The French administration currently applies specific measures for non-French residing taxpayers on their income of a French source.
Currently said measures, that are thought to be unjust, are under the spotlight of the European Commission and the European Court of Justice.
2015 may bring advantages for non-residents, and claims for unrightfully paid tax may be filled for 2012 and 2013 – but you must act quickly!
Let’s take a look.
- Harmonization of capital gains tax rate for non-residents
Up until now taxpayers were treated differently dependent on their state of residence.
French residents, EU and EEA residents were taxed at a rate of 19%, whereas non EU/EEA residents were subject to a higher rate of 33,33%.
After the French Supreme Court (Conseil d’État) rendered a decision mid October 2014 highlighting this difference, judged as restrictive of the free movement of capital, the 2014 Amended Finance Bill changed article 244 bis A of the French General Tax Code.
Rates are now harmonized for residents and non-residents at the flat rate of 19%, however taxpayers of NCST’s (Non-Cooperative State or Territory) remain excluded.
Note: Even though it is not clearly expressed this situation is believed to cover not only individuals selling properties directly but also those selling properties via SCI’s.
Reclaim: For any overpaid tax in years 2012 and 2013 you may place a claim to the French tax authorities before the end of this year.
- Reclaim on social contributions paid by non-residents
Since August 2012, non-French tax residents have been made liable for the social contributions on French income, i.e capital gain or rental income.
For example previously, such taxpayers were merely liable for capital gains tax, and since August 2012 the basic gross tax rate for EEA residents has been 34.5%.
However a case is currently pending before the European Court of Justice (Aff C-323/13 – Mr de Ruyter), whereby the application of French social contributions to non-residents may be put an end to.
They are considered contrary to the EU principle of free movement, and unjust due to the fact that non-residents do not benefit from French social protection.
France may be condemned to reimburse some 344 million euros for the year 2012.
Reclaim: Even though the CJEU has not rendered its decision yet, EU residents who paid social contributions in France on rental income or on the sale of their property should be able to claim back the amount paid from the French tax authorities.
For social contributions paid on capital gains taxpayers can make a claim up to the 31st of December of the year following the year in which the contributions were paid (Decision of the Administrative Court of Paris).
For tax paid in 2012 the deadline would have been the 31st of December 2013, and for tax paid in 2013 the deadline is the 31st of December 2014. However for 2012 and without any guidelines from the French administration it is believed claims could still be made before the end of 2014 to ensure any chance of recovery.
- Announcement to suppress tax representatives
Non-French tax residents subject to French income must currently, under certain circumstances appoint a tax representative who will be jointly liable on said tax until its prescription date.
Some legal entities were granted licenses by the French administration as professional tax representatives. However their services came at a price, a price French tax-residents did not have to pay.
Portugal was condemned on this front by the European court in 2011.
In anticipation of a French condemnation and to comply with the law of the European Union, French amending Budget Act for 2014 proposes to remove the requirement for resident taxpayers in the European Union, and in some cases in the European Economic Area (EEA) to appoint a tax representative in France.
This follows a formal request sent to France from the European Commission to cancel this legislation.
From January 1st 2015 tax representatives for capital gains in France is likely to be canceled for taxpayers residing in the EU or in the EEA.
However we must await the final adoption of the law.
The same suppression is also implemented for income tax, wealth tax, corporate tax and the 3% tax.
A lot to take into consideration – if you need guidance please seek our advice.