French News in English 

Published by 

France Now Association

Editor: Arvind Ashta

Editorial Committee:

W. W. Strangmeyer,

Emmanuelle Ashta




(French news in English)

October 1999, Monthly, Issue No. 30

(Only highlighted issues available for on-line consultation)

This month in search of an identity

Michelin - a need to deflate!


Decree on transport of goods
Weeding out small enterprise

Business lessons from COB decisions

Total-Fina takes over Elf

Carrefour-Promodès alliance

Regulating the film industry



Amends to the Jews

Economic Analysis Council Equal representation of men and women in politics?

Car manufacturers and federalism

Fewer foreigners studying in France


Dominique Strauss-Kahn, the Minister for Economics, Finance and Industry has presented the Finance Bill for 2000 to Parliament. His proposals will be debated in parliament and by the public for the next three months till the budget is finally approved at the end of December. Budgeted expense for 2000 is FF 1657 billion (against a budgeted FF 1667 billion for 1999). Net Receipts are budgeted at FF 1442 billion (against a budgeted FF 1431 billion for 1999), up by FF 11 billion. It is planned to reduce the budgeted deficit marginally from FF 237 billion in 1999 to FF 215 billion in 2000. The budgeted receipts are indicated net of tax expenses due to reimbursements and tax exemptions of various sorts. Gross receipts are budgeted at FF 1790 billion (compared to FF 1754 billion for 1999). This includes non-tax receipts but is net of deductions for transfers to the European Community and to local authorities. Gross tax receipts are budgeted at FF 1877 billion (compared to FF 1842 billion for budget 1999), an increase of FF 36 billion. Already, 1999 receipts are likely to exceed the original budget by about FF 19 billion, mainly due to fiscal drag: since 1998 economic performance was better than expected, 1999 tax collections were higher. And 1999 economic performance is even better than 1998. So 2000 tax collections would be a bumper harvest, since Mr. Strauss-Kahn does not intend to lower VAT back to 18.6% from today's rate of 20.6%, introduced "temporarily" three years ago. At most he would like to make specific reductions for certain industries. We summarise the highlights and the background to the tax proposals.

1. VAT The most important reduction proposed for the ordinary consumer is that the VAT on certain labour intensive services is being reduced to 5.5% instead of 20.6%. These industries are primarily household repairs and personal services. The decision is economically and strategically astute. Firstly, these services are labour-intensive and as such they would become less expensive, their consumption would go up and employment should go up considerably. Secondly, many people are just paying for these "on the black" to avoid the VAT of 20.6% immediately, an illusory savings because in any case they would have got a credit for it against their income tax. Only those below the income tax threshold really stood to gain by paying "on the black". The entrepreneur saved more: his personal income tax and social security contributions. A reduction of the VAT on household repairs to 5.5% would reduce the incentive to pay "on the black". The government would gain in converting the black economy into official services, thus increasing reported PIB (and contribution to EU!), and also gain from the increased taxes and social-security paid by the entrepreneurs. Thirdly, when the VAT on material goods is reduced, the VAT on imports is also reduced, thus neutralising the comparative advantage of French goods. But when the VAT on labour services is reduced, this affects primarily French and, secondly, EU service entrepreneurs, since other countries are subject to immigration controls. So the benefit is restricted to domestic output.

2. Corporate taxesSmall enterprise is being encouraged. This is apparently in an attempt to halt the entrepreneurial drain to the UK.

Firstly, the registration duties on investment (droit d'apport) are proposed to be reduced by FF 1500. This will reduce significantly the cost of creating the smallest of enterprises.

Secondly, the forfeit corporate tax may apply only to enterprises with a turnover greater than FF 500,000.


3. Wealth TaxAfter indexing for inflation, the new rate schedule proposed is:
Taxable Wealth brackets (Millions of Francs) Tax rates
< 4.73 0
4.73 to 7.68 0.55%
7.68 to 15.24 0.75 %
15.24 to 23.66 1%
23.66 to 45.81 1.3 %
45.81 to 100.50 1.65%
> 100.50 1.8 %


4. Personal Income TaxThe marginal tax rates are modified since they are indexed for inflation.
Tax bracket (FF) Marginal rate
Less than 26230 0%
26230 - 51600 10.5%
51600 - 90820 24%
90820 - 147050 33%
147050 -239270 43%
239270 -295070 48%
More than 295070 54%

The government alone knows why the first bracket pays 10.5% instead of a straightforward 10%. What difference would 0.5% make on the lowest bracket when we know that most of the tax (at least half) comes from the highest bracket alone.

