Regulation
France’s Surprising Election Victories Will Upend Crypto Tax Cuts and Industry Fears – DL News
- The cryptocurrency sector is weighing the consequences of the surprising election result in France.
- France could lose its competitive edge as new coalition party vows to scrap tax breaks.
- A left-wing government would change the tax regimes on wealth and capital gains.
Experts fear that the left-wing party’s surprising victory in the French parliamentary elections could cause France to lose the competitive edge that helped turn it into a cryptocurrency hub.
And the first thing that will shake up the cryptocurrency sector, if the new left-wing alliance manages to form a government, will be changes in the country’s tax regime.
“The one legal issue that concerns everyone in the crypto world 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 an attempt to distance themselves from the far right, which was leading in the polls after the first round of the election. 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 party in third place.
But without an absolute majority, which requires 289 seats, a coalition will be needed to have a functional parliament.
French President Emmanuel Macron will now have to choose a new prime minister.
Tax cuts
During his government, the NPF party promised to abolish Macron’s tax cuts, which had helped attract foreign investment to the country, by “adopting a fair tax policy”.
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Since 2018, under Macron, French taxpayers have been able to opt for a reduced flat rate on their capital income.
Now, a new left-wing government is returning to the previous scale of income tax on capital gains. That would earn the state up to €3.6 billion, according to the Paris-based public policy think tank Institut Montaigne.
Thanks also to a set of clear rules for cryptocurrency companies in 2019, companies have been supported in establishing themselves in France.
In recent years, major exchanges such as Binance, Crypto.com, and OKX, as well as stablecoin issuer Circle, have chosen Paris as their European headquarters.
With tax benefits in danger of coming to a halt in France, the country will have to work harder to compete more fiercely with cryptocurrency firms flocking to tax havens like Ireland or the Netherlands.
“We can already see a real exchange of ideas between EU member states to target the EU market,” said Alexandre Lourimi, ORWL partner specializing in tax matters.
Earnings
Capital gains from the sale of cryptocurrencies would be subject to higher taxes under an NPF government, which has promised to add higher tax rates.
“Currently the rates are between 0% and 45%, but the NFP proposes to add progressivity by creating additional bands with rates ranging from 0% to 90%,” Lourimi said.
Property tax
Since Macron came to power, France’s wealth tax has only affected real estate. But that could change, too.
“The NFP wants to include all assets in the tax base, including crypto assets,” Lourimi said.
The rate will increase based on the value of the goods, he said.
The NFP would also reinstate a French exit tax, a provision that prevents companies from evading taxes when they move to another country.
“A full reintroduction of the exit tax could dry up capital inflows and encourage investment outside the French economy,” the Institut Montaigne published.
Financing
The left’s victory has been celebrated by French voters, while the party promises to tackle it.
But some warn that the party’s policies could have negative consequences.
“For the French economy, this is likely to be a net negative,” said Jerome de Tychey, president of Ethereum France.
“We will see after the public budget is voted on and French representatives turn to the financial market for funding,” he told DL News.
To gauge the impact of the French elections, experts are eagerly awaiting the annual budget bill that will be presented in the fall, if there are no delays in forming the government.
The budget bill delegates funding to state agencies, including the Financial Markets Authority, which oversees cryptocurrency companies.
Not
Meanwhile, the new French government will have its hands full when it comes to regulating cryptocurrencies.
Legislators will have to transpose the European Union regulatory framework for cryptocurrency markets into national legislation.
Experts warn that a delay in forming the government could slow down this process.
“This could reduce France’s competitiveness,” O’Rorke said.