France’s President Francois Hollande has been given the go-ahead to impose a 75 percent tax on companies that pay salaries of more than 1 million euros ($1.38 million) a year, after the nation’s highest court on Sunday agreed that the move would not be deemed unconstitutional.
Late last year, the Constitutional Council had struck down a proposal by the president to impose a similar tax on individuals with annual income exceeding 1 million euros, but Hollande then reworked the plan to target companies instead.
Under its new design, which the council found constitutional, companies will be responsible for paying a 50 percent levy on the portion of wages above 1 million euros in 2013 and 2014. Including social contributions, the rate will effectively remain about 75 percent, though the tax will be capped at 5 per cent of a company's turnover.
The tax is expected to affect about 470 companies and a dozen football teams, and is expected to raise about 210 million euros a year, according to Reuters.
Hollande made the tax proposal one of his signature policies during his presidential campaign in 2012. Though it has sparked controversy, particularly among wealthy individuals, Hollande’s Socialist government insisted that the tax was necessary to bring down the huge public deficit.
Polls suggest a large majority in France back the temporary tax. Hollande also claimed that the idea was "not to punish" but to spur companies to lower executive pay at a time when the economy is sluggish and unemployment is soaring.
In another ruling on Sunday, the Constitutional Council rejected planned wealth tax measures, which would have imposed levies on potential gains such as those on life insurance policies.
It also quashed several measures designed to crack down on tax avoidance schemes through which individuals and companies use legal loopholes to minimize their tax bills.