The Fisc is preparing to charge an extra 6,8% on foreigners living in France and on foreign residents’ French rental income
In 1971, the EU issued a Directive stating that social security charges could only be levied on residents of a country by that country’s authorities.
In 1992, the French levied the then social charges on state pension income. There was the hoohah with the EU who said they couldn’t and France who said they could as the social charges were not social security payments … but taxes. Finally, the EU ruling in 1997 confirmed : no social charges can be levied on state pension income and, if the taxpayer has a state pension, no social charges can be levied on any pension income.
The French were furious at this and added articles at the end of their tax Code saying that in addition to the income taxe as set out in the income tax Code that other taxes were due as set out in other Codes … essentially the social security Code
Since then, they have argued that social charges are taxes … not surprising since they levy more in social charges than in income tax, to the extent that any split between the two has now been removed from all sites on the web.
Two years ago, the French levied social charges at the full rate of 15,50% on foreigners having rental income. An Irishman took France to the EU court, and the EU said France couldn’t levy these charges on a foreign resident. Not surprising, since the 1408/71 Directive from 1971 states that only residents of a country can pay that country’s social charges. The argument that ensued ended with France accepting that the CSG and the CRDS were social charges as they were directly orientated towards the social security system, but, THEREFORE : that the other
three social charges were NOT in fact part of the social security system.
The issue : if the French can can have classed as NON-SOCIAL SECURITY CHARGES the ‘prélèvement sociaux’, the ‘contributions additionelles’ and the ‘prévèvements de solidarité’ amounting to 6,80%, then do they not have the right to charge what would now be additional ‘taxes’ ?
If so, this would mean than these additoinal ‘charges’ or ‘taxes’ could be levied not only on foreigners having French rental income and capital gains but also on foreign French residents having foreign pensions of any kind. As a result, the currently exempt pensions would be chargeabl to at least 6,80%.
However, the French also changed the manner in which they dealt with income that under the Double Tax Treaty was only to be “taken into account”, income which is essentially foreign rental icnome assessed in another country, foreign government income which is assessessed in another country and all the income of US nationals resident in France.
To prove the point :
1 – government pensions used to be « taken into account » for their full value in the tax calculation. Now they are assessed as pensions, abated and so on before the credit impot. Why the change given the Treaty wording has not changed ?
2 – foreign rentals used to be « taken into account » for their full value in the tax calculation. Now they are treated as french rentals, abated and so on before the credit impot. Why the change given again that the Treaty wording has not changed ?
3 – this change in the manner foreign income is being assessed is apparenly being done manually by operators, not by the computer like last year. Why the change ? And why waste people’s time to do something that the computer is set up to do, and has done before although in a different manner ?
4 – the government income and foreign rentals which were EXCLUDED from the ,social charges calculations are now being included, the social charges calculated, and then there is a deduction for the social charges on the foreign income not currently liable. Why the change and why bother including income and a charge …to then exclude it ? And again, why waste people’s time in doing something that before was not done because the issue was irrelevant since the income was exempt for the social charges ?
5 – As a result of the way in which the tax calculations are done this year with the abatements due to the fact that foreign pensions, government pensions and foreign rents are being treated and assessable as French income, the tax liability has reduced very slightly. For a government that is so short of cash, why do the tax calculations in this new manner and lose income ?
6 – Why, for a tax authority always seeking to tax incomes and drain people, should they VOLUNTARILY reduce taxpayers’ tax liabilities very slightly due to this new way of doing things and assessing income ?
7 – Why make these changes now, co-incidentally during the issue with the EU court case that will decide the issue one way or another ? Is this not a planned attack launched two years ago by levying social charges on foreigners having French rental income, an attack ultimately aimed at changing the 1997 EU court ruling of the social charges exemption on pensions, and of increasing the fiscal take on foreigners’ income by any means.
8 – Over the years, tax offices have always acted in different manners over various subjects and ways of dealing with things. Here, there are ALL doing the SAME thing. Coincidence ?
9 – Fact : the social charges assessments started intially by being part of the income tax assessments two years ago. Why, if not to facilitate the chargeability on income previously exempt from the social charges and which the French are now assessing instead of ” taking into account ” ?
10 – Fact : the tax assessments that included the social charges used to have five columns, one each for each of the five social charges. Now they are three columns -(1) CSG – (2) CRDS – (3) and the other three charges together … at 6,8%. Coincidence ?
11 – Fact : If the 6,8% is charged, it will raise more money than is being currently saved on the inclusion of foreign income in the assessments : on 30 000€ joint pension income the extra recipt at 6,80% will be roughly 2 000€ … all for conceding 190€ in using the abatements due to assessing the income instead of ” taking the income into account “.
12 – The French have – since the issue with the social charges on state pensions in 1992 – always maintained that pursuant to the new income tax Code articles – which they added as a result – that in addition to income tax there are more TAXES due as set out in the other Codes. This is essentially the social Security Code. But they have ALWAYS maintained that social security contributions are not social security but another tax.
The EU should have decided by the end of 2015 (delayed from 2014 due to a question to the EU by the French Government). If the EU agrees with the French – seemingly a foregone conclusion
given all the above – then :
1 – foreigners will be liable to an extra 6,80% on :
– their French rental income
– their French capital gains
2 – Foreign French residents will be liable at 6,80% on :
– their UK state pensions
– in addition, their private state pensions (partially nullifying the 1997 exemption ruling)
– ALL UK rental income
– ALL UK government pensions
3 – Americans resident in France will be liable on ALL of the US income