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Arnault gives up citizenship bid, blasts French business culture

Bernard Arnault, second-gen chief executive of LVMH and France's richest man, has withdrawn his application for Belgian citizenship following continued accusations that he was trying to avoid the new 75% tax levied on incomes of more than €1 million.
Bernard Arnault, chief executive of LVMH and France's richest man

Bernard Arnault, second-gen chief executive of LVMH and France's richest man, has withdrawn his application for Belgian citizenship following continued accusations that he was trying to avoid the new 75% tax levied on incomes of more than €1 million.

"I explained several times that I would remain a resident in France and that I would continue to pay my taxes there. In vain – the message did not get through," Arnault told French newspaper Le Monde in an interview on 10 April.

He added: "Today. I have decided to clear any ambiguity. I am withdrawing my demand for Belgian citizenship."

Arnault always maintained he was trying to protect LVMH from possible break up after his death. The 64-year-old set up a Belgian-based holding company in 2011, which was designed to stop his family members selling shares should he die in the next 10 years. Arnault said France did not have the legal framework for such a structure.

Arnault added in the Le Monde article that the negative press about LVMH was the main reason for withdrawing his application. "As LVMH and all its brands represent France throughout the world, this debate could affect the image it presents. There is an incompatibility between this debate and the values of our business."

He also pointed out that LVMH pays almost half of all its taxes in France, even though it generates 90% of its revenues abroad, claiming that LVMH was an exception in this regard among international conglomerates.

He said that the French did not understand the importance of entrepreneurs and condemned wealth.

"Growth can only come from the decisions from individual business leaders. In France, whether the government is left or right wing, [entrepreneurs] are viewed relatively poorly. We [the French] like footballers, not chief executives." 

Comments

As an international tax lawyer who assist HNW individuals like Mr. Arnault in organizing their residence/citizenship and domicile in order to reduce their global tax burden, I would venture to speculate that there is much more to this story than first meets the eye. There are also some important lessons to be learned by HNW individuals and their planning for themselves and the next generation.

As an initial comment, I would speculate that Mr. Arnault is being as clever as ever. Consider the fact that he applied for Belgian residence over 6 years ago. He did not need to do this in order to reside in Belgium since he is a French citizen and has the RIGHT to reside in Belgium without the need for getting a residence permit. However, he did need to have residence in order to eventually apply for Belgian citizenship.

Why would he need a Belgian citizenship in addition to his French citizenship? A Belgian citizenship would give him the option of dropping his French citizenship and retaining an EU citizenship, should France ever decide to adopt a US style "citizenship based taxation" system.

By having an EU citizenship, Mr. Arnault would retain the ability to move immediately to a more tax favourable EU destination such as the UK (resident non-domiciled remittance taxation), Monaco or Switzerland (forfeit fiscale lump sum taxation).

Of course, 6 years ago he would have no idea that Hollande would be elected or promise a 75% tax rate. He also did not know for certain that France would adopt a citizenship based taxation (which they are talking about but have not implemented). He was simply looking at the reality that the French government (no matter who was at its head) would need more tax revenue simply to meet increasing entitlement program costs for an aging population. As the wealthiest man in France, a country which has a progressive tax system, he knew that this would mean a significant tax hike for him.

He quietly applied for Belgian citizenship last year and would probably have gotten it, if he didn't have such a famous name. He was "outed" in the press and his plan became a "cause celeb". The Belgian government was pressured by their own citizens and the French government to strictly apply their physical presence test for naturalization and not exercise the discretion they would normally have used to grant him citizenship. They rejected his initial application and the courts upheld the rejection.

By withdrawing gracefully from a battle for Belgian citizenship that he was probably going to lose anyway, he has retained some control over his public image. Since his original concern and strategy were sound, if he continues to remain clever, he is probably now considering a different tack. Luckily for him, there are major governments who would be quite open to a grant of citizenship to him, if they are properly approached.

Why should the average person concern themselves with Mr. Arnualt's actions? It is important because the UK, and US, like France have the same reality of entitlement programs meeting an aging population. All progressive tax systems always results in a dangerously unstable business model of extreme overreliance on a small number of taxpayers to supply an extremely high percentage of the total tax revenue. Typically the top 1% account account for over 30% of the total tax revenue. This over reliance is further compounded as you get to the top 0.1%. For example, in the US, the top 400 taxpayers account for about 2% of the total revenue. This is just a fact whether you think the system is "fair or unfair".

It is the fear of losing one of these "super taxpayers", that causes the visural reaction when there are stories about people like Bernard Arnault, John Paulson or Eduardo Saverin considering leaving their current tax jurisdiction. Smart Golden Geese are already packing a fiscal parachute, should they ever decide that they need to bail out of their current tax jurisdiction. Given that packing the right parachute takes time and that legislative changes happen very quickly, it is prudent to start before trouble actually knocks on your front door. If you wait until then, it is too late to do anything about it.

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