The abolition of the flat-rate withholding tax (PFL) in 2013 and the introduction of the single flat-rate levy (PFU) in 2018 were two significant – yet opposing – reforms of the taxation of investment income. The former aimed to ‘restore tax fairness’, whilst the latter aimed to ‘support private investment’. We analyse tax data from households and firms to conduct an évaluation of the 2013 reform, and present preliminary findings regarding the impact of the 2018 reform.
We find that the increase in taxation on capital income had a very strong negative impact on dividends received by households, whilst there was no impact on other forms of income (wages, capital gains and other capital income). Using company data, we are able to identify the mechanism behind this decline in dividends received: firms directly controlled by individuals resident in France reduced or ceased dividend payments between 2013 and 2017. We observe an increase in the financial assets held by these firms, a rise in equity and a fall in net profit, but no effect on investment.
The implications of these findings are significant: the 2013 reform resulted in a net loss of tax revenue, but had no negative impact on investment. Using data from commercial court registries, we highlight a 15.3 per cent increase in dividends paid in 2018, attributable to the flat tax reform. This increase in dividend distributions, which runs parallel to the decline seen in 2013, will lead to higher tax revenues than initially anticipated. However, given the effects of the 2013 reform, it is likely that no positive impact on private investment should be expected from this reform.