5. Transfer duties on PropertyIn the last budget, those who acquired property from 1st September, 1998 onwards were offered a 20% reduction in transfer duties. This is because the regional portion (1.6%) of the duty was annulled. With this, the average rate of duties on purchase of residential property was brought down to 6%.

This decrease in residential property taxes went against the notion of tax competition of fiscal federalism experts who believed that in federal States, as capital and labour become mobile, fixed property taxes have to increase! But, then again, duties on buying and selling property can also be considered taxes on capital, because people wanting to invest in property can now do this anywhere in Europe. It is the residence (habitation) and property (foncière) taxes which should really be considered as fixed property taxes. And these are therefore expected to increase.

The proof of the pudding is in the eating. The government must have noted a reprise of the investment in properties or at least a halt in the slide, since the reduction of transfer duties last year. Therefore, in the budget, the government is proposing the cost of transfer duties on transactions in residential property be further lowered to bring it in line with the transfer duties on professional buildings.

6. Simplified Property Tax regimeThe ceiling for the simplified property tax regime may be raised from FF 30,000 to FF 60,000. Those earning income from property of less than this ceiling can now deduct 40% of their income (earlier 33%) as deemed expenses.

Similarly, the contribution on the leasing rights (droit de bail) for those earning less than FF 30,000 from premises, business or clientele goodwill, hunting rights and fishing rights is being scrapped in 2000 and for others (earning more than FF 30,000) from 2001.

7. AssociationsIt is proposed that non-profit associations exercising accessory profit-making activities with turnover of less than FF 250,000 will be charged corporate taxes, including the forfeit corporate tax, only on the accessory profit-making activities. They may also forego the advance payments of the tax.

They will also not be subject to professional tax or VAT.

8. Miscellaneous taxes and fees scrappedIn continuation of the trend, many small taxes, duties and fees are being scrapped.

Business lessons from COB decisions

When the COB fines someone for distorting the market, one learns a lot about doing business in France. We review three decisions.

1. Better read the financial newspapers

SFCMC (Société Fermière du casino municipal de Cannes) had communicated to a shareholder at the Ordinary General Meeting of the shareholders that it planned to issue new shares and that the price of the proposed issue would be around FF 10,000 per share - the price at which the Partouche group had bought out the stake of Générale des Eaux. The financial newspapers had all reported this immediately. Influenced by this news, the price of the share which was hovering at around FF 5,000 went up to FF 6,800 in two months.

Seven months later, the SFCMC announced that it had finalised the details of the new issue at a price of FF 5,060 per share.

COB rules require that anyone issuing shares has to inform the public as early as possible all pertinent information. The original communication by the SFCMC may have been about an uncertain event but the media report did not show any uncertainty. It was therefore up to the SFCMC to correct the media report. Since the imprecise information led to a distortion in the market for the next few months, the COB fined the SFCMC FF 100,000.

2. Better keep the market informed

Two smart operators, an American fund manager Wyser-Pratte and a French company Verneuil Finance, acting in concert, became substantial owners of De Dietrich. The two companies had warned De Dietrich of their intention of buying into it and had advised it to buy back its own shares. De Dietrich, not liking their intentions, agreed to do this and had proposed a price of FF 275 per share at which it would buy back 18% of its shares floating in the market. The two predators indicated to De Dietrich that they would not be offering their participation to De Dietrich. Dietrich communicated this information to the public.

The buy back offer was open to the public for a month. For the first 23 days, the two fund managers went on buying in the market, and in the last seven days, they offered 627,000 shares to De Dietrich for FF 275, making a tidy profit.

