Mystery Over Non-Resident Tax Notices
Tuesday 08 October 2013
Thousands of non-resident French tax returns remain unprocessed, as uncertainty surrounds the application of social charges on French rental income, says Joanna Reintjes.
Following enquiries we have made to the French tax centre for non-residents (Service des Impôts des Particuliers des non résidents) we have been verbally informed that there are some 50,000 unprocessed tax returns for 2012.
Indeed, the answer machine message at the centre appears to now be permanently switched on.
It seems the centre has been flooded with calls by non-resident tax payers all asking the same question – Are my French property earnings subject to CSG social charges?
Well the answer machine message very helpfully says “yes”, and so there is no point in phoning again….presumably as the answer will be the same!
The French government tax website confirms the position, where it states:
“Social contributions apply to property income and the real estate gains of French source received by people who are domiciled outside France. On the other hand, they do not apply to the investment income (income from moveable capital and securities gains). The rate is set at 15.5%. For income from land, they (the CSG social charges) apply to net revenues collected from the 01.01.2012 (reportable in 2013) and to the real estate gains on disposals made from the 17.08.2012.”
However, we remain curious as to why so many tax applications remain unprocessed and it may well be that it is not unconnected with recent reports that the European Commission is taking infringement proceedings against France over the imposition of social charges on the French property income of non-residents.
It does indeed seem discriminatory that a non-resident who does not benefit from the French social security system is not exonerated on the same basis as a French resident who does not have to pay CSG social charges if they are not in the French obligatory system (and paying private healthcare).
In the UK these social charges are not allowed as a tax credit against UK liability. The guidance notes on the UK HMRC site very clearly state that this is because CSG is not a 'tax'.
A similar rule applies in other countries, such as, for example, for certain types of income from the Netherlands.
As a result the CSG levy does substantially increase the tax liability of someone who only has a modest rental income from France, but is taxed as resident in the UK. This is because they would otherwise only be paying basic rate UK tax at 20%, but with the addition of CSG they will be paying a combined rate of 34.5% in France.
The tax already paid in France is credited on the self assessment return, and then 20% tax charged in UK. As no credit is given for the 15.5% CSG, the final tax burden will be the higher combined tax and CSG, ie 34.5%.
Are the French tax authorities hesitant about sending out the tax notices because of the infringements proceedings issued by the European Commission? At the moment we can only speculate that this may be the reason.
The centre for non residents has started to send out notices to apologise for the delay and we anticipate the next batch of tax notices will not be sent out till December.
Watch this space for further updates!Joanna Reintjes, CTA, FCCA, Expert Comptable
Do contact us if you may be affected by this matter, particularly if you have received your tax notice.