Yes, the wealth tax (ISF) can also serve to finance companies. In 2016, 516 million euros were invested through investment funds in French companies thanks to the ISF-PME, to which more than 250 million euros invested directly should be added. This tax-relief scheme in exchange for taking stakes in start-ups and SMEs thus helps to strengthen the equity of the latter.
If no robust alternative is proposed, its removal, confirmed by Bruno Le Maire, the Minister of the Economy, would be a disaster for the companies that benefit from the scheme and need support for their strong growth. Why? The ISF-PME or the guarantees of Bpifrance are essential levers that allow an investor to embark on a risky venture before the company reaches its financial break-even point.
An alarming prospect
In “Les Echos”, Tanguy de la Fourchardière, president of France Angels, states that “more than half of the investors across [the] business-angel networks make use of the ISF-PME tax relief”. “We can therefore anticipate that investment in innovative companies will be cut in half”, he worries. This figure, if it is confirmed, is alarming at a time when we are going through a period that calls for a revival of investment and job creation in France.
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Next, beyond providing significant financing, the ISF-PME scheme has the advantage of connecting the investor, as a private individual, with the company’s management. This collaboration enriches the company’s development and creates a direct link between the financial world and the entrepreneurial universe. It transforms a venture that appears essentially pecuniary into an above all human venture.
Finally, financing has become more accessible in the regions, because the ISF-PME investor often looks for a local investment. This point is far from negligible, since 68% of venture-capital investment is concentrated in the Île-de-France region, according to the firm EY.
A costly scheme, but not an ineffective one
Is the government well aware of the potential side effects of removing the ISF-PME? Rightly, our ministers wish to keep the ISF-dons (donations) without which a large number of associations and foundations would be doomed to a certain death. Why, then, give up the ISF-PME, whose abandonment could lead to the death of several innovative companies, without providing an alternative option equal to the stakes?
Admittedly, according to the Court of Auditors, the ISF-PME is said to be a costly scheme, notably because of the high level of management fees. Unfortunately, the whole system is being condemned in its entirety when the Court of Auditors mainly recommended improving it.
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It nonetheless seems essential to us to find an alternative solution to the outright removal of the ISF-PME, because it is completely illusory to believe that, by freeing the French citizen from a tax, that citizen will spontaneously invest more in business-creation projects.
Now the creation of new global leaders requires several hundred million euros. Tax advantages should be broadened rather than reduced, as long as the investments are directed towards supporting our real economy. Again according to EY, within the European Union, the United Kingdom concentrated 36% of venture-capital investment in 2016. And in the United Kingdom, it is possible to benefit from a 30% reduction in one’s tax up to 1 million pounds invested.
Strengthen Madelin or increase the PEA-PME
So what are the alternatives? Let us recall the objective: it is a matter of helping start-ups and SMEs by offering a lasting framework that encourages massive investment and allows them to plan for the long term. One solution could consist in strengthening the Madelin relief, for example, with a tax-relief rate of 30% applied to investments made up to a ceiling of one million euros. This rate could be raised to 50% in the case of an innovative company: we know that investments in these SMEs are, by nature, riskier.
Another avenue would consist in increasing the PEA-PME, whose ceiling is currently set at 150,000 euros. As the fees of the banks that manage the PEA-PME are relatively low, the scheme will be less costly in the eyes of the Court of Auditors. And why not also open up the tax relief to life insurance, retirement savings or employee savings, in order to grow this capacity for investment in SMEs?
In order to avoid creating any tax loopholes, the beneficiaries of this financing would be innovative companies or companies with an ecological or societal character. These companies could be certified according to predetermined criteria and thus clearly identified by the investor and by the tax authorities.