December 2018
In 2015, under the “De Ruyter decision”, the Court of Justice of the European Union ruled that the levy of the French social surcharges (CSG and CRDS) on French rental income and property gains received by non-French residents who were not affiliated to the French social security system was illegal. The ruling also had implications for French residents affiliated under another EU social security regime and in receipt of foreign source investment income. These French “social” surcharges were considered within the scope of European Regulation (EC) No 883/2004, which states that taxpayers cannot be subject to social security contributions in a state other than the one that they are already affiliated with. The “De Ruyter decision” resulted in months of total chaos with the French administration having to process thousands of claims and refunds.
The French government swiftly reacted by changing the allocation of these social surcharges to the non-contributory social fund and away from their main social security budget, hoping to remove these levies from the relevant EU legislation. As a result, the levies resumed for all, from 2015 for income and 2016 for capital gains. This tack was always going to be shaky since the initial challenge relied on the “social” nature of the levies, regardless of whether these actually procured a social benefit to the payer.
Last year, a retired French tax resident couple affiliated to the Swiss social security regime successfully claimed before the Strasbourg Administrative Tribunal for a full refund of the social surcharges applied to their 2015 non-French investment income, including non-pension annuities. The Ministry immediately challenged the refund before the Nancy Administrative Court. The Nancy Court ruled that, despite their change of allocation, in 2016 most of these social charges (i.e. 14.05%) were still within the scope of the EU regulation.
The Nancy Court invited the Court of Justice of the European Union to comment on whether the remaining 1.45% allocated to a fund called Caisse Nationale de Solidarité pour l’Autonomie (CNSA) was within scope given that the benefits it procures are means-tested.
Meanwhile, the Government has appealed before the Conseil d’Etat against the Nancy Court’s ruling. The Conseil d’Etat’s decision could take months or years by which time the deadlines to file claims may well have passed.
Given the above, individuals covered under another EU or EEA country’s social security system (or the Swiss social security system) may claim and attempt to obtain a full or partial refund of social surcharges in the wake of the above developments. This will affect cross-border workers or retired individuals in respect of their non- French investment income, commercial annuities and gains, non-French residents in respect of their French source rentals or property gains.
The deadlines for these claims to be logged are summarised below but, where relevant, it makes sense to claim for all “open” tax years. Note that, at this stage, we expect the French Government to reject the claims. However, filing these should increase chances of a refund pending the Court of Justice of the European Union’s reply or further developments.
| Type of income/gain | Year of Receipt | Tax Assessment | Deadline for Claim |
|---|---|---|---|
| Capital Gains Tax on disposal of real estate |
2016 2017 2018
|
31 December 2018 31 December 2019 31 Decmeber 2020 |
|
| Property income and non-French investment income |
2015 2016 2017 |
2016 2017 2018 |
31 December 2018 31 December 2019 31 Decmeber 2020 |
Individuals covered privately will not be able to claim. Worse still, if they cannot evidence affiliation to any EEA jurisdiction or Switzerland’s social security regime, they may be subject to the PUMA contributions (Protection Maladie Universelle – see below) on their investment income and gains.
With Brexit pending, we would urge British citizens living in France to verify their eligibility to continued UK health cover under form S1 and, if they have not yet done so, to complete and file this with their local CPAM.
The barème applicable to 2018 income is expected as follows:
| Income bands (EUR) | % |
|---|---|
| Up to 9,964 | 0 |
| Between 9,964 and 27,519 | 14 |
| Between 27,519 and 73,779 | 30 |
| Between 73,779 and 156,244 | 41 |
| In excess of 156,244 | 45 |
Cyril Klajer
cyril.klajer@avocats-bdo.fr