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OO RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSK RUEHSR RUEHVK RUEHYG
DE RUEHFR #0321/01 0640706
ZNR UUUUU ZZH
O 050706Z MAR 09
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5680
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 1066
RUEHBJ/AMEMBASSY BEIJING 1933
RUEHBR/AMEMBASSY BRASILIA 2181
RUEHBU/AMEMBASSY BUENOS AIRES 1679
RUEHBY/AMEMBASSY CANBERRA 1826
RUEHJA/AMEMBASSY JAKARTA 0712
RUEHME/AMEMBASSY MEXICO 0536
RUEHNE/AMEMBASSY NEW DELHI 1297
RUEHOT/AMEMBASSY OTTAWA 2308
RUEHSA/AMEMBASSY PRETORIA 1735
RUEHRH/AMEMBASSY RIYADH 0455
RUEHUL/AMEMBASSY SEOUL 1665
RUEHKO/AMEMBASSY TOKYO 2941

UNCLAS SECTION 01 OF 02 PARIS 000321 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EEB/IFD/OMA AND EUR/WE 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ECON PREL FR
SUBJECT:  FRANCE/G20: FIXATION ON TAX HAVENS 
 
REFS:  A) PARIS 0197  B) PARIS 0049  C) 08 PARIS 2024 
 
¶1. (SBU) SUMMARY:  In the context of the international financial 
crisis, President Sarkozy has repeatedly cited the need for 
international action on "tax havens," a point on which he recently 
said he sees "zero room to negotiate" in the G20 (ref A).  Sarkozy 
appears to have garnered substantial European support for this 
position.  END SUMMARY. 
 
¶2. (U) The GOF and President Sarkozy, in particular, have given high 
priority to the issue of tax havens based upon both domestic 
political and technical considerations.  On a political level, the 
president's efforts to reform and modernize the economy necessitate 
firm action against tax fraud and evasion by the wealthiest parts of 
society, and the establishment of safeguards.  President Sarkozy 
came into office promising to "moralize" a capitalism that had 
become "perverted", a broadly if vaguely appealing notion easily 
personified by tax cheats.  The Liechtenstein scandal in February 
2008, said to involve one billion euros in tax fraud by French 
citizens, brought this issue to the fore.  French Budget Minister 
Woerth quickly partnered with German Finance Minister Steinbrueck in 
pushing this issue, including at their co-hosted international 
conference in Paris in October.  In parallel, Interior Ministry 
Aliot-Marie called for the end to the "naove approach" to dealing 
with economic bad actors and the establishment and enforcement of 
common ground rules in finance as part of a global approach to 
security that included economic security (Ref. C). 
 
¶3. (U) The economic rescue package combined with highly visible 
increases in the government budget deficit have put the government 
under additional pressure to improve tax compliance.  With revenues 
stagnating, the 40 billion euros (estimate of the Cour des Comptes, 
France's GAO equivalent) in annual tax fraud and evasion, 15 - 20 
billion of which is linked to tax havens, is an obvious target, even 
for purely budgetary reasons.  The opposition, notably former PM 
Fabius (PS) and National Assembly Finance Committee Chairman Megaud 
(PS) have needled the government for not formally forbidding 
activity in tax havens by banks receiving GOF support.  The GOF has 
also made the technical argument that lack of transparency and 
prudential supervision of financial actors in non-cooperative 
centers aggravated the crisis and slowed its resolution.  At a joint 
press conference with German Finance Minister Steinbrueck on March 
3, 2009, Economics Minister Lagarde proposed requiring "heightened 
risk" disclosures and possible increased prudential requirements for 
financial institutions that did business in such non-transparent 
financial centers. 
 
GOF Focus on Transparency 
------------------------- 
¶4. (U) While the GOF has in the past sought greater tax 
harmonization, President Sarkozy stressed in a March 1 Brussels 
press conference that his persistent concern about non-cooperative 
financial centers is their lack of transparency regarding the origin 
and destination of funds, rather than differences in tax rates or 
tax systems.  He and his Economics Minister have stressed this in 
joint statements with counterparts from London, Rome and, 
especially, Berlin.  Bilaterally, the GOF is pursuing accords 
allowing it better access to tax-relevant information, e.g., in 
Jersey and the Isle of Man.  Multilaterally, Minister Woerth has 
indicated the GOF's intention to "endorse" the new OECD list of 
non-cooperative centers, due out in the first half of 2009, in a 
second multilateral forum on fighting tax fraud and tax evasion, 
scheduled to occur in Berlin on June 23, 2009. 
 
Consumers Shoulder Tax Burden that Jet Set can Avoid 
--------------------------------------------- ------- 
¶5. (SBU) French tax revenues come primarily from VAT (49.9%), 
personal income tax (21.4%) and corporate taxes (17.3%), placing the 
principal tax burden on consumers, generally, and not so much on 
those in higher income brackets.  While residents of France are 
taxed on worldwide income, non-resident French citizens are not 
subject to income tax.  Because "non-resident" is defined as having 
principally foreign sources of income and residing outside France 
183 days of the year, some high income citizens organize their 
 
PARIS 00000321  002 OF 002 
 
 
schedules and business affairs in order to be exempt.  At least some 
of the GOF's vehemence on this issue stems from the perceived 
injustice of French gliteratti decamping to Switzerland and other 
"havens" to avoid the heavy individual tax burden.  This allows them 
to avoid not only income tax (maximum rate 40%, on income above 
69,505 euros) but also the annual French wealth tax (0.55% for those 
with to net worth exceeding 790,000 euros and increasing to 1.8% on 
wealth over 16.5 million euros). 
 
¶6. (SBU) Comment:  GOF contacts believe the USG has taken an 
arms-length position over the last eight years, following early 
partnership with France on tax havens in the OECD.  They also note 
that Senator Obama co-authored legislation on tax havens and believe 
that he is sympathetic to the French and German position. The GOF 
pushed hard for U.S. participation in the (virtually OECD-wide) 
international conference on the fight against international tax 
fraud and tax evasion and used the pending November elections to 
explain our absence.  There is a high expectation, particularly in 
light of recent U.S. actions on UBS, that the U.S. will join the 
follow-up conference in Berlin on June 23, 2009. 
 
PEKALA