Overseas Chambers of Peter Harris

Maison de la Boucterie
Rue de la Boucterie
Saint Saviour
Jersey, JE2 7ZW

France: the position of non-residents concerning the French prélèvements sociaux post Brexit.

January 22nd 2018

As from the day that the United Kingdom withdraws from  the European Union, the position of United Kingdom residents, and by implication, but to a lesser effective extent for  those resident in the Channel Islands and the Isle of Man will change to being that of non-EU residents.

That means that the protections given under the EU Treaties will change.

One of those protections was the obligatory classification of taxes and contributions between social security and taxation, which were given a separate status.

Here, the French prélèvements sociaux, a form of  quasi-"taxation" destined to refinance the French social security deficit, were classified by the CJEU in the de Ruyter Case ( Case n° C‑623/13) as a form of social security payment or contribution which were therefore subject to the EU social security jurisdictional restrictions set out in the EU Regulations on the matter. That system imposed being subject to only one social security régime in the Member State of residence, not several systems using the source of the income, for example, from employment in or activities in, or property in another Member State.

That preliminary ruling against France mean that individuals  resident in the United Kingdom and subject to National Insurance contributions should not be called upon to pay the prélèvements sociaux required by the French under a combination of article 164A, 164B of the Code général des impôts (CGI) and article L.136 pf the Code de la sécurité sociale (CSS).

For the moment, minds are set upon the French Government's failure and cotinuing refusal to implement the full consequences of the de Ruyter ruling in the treatment of capital gains on immovable property in France.  These are subject to Capital Gains taxation, a subdivision of income tax,  under articles 164A and B CGI, upon which L 136.1  of the code de la sécurité sociale (CSS) piggybacks to place the Prélèvement on the same level as to collection and enforcement as the French income taxation on capital gains (equivalent to Capital Gains Tax).

Despite the clear decision in de Ruyter, the French administration continues to refuse to register land transfers giving good title to the purchaser, unless the prélèvement is  paid by the notary on behalf of the vendor out of the price of sale.  Post-Brexit it is probable that it will no longer be the notary dealing with the declarations and payments, but a government regulated  Réprésentant Fiscal.

In short, the French are now saying that the EU rulings do not displace their own "tax", as opposed to their social security  legislation.  By a regulatory sleight of hand, the non-resident prélèvements now finance non contributory funds in the French social security netwerk, in a smoke and mirrors operation which the French administration would carectarise as an abus de droit iere a taxpayer to conconct such a scheme.

Once Brexit becomes effective, there will be even less protection for British residents, as the National Insurance contribution structure will in principle become a Third State system.  It is unlikely, even if it is aware of the issue,  that the British Government will be able to obtain EU status equivalence for its social security system and its residents to the extent necessary for the present rights continue, whether or not they are flouted by the French administration.

The CJEU has recently held taht a French national resident in China and subject to the Chinese social security system does not benefit from any internal EU protection.  That means that, post Brexit, the EU protection for both French nationals resident in the United Kingdom, and other United Kingdom residents will not longer be available, unless there is a pan-European régime instituted including the United Kingdom similar say to the Swiss or EEA system.

So, what the British Government must ensure is that the remaining tax allocation issues in article 164 B are dealt with generally at the EU level, and not left to the sole protection, if such it can be termed, of the Double Tax Treaty between France and the United Kingdom.

Otherwise the entire British Islands will become subject to Third country exposure to withholding taxation and other fiscal issues to which they are currently not subject.

The French legislative provisions concerned are set out on the Resources page at this link.