Regulation
France’s surprise election wins will upend cryptocurrency tax cuts, industry fears – DL News
- The cryptocurrency industry is assessing the consequences of a surprising election result in France.
- France risks losing competitive edge as new coalition party vows to scrap tax breaks
- A left-wing government would change the wealth and capital gains tax regimes.
The surprise victory of the left-wing party in the French legislative elections could cause France to lose the competitive edge that helped make it a crypto hub, experts fear.
And the first thing that will shake the cryptocurrency sector if the new left-wing alliance manages to form a government is changes in the country’s tax regime.
“The one legal issue that concerns everyone in the cryptocurrency space is taxation,” said William O’Rorke, a partner at ORWL, a French law firm specializing in cryptocurrencies. “In France, we are neurotic about taxation.”
Victory of the left
France’s left-wing parties merged to form the New Popular Front, in a bid to distance themselves from the far right, which was leading the polls after the first round of elections. And it worked.
The New Popular Front won the most seats with 188, followed by Macron’s centrist Renaissance party and the far-right National Rally in third place.
But without an absolute majority – which requires 289 seats – a coalition will have to be formed for a functioning parliament.
French President Emmanuel Macron will now have to choose a new prime minister.
Tax cuts
Under his government, the NPF party has promised to abolish Macron’s tax cuts that helped attract foreign investment to the country by “adopting a fair tax policy.”
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Since 2018, under Macron’s mandate, French taxpayers have been able to opt for a reduced flat rate tax on their capital income.
A new left-wing government will now revert to the previous scale of income tax on capital gains. According to the Montaigne Institute, a Parisian think tank, this measure would allow the state to gain up to 3.6 billion euros.
Thanks to a first set of clear rules for cryptocurrency companies from 2019, companies were supported in their establishment in France.
Major exchanges like Binance, Crypto.com and OKX, as well as stablecoin issuer Circle, have all made Paris their European headquarters in recent years.
As tax breaks in France risk ending, the country will have to work harder to compete with cryptocurrency companies flocking to tax havens like Ireland and the Netherlands.
“We are already seeing a real shopping spree among EU member states to target the EU market,” said Alexandre Lourimi, a partner at ORWL specialising in tax.
Capital gains
Capital gains on the sale of crypto assets would be subject to expanded taxes under an NPF government, which has promised to add more tax brackets.
“Rates are currently 0% to 45%, but the NFP proposes to add progressivity by creating additional bands with rates ranging from 0% to 90%,” Lourimi said.
Wealth tax
Since Macron came to power, the wealth tax only applies to real estate. But that could also change.
“The NFP wants to include all assets in the tax base, including crypto assets,” Lourimi said.
The rate will change depending on the value of the assets, he said.
The NFP would also reinstate a French exit tax, a provision that prevents companies from avoiding paying tax when they move to another country.
“A complete reintroduction of the exit tax could dry up capital inflows and encourage investment outside the French economy,” published the Montaigne Institute.
Funding
The left’s victory was celebrated by French voters as the party vowed to tackle the problem.
But some warn that the party’s policies could have negative consequences.
“For the French economy, this is probably a net negative result,” said Jérôme de Tychey, president of Ethereum France.
“We will see after the public budget is voted and French representatives turn to the financial market to obtain financing,” he told DL News.
To assess the impact of the French elections, experts are looking to the annual budget bill that will be presented in the fall, provided that government formation is not delayed.
The budget bill delegates funding to state agencies, including the Financial Markets Authority, which oversees crypto companies.
Mica
In the meantime, the new French government will have its work cut out for it when it comes to regulating cryptocurrencies.
Lawmakers will have to transpose the European Union’s crypto-asset markets framework into national legislation.
A delay in forming a government could slow down this process, experts warn.
“This could reduce France’s competitiveness,” O’Rorke said.