It is fair to say that under the regime of former French President Nicolas Sarkozy, significant changes were mooted for the country’s various legal professions, as typified by the recommendations of the Darrois Commission on legal sector reform.
But change in the activity and operation of business law firms – which saw a substantial decline in mergers and acquisition work and a rise in corporate restructuring matters – was without doubt prompted by the deterioration of the global economy and damaged by the ensuing recession that struck the world during Mr Sarkozy’s mandate.
The aftermath of the election of the new socialist regime may create even more waves for the French legal profession, if for no other reason than the repressive tax system for both companies and individuals that was advocated by new President François Hollande and his team during their electoral campaign.

Archaic and inflexible

Going back a step in time, the former Sarkozy government had, since 2007, proposed a variety of measures intended to modernise or, in some cases, simplify legal and judicial activities that are seen by many to be over-regulated and somewhat archaic or inflexible – especially in comparison to rules governing the legal professions of our Anglo-Saxon counterparts.
Those proposed reforms include – to take a few examples – the possibility for lawyers to act as estate agents and as sports agents, the merger of Court of Appeal attorneys (avoués) and lawyers (avocats). More recently, serious consideration has been given to the possibility of allowing lawyers admitted to the different French local bars to be hired by companies as in-house counsel.
Such policies are all commendable, in that they aim to create a community in which lawyers, notaries, bailiffs, auctioneers, chartered accountants, external auditors and even commercial property advisers can co-operate better and work together efficiently to improve the quality of services provided to clients.
There is nothing to suggest that any of these reforms will grind to a halt with the election of Mr Hollande. However, other announced measures are likely to prompt change over the coming months.
The starting point is the overall ideological shift from right to left, highlighted by a potentially brutal increase in the French tax regime via a series of key measures. This has already led many clients of business law firms, usually large local/multinational companies and/or private individuals, to rethink their localisation, management and operational structures, global activities and behavioural patterns.
Importantly, as matters stand, we should remind ourselves that the announced measures directed at large corporations and businesses include removing the deductibility of interest on company loans granted for the acquisition of equity securities, a projected increase in the corporate income tax rate (which is intended to be proportionate to the size of the company), a general prohibition on leveraged buy-out schemes, and the proposed reform of the research tax credit, which appears to be principally aimed at preventing access to such credit by large companies and businesses.
But that is not the end.
There is further cause for concern in  President Hollande’s forecast tax policies for private individuals. These intended measures are likely to be far more burdensome than has been speculated so far. It is worth highlighting that anticipated measures include the taxation of non-resident French citizens, a severe increase of the progressive rate for individual income tax (to be raised to 45 per cent for annual earnings in excess of €150,000 and up to 75 per cent for individuals with an annual income more than €1 million) and the taxation of capital gains/income, as well as stock options and bonuses.
Not surprisingly, the mood among corporate and individual clients of business law firms has been generally pessimistic, given the quasi-confiscatory taxation system promulgated by Mr Hollande. It is feared that such a regime will have a devastating effect of diminishing value generated domestically in the same way as the 35-hour working week – adopted at the turn of the last century by the then-socialist regime – has been criticised as having seriously hampered local productivity.

Anxious anticipation

The mindset of these clients – companies and individuals alike – has gradually shifted from plain disbelief at the policies advocated by Mr Hollande during the presidential campaign to anxious anticipation of the actual legislation that will allow for the implementation of the corresponding measures.
What is most feared is the actual tax legislation to be adopted in the current financial year, bearing in mind that it will have a retrospective effect which, per se, is extraordinary. It is impossible today for anyone to estimate how expensive the tax bill will be for year-end 2012 and beyond.
In the past months, business  law firms have been asked to provide advice and offer solutions in respect of delocalisation of business activities and migration and the potential reduction of profit-generating activities within France itself.
The challenge that French business law firms now face is to adapt and develop their activities and skills to respond to this new and growing demand in an appropriate, efficient and timely fashion. Tax and corporate departments of business law firms are actively at work to address their clients’ legitimate concerns.
For many business lawyers, the sooner the new government introduces corrective measures to stem the tide, the better.

Antoine Tchekhoff is the founding partner of Paris-based law firm FTPA