Update on French Social Charges
My last article on this subject confirmed that France had accepted the European Court of Justice (ECJ) ruling of February that it should not apply social charges on ‘income from capital’ for French residents who are insured under the social security scheme of another EU/EEA State.
The article can be found at www.spectrum-ifa.com/recent-financial-updates-affecting-expats-in-france/ and more detail on the ECJ’s ruling can be found at www.spectrum-ifa.com/french-social-charges-on-worldwide-investment-income/.
As is well known in France, it is often the case that one tax office can follow a different practice than another! So some of our clients have already been successful in claiming refunds of social charges, whilst others have been told that they would have to wait until the ‘official instructions’ were received by the local tax office.
Happily, the official instructions arrived on 20th October in the form of a ‘Communiqué de Presse’ from the Direction Générale des Finances Publiques (DGFiP). This concerns individuals who are not insured by France, but instead by another EU, EEA or Swiss social security regime.
Hence, all French tax offices have now been given the green light to process claims for refunds of social charges, as follows:
- For French residents, social charges that have been applied to investment income and gains, regardless of whether these have arisen within or outside of France.
- For anyone resident outside of France, social charges paid on French property capital gains and unfurnished rental income.
The communiqué highlights the fact that the ‘2% prélèvement de solidarité’ does not specifically finance any particular French social security organisation and as such, will not be refunded, reducing the refund to 13.5% of the 15.5% social charges paid.
Refund claims must be submitted by 31st December 2015 for the following:
- Social charges that have been paid from 1st January 2013 in respect of gains on real estate.
- For income and gains assessed via tax declarations made since 1st January 2013, effectively limiting this to income and gains made since 2012.
- For investment income that has been taxed at source since 1st January 2013.
In all cases, the claim must be accompanied by a justification of the amount of social charges being contested, as well as justification of the taxpayer’s affiliation to a social security regime other than France, in the EU, EEA or Switzerland.
In view of the above requirements to justify claims, ‘early retirees’ and anyone else who is not covered by an EU, EEA or Swiss social security regime cannot depend upon the outcome of the judgement with certainty, even if they have private medical cover. Nevertheless, they may anyway wish to make the claim and be prepared to appeal if they are refused, perhaps on the grounds that they are not insured by France and therefore, should not have to contribute to a social security system from which they cannot benefit.
Looking forward, it is not clear what will happen from 2016. In the draft Social Security budget currently being debated by the French parliament, a proposal has been made to ‘redirect’ the CSG (8.2%) and the CRDS (0.5%) to the Fonds de Solidarité Viellesse (FVI) in an attempt to circumvent the ECJ ruling. Let’s hope that the Constitutional Council throws out this proposal when it undertakes its final deliberation on the draft legislation!
In reality, France raises more from social charges than from income tax. What seems clear is that the government will find some way to make up for this loss of income from social charges if it cannot get its own way, perhaps by the introduction of other taxes. Equally clear is the fact that people should always find legitimate ways to avoid paying unnecessary taxes and that is something that we help our clients to do.
The above outline is provided for information purposes only and does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action on the subject of investment of financial assets or the mitigation of taxes.