Investment in SMEs: the failures of the ISF reform

The strengthening of the “Madelin” device from 18% to 25%, voted in 2017 to compensate for the end of the ISF-PME, has still not entered into force. Parliament continues to vote for its extension, in the hope of a rapid response from the European Commission. These uncertainties have meant that fundraising for SMEs under tax systems was divided by three in 2018.

The strengthening of the “Madelin” tax niche was postponed by a notification to the European Commission, which wants to ensure that this tax advantage complies with European Union law.

The wealth tax reform was accompanied by an overhaul of tax exemption instruments in favor of investment in SMEs. The ISF-PME disappeared at the same time as the tax itself. In compensation, the IR-PME, also called the “Madelin” device, was reinforced with an increase in the tax advantage from 18% to 25% of the payments made for the year 2018. At least that was the theoretical scheme. . But two years later, the legislative framework is still not clear, to the point of causing a drop in fundraising for the sector. This is what emerges from the data gathered by Senator Alberic de Montgolfier (LR) in his report published at the end of last week on the occasion of the examination of the finance bill in the Senate.

The figures displayed are eloquent from this point of view. Thus, the uncertainty surrounding the “Madelin” system has dealt a serious blow to investments in these tax exemption funds, the amounts raised of which rose from 502 to 355 million euros between 2017 and 2018. However, the strengthening of this niche was precisely aimed at the opposite objective, especially since, at the same time, the 581 million euros invested via the ISF-PME disappeared with the end of this niche.

Minority tools

Overall, fundraising under ISF-PME and “Madelin” was therefore divided by three in 2018. It should be noted, however, that investment via these tax exemption tools remains very small, compared to the overall amount. private equity fundraising in France, which reached a record € 18.7 billion in 2018.

Why such a wait-and-see attitude from investors? Albéric de Montgolfier, rapporteur for the Budget to the Senate, returns in his report to an amendment adopted in the Assembly, aiming to extend for one year the subsidized rate of 25% for the “Madelin” device, which would remain applicable until the end. 2020. If the extension of this increased rate was voted on at first reading, it is not because this tax measure has proved its effectiveness, it is quite simply because it has still not entered into force.

Notification to the European Commission

Its application was postponed by a notification to the European Commission, which wants to ensure the compliance of this tax advantage with European Union law, particularly with regard to State aid. What originally was supposed to be a simple formality is turning into an administrative headache. As long as Brussels has not given the green light, the 25% rate does not apply.

But the Parliament continues to extend this subsidized rate in the hope of a rapid response from the European Commission. Thus, for the third consecutive year, the passage of the rate from 18% to 25% is voted in law of Finance, without certainty that the measure will be applied. “Its entry into force is subject to the response of the European Commission”, explains Alberic de Montgolfier, in his report. While waiting for the green light from the Commission, the government has already made some adjustments in the finance bill, by lowering the tax exemption rate from 38% to 30% for payments via funds invested in Corsica or in the Overseas. But nothing that removes the uncertainties for the moment.

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