Small Businesses Pay Higher Taxes Than Big Corporations

French SMEs Face Higher Tax Burden Than Large Corporations,New Data Reveals

A new study from the French National Institute of Statistics and Economic Studies (Insee) indicates that small and medium-sized enterprises (SMEs) in France are shouldering a disproportionately higher tax burden on profits compared to larger companies. The findings, released on Tuesday, September 2nd, cover the period from 2016 to 2022 and are likely to spark debate among business owners.

The Insee report highlights a widening gap in effective tax rates. In 2022, SMEs paid 50% more in profit taxes than large corporations with comparable operating profits. This disparity raises questions about fiscal fairness, a principle consistently emphasized in France. As recently as September 1st, Amélie de Montchalin, the Minister for Public Accounts, affirmed that “everyone must pay their taxes according to their means.”

Did you know? – France historically maintained some of the highest corporate tax rates among developed economies.Recent reforms aim to bring the country more in line with OECD averages, but the benefits aren’t uniform.

Despite an overall decline in the average corporate tax rate in recent years,the benefits of these reductions have not been evenly distributed. Insee’s analysis shows that the average tax rate applied to businesses has decreased, a logical outcome given that France previously had one of the highest levels of taxation among developed nations. Successive governments have gradually lowered the official corporate tax rate from 33.3% in 2016 to 25% in 2022, aiming to align with the Organisation for Economic Co-operation and Development (OECD) average of 21.1%.

The effective, or implicit, gross tax rate – defined as the corporate tax actually paid relative to a company’s net operating surplus – fell to an average of 17.5% in 2022. This difference between the official and effective rates is attributable to the use of various legal mechanisms, including loss carryforwards, deductions, group tax regimes, and tax credits.

Pro tip: – Loss carryforwards allow companies to deduct past losses from future taxable income, reducing their current tax liability. this is a common tax strategy, but larger firms are better positioned to utilize it.

However, the overall decrease masks notable variations based on company size. Large corporations have been the primary beneficiaries of this trend. Over six years, their implicit tax rate was reduced from 19.3% to 14.3%, a decrease of 5 percentage points.Mid-sized companies also saw a notable reduction of 3.4 percentage points. In contrast, the tax rate for SMEs only decreased by 1.7 percentage points over the same period, settling at 21.4% in 2022. Microenterprises experienced a slight increase in their tax rate over the six-year span, reaching 19%.

This uneven impact of tax reforms underscores a growing concern about equity within the French business landscape. The data suggests that while the overall tax burden may be easing, the benefits are not being shared equally, possibly disadvantaging the backbone of the French economy – its SMEs.

Reader question: – Do you think the French government should implement policies to specifically address the tax disparity between large corporations and SMEs? What measures might be effective?

Why it happened: France, historically burdened with high corporate taxes, initiated reforms in 2016 to align with OECD averages. Successive governments lowered the official rate from 33.3% to 25% by 2022. Though, the effective tax rate – what companies actually pay – decreased unevenly.

Who was affected: The primary impact was felt by French businesses, specifically with a stark divide between large corporations and SMEs. Large companies saw significant tax rate reductions, while SMEs and microenterprises experienced minimal or even increased tax burdens.

What occurred: The In