Could you claim your charges back?
There has been much interest surrounding the application of French law to non-French residents regarding the payment of social charges.
If you have sold or let an unfurnished property in France in the last few years then you will be aware that the French tax authorities introduced the payment of social charges (up to 15.5% on the net taxable gain or rental income) in addition to capital gains tax or income tax due.
It was welcoming news to hear that the application of the social charges to non-French residents, and more particularly EU residents, was challenged both at national and EU levels for its compatibility with EU legislation.
In 2013, the French Constitutional Court (Conseil Constitutionnel) took the view that these social charges are not regarded as national insurance contributions (NICs) but rather as a tax similar to income tax and hence compatible with EU legislation.
Nevertheless, the European Commission has initiated two procedures against France for infringement of its internal law to EU legislation on social contributions. A first procedure was initiated against social charges applicable on French rental income received by EU residents and a second against the application of social charges on taxable gains on the sale of French properties by non-residents.
In parallel, the Supreme Administrative Court of France (Conseil d’Etat) referred to the European Court of Justice (ECJ) for a preliminary ruling on the question of application of the social charges on income received by EU residents who are already subject to payment of NICs in another EU member State.
In consideration of this request for a preliminary ruling, the European Commission has halted its procedure until the ECJ has rendered its decision.
Very recently the Advocate General of the ECJ submitted her conclusions and declared to be of the opinion that since the social charges are directly linked to the financing of the social security system in France, they cannot be regarded as an additional income tax but indeed as NICs. The application of social charges to EU residents on their French income is a direct infringement of EU Regulations. Besides, the payment of the social charges in France without giving any rights and/or access to the social security system in return is in opposition to the above principle and also potentially the EU principle of free movement within EU countries.
If the ECJ were to follow the conclusions of its Advocate General it means that many taxpayers will have been unduly subject to social charges on their French rental income or capital gains and they may be entitled to claim for repayment of the social contributions.
The current view of the Advocate General is only in respect of the social contributions applicable to income. It is however quite possible that a similar decision may end up being made in respect of such charges on capital gains.
In view of the general deadline to claim the repayment of tax being 31 December of the calendar year that follows the year of payment of the charge, many taxpayers may have to act very fast to secure their position as much as they can before they are time barred. This will affect in particular those people who have:
- paid social charges on income from unfurnished lettings in the calendar year 2012; or
- paid social charges on capital gains arising in the calendar year 2013.
Unfortunately, it is not expected that the ECJ will render its decision until possibly the second half of 2015, by which time many of those affected may be time barred from making a repayment claim. This means that some people may have to submit a claim before any change to the internal French tax law is made. There is a strict procedure to follow to make a repayment claim. If you have also paid the tax via a French tax representative in respect of capital gains, you may want to discuss with them whether the claim is to be submitted via their services – a review of the contract you signed at the time should be undertaken to check their scope of engagement.
It is always the case that the costs incurred in a procedure for repayment would need to be weighed against the amount that could be claimed back, but in some cases a significant amount of social charges would have been paid, thereby making a claim worthwhile.
If you are affected, you should review your affairs and take advice on how to proceed immediately.