French social charges: the latest ruling explained
PUBLISHED: 11:22 19 October 2015 | UPDATED: 16:58 22 October 2015
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The latest court ruling has clarified one aspect of French social charges but has raised questions about another. There's still a lot to play for, says Sean O'Connor
Since August 2012, British vendors of properties in France have had to pay, based on the amount of their French capital gain, French social charges totalling 15.5%. The social charges consist of:
Contribution Sociale Généralisée (CSG): 8.2%
Contribution au Remboursement de la Dette Sociale (CRDS): 0.5%
Prélèvement social: 5.4%
Solidarité autonomie: 0.3%
Financement du Revenu de Solidarité (RSA): 1.1%
French capital gains tax is at 19%, and these social charges bump up what you have to pay to 34.5%. The French CGT is deductible for UK tax purposes under the double tax treaty. The social charges are not.
In its judgment of 26 February 2015, the European Court of Justice arguably ruled that the imposition of the French social charges on sales of French properties by British vendors who are resident in the UK is contrary to European law. However, one needs to look at the matter in greater detail as follows.
One reads letters in The Daily Telegraph to the effect that European Regulations are stupid, but Regulation (EEC) 1408/71 of the Council of the European Communities of 14 June 1971 is not stupid at all. On the contrary, I believe it is highly intelligent.
Its general purpose is to bring it about that, if during your working career you work in, let us say, half a dozen countries of the European Union, and land up in Spain, for example, all of your contributions in the six different countries are cumulatively totted up, and Spain pays you your state pension accordingly. Under Article 13 of the Regulation: “Persons to whom this Regulation applies shall be subject to the legislation of a single member state only”. So you can only be charged social contributions in one country at a time.
Case in point
Gérard de Ruyter was employed by a company in the Netherlands and paid his social security contributions there. However, he resided in France and he also had investments in the Netherlands. France tried to hit him with social security contributions on those investments. The French government asserted that the payments demanded were not in fact social contributions at all, but were taxes. That argument failed.
It was also argued that Regulation 1408/71 only applied to contributions on a worker’s salaried or self-employed income, not income from investments. That argument also failed.
The European Court ruled that Mr de Ruyter could not be hit with the French social contributions because he was paying Dutch social contributions in the Netherlands, where his employer was located. To require de Ruyter to pay contributions in both countries at once was deemed contrary to Regulation 1408/71, Article 13.
In its judgment of 27 July 2015, France’s highest administrative court, the Conseil d’État, confirmed the decision of the European Court in the Gérard de Ruyter case, and has released him from having to pay the French social charges.
Game and set, yes, but not match, because the decision in the de Ruyter case only expressly covers social charges on investment income, referred to in French as revenus de patrimoine. It does not expressly cover social charges on capital gains (les plus-values).
Meanwhile British vendors of French properties are still having to pay the social charges. The deed of sale cannot be registered at the local Land Registry until the charges have been paid, so they will still be levied on the sale by the notaire. If the French government treats the de Ruyter case as not applying to the social charges on capital gains, it is expected that another case coming up before the European Court will expressly knock this out. Then it will be match. You need, therefore, to hang in for the long haul.
Making a claim
Under French law, you must lodge your demand for repayment of social charges by 31 December of the year following the year in which they are paid, so if you paid in 2014, then by 31 December 2015. Obviously if you pay the social charges in 2015, you have until 31 December 2016 to do so.
All British owners who have sold a property and paid social charges should file the necessary claim. In the end you will probably receive your repayment, although it cannot yet be said that this outcome is a certainty.
However, if you do not make your claim within the allocated time, one thing that can be said for sure is that you will never see your money back. So the best advice is to do it.
Sean O’Connor is a bilingual solicitor
Tel: 01732 365378
For more information on French social charges check out;