FRANCE NOW
(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!
FINANCE
BILL for 2000
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
A TOUR OF PARIS IN ALPHABET
POEMS - The End -
Usury
Amends to the Jews
Economic Analysis Council
Equal representation of men
and women in politics?
Car manufacturers and
federalism
Fewer foreigners studying
in France
FINANCE
BILL for 2000
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.
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