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French Taxation

Social Charges on Non-Europeans

Friday 06 January 2017

The French Constitutional Council is to rule on the legality of social charges imposed on the investment income, property income and capital gains of non-Europeans.

The legal dispute surrounding the imposition of social charges on non-residents/non-affiliates took another twist last month, when the highest administrative court in France, the Conseil d'Etat, referred to the Constitutional Council the question of whether the imposition of social charges on non-Europeans was legal.

The issue is one that affects both residents and non-residents alike, as it turns on whether or not they are affiliated to the French social security system.

Previous rulings in the European Court of Justice and within France have confirmed that EEA nationals not affiliated to the social security system in France were not liable for the charges on their investment and property income and capital gains.

As a result, the French government have been obliged to reimburse tens of thousands of social charges illegally imposed on many EEA nationals.

Nevetheless, the government have been unwilling to apply the same principle to non-Europeans, stating that they intended to treat differently Europeans and Non-Europeans, stating: "Sous réserve de justifier qu'ils sont bien concernés par cette décision de justice, les contribuables bénéficieront du remboursement des sommes acquittées pendant qu'ils étaient affiliés dans un autre État de l'Union européenne."

However, in considering the liability of EEA nationals the French courts made no reference to their country of residence, merely using as the basis for their ruling whether the individual was affiliated to the French health system.

Accordingly, many commentators have argued that if the only legal test is affiliation to the health system non-Europeans also qualify for a refund.

In support of that point of view, critics of the decision have cited the fact that the government have previously accepted the harmonisation of capital gains tax rates between European and non-European residents and this principle of non-discrimination is one that is contained in most international taxation treaties.

The referral now to the Constitutional Council arises precisely on this point, with a couple owning property in Provence-Alpes-Côte d'Azur bringing a case before the French courts arguing that the difference in treatment was discriminatory and in breach of the Constitution, stating:

"M. et Mme V soutiennent que la différence de traitement qui en résulte pour l'application de la contribution prévue à l'article L.136-6 du code de la sécurité sociale, entre les personnes relevant d'un régime de sécurité sociale d'un Etat membre autre que la France et celles relevant d'un régime de sécurité sociale d'un Etat tiers à l'Union européenne, méconnaît les principes d'égalité devant la loi et devant les charges publiques garantis par les articles 6 et 13 de la Déclaration des droits de l'homme et du citoyen de 1789. Selon eux, cette différence de traitement n'est pas justifiée par une différence de situation en rapport avec l'objet de la disposition législative contestée."

A date for the court hearing has yet to be published. If the plaintiffs are successful, then it will open the door to thousands of claims for social charges illegally paid by non-Europeans. If you seek legal advice and assistance in making an application for a refund do contact us.

However, the decision may well have no implications on those who paid social charges in 2016, as the French government changed the law in 2015 to reallocate receipts away from the general social security fund, to a specific fund for the elderly.

On this basis, they have argued that it circumvents European legislation on the liability of non-affiliates to the social charges, a line of argument that may well be tested in the courts.

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