This has been updated following the Brexit Referendum result,
but in fact most of the law and practice remains the same and will
remain the same following any exit by the United Kingdom.
Please note that this is merely indicative, and should be
confirmed with Peter for each specific case, before deploying this
exemption.
Given the number of individuals seeking to work in Jersey whilst
having the spouse partner or family in France, Peter explores the
tax position of such couples and "foyers" and provides tax
effective insight into the manner in which this can be achieved
without double taxation of the Jersey salary in both Jersey and
then in France. Whilst this News Item is directed towards
Jersey and Guernsey couples, it is also very relevant to those
spouses working within the EU from separate residences or with
third countries with one spouse remaining in France, as it is a
matter of French domestic legislation, not a Treaty régime.
The change in France took place when the notion of "chef de
famille" was removed from the basic French notion of the fiscal
"foyer". The change, ladies, was prompted by the abolition of
the historic notion of "chef de famille" in favour of equality
between the spouses. However local tradition in the
neighbouring French départements may not be propitious
to such an assertion particularly with some senior members of the
local fiscal administration.
The administrative doctrine is set out in the BOI at § 80 and § 90
This newsflash is directed towards Jersey couples, and others
who are married under a marriage not governed by the French default
community régime, and which directs that the couple hold their
assets separately, under the equivalent of a séparation de biens,
and not under any form of communauté, or community régime. If you
are married under a French régime or a foreign community régime -
e.g. New York -, then you need to speak to Peter about ensuring
that is modified to a separatist régime before using this facility
. Peter is conversant with these issues and is able to assist here;
there are alternative régimes available in France, and Peter is
able to define these and implement these with a French notary.
There may be good succession reasons for maintaining the
community régime, but this will entail the cost of increased double
taxation. Also note that after a ten year period of residence,
there are French legal rules which in certain circumstances presume
that the couple will have adopted the French default
community régime, and it is essential to evidence a rebuttal of
that presumption to avoid that, both for income tax and other
property and succession reasons.
Also note that the French resident spouse of the couple will
need to be careful to declare foreign accounts in their name on
their annual French tax return, which the foyer will still be
required to file in both names. It is only the non-resident
spouse's income, gains and foreign property which fall outside the
scope of French taxation. There is a Wealth tax issue here as well,
which may enable a trust to be retained, provided that the French
resident spouse and children are not constituants or beneficiaries.
It may be possible to use a discretionary trust here, great
care has to be taken in its drafting, in order to remain outside
the French punitive régime. In any event a spouse does not benefit
from the spouse exemption, and will be taxed at a rate of 60% on
any transfer to them through the non-resident trust. It is unwise
to rely upon a n inexperienced English trained lawyer who assumes
that simply cutting spouses and children out of a beneficial class
is sufficient: the French fisc has managed to convince itself and
the remainder of the planet that a trust is a contract, rather than
its correct legal configuration under the Hague convention of 1985
and English general law as an emanation of the law of property.
Peter stresses that any Brexit "fallout" will not change this
régime as it is a taxation principle of generalised
application.
This particular exemption is of general application for French
fiscal foyers where one partner works and lives abroad. The
distinction between the foyer at §80 and the ménage at §90 is
significant, because whilst the foyer is resident in France if just
one of the members is resident, the income of the foyer is not
inclusive of the foreign income of the non-resident spouse or
partner.
The following synopsis if of general application, but is
directed to French couples one of whom works in Jersey or Guernsey.
Contact Peter for details on other jurisdictions if needed.
Potentially risky, as it does require a degree of discipline on
timing and French presence. Also the health and social security
cover for the family in France will need to be addressed
separately, as it is not the same régime, and the French resident
may need to work to obtain cover.
Anyone working in Jersey seeking to apply this potential
exemption to their Jersey income needs to review their residential
status and ensure that even if they are not on the property ladder,
any "lease" is in their own name. That is essential in the
presentation to the French tax administration, as merely occupying
a rent-free lodging provided by an employer may be treated as being
too close to the line, by certain French tax offices, particularly
where the French resident spouse also earns a living in France or
worse is a fonctionnaire or assimilated public servant. It is
essential that the Jersey residential address appear on the Jersey
resident spouse's notice of assessment.
There is a further exemption currently available for employees
of an EU employer working in a branch of the EU employer in Jersey,
but that will be phased out if Brexit comes to fruition.
The neighbouring sub-departmental tax administrations in France
seem now to be insisting upon hard evidence of a real residential
presence of the spouse working in Jersey as, otherwise, they will
simply assert that the fiscal "foyer" remains in France, and that
the residence exception does not apply: therefore not applying the
change in doctrine.
In short, the French administration may seek to exploit the
differential between the local housing regulations and the French
perception of "norms" to the taxpayer's detriment. There are
grey areas which need defining by fact and paperwork to the
taxpayer's advantage, rather than leaving it to the
administration.
It may be that the EU Freedom of movement provisions and their
implementation through the Treaty and Protocol 3 may need
explanation to the French tax inspector; but note that these will
remain applicable to United Kingdom nationals until the United
Kingdom formally leaves, the article 50 notification that may
follow this year will not diminish that; and the whole may remain
subject to any negotiation by Jersey of its position in relation to
the European Union.
Finally the TIEA exemption from Jersey taxation of pensions paid
to French residents under and the exemption from French taxation of
French pensions paid to Jersey residents will remain unaffected by
Brexit.
For further details, see the summary on our
Resources page and contact Peter for assistance. If tere are
any difficulties, it may be appropriate to contact the Comptroller
of Income Tax's office or the International Relations department of
the States in order to have the matter raised at a central level in
France, where for the moment relations are good.