French President Francois Hollande received approval from the country's constitutional court to proceed with his plan to tax salaries above 1 million euros at 75% for this year and next.
Under Hollande's proposal, companies will have to pay a 50% duty on wages above 1 million euros (US$1.4-million). In combination with other taxes and social charges, the rate will amount to 75% of salaries above the threshold, the court wrote in a decision published today.
“The companies that pay out remuneration above 1 million euros will, as expected, be called upon for an effort of solidarity on remuneration paid in 2013 and 2014,” the Economy Ministry said in an e-mailed statement.
Hollande, who once said he “didn't like” the rich, announced the 75% tax in February 2012 as part of his presidential campaign to appeal to his Socialist base. It has become a symbol of his government's record-high taxation rate.
A first proposal to put the change into law was turned down by the constitutional court in December last year because the tax applied to individuals and not households. The country's top administrative court said any rate above 66% would be rejected as confiscatory.
Hollande revived the plan this year, making it apply to salaries and be paid by employers rather than individuals. The total amount is limited to 5% of a company's revenue.
The court examined the proposed tax after more than 60 members of parliament and more than 60 senators filed their opposition, it said.
The tax is expected to affect about 470 companies and a dozen soccer clubs, and is forecast to raise approximately 210 million euros a year.
The Constitutional Council, a court comprising judges and former French presidents, has the power to annul laws if they are deemed to violate the constitution.
Tax increases designed to reduce France's budget deficit have fuelled rising discontent in the country, with recent polls giving Hollande the lowest approval rating of any French president on record.
His 2012 supertax election pledge infuriated high earners in France and prompted actor Gerard Depardieu to flee the country. It has also alienated entrepreneurs and foreign investors, who have accused Hollande of being anti-business.
Hollande has said that the wealthy should contribute more to help to repair the country's finances, arguing that the supertax should also encourage companies to curb excessive executive pay.
In Sunday's ruling, the Constitutional Council rejected planned wealth tax measures that it said imposed levies on potential gains — such as those on life insurance policies — and thus risked overestimating a taxpayer's actual resources.
It also quashed several measures designed to crack down on tax avoidance schemes through which individuals and companies use legal loopholes to minimise their tax bills.
One of the proposed measures required consultants and firms offering tax planning services to disclose such schemes before marketing them. The council found the provision was too vague and ran counter to freedom of entrepreneurship.