Do you have a claim against the French tax authorities?
This information has been prepared by Sykes Anderson Perry Limited as a general guide only and does not constitute advice on any specific matter. We strongly recommend that you seek professional advice before taking action. No liability can be accepted by us for any action taken or not taken as a result of any information or advice given or omitted. The information herein does not constitute investment advice. Always consult an IFA if before taking any investment decision.
The French tax authorities have suffered a number of setbacks in recent years relating to the way in which non-residents are taxed on their capital gains. These raise the possibility of claims against the government for refunds of various amounts.
Non-residents disposing of French properties have traditionally been subject to French capital gains tax (“plus value”). Most tax treaties allow France to impose this charge and there are limited reliefs and structures which have avoided this charge over the years.
However, it has also been the case that these non-residents have been taxed in a different manner to French residents. The way in which the rules apply have been adapted quite regularly over recent years. For various reasons, the French authorities have found themselves on the wrong end of European Court decisions relating to the way in which the capital gains are taxed and how they are policed.
Below we consider these areas and what it might mean for you.
Different Rates for non-EU residents
Up to 2015, residents outside the EU were subject to a capital gains tax rate of 33.33%. An individual resident in the EU would pay tax at 19%. If you resided in a black-listed country your tax rate could be 75%.
The French courts have now confirmed that this was a discriminatory rule. Although the individuals in question were not within the EU, they were still protected to an extent by principles of free movement. When capital has entered the EU (as is the case here) there should be no difference in how it is treated. As a result, people who have sold their French properties and suffered the higher capital gains tax rate would have a right to reclaim the difference between what they have paid and what they should have paid under the 19% rate (or the prevailing rate in the year of disposal).
Officially, only people who sold in 2014 are still within time to bring such a claim but it may be worth considering the French time limits as well. These time limits are arguably contrary to EU Law. If you have paid 33.33% or 75% on French capital gains please contact us and we can assess whether you have a claim. This will be of particular interest to residents of Monaco and Russia. Swiss residents have been granted the lower rate for some time. The position is the same if you were a shareholder of an SCI or similar company which disposed of French property.
In 2012, France decided that it would apply social contributions at the rate of 15.5% to capital gains made by non-residents on French property. These contributions were already paid by French resident sellers.
The European Courts confirmed that individuals could only be affiliated to one social security regime at any one time so this charge was illegal assuming the seller was within another social security regime.
France is in the process of refunding hundreds of thousands of non-residents who have suffered this charge. It is taking some time for the refunds to be processed but these are now beginning to come through.
If you have suffered these charges please contact us to assist with a claim. The time limit question mentioned above may need to be considered depending on the date of sale.
In order to avoid the issue of non-residents taking money outside of France and then failing to declare their gain, the French tax code previously obliged all non-residents to appoint an accredited tax representative (usually a bank or accountant) in France. Their responsibility was to calculate the tax due and guarantee this sum to the French tax authorities. They would charge a fee based on a percentage of the sale price. This applied to EU residents even though there is a clear framework for tax authorities of different EU countries to assist other countries’ authorities with the recovery of tax debts.
A similar system operated in Portugal until recently. The European Courts held that the Portuguese obligation was illegal in so far as it applied to EU residents. In light of this decision and various lobbying in France, the requirement for EU residents to appoint this representative was removed from the tax code in 2015.
Our view is that EU residents who have suffered this charge ought to claim a refund from the French authorities. So far, there have been no refunds granted and it may require the European Commission to be engaged on the subject but we consider the claims to be strong.
In respect of any of these claims, there should also be a demand for interest to apply at the statutory rate in France which is 0.4% per month since the date of payment.
In respect of the social charge refunds which have been granted, these have also carried the interest element.
Please contact us if any of the above elements apply to you and we will talk you through the process of a claim.