A significant number of our law firm clients are in the tech sector. A fairly hefty percentage of those tech clients happen to be headquartered outside of the US, specifically in western Europe. As in the US, the success rates of many European tech firms have corresponded fairly directly with the health of the economy. This makes sense – developing technology isn’t cheap and the cost to get many of those companies off and running can be relatively expensive, at least in the beginning.
It was pretty big news, then, a few years back, to see that France, of all countries, was taking steps to grow its start up and tech sectors. The Jeune Entreprise Innovante (JEI) was created to offer tax breaks for small to mid-sized startups set on spending heavily on research and development (R&D). It was, by all estimates, a success.
But that was in 2004 when the global economy was still fairly flush. And even though it feels like it’s not so long ago, technology has come a long way. That same year, MySpace turned one, Facebook was officially born – and Twitter was just a gleam in Jack Dorsey’s eye.
Flash ahead a few years. The economy isn’t so hot. And things definitely aren’t so fabulous in France. The government is facing a budget crunch and plans to fix it (such as raising the retirement age) have been met with considerable resistance (not to mention riots and fires). The French, like the US, have found that they need to find more ways to raise revenue. And, like the US, they think they have an answer: end existing tax breaks.
The plan, which is scheduled to begin public debate on tomorrow, is to limit existing tax breaks under the JEI. Under Article 78 of the Finance Bill 2011, payroll tax ceilings would apply and the number of allowable exemptions would be gradually reduced after the fourth year (it’s currently an eight year program).
Those who have benefited from the JEI in the past are concerned that this is a very short-sighted measure which would actually hurt, not help, the economy. Believe it or not, France is quite the techo-nation: it has a higher percentage of homes with high-speed Internet than the US and its internet consumers spent €5.5 billion online in the first quarter of 2010. So tech companies and entrepreneurs are speaking out. Techcrunch Europe has a pretty good write up on the movement against the limits, including a Facebook group dedicated to saving the JEI.
It’s kind of interesting to watch how this is developing in France: these are very much the same kinds of debates we’re having in the US. The underlying question is whether tax breaks hurt or help the economy? If they help, how much is enough? And who deserves them the most?
Plus ça change, plus c’est pareil.
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