Since 2012, social contributions have applied at a rate of 15.5% on French rental income earned as of 1 January 2012. They also apply at the same rate on French capital gains on a sale made on or after 18 August 2012, whether directly or indirectly, of French real estate and/or shares in companies owning French real estate.
In a case dated 26 February 2015, the Court of Justice of the European Union (CJEU) held that French social contributions paid on income derived from capital (as opposed to income deriving from a professional activity) fall within the scope of Regulation N°1408/71, Article 13 of which provides that the people to whom the Regulation applies shall be subject to the legislation of a single member state only.
Under Regulation N°1408/71, France cannot require people who are already subject to social contributions in their state of residence or in the state in which they carry out a professional activity to pay extra social contributions in France.
Clearly, the decision of the CJEU primarily benefits EU, European Economic Area (EEA), and Swiss residents. However, residents of third party countries should be able to claim reimbursement of French social contributions previously paid on two different grounds, as follows:
- France has signed many international social security agreements which prohibit the application of overlapping legislation. Depending on the state of residence of the taxpayer, such an agreement may be relevant;
- It may be possible to rely on the EU law principle of freedom of movement of capital. If EU-residents are subject to more favourable tax treatment than non-EU residents, this could constitute a restriction on the freedom of movement of capital, and therefore be contrary to EU law. Non-EU residents would be able to benefit from this.
A positive development
For the first time a French Court has ruled on the application of the social contributions in respect of residents of third party states. In a decision dated 25 March 2016, the Administrative Court of Appeal of Marseille stated that, in the present case, the application of social contributions to residents of third party states constitutes a restriction to the freedom of movement of capital. In this case, the court had to deal with the singular situation of French nationals resident in Monaco. The French tax authorities appealed against this decision.
Although there are outstanding issues and technical questions, and the decision of the Administrative Court of Appeal will have to be confirmed by the Supreme Court ("Conseil d'Etat"), this decision is a good omen for the future.
Non-French tax residents who paid social contributions in 2014 have until 31 December 2016 to make a claim to the French tax authorities. Social contributions paid in 2015 can be claimed until 31 December 2017. Social contributions paid during or before 2013 may no longer be claimed.
In conclusion, while the position of residents of third party states is not yet fully clear, we encourage clients to make claims anyway. A claim made after the deadlines above will be out of time even if, in the future, the Supreme Court confirms the decision of the Administrative Court of Appeal of Marseille.