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French Taxation

US Nationals and French Social Charges

Thursday 08 August 2019

Americans living in France have won a major legal battle with the US tax authority to obtain a foreign tax credit on social charges paid in France.

Although US nationals living in France are obliged to pay US income tax on their French income, they are able to offset the amount of tax in France against their U.S. tax liability.

Until ten years ago, these taxes included the two social charges CSG (Contribution Sociale Généralisée) and CRDS (Contribution pour le Remboursement de la Dette Sociale).

However, practice changed in 2008, when the US tax authority, the IRS, began auditing claims for such credits and turning them down.

As a result of being refused a tax credit on their 2008 and 2009 income an American couple living in France, Ory and Linda Eshels, brought a legal action in the USA.

The IRS disallowed their credits, arguing that they were subject to a 1988 social security agreement between the USA and France

The decision of a U.S. court of appeal to overturn the IRS is the result of an agreement arrived at between the US and France on the treatment of the social charges CSG and CRDS under the terms of the 1988 agreement.

It now means that the social charges will be accepted by the IRS as a tax rather than a social security contribution.

As a result, American expats in France are now entitled to submit a claim to the IRS for refund of the over-payment of US taxes in the past.

According London-based U.S. tax attorney Stuart Horwich of Horwich Law, who represented the Eshels, the sums owed could amount to $100 million dollars. There are estimated to be around 100,000 US citizens living in France.

In a statement, Horwich said that the IRS's "concession" had been "long overdue", since the tax agency had "long known that its position was unjustifiable."

The firm stated that the statute of limitations to claim CSG and CRDS as foreign tax credits "is 10 years, so we anticipate large numbers of refund claims will be filed to recover taxes that the IRS should never have collected.”

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