Viewpoint: Complexity undermines French family businesses, but awareness is changing for the better

Photo by MiroNovak/iStock / Getty Images
Photo by MiroNovak/iStock / Getty Images

In France, it’s not unusual for those running family businesses to do nothing when it comes to something as important as succession planning. They are doing nothing because they are being advised in so many different ways about what to do that instead of following one piece of advice and potentially getting it wrong they are doing nothing.

French family businesses, whether they’re small, mid-sized, or big are dealing with a system so complex and unstable when it comes to their tax affairs that they are doing nothing. It’s not just the complexity of the tax code in France, or the existence of a wealth tax which adds up to the weight of capital taxation. But it’s also the fact that no one knows how long the latest tax measure will remain in place, or whether they might be interpreted in a way that contradiction their initial purpose. There is all this movement back and forward all the time - and political compromises which lead to inertia, even a sense of hopelessness.

After much debate, we stopped and looked at each other and just laughed in despair. If we feel this way imagine what family business owners are feeling?

The tax system for wealth which applies to family businesses is so complicated that even tax advisers spend hours trying to find an impossible path between two evils. Contradictory interpretations of texts or their interpretation by the tax administration often lead to dead ends. And these are people whose job it is to interpret what is going on for others. Recently, I was in a meeting with other lawyers - one of them had actually worked in the government's tax department - all trying to decipher for some time the tax system for the transmission of a family business. After much debate, we stopped and looked at each other and just laughed in despair. If we feel this way imagine what family business owners are feeling?

Add in the forthcoming presidential election in France and you get more problems. The French leftist candidate, Jean-Luc Mélenchon, wants to bring in a 100% tax on the income of more than €360,000 a year! And of course, if Marine Le Pen is elected then the consequences for the whole of France will be enormous, let alone for family businesses.

 

Family businesses matter for the French economy

But it would be wrong to talk just about the negatives. Increasingly, there is the view that family businesses matter for the French economy. Policy makers and the finance industry realise they are important in wealth creation and employment. Many also appreciate their often strong links to the communities they work in and how these links are vital for the socio-economic environment of those communities. So efforts are being made.

Efforts like the mid-sized business growth initiative from Bpifrance (Banque publique d'investissement - a government-owned bank), which is helping family businesses to accelerate their growth. The bank is listening to the concerns of French family businesses and has set up a consultancy service for them. I am currently helping the bank to put together and deploy two modules on the best practices for succession planning and governance for family businesses.

Bpifrance has also found that family businesses in the country aren’t so against sharing their private capital with outside investors. Many French family businesses realise that raising external capital can help with their expansion plans. Then there is the recent initiative with Euronext to launch something called FamilyShare. This will offer support and coaching to unlisted family businesses who might benefit from an IPO.

OK, much more needs to be done. But policy-makers are at least becoming more aware of the importance of French family businesses to the economy. Now all they need to do is to simplify the tax code and ensure it remains consistent over many years. One always has to live in hope....

 

Valérie Tandeau de Marsac is the head of the law firm VTM Conseil. She is also an acknowledged expert on French family businesses and an associate professor at the business school EDHEC