France economy

France still sends €100m a year to Monaco’s ‘millionaires’ paradise’ – EURACTIV.com

France has paid Monaco some 100 million euros a year in VAT refunds since 1963 despite being a known tax haven, the second richest country in the world by GDP per capita and one in three residents a millionaire.

Read the original article in French here.

A 1963 agreement between General de Gaulle and Prince Rainier III decreed that Monaco would receive part of France’s value added tax (VAT) revenue to make up for lost revenue following a decision that French people could no longer buy things in the principality excluding VAT.

In 2022, France paid Monaco about 105 million euros, compared to 100 million euros in 2021, according to the principality’s budget documents.

This is less than in the 1990s: in 1997, for example, France paid Monaco 839 million francs, which in 2021 is equivalent to around 174 million euros.

The annual sum is calculated according to “a formula defined in an exchange of letters between the two countries, and is decided each year on the basis of annual data”, the French Ministry of Economy and Finance told EURACTIV. The amount varies according to the annual net collections in each country.

But Monaco also collects its own VAT directly, which is well over €100 million, bringing the state’s total VAT revenue to €898 million in 2022, French VAT included.

Questioned by EURACTIV on the legitimacy of the continuation of such a device, the ministry replied that “this payment is completely logical since France collects VAT relating to operations carried out on Monegasque territory”.

Residents of Monaco who are not French nationals are not subject to any income, capital gains or capital tax. Inheritance rights are nil for direct relatives and very low for others. French people who settled after 1962 pay their taxes directly in France.

Monegasque advantages

“At first, Monaco was a tax haven for the French, but in the 1960s General de Gaulle forced Monaco – through a border blockade – to sign a tax treaty obliging French citizens residing there to pay taxes to France,” a statement said. A Monegasque residing in France who is well informed about the situation, who wishes to remain anonymous, told EURACTIV.

“In exchange for the end of tax exemption, Monaco obtained a percentage reimbursement of part of the French VAT,” he added.

In 2000, Socialist MPs Arnaud Montebourg and Vincent Peillon presented a report showing that Monaco continues to benefit from the scheme – which, according to people familiar with the matter, told EURACTIV it is a scheme that persists to this day.

The report describes a 60% increase in the “Monegasque turnover” of the calculation, between 1963 and 1986, as “discretionary” and incomprehensible. The two states themselves saw the need to adapt the formula and modified it several times, notably in 1987, 1989 and 2001.

no longer understandable

At first, “it was understandable” because the Principality was “a real enclave”, the Monegasque source told EURACTIV.

However, the situation is now an “anomaly” due to links with France, the absence of real borders and controls and Monaco’s economic situation, the source continued.

The Monegasque State budget shows a revenue surplus of €2.9 million according to December estimates. Even compared to 2021 – when the pandemic was still having an impact on the economy – a jump of 28.7% (420 million euros) in revenues is expected for 2022, of which 40% more of these revenues will come from the VAT compared to 2021.

In total, Monaco plans to collect 898 million euros in VAT in 2022.

“VAT remains the main source of state revenue, with 53.4% ​​of it, including 88.3% internal VAT”, or 793 million euros, writes a report from the Monegasque parliament.

Questioned by EURACTIV, the Monegasque Treasury confirmed that the remaining 105 million euros, denominated “VAT of the sharing account” (11.7% of the total) and not “internal VAT”, correspond to what France pays.

Nearly 1.5 billion euros in 14 years

Between 2009 and 2021, France paid Monaco €1.497 billion, based on legislative documents from the Monegasque National Council.

In 2000, Montebourg and Peillon criticized France’s annual contribution to Monaco, saying it was “unknown to French taxpayers” and made “to enable the wealthiest people in the world to live in Monaco without taxation”, even if it does not may not have been the case. was the intended goal.

[Edited by Alice Taylor/Nathalie Weatherald]