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Does a Non French national who is a resident of Monaco have to pay French Social Charges?

This article is for general information only. French law is a highly specialised area and you should only act or refrain from acting after receiving full professional advice on the facts of your particular case. This article is for general information and does not constitute investment advice. Always consult an IFA.

Non-French nationals resident in Monaco only pay tax on French source income. They are not taxed on their worldwide income. The question is whether they have to pay French social charges on income arising in France.

Recent French Supreme Court Case

In a recent French Supreme Court case (CE, 8e et 3e ch., 19 sept. 2016, n° 388899) it was decided that French nationals resident in Monaco had to pay French Social charges on French income. This is surprising given the legal texts and may have more to do with French policy of ensuring French nationals who move to Monaco remain fully taxable.

In this case the taxpayers relied on Article 7 of the Franco-Monégasque tax agreement of 18th May 1963: "Les personnes physiques de nationalité française qui transporteront à Monaco leur domicile ou leur résidence - ou qui ne peuvent pas justifier de cinq ans de résidence habituelle à Monaco à la date du 13 octobre 1962 - seront assujetties en France à l’impôt sur le revenu des personnes physiques et à la taxe complémentaire dans les mêmes conditions que si elles avaient leur domicile ou leur résidence en France

This well-known provision provides that French nationals are taxed to French income tax as if they were resident in France. It does not however extend to French Social Charges. The judgment of the French Supreme Court proceeds on the basis that because the taxpayers have to file a complete tax return in France including social charges and this makes them taxable. The logic of the judgment is difficult to follow. This judgment is very unsatisfactory.

Franco-Monégasque tax agreement

This tax agreement is fundamentally unlike a normal double tax treaty in that it does not just allocate taxing rights between Monaco and France but is in itself a source of taxation. Double tax treaties usually do not impose taxation simply relieve it to avoid double taxation.

Article 13 of the Agreement deals with a Monaco resident in receipt of interest on a loan secured by a mortgage over French property. It provides for French income tax to be paid regardless of the nationality of the Monaco resident. Following the logic of the French Supreme Court decision above it would appear that French social charges could be levied here even on non-French nationals.

Monaco is not part of the EU and the EU decisions on enforceability of French Social Charges do not apply in Monaco. The position is far from clear and is likely to turn on interpretation of the Franco-Monégasque tax agreement. On the face of it if there is no express taxing provision (such as Article 13) in this agreement then non-French Monaco residents should be able to avoid the French Social Charges. However if you consider that anyone who has to make an income tax return in France (e.g. Monaco resident receives rents from French property) thereby exposes themselves to French Social Charges it is possible all such income will bear the Social Charges. The French government should make the position clear.

November 2016

David Anderson

Sykes Anderson Perry Limited