The COB's law requires that when someone owns more than 5% of the shares of a registered company, then every action of buying or selling shares has to be reported to the Société des Bourses Françaises every day. The operators did not inform the COB of their buying operations nor did they inform the public of the change in their intentions regarding offering their shares for buy back to Dietrich.

The COB fined them FF 100,000 each for distorting the information available to the market and thus upsetting the equality between investors.

Verneuil Finance has appealed against the decision.

3. Don't be afraid of telling the truth: creative accounting is discouraged

MBRI (Marie Brizard et Roger International) was fined FF 100,000 and its ex-president was fined FF 500,000 for distorting financial and accounting information presented to the public.

Firstly, in the annex to the group's accounts, the company had not indicated that it had committed to buy out minority participation in three group companies if MBRI failed to do certain things. This exercise of the withdrawal option by minority participation had become practically certain and the Annex to the MBRI consolidated accounts should have indicated a contingent liability of FF 179 million.

Secondly, one of its subsidiaries was overvalued by FF 22 millions in the company's own individual accounts.

Thirdly, Figesbal, principal asset of Anemone, a 100% subsidiary of MBRI was valued at FF 65.5 million in MBRI's accounts although the company was being offered for sale for FF 38 million before MBRI's accounts were finalised. At least the contingent provision for depreciation of financial assets should have been disclosed in the Annex.

French accounting norms issued by the CNC (Conseil National de la Comptabilité) require that all significant engagements have to be declared in the Annex. Guidelines issued by the Order of the Chartered Accountants and the International Accounting Standards both require that significant events after the balance sheet date should be reported in the Annex. Since the Board of Directors approving the accounts represents the company, the responsibility for such accounting irregularities rests on the whole company.

In addition to these accounting practices, the President of the company also distorted information presented to the market. It was proved that on various occasions, he presented a rosy picture to the market when the Finance Director had indicated losses. He presented an expected improvement when the financial projections presented no such thing. Finally, he remained silent when the actual results went awry. All this served to raise the price of MBRI's shares artificially above what it should have been, thus distorting the market. These faults could be attributed personally to the President of the company, since he presented the distorted information on his own initiative, perhaps because he would have been removed from his position earlier. Had he presented the correct information, he would not have been fined FF 500,000. Fear made him lie and being caught probably cost him more than the gains of prolonging his tenure as CEO of the company.

The other moral from this story is beware of your Finance Director. When you're down and out of the company, he will help prove you're responsible.

Regulating the film industry

The film industry can be viewed from two angles: the commercial actors and the product.

The commercial actors

There are three main commercial actors: the producers, the distributors and the cinema-house owners. But programmers or programming groups are now forming a fourth dimension.

1. The producers finance the film, engage the actors and the technicians, and have the copyright. This they confer to the distributors for a limited period of three to seven years for a zone.

2. The distributors look after the marketing and advertising and get a percentage of the cinema hall receipts. In 1997, there were 428 authorised distributors. Total receipts of distributors were FF 2.1 billion. This gives an average of FF 5 million per distributor. However, 88% of the receipts (of FF 1,9 billion) were concentrated with the ten biggest distributors. Their average receipts were therefore FF 190 million each. The rest of the 418 distributors made an average of FF 600,000 each. The big French distributors, Gaumont, UGC and Pathé integrate the activities of producers, distributors and cinema houses. They are often linked to big American companies like UIP, Warner and Columbia. E.g. Fox is now linked to UGC and Gaumont with Walt Disney. Other national names in the distribution sector include Pyramide and Metropolitan. They usually distribute other people's films. Some distributors have selected an art segmentation, e.g. Bac Films or MK2 Diffusion.

3. The programmers are the owners of cinema halls or their employees. But with the multiplicity of films, often a programming group is called in to distribute the best films in the peak season in order to maximise receipts for a number of cinema houses adhering to an agreement. These programmers obtain 2% to 4% of the receipts. Besides Gaumont, UGC and Pathé, programming groups include national companies (Glozel, GPCI, SAGEC and Soredic) as well as thirty odd regional enterprises. The national groups account for about 33.7% of France's cinema halls. Therefore, national groups are dominant in their sector and can significantly influence the market for films as well as the films which cinema halls can access. So, the national groups are not allowed to have ententes between themselves. Besides which they have to be authorised by the CNC (Centre National de la Cinématographie) to allow free competition and create a wide distribution conforming to the general interest.

