George W. Bush famously (and reportedly) opined that:
“The problem with the French is that they don’t have a word for entrepreneur”
Clearly they do have just such a word, and it looks like a group of French businessmen have just coined themselves a second one: “les pigeons”.
It’s part of a protest against what they see as an attack on start-ups in France following Francois Hollande’s 2013 budget, which was announced last Friday. But why invoke the pigeon? The bird stands for “a sucker” or “a dupe” in French slang (although some of the more polite publications have translated it as “the fall guys”).
In a nutshell, the French government wants to tax capital gains at the same rate as earned income. The problem is that founders of start-ups tend not to pay themselves much of a salary as they build up their business, and many defer payment to themselves until after they sell the company. The new government plans would tax this ‘capital gain’ at a pretty hefty rate.
From the FT (emphasis ours):
Jean-David Chamboredon, chief executive of ISAI, a venture capital fund, and leader of an investors’ lobby group called France Digitale, said the result in some cases would be a jump in the effective marginal tax rate to as high as 60 per cent from 32 per cent for investors and entrepreneurs selling out of a business.
Opponents say that the 60 per cent rate would only impact a small number of entrepreneurs at the moment. However, it’s hardly going to encourage new start-ups. Furthermore:
Stoking the ill feeling were remarks made by Pierre Moscovici, the finance minister, on Friday when he referred to those “who earn while sleeping”, adding: “It is not right that capital income is taxed at a lower rate than income from work.”
The response to all this has been overwhelming. The Les Pigeons Facebook group, which was started only a couple of days ago, has already received almost 35,000 ‘likes’ (a figure that’s rising fast).
As it stands the tax rise would likely be bundled with the 75 per cent rate for those earning more than €1m, yet we’d argue the former is perhaps more troubling.
If you’re a young French kid with a good business idea, why bother setting up in France when just across La Manche the UK offers a 10 per cent ‘entrepreneurs relief’ rate on your first £10m of capital gain? Even the rest of Europe offers a more attractive rate, averaging between 18 and 25 per cent, according to Chamboredon.
Quoted by Bloomberg:
“It’s not a fair reward for risk and it’s going to push young entrepreneurs away, to London or elsewhere,” said Chamboredon. “A 60 percent tax rate practically means your company is being nationalized.”
France could lose out on job creation in high-growth sectors, with Internet businesses, biotechnology, environmental and medical technology likely to be the first to go, he said.
Dating website Meetic’s founder Marc Simoncini also argued the tax change would discourage investment in France. It fails to take into account the workload, efforts, salaries and costs that go into building a startup into a mature company, he told French television station BFM Business this week.
Other business figures criticized Hollande’s tax move by voicing support for the “Les Pigeons” movement through Facebook. Xavier Niel, who created internet service company Iliad and started selling mobile-phone packages this year under the brand name Free, was one of them.
Xavier Niel, for those who are not aware of him, more or less single-handedly revolutionised the French telecoms market, breaking the effective France Telecom/SFR/Bouygues Telecom oligopoly and forcing them to significantly drop prices.
Interestingly, however, one of the 35,000-plus ‘likes’ on Les Pigeons Facebook group is from William Bouygues, son of Martin Bouygues, the CEO of Bouygues…
If nothing else, this protest shows just how many budding entrepreneurs France has, and that can only be a good thing.