On Thursday, February 26, 2015 the European Court of Justice (ECJ) in Luxembourg has published a decision of principle that will deprive France from levying social charges on real estate income (rental or capital gains) of persons who are members of foreign social security schemes.
This decision could give rise to a wave of reimbursement requests coming from thousands of non-resident taxpayers and who have unduly paid the French social charges.
The ECJ applies its solution for employment income to income from assets
In 2000, the ECJ had already decided that levying CSG and CRDS on employment income and substitute income of workers living in France but subject to the social security legislation of another member state was «incompatible not only with the interdiction of accumulation of applicable social security legislations, granted by article 13, section 1 of Council Regulation No. 1408/1971, but also with the rights of free movement and freedom of establishment laid down in the Treaty».
France has respected this decision. A question remained however regarding social charges on income from assets. The Luxembourg Court has now answered this question in favour of the taxpayer.
The decision is based on the case of a Dutch citizen, Mr de Ruyter, member of the Dutch social security scheme. It will satisfy the non-residents currently member of the social security scheme of their employment country. Mr de Ruyter had challenged before the French administrative court the fact that France levied different social charges (CSG/ CRDS and others) on his income from assets.
The legal grounds of the decision
The French Conseil d’Etat filed a request for a preliminary ruling with the ECJ. In its ruling the ECJ stated that by virtue of the principle that the legislation of a single Member State applies in matters of social security, it is not allowed to levy social charges from a person in a country other than the country to whose social security scheme the persons belongs.
According to the ECJ the purpose is to «avoid the complications which may ensue from the simultaneous application of a number of national legislative systems» and to «eliminate the unequal treatment which (…) would be the consequence of a partial or total overlapping of the applicable legislation»
In application of these principles to the present case and after having stated that Mr de Ruyter is subject to the subject to the social security scheme the Netherlands, the Court rules that Mr de Ruyter cannot be made subject by France “to legal provisions imposing levies which have a direct and sufficiently relevant link with the legislation governing the branches of social security listed in Article 4 of Council Regulation No 1408/71.”
It is effectively difficult to accept that those who are not subject to the French social security scheme should by their income finance via CSG and CRDS and other social charges the different compulsory French social security schemes and their deficits.
Persons concerned by the decision
The ECJ’s decision applies to any person residing in another EU Member State than France (or in Switzerland) being subject to the social security scheme of such country but owing real estate in France, for income earned from such real estate (rental income or capital gains in case of a sale). The European Commission has launched an infringement proceeding against France because of the extension of CSG and CRDS to real estate income earned by non-residents (proceeding No. 2013/4168 for rental inscome and 2014/4140 for real estate capital gains).
How to obtain reimbursement of social security charges?
The taxpayer should preferably contact a legal counsel in order to prepare a complete file before making the reimbursement request to the French Tax authorities. According to article L 190 of the Act on tax proceedings, any claim «for the reimbursement of unduly paid taxes, based on the non-conformity of the rule applied in relation to higher ranked law, established by a court decision (…) will be prescribed two years after the receipt of the tax notice or the collection of the tax, depending on the case, or otherwise after the payment of the relevant tax. In other words, for income received in 2012, subject to a tax notice in 2013, the taxpayer has to act within two years of the receipt of such notice. For real-estate capital gains the 2-year period starts to run with the payment of the tax.