Since 1 January 2018, the IFI (tax on property wealth) has replaced the ISF (solidarity tax on wealth). The ISF was an extremely complex tax with many niches, so much so that some people said it was a tax borne by millionaires while exempting billionaires.
The IFI is a much simpler tax to understand, since it relates only to a taxpayer's real estate assets, whereas the ISF was based on the taxpayer's entire wealth. In practical terms, a taxpayer with bank savings of €500,000 was taxed on this amount under the ISF. With the IFI, these savings are now exempt from tax, even if they are of no interest to the economy. A taxpayer who owns a master painting, which was exempt from ISF at the time, will continue to be exempt under the IFI, which applies exclusively to property assets.
It is a fact that the switch from the ISF to the IFI has enabled the wealthiest of the wealthiest to make savings without any incentive to invest in the French economy. According to the Ministry of Action and Public Accounts, the IFI has resulted in a loss of €3 billion compared with the ISF.
To justify its choice, the executive believes that abolishing the ISF creates a "favourable environment for French and foreign investors by reducing the cost of capital" while slowing down the tax exile of the wealthiest.
While there is no immediate question of the government going back on its decision, an evaluation committee has been set up to assess the effects of the reforms on the taxation of capital. Initial results are expected in September 2019.
Instead of abolishing the ISF in favour of the IFI, it might have been wiser to reform the ISF so that it becomes an economic driver. The extreme complexity of a tax like the ISF made it impossible to make it effective and fair. For example, what was the point of offering an exemption to encourage people to invest in a classic car in order to reduce their wealth tax, other than to avoid tax exile for people who like to collect old Bugattis? This creates a tax inequality between those who are willing or able to go into exile and those who are not. Ultimately, the issue underlying the ISF and IFI is the extra-territoriality of tax. At present, taxation is mainly based on domicile. It might be worth considering taking a leaf out of the US book to link taxation partly to nationality, while avoiding over-taxation as a result of double taxation. A taxpayer, even one domiciled abroad, still retains the rights attached to his or her nationality. A sportsman co-owner living on the 3rd floor cannot argue that he never uses the lift to avoid paying for its upkeep.
