Pigeon power: French startups force government into retreat over equity tax

Francois Hollande, used under CC license by Flickr user jmayrault: http://www.flickr.com/photos/jmayrault/6170504903/

When François Hollande won the French presidency in May, the country’s startup community was quick to strike a note of caution. Hollande had campaigned on high taxes for the rich, and he indeed went on to introduce a whopping 75 percent rate for those earning over €1m ($1.3m) a year, albeit only for the next two years as a deficit-reduction measure.

Of course, most startup entrepreneurs are nowhere near that wealthy, but that doesn’t mean they don’t want to be. After all, that’s what the big exit is supposed to bring. It’s a primary justification for all the risk that being a startup entails.

But it wasn’t that tax rate that stung the most: what really got the startups incensed was the proposed near-doubling of the tax rate for equity sales. Where an entrepreneur who achieves an exit currently has to pay up to 32 percent in various taxes on the benefits of that sale, the government was proposing jacking that rate up to around 60 percent.

Liberation front page - Les PigeonsArguing that there would be little point in being an entrepreneur in France anymore – particularly with the UK offering a much better deal just across the Channel – the startups organized themselves into a largely online movement called ‘Les Pigeons’, or ‘the suckers’.

They were set for a street protest this weekend, but yesterday they met with finance minister Pierre Moscovici… and won.

As Liam Boogar of the Rude Baguette blog noted today, the contentious tax (just over half of which is a capital gains tax) will remain unchanged for entrepreneurs keeping their companies for five years or more, and “money gained from selling off your company that is reinvested into other startups will be almost entirely untaxed”.

And as the cover of today’s Libération newspaper noted, it’s now the government that has been made to look foolish.

“There’s a lot more work to be done by entrepreneurs, both in their startups and in France – but this week marked a change in perception of France – we are no longer a country that is anti-business, we are a strong socialist country that is just beginning to realize how essential small business is to our growth and existence as a global power,” Boogar wrote.

There’s the rub. Whether or not you agree with socialism – not a dirty word in Europe, remember – taxes should not remove all incentive for risk-taking. It seems the Pigeons have been successful in demonstrating this to Hollande’s government.

It’s quite refreshing to see European startups flexing their political muscle. Now if those in Germany can just do the same in their own fights against counterproductive freelancer taxes and crazy ancillary copyright proposals, we can call this a trend.

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