With many of you reporting the incorrect imposition of tax and social charges on certain foreign earnings, just what does the law state?
In the past few weeks we have received an unprecedented number of e-mails from you concerning the imposition of social charges on government service pensions and rental income earned in the UK.
It is clear from your mails that an extraordinary number of errors have been made.
Although after make representations some of you have obtained redress, many tax offices have refused your claims.
So what actually is the legal position?
Double Taxation Convention
Under the terms of the 2008 Double Tax Convention between the UK and France government service pensions and rents from the UK are taxable in the UK.
Although the income from the UK is included in your French tax assessment, you are entitled to a tax credit against French taxes, including the social charges.
There should be at the rate of 100% relief on social charges, as well as an additional tax credit equivalent to the amount of tax you would pay in income tax in France.
Article 24 of the Convention sets out how the computation is carried out. It says:
3. In the case of France, double taxation shall be avoided in the following manner:
(a) notwithstanding any other provision of this Convention, income which may be taxed or shall be taxable only in the United Kingdom in accordance with the provisions of this Convention shall be taken into account for the computation of the French tax where such income is not exempted from corporation tax according to French domestic law. In that case, the United Kingdom tax shall not be deductible from such income, but the resident of France shall, subject to the conditions and limits provided for in sub-paragraphs (i), (ii) and paragraph 4, be entitled to a tax credit against French tax. Such tax credit shall be equal:
(i) in the case of income other than that mentioned in sub-paragraph (ii), to the amount of French tax attributable to such income provided that the resident of France is subject to United Kingdom tax in respect of such income;
The full English language version of the Convention can be found at UK/France Double Taxation Convention, while the French version is at Convention Fiscale avec Royaume-Uni.
This information is also available on the notice of information that is attached to the Form 2047, Déclaration des revenus encaissés à l'étranger, which you submit each year to the French tax office with information on your foreign income.
Here it says:
2) Lorsque la convention applicable prévoit l’imposition exclusive à l’étranger des revenus, deux possibilités existent en fonction de la convention applicable pour éviter en France les doubles impositions:
– soit la France ne dispose pas du droit de réimposer les revenus (conventions éliminant la double imposition par un système d’exonération). Ceux-ci peuvent néanmoins être retenus pour le calcul en France du taux moyen de l’impôt qui sera appliqué aux autres revenus du foyer fiscal.
– soit la France peut réimposer les revenus (conventions éliminant la double imposition par un système d’imputation). Dans ce cas, un crédit d’impôt égal à l’impôt français calculé sur ces revenus est accordé. L’impôt français s’entend ici de l’impôt sur le revenu augmenté le cas échéant des contributions sociales. Ce crédit d’impôt a pour objectif d’annuler en France toute imposition due au titre de ces revenus de source étrangère en préservant la possibilité de tenir compte de ces revenus pour le calcul du taux moyen d’imposition applicable aux autres revenus du foyer fiscal.
NOTA : le montant de ce crédit d’impôt est indépendant du montant de l’impôt acquitté à l’étranger. Que ce dernier soit supérieur ou inférieur à l’impôt français, le crédit d’impôt accordé sera identique. Si l’impôt étranger est supérieur à l’impôt français strictement calculé sur les revenus, aucune imputation sur l’impôt dû au titre des autres revenus du foyer et aucun remboursement ne pourront être obtenu..
We have also recently published a couple of relevant articles in our Newsletter, which you can see at Taxation of Government Service Pensions and How Should Government Service Pensions be Taxed?
In order to seek redress against an incorrect assessment, in the first instance you should visit your local tax office to discuss it with them.
If officials will not budge you are entitled to take your case to the local tax ombudsman, the Conciliateur Fiscal (CF). There is a CF for each department of France and the tax office will have their contact details.
You only need write to them or send them an e-mail.
The Conciliateur Fiscal has the power to overturn the decision of the local tax office and in our experience they frequently do so!
In most of the cases which have come to our notice the errors do seem to be ones made by the tax offices.
However, blame cannot be laid solely at the door of officials, for in a not inconsiderable number of cases the problem has been self-inflicted.
Many of you are being overcharged because the figures are being entered in the wrong box on your tax return.
You need to be careful of guides that are published each year which purport to take you through the completion process. The tax forms are revised each year and the guides are published before the forms new forms are available. This is a frequent problem.