- The crypto industry is weighing the fallout of a surprising election result in France.
- France may lose its competitive edge as the new coalition party promises to reverse tax benefits.
- A left government would change wealth and capital gain tax regimes.
The left party’s shocking win in the French parliamentary elections may lose France the competitive edge that helped build it into a crypto hub, experts fear.
And the first thing that will shake crypto if the new left alliance successfully forms a government is changes in the country’s tax regime.
“The only legal matter that concerns everybody in crypto is tax,” said William O’Rorke, partner at ORWL, a French law firm that specialises in crypto. “In France, we are neurotic about tax.”
Left-wing win
France’s leftist parties merged to become the New Popular Front in a bid to veer off the far right which was leading in the polls after the first round of elections. It worked.
The New Popular Front won the biggest number of 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 need to be formed for a functional parliament.
French President Emmanuel Macron will now need to select a new prime minister.
Tax cuts
Under its government, the NPF party promised to abolish Macron’s tax cuts which helped bring foreign investment into the country by “adopting a fair tax policy”.
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Since 2018 under Macron’s tenure, French taxpayers could opt for a lowered flat tax rate on their capital income.
Now, a new left government revert to the previous income tax scale on capital gains. This would earn the state up to €3.6 billion, according to Paris public policy think tank, Institut Montaigne.
Together with an early set of clear rules for crypto firms from 2019, companies were supported in setting up shop in France.
Major exchanges like Binance, Crypto.com, and OKX, plus stablecoin issuer Circle, all made Paris their European headquarters over the past few years.
With tax benefits reaching a potential halt in France, the country will need to work harder to compete harder with crypto firms flocking to tax havens like Ireland or the Netherlands.
“We can already see a real venue shopping between the EU member states to target the EU market,” said Alexandre Lourimi, partner at ORWL specialised in tax.
Capital gains
Capital gains on the sale of crypto assets would be subject to expanded taxes under an NPF government, which promised to add more tax brackets.
“The rates are currently 0% to 45% but the NFP is proposing to add progressivity by creating additional brackets with rates ranging from 0% to 90%,” Lourimi said.
Wealth tax
Since Macron came to power, the French wealth tax only implicates real estate. But that, too may change.
“The NFP wants to include all assets in the tax base, including crypto assets,” said Lourimi.
The rate will progress depending on the value of the assets, he said.
The NFP would also restore a French exit tax, a provision which prevents companies from avoiding tax when moving to a different country.
“A full reintroduction of the exit tax could dry up capital inflows and encourage investment outside the French economy,” Institut Montaigne published.
Funding
The left win was celebrated by French voters, as the party promises to tackle.
But some warn the party’s policies may have negative consequences.
“For the French economy, it is likely a net negative,” said Jerome de Tychey, president of Ethereum France.
“Let’s see after the public budget is voted and French representatives head to the financial market for funding,” he told DL News.
For the impact of the French elections to land, experts look ahead to the annual budget bill which is presented in the autumn — should there be no delays in forming a government.
The budget bill and delegates funding to state agencies, including the Financial Markets Authority which supervises crypto companies.
MiCA
In the meantime, the new French government will have its work cut out for it when it comes to crypto regulation.
Lawmakers will need to transpose the European Union’s Markets in Crypto-Assets framework into national legislation.
A delay in forming a government could slow down this process, experts warn.
“This could cut the competitiveness of France,” O’Rorke said.
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