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French Taxation

Social Charges Maintained in 2016

Wednesday 06 January 2016

A change in the law maintains social charges on the rental income and capital gains of non-residents and others not affiliated to the French social security system.

Regular readers will be aware of the judgement of the European Court of Justice last February that social charges on the investment income and capital gains of EEA residents not affiliated to the French social security system was contrary to European law.

This ruling was later confirmed by the French Conseil d’État.

As a result, the way was opened for those who had paid these charges between 2012 to 2015 to make application for a refund, using a procedure we outlined in our Newsletter in November.

In order to bring French law in line with the ruling the French government have now enshrined in statute a re-allocation of the receipts from social charges on investment income, rental income and capital gains away from main branches of the social security system.

This has been achieved by allocating such receipts to a number of non-contributory social security budgets, notably the Fonds de solidarité vieillesse (FSV) and la Caisse nationale de solidarité pour l'autonomie (CNSA).

The benefits from these budgets do not depend on affiliation to the French social security system.

This means that non-residents and those not affiliated to the French social security system will continue to be liable in 2016 for social charges on such income.

Although the detailed regulations have yet to be published, we understand that liability will arise on rental and investment income earned in 2015, on which tax is payable in 2016, and on capital gains arising and paid in 2016. Notaires have certainly been imposing social charges on property sales this year, based on the new law.

Whether such a change in the law complies with European requirements remains unclear, and it is notable that last year Christian Eckert, the Minister of the Budget, candidly stated that: "Dire qu’il est d’une solidité juridique totale serait exagéré."

Given the legal uncertainty a number French parliamentarians who opposed the change referred the relevant clause to the Constitutional Court.

The judges last month ruled that it was not unconstitutional, but refused to adjudicate on whether or not it complied with European law, stating it was none of their business: "n’appartient pas au Conseil constitutionnel de se prononcer sur le défaut de compatibilité d’une disposition législative aux engagements internationaux et européens de la France."

The court merely restricted itself to saying that the clause did not cut across the Ruyter decision of the ECJ as the new law only applied to social charges due in 2016, and that the government had agreed to reimburse social charges arising from the ECJ ruling, stating: "cet article ne va pas à l’encontre de la jurisprudence De Ruyter puisqu’il concerne les prélèvements sociaux à compter de 2016 et que les prélèvements concernés par l’arrêt De Ruyter vont être remboursés par l’Etat Français."

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