assume that this matter is settled and settled positively,” Putin said. Today, Depardieu accepted Putin’s offer. He is now officially a Russian citizen.

What was utterly predictable was the reaction of the French political elite to Depardieu’s decision. Prime Minister Jean-Marc Ayrault called Depardieu “pathetic” and “unpatriotic.” Culture Minister Aurelie Filippetti said she was “scandalized” by Depardieu’s decision to forfeit his French citizenship. She also remarked, “Gerard Depardieu is deserting the battle in the war against the crisis.” David Assouline, a spokesman for the governing Socialist Party, said of the actor: “He’s playing his worst role.”

There’s one additional tool that France has at its disposal against Depardieu. In 2011, France imposed an exit tax on many types of unrealized capital gains at the capital gains tax rate, plus social contributions, in force at the time of the transfer (currently 34.5% total). However, Depardieu won’t need to pay the tax immediately, because an automatic tax deferral is granted to French residents who transfer their tax residence to another EU member state.

Moreover, when it comes to the exit tax, Depardieu may have the last laugh. In 2004, the European Court of Justice struck down an earlier French exit tax. Ironically, that case also dealt with a wealthy French resident who relocated to Belgium and subsequently sold shares that under Belgian law weren’t subject to tax. It remains to be seen if France’s latest effort to impose an exit tax survives examination by the ECJ.

The political firestorm Depardieu’s departure has ignited is almost certain to lead to further restrictions on the ability of wealthy French residents to leave France without paying heavily for the privilege. Another consequence is that wealthy French citizens, much like wealthy U.S. citizens, will see the value of a second citizenship and passport, “just in case” Nicolas Sarkozy’s proposal to strip citizenship from French tax exiles ever becomes law.

The Nestmann Group, Ltd. can assist individuals seeking a legitimate second citizenship and passport through an economic contribution or investment in Dominica, St. Kitts & Nevis, and in selected EU countries. Please contact us for more information.

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About Mark Nestmann