Social contributions on properties: A break for EU non-residents in France?

Shocked man with papers

Towards the end of 2014 there was massive debate about the legality of the French tax office charging “social contributions” paid by European non-residents on French rental income and capital gain on properties in France.

In early 2015, I’ve seen an absence of social tax on most rental income returns for 2013 and 2014, but appeals for a refund going further back have been rejected, while people living outside Europe have been mainly exempted, but occasionally not. Given that non-residents’ income tax is dealt with by a single tax office in Noisy le Grand (near Paris), this inconsistent approach is perplexing and infuriating.

The background is as follows: non-residents are subject to French social contributions at 15.5% on income derived from immovable property in France since 2012. However, based on EC Regulation No 883/2004, a European individual should be subject to only one social security regime and pay social security contributions only in that State.

The French would argue that this “social contribution” is income tax by any other name and has nothing to do with social security as such, but goes to repay the national debt related to social security’s current running deficit.

In November 2013, the French Supreme Administrative Court asked for a preliminary ruling from the European Commission. The case related to a Dutch national and tax resident in France, who had challenged the application of the social contributions that France requires him to pay on income derived from life annuities that he concluded in the Netherlands, and that are unrelated to any professional activity.

According to him, he should only be subject to social contributions in the Netherlands based on Article 13 of the EU Regulation No 1408/71 stating unequivocally that “persons to whom this Regulation applies shall be subject to the legislation of a single Member State only”.

On October 21st, 2014, the Advocate General of the European Commission concluded on this preliminary ruling request that these social contributions on non-residents levied by France fall within the scope of EU Regulation No 1408/71, replaced since by Regulation No 883/2004.

The European Commission found that there was a “direct and sufficiently relevant link with the French legislation governing the branches of social security listed in Article 4 of Regulation (EEC) No 1408/71 of the Council of June 14th, 1971”.

If this is correct, French provisions applying social contributions to income derived from French assets received by non-residents should be abolished!

If, therefore, as a EU non-resident of France you have been subject to social contributions in 2014 (on 2013 income) you need to make a claim to the French tax office before the end of this year (December 31st, 2015). The battle is not won and I’m sure the tax office will resist, especially on the massive loss of capital gains tax.

The European Commission will soon rule on this issue and if the French tax office have to reimburse it will cost them about €4200 on average per person for 60,000 cases, so €2.5 billion.