New Social Charges on Foreign Earnings & Pensions in France

The French government is proposing to widen the net on the imposition of French social charges on foreign earnings and pensions, writes Virginie Deflassieux of French tax advisors, PKF Guernsey.

The debate on the application of the social charges CGS and CRDS on foreign source earnings reared its ugly head again earlier this year. The French social security collections agency URSSAF, invoking European regulation 1408/71, attempted to levy CSG and CRDS charges on the UK earnings of two French lawyers fiscally resident in France who practise in France and in the UK.

The lawyers opposed this assessment on the grounds that, under the terms of the France UK double tax treaty (DTT), their UK earnings are not subject to French income tax, and thus should also be exempt from the CSG and CRDS charges.

The European Court of Justice (ECJ) was consulted to confirm whether the 1408/71 European rule prevented the application of the DTT rules, under which these professional UK earnings received by French residents could be excluded from the CSG and CRDS.

The ECJ reminded the authorities that these social levies are indeed within the scope of the regulation 1408//71. However, it stressed that the decision on what income is to be included for social security charges lies with each member state and is not up to EU legislation.

This intervention confirmed, therefore, that the terms of a DTT or a domestic rule may exclude certain income from the CSG and CRDS levies. As a result the two lawyers’ claim resulted in a positive outcome against the URSSAF’s CSG and CRDS assessment.

The charge would be set as 2.4% up to €34,308 (plafond sécurité sociale for 2009) and 9.6% over and above this amount.

The 9.6% charge was to be capped, but after the first review by the Assemblée Nationale the authorities are proposing to remove any limitation, and to now possibly include certain foreign pensions. The details of possible application of the charge to pensions have not yet been released.

The French government claim that the reason for introducing this charge is to compensate for the fact that those with purely French professional income suffer CSG and CRDS on all their earnings. On the other hand, those with professional income in France and abroad only pay these charges on their French income, despite the fact that they are affiliated to the mainstream French social security system and thus entitled to full benefits.

This cotisation will be part of mainstream social security charges and will not be in the scope of the double tax treaties. There will, therefore, be no possibility of exemption on foreign earnings, or even on certain pensions.

Nevertheless one would hope that these charges would be accepted as a deduction from the taxpayer’s income in the same way as other social security charges, but this remains unconfirmed at this stage.

Publication of the law is scheduled for 20 December 2008, and the text may continue to evolve through its review process.

Those seeking more information or advice can contact Virginie Defassieux at french.tax@pkfguernsey.com. You can also e-mail editor@french-property.com

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