Employees, who live outside France and who are working in France are likely to become subject to French income taxes and/or social security contributions. The respective tax and social security rules for determining the applicable contributions are very different :

– in an international context, bilateral tax treaties (between France and the country where the employee is living) determine which taxes are due on all or part of the salary income

– within the European Economic Area, EU Regulation 883/2004 determines which country is entitled to levy social security contributions.

France has 15.5% social surtaxes called “prélèvements sociaux” (hereafter PS), that are due on French or foreign source capital gains, real estate and also on investment income received by French tax residents.

The tax administration’s position in the past was that these social security contributions (PS) were to be treated as income taxes and, thus fell under the scope of the tax treaties and not under the European social security regulation. Individuals, who were taxable in France, but were at the same time exempt from French social security, therefore were requested to pay these contributions.

This point of view has been disputed and the European Court of justice rendered a decision in 2015, according to which the PS is not treated as tax, but instead falls under the scope of the European regulation for social security. In the case at hand, France was not allowed to claim the PS from individuals, who where taxable in France, but were not subject to French social security.

The French highest court subsequently ruled in accordance with the European Court of justice. The French tax administration at the end of 2015 made an announcement, acknowledging the court cases but at the same time minimizing their consequences in order to limit the amount of refunds to be made.

It now appears that individuals, who made a claim for social security refunds actually are able to collect substantial refunds following claims filed by them or by their advisors relating to income years 2012 to 2014.

French law has in the meanwhile be amended for the future to make the PS consistent with European regulations. It is, however, still possible to initiate claims for the past, depending on the situation and the tax year involved.

Source: Global Tax Network