The French administration has issued its instruction on the taxation of non-resident  capital gains on both immovables, and shares in investment vehicles, such as RIETS  which represent  immovables in France by non-residents : BOI-RFPI-PVINR-10-20

 

There is much that could be written about this.  Overseas Chambers can assist in each case where an individual is involved in preparing a sale and the necessary documentation which will be required now in each case of the sale of a French principal residence by a migrant within the EU and outside it.

 

Again, these are the points that are of fundamental interest. The remainder of the Instruction is of course necessary for the actual calculation of the liabilities in each case, and we can assist here.

 

However, what is flagrant is the complete disregard of the French Parliament, the French Government and the French administration for an elementary concept of European Law which is the freedom of movement of capital, of establishment and the restrictions placed by the CJEU on arbitrary fiscal discrimination within those Freedoms.

 

That is  doubtless based on some Ministerial "certification" to the effect that in his view the matter is constitutionally valid ....

 

That freedom has been in place since 1993, and it is scandalous that a Member State should feel able to flout the legislation in the form of the Treaties in such a provocatively avid manner, despite having been called to order in the numerous rulings against it, and similar arguments from other Member States by the CJEU

 

1. The Principal Residence exemption for those leaving France.

The point is best illustrated by the fact that the EU freedom of movement of capital applies not only to movements of capital within the EU and the EEA, but also to third states.  Put bluntly, there is no need for information exchange on the individuals concerned when they leave France and seek to sell their property there, as having been their principal residence during their stay.  They should therefore be able to benefit from the same rules and rates as those applied to EU nationals being taxed under the same legislation and who are in the same position.

What is more, the full principle residence exemption available to French residents on the sale of their principal residence is denied the non-resident, as it is capped at € 150,000 of the chargeable gain for each seller, where the emigrant becomes a resident of another Member State or an EEA State. Again, there is no reason for this overtly repugnant discrimination, other than a snide retortion for leaving the French fiscal jungle.  The French administration is currently refusing legitimate deductions from the sale price, which will now be applied to non-residents in the calculation of their capital gain. That will not apply to French residents selling and moving  within France, as they still have the total exemption.

 

2. Gains through EU Fund vehicles "à prépondérance immobilière"

What is also of interest is that the French have previously asserted fiscal jurisdiction over foreign investment funds whose managers, in an absence of good judgement, have allowed their proportion of French situs immovable assets to exceed 50%, or now either 60% or 80% of their NAV.

Now this point is significant, because in general the French test for a normal société à prépondérance immobilière is that over 50% of its assets are French immovables. We have already drawn attention to this arbitrary 50% benchmark.

In other words the French have effectively admitted that in certain areas, the 50% threshold is no longer a valid benchmark for justifying such an arbitrary fiscal requalification.

It remains to be seen whether the benchmarks of 60% or 80% set out in the instruction for certain fund vehicles can,  on the basis of a discrimination against other investment vehicles, now be argued across the board. This will be of interest to trustees and directors of companies owning French immovable assets, directly or indirectly, whether they be within the EU the EEA , or outside the EU. That principle could extend both to the 3% annual tax, and to capital gains, but also to the stamp duty requirement as to registration of the transfer of sharers in a foreign company owning a certain proportion  of French immovables. also, in, relation to the stamp duty assessment on transfers of shares or interests in such foreign entities.

 

The French may have admitted that they are also in the wrong on their arbitrary requalification of a movable, such as a share in a foreign company into a French situs immovable inter alia,  direct contradiction of the underlying principle of article 345 TFEU.  Watch this space.