According to EY's attractiveness barometer published yesterday, the trend towards tax convergence should reduce the importance of corporate tax in favour of labour costs. The firm does not say much about the financial sector, but recommends that France should ensure that Europe does not tighten regulations too much.
While France remains in first place in terms of FDI (Foreign Direct Investment) with 985 projects announced for 2020, the firm EY, which has just published its annual attractiveness barometerprovides little information on the financial sector.
An astonishing deadlock, while the perception and expectations in terms of attractiveness for France were collected through an online survey of 200 international decision-makers from March 1 to 31, 2021, i.e. two to three months after the Brexit and the effective loss of the European passport for financial players established in the UK. Another part of the survey was conducted with 550 foreign-owned business leaders between 22 March and 9 April.
A "Brexit tracker" was published in March by the cabinet but it came from its Irish office and did not go into detail.
Financial industry preserved
All we learn here is that finance has been preserved and supported by the crisis, as have health, logistics, energy, and water and waste treatment. But no figures are given.
The authors note on page 60 of the 66 studies that "2021 is the first year of Brexit, opening a new chapter in the history between the UK and Europe".
In this regard, they point out: "Dublin, Amsterdam... and London have adopted aggressive, pragmatic and convincing strategies to fix financial services or headquarters affected by the Brexit. Obviously, Paris has tangible arguments and successes to make, but it will only be able to gain an advantage if it makes itself attractive to talent (and their families)".
More neutral IS
This focus on talent may become even more important following the historic agreement at the G7 last weekend for a minimum global tax rate of 15% and the international efforts over the past several years to achieve tax convergence between countries:
"The tax reform pushed by J. Biden may make the corporation tax more neutral in terms of attractiveness. However, it will have the effect of accentuating the importance of the cost of labour, personal taxation, environmental taxation and the stability of the tax frameworkThis is the first time that EY France has been able to offer its clients a complete range of services," said Eric Fourel, Chairman of EY France, and Marc Lhermitte, Partner and Head of the Attractiveness Program.
Making the most of the French Presidency of the EU
While they welcome the fiscal stability efforts already made, the authors also advise France to ensure that Europe does not tighten financial regulation too much. The country could take advantage of the six-month presidency of the European Union that it will hold from 1 January 2022.
According to EY, France must continue to combine political and economic diplomacy by its own means and on its own behalf.
According to the barometer, the Ile-de-France region, where most of the financial activities are located, is the second most attractive region in Europe, with 288 investment projects (-18%), behind Greater London (383, -29%) and North Rhine-Westphalia in Germany (286, +4%).
Speech of truth
The study also notes that the executives surveyed are concerned about the level of French public debt and its potential consequences on future fiscal policies: "The IMF notes that the government debt could reach 125 % of GDP in 2025, due to the support measures and the stimulus plan, but also to the difficulty in controlling public spending and the shrinking tax base. Our experts therefore insist on the importance of speaking the truth: a clear fiscal course, even if it includes an increase in compulsory levies, is less costly in terms of credibility than prolonged uncertainty on the subject of the debt".
"Beyond public debt, attention should also be paid to private sector debt, which reached 153 % of GDP in the third quarter of 2020 and is growing more (+2.7 points) than in Italy (+2.5 points) and Germany (+2.2 points)", they continue.