BioWorld International Correspondent

PARIS - The French government plans to introduce new measures aimed at encouraging innovation and entrepreneurship in high-technology industries. They are designed to boost the proportion of GDP spent on research and development from 2.2 percent now to 3 percent by 2010, and will be included in a bill to be presented to Parliament next spring, following a "broad consultation" process.

The "Innovation Plan" was unveiled last week by French Industry Minister Nicole Fontaine and Minister for Research and New Technology Claudie Haigneré. Its main points were inspired by proposals submitted by the French biotechnology industry association, France Biotech, whose president, Philippe Pouletty, welcomed them, saying: "Dec. 11 marks a revolution in French innovation policy."

The cornerstone of the bill is the creation of a new corporate entity for young innovative companies, defined as enterprises whose R&D spending represents at least 15 percent of their turnover and that are not subsidiaries of large groups. They will benefit from tax breaks during the first eight years of their existence and reductions on social security charges for 10 years.

Specifically, innovative companies will be totally exonerated from the employer's share of social security charges during their first six years of activity, and contributions will be reduced by 50 percent the following four years. Secondly, they will not be liable for corporate income tax during the first three years they make a profit, and will pay only 50 percent of the standard rate the next two years. Thirdly, they will be exonerated from local business taxes. Fourthly, their shareholders will be exempt from capital gains tax when they sell their shares provided they have held them for more than three years.

The bill also contains a measure to encourage potential business angels to invest in young innovative companies. With only an estimated 4,000 business angels, France falls well behind the UK (credited with 50,000) and the U.S. (300,000 to 400,000). An individual will now be able to create a one-man venture capital firm, which will be exempt from corporate income tax and will be exonerated from income tax on dividends and capital gains, provided two conditions are met: The firm must invest at least 80 percent of its assets in innovative businesses that are less than five years old and no single investment may exceed 25 percent of the total invested, so it must be divided among a minimum of four companies.

France Biotech had asked for 18 years of special treatment for innovative companies, and Pouletty told BioWorld International that it would press for the final version of the legislation to extend the duration of the proposed concessions. All in all, though, he was very upbeat in his assessment of the government's package, saying it would "make France one of the most attractive countries in the world for high-tech, innovative industries."

An equally enthusiastic reaction came from Bernard Gilly, a partner at Paris-based Sofinnova Partners, one of France's leading venture capital firms. Albeit prefacing his remarks by a "better late than never" comment, he said the proposed measures would "undoubtedly improve the financing conditions for innovative companies." In particular, they would ensure that "more of the money invested in a company goes to building the value of the business."

Given the majority the government enjoys in both houses of Parliament, Pouletty expects the innovation bill to become law by summer. At the same time, he is hoping the government will provide specific financial assistance to the biotechnology industry in the shape of a seed capital fund that would be endowed with 100 million of public money to help start-ups get off the ground.

In addition, France Biotech is pressing the government to secure reforms at a European level. In particular, it wants the status of "young innovative company" to become a Europe-wide corporate entity, for which rates of tax and social security contributions would be harmonized around the most attractive national regime currently in force in the European Union.