Francois Hollande simply can not get a break, on the same day, that he once again criticised the tax arbitrage strategies, employed by the big multinationals. Yahoo moved their French operations to Ireland. Hollande has been one of the most critical of these strategies, as it costs France in particular a lot of tax revenue. Their 34% rate of corporation tax, would draw billions more, if only they could nail down the likes of Yahoo, Google, Apple etc. Thus, he is off to America to discuss the problem with Barack Obama, his thinly veiled barbs at low tax countries like Ireland, left for the media to digest.
However, the reason for Yahoo's move, on the face of it at least, is not purely due to tax efficiency. It was revealed that French secret service had access to all data held by Yahoo, in France. This is a highly contentious issue for the likes of Yahoo, and they have been very quick to condemn these intrusions. Ireland, a small neutral country with very few 'natural enemies' has little reason to snoop, thus making it an attractive location to store data.
Let's not delude ourselves here, the tax rates in Ireland are comparatively low, and that makes it a highly attractive country to invest in. If however, France was to drop it's rate to match ours, would the likes of Yahoo return to our Gallic neighbours?
I don't believe they would be in any rush, and these are the reasons.
France is a socialist leaning country, with a big government footprint and a generous welfare state. In order to pay for this, the government needs to charge high rates of tax, and is particularly keen on squeezing high earners. With a top rate of income tax - mooted but yet to be implemented - of 75%, it is not the kind of place, where rich people are too keen on domiciling.
Even taking tax out of the equation, Ireland still has the advantage. French labour laws are incredibly restrictive, making it very hard to fire people during down turns. This in turn, means companies are loath to employ people on permanent contracts, instead they often employ them on a yearly rolling contract. Hardly a model for stability.
Added to this is the power of the unions, they have the ability to bring the country to a stand still with a well organised strike. Air traffic controllers, railway unions, all have immense power. Thus when Hollande tries to push through painful reforms, the unions threaten to bring the country to a halt and the reforms tend to be watered down or abandoned altogether.
Worse yet are the infamous "boss-nappings", which were frequent during the financial crisis. The most recent example occurred, when the CEO and Head of HR at Goodyear France, were held hostage at their Amiens plant, in retaliation for the closing down the factory. None of these kidnappings has lead to a jail sentence, or any kind of judicial follow up. When the head of Titan International - a rival tyre manufacturer - was asked if he would consider buying the Goodyear plant, he laughed and questioned why anyone would invest in France.
Even if one avoids being kidnapped they might not dodge the state burglars. When ArcelorMittal decided to close part of their factory, the French government threatened to nationalise it to keep it open.
How could any CEO invest in such an uncertain environment, especially given the alternatives? The truth is they are not, last year Foreign Direct Investment in France fell 77%. To put this in context last year was the IDA's - the body responsible for FDI in Ireland - most successful year in Ireland.
Hollande may have reason to be angry, but before he starts criticising the neighbours he should tidy up his own back yard. Businesses need stability and in a globalised world, the French way of doing things won't cut the Dijon mustard.
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