4. Private cinema hall owners own 3,350 of the 4,655 halls. The rest (about 1300 or 28%) are municipal halls who have a market share of 15%. Some cinema halls are classified as art or experimental halls by the CNC. Normally, they present French films, but may present foreign films in the original language. It is expected that the percentage of art films diffused represents 35% to 75% of their total diffusion, the percentage increasing with the size of the city. In return, these cinema halls get national subsidies. In 1997, 778 art and experimental halls (17% of the total) were roughly divided into three more or less equal categories (municipal, programming group and independent) and represented 25% of the market share. In the sixties, the cinema industry received its first shock: competition from films diffused over the television. In the seventies, some cinema hall owners responded to the falling audience by starting the multi-hall concept permitting common overheads for ticketing and greater frequentation owing to a larger diversity of films programmed. The profit per seat increased. In the eighties, the cinema halls received their second shock from the invention of the video. Particularly affected were small halls, those with poor technical audio or visual equipment and those with little parking space near them. The industry responded in the nineties by the creation of the multiplexes, offering not only a number of cinema halls (at least eight with a total seating capacity of more than a thousand) but also parking and restaurant services. Investment in equipment varied between FF 30 and 180 million and to be profitable, these multiplexes needed to be in cities with a population of more than 100,000. At present there are 39 multiplexes belonging to Pathé, UGC, Gaumont, CGR, Bert, Lemoine and Fridemann. These complexes have about 500 screens, 100,000 seats and represent about 30 million entries (about 17% of the total).

The product

As far as the product is concerned, of the 4,000 films diffused in 1997, about 400 films (10%) account for 85% of the entries. The top ten films accounted for 30% of the entries, the top twenty films for 45% and the top thirty for 55%. Fifteen of these thirty were American films, twelve were totally or partially French and the remaining three were British. Out of the total films, the market share is about 55% for American films, 35% for French films and 10% for others (mostly European).

While art films seem to be gaining popularity, the films of cinematic research or innovation do not really get an audience and are not being diffused, especially in multiplexes.

The conflict

The government would like to promote French and European culture and films. This opposes the commercial interest of the cinema halls who find that American films are bigger money-spinners. The government would also like small individual producers to have access to the market, while cinema hall owners would prefer to diffuse blockbusters sure to be money-spinners.

The CNC therefore authorises large integrated distributors and programming groups only if they undertake to respect the government's wishes. Till 1985, only programming groups were required to commit to norms relating to the diffusion of art and experimental films and French and European films. In 1985, the government decreed that integrated groups should also give commitments. But this decree was meaningless because UGC, Gaumont and Pathé were already furnishing the required commitments as they fell within the definition of programming groups. With the new multiplexes, however, there are now new monopolists or quasi-monopolists in their area. Also, the integrated distributors are slowly giving up the activity of programming for other cinema houses. They may soon, therefore, be responsible only for programming for their own cinema halls and may escape the need for CNC authorisation.

Finally, with the increase in profitability of art films, the larger integrated chains have started venturing into this segment, thus reducing the market available to the "art and experiment" distributors.

The decree

The government is extending the obligation of commitment to free competition and diversity of diffusion to the large multiplexes if they attract more than 0.5% of the national entries and 25% of the entries in their hinterland (this is lowered to 8% in Paris and some adjoining departments of Ile de France). All groups of cinema houses with common owners are also being included.

Distributors are not allowed to do business with cinema hall owners who have not provided the necessary commitments.

Each cinema hall owner falling into this category has to enter into independent agreements with the CNC. The idea is to promote European films and art and experimental films and to protect the small independent distributors by giving them access to big halls.

The objective

Since programming groups and the big operators (UGC, Gaumont and Pathé) were already covered by earlier decrees, it seems clear that the new decree of 9th September 1999 is aimed at the new owners of multiplexes (CGR, Bert, Lemoine and Fridemann). The big players may have insisted that the new operators be bound by the same conditions as them.