France perverting the double tax treaties?
Until a few years ago, it was possible to find the total income the French government perceived from the social charges and income tax each year. Since then, these two means of taxation have always been shown combined.
Almost, the cynic could say, in an attempt to hide the fact that until the amalgamation of these two means of taxation, it was clear that much, much more was being collected from the social charges than was being collected in income tax.
Double tax agreements exist between one country and a host of others, inter alia, to set out the manner in which the application of income tax in each of two countries could be avoided, and, in 2008, the French added the social charges to all of their double tax agreements.
Since the EU Court of Justice abolished levying the social charges on EU pension incomes in 1997, the French have been trying to find alternative ways of levying these annually increasing social charges, and not only on pensions.
Now at 17,20% – and without any abatement or relief at all – each year the French Fisc have bene applying new rules in an attempt to levy these charges, but court after court has decided that no, the French have been acting incorrectly.
Each of the social charges funds a number of organisations, and the point generally used by the Courts was that these some of these organisations were linked to the Social Security system, being contrary to EU Directive 1408/71 from 1971 which prevented Social Security charges from being paid in more than one country.
In 2016, the French Government changed the Social Security law, and removed the organisations linked to the Social Security system from some of the charges. As a result, the Fisc’s position is now that these social charges are due on all income sources, whether French or Foreign, since the social charges collectively are now « contributions ».
But as far as the double tax treaties are concerned, the social charges are not income tax, they are an additional levy.
And the Fisc is increasingly applying the criterion that these French social charges can be levied should the foreign income being taxed in France not have been subjected to social security contributions in another country.
All of which is alarming as, effectively, the French are applying on all income and gains what amounts to a second tax … and one which is applied only in France on all types of pensions and rental income
Might France be thus perverting the double tax treaties by introducing double taxation through the use of the social charges ?