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French Taxation

Non-European Residents Liable for Social Charges

Thursday 07 March 2019

A French appeal court has ruled that non-residents outside of the EEA are liable for the social charges on their French income.

There continues to be a significant amount of litigation in France over the controversial imposition of social charges on non-residents.

The imposition of these charges goes back to 2012 when a change in the law extended social charges (prélèvements sociaux) to French sourced real estate income and capital gains by individuals domiciled outside of France.

In February 2015, the Court of Justice of the European Union in the now famous 'de Ruyter' case, ruled that a person covered by a social security scheme of an EU Member State other than France could not be subject to the social charges on income from assets.

This ruling was subsequently confirmed by the French supreme administrative court, the Conseil d’Etat.

However, the French government responded with a change in the law, re-allocating the proceeds of the social charges outside of the purview of EU legislation.

As the legal position of the French government remained insecure, in January 2018 the government gave way to the EU position, thereby exempting from the social charges those who were affiliated to the social security system of scheme of another EEA country, or Switzerland.

However, the change was only partial, as a rate of the 'solidarity' tax (prélèvement de solidarité), which formed part of the social charges, was increased and the proceeds assigned to the general budget.

The effect is that non-residents living in the EEA are liable to this tax, although it is levied at a lower rate of 7.5%, as opposed to 17.2% for social charges. Our article Reform of Social Charges gives further details.

In addition, the change in the law did not extend to those living outside of the EEA, despite a heated parliamentary debate over the issue.

The European Court, in January 2018, also confirmed that a French national living in China was not covered by the exemption of EEA residents, and was therefore liable for the social charges on the French rental income.

The latest case to reach the courts concerned a French national living in the USA who contested the imposition of over 3,000 social charges on his French rental income.

The individual concerned brought the case on the basis that he was not affiliated to the French social security system and that the imposition of social charges was contrary to the principle of the free movement of capital enshrined in the European Treaty.

The Versailles Court of Appeal ruled on 29 January 2019 that the fact that a person affiliated to a social security scheme of a non-EEA country is subject to the social charges did not constitute a restriction on the movement of capital to or from countries outside of the EEA, stating:

'Il en résulte que la circonstance qu’une personne affiliée à un régime de sécurité sociale d’un État tiers à l’Union européenne, autre que les États membres de l’Espace économique européen ou la Suisse, soit soumise, comme les personnes affiliées à la sécurité sociale en France, aux prélèvements sur les revenus du capital prévus par la législation française, ne constitue pas une restriction aux mouvements de capitaux en provenance ou à destination des pays tiers interdite par l’article 63 du Traité sur le fonctionnement de l’Union européenne. M. A…, ressortissant français résidant aux États-Unis, n’est, par suite pas fondé à soutenir que les contributions en litige ont été mises à sa charge en méconnaissance du principe de libre circulation des capitaux prévu par ce texte. '

Readers seeking further background information should click on the 'French Tax News' link below, where there are several articles on the issue.

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