Income received by non-residents from real estate assets located in France (rental income or capital gains on sale of property) weremade subject to “social contributions” at a rate of 15.5%, the same rate applied to resident persons, pursuant to Article 29 of Law n° 2012-958 of 16 August 2012, the Amending Finance Law for 2012.

This provision was very quickly questioned on the basis that nonresidents, who do not derive any benefits from the French social security system, should not have to contribute to financing such system (it is worth noting that income from French securities of non-residents is not subject to the social contributions of 15.5%, whereas French residents are subject to these social contributions).

Nevertheless, the French Constitutional Court approved this provision on the basis that these social contributions do not constitute charges which directly give access to social security benefits and

therefore fall under the category of universal taxation (Constitutional Court, 9 August 2012 n° 2012-654 DC).

The matter was brought before the European Court of Justice on the basis of Regulation n° 1408/71/EC which provides that persons residing in the European Union cannot be subject to social security contributions in more than one Member State. Such contributions, if they were deemed to constitute contributions to the French social security system, could therefore be contrary to European Union law.

In its judgment of 26 February 2015, the Court of Justice ruled that the social contributions of 15.5% levied on income from real estate assets have a direct and relevant link with the social security system where they directly contribute to financing mandatory French social security schemes. In consequence, such social contributions fall within the scope of Regulation n° 1408/71/EC, which provides that persons shall only be subject to social contributions in a single Member State, which is generally the

Member State where such person pursues his or her professional activity, save for certain exceptions.

The deduction of social contributions from real estate income received by persons resident in another Member State of the European Union and who do not pursue any professional activity in France is therefore contrary to European Union law.

Action – Persons resident in another Member State of the European Union can therefore bring proceedings to recover social contributions which were deducted from income realized on real estate assets located in France. Such proceedings can only relate to real estate income received in 2013 and 2014, given the applicable limitation periods.