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Social Charges Refund - Who is Eligible?

Social charges illegally imposed on those not liable are to be reimbursed, but the scope of the ruling remains unclear and the French government is fighting back against its future impact.

With the highest administrative jurisdiction in France, the Conseil d'Etat, having confirmed the application of the European Court of Justice (ECJ) ruling on social charges on those not affiliated to the French health system, the first public statements from the French government have emerged.

During a press conference held last month on the draft social security bill for 2016, the Minister of the Budget, Christian Eckert, announced that the government would be making reimbursements of social charges to those on whom they had been illegally imposed.

The details of the process and those eligible have get to be specified, but the government appear to have accepted that social charges imposed between 2012-2014 (collected between 2013 to 2015) will be reimbursed, although only on specific application.

There are legal technicalities concerning the eligibility of a refund of social charges paid on capital gains prior to 2014, but there does appear to be a provision in French law that would allow certain claims for a refund of social charges paid on capital gains realised in 2013. If you seek legal advice and assistance on this point do contact us.

It can also be assumed from the Eckert statement that social charges paid on the sale of property in 2015 will be reimbursed.

The ruling makes no reference to the country of residence of potential claimants, merely whether or not they are affiliated to the French health system.

On that basis not only do non-residents qualify, but those resident in France and not affiliated to the French health system are also eligible for a refund on their income. The Dutch national Mr De Ruyter, who brought the case to the ECJ, was actually himself resident in France.

Accordingly, if you are resident in France and either obtain your health cover through an S1 certificate of exemption, or you have health cover via a private insurance policy, you should be entitled to a refund of social charges on your income.

That income includes not just your pension income (already exempt) but savings, investment and rental income.

Those who are salaried employees or self-employed persons in France who pay social security contributions in another country of Europe as well as France may also have a right to claim for a refund of social charges.

It seem unlikely that those living outside of the EEA will be granted a refund on either capital gains or income. The government have previously indicated that they intended to treat differently Europeans and Non-Europeans, which was reaffirmed in a recent statement: "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, it is of interest to note that the French court judgement makes no reference to the country of residence of individuals, merely using as the basis for their ruling whether or not the individual is affiliated to the French health system.

Arguably, therefore, if the only legal test is affiliation to the health system non-residents from outside of Europe also qualify for a refund.

The problem with such an argument is that the jurisprudence derives from a European Regulation.

That said, 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.

Ultimately, the only way the question could be resolved would be by submitting a claim and taking the matter to court if it is turned down.

Change of Law

The government have indicated that they intend to pass new legislation to bring the imposition of social charges in line with European law.

However, the proposition is that non-residents and residents not affiliated to the French health system will continue to remain liable to the social charges.

This is to be achieved by moving the allocation of receipts from social charges from the general social security budget to the Fonds de Solidarité Vieillesse (FSV), a fund that provides supplementary income support to pensioners whose income falls below a minimum level.

In his press conference Christian Eckert stated that the government: "prévoit d’affecter ces prélèvements au financement de prestations non contributives, identiques à celles financées par les autres impôts."

In short, the government is seeking to argue that the receipts from social charges will no longer be a social security contribution, thereby circumventing European regulations. That is precisely the line of argument the French government used unsuccessfully in the De Ruyter case.

A small percentage of receipts from the social charges is already allocated towards funding the FSV.

Accordingly, the manoevre is of questionable legality, for in the view of a specialist avocat in France whom we have consulted on this issue the FSV comes within the ambit of European social security regulations. The FSV is effectively a branch of the social security system, and therefore caught by Ruyter.

It remains to be seen whether the French government proceed with their intent and whether they seek prior legal guidance from the Conseil d'Etat on the plan.

If they do not get legal clearance it is highly likely the matter will be referred to the Constitutional Council by parliamentarians who oppose the imposition of social charges on non-residents.

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This article was featured in our Newsletter dated 02/10/2015

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