Overseas Chambers of Peter Harris

Overseas Chambers
c/o Addington Chambers
160, Fleet Street,
London EC4A 2DQ,
United Kingdom
https://addingtonchambers.com

Fellow of the European Law Institute Vienna
https://overseaschambers.com/
Barrister at Law - Regulated by
the Bar Standards Board
Bar Mututal insurance: 8015/009

Tax residence for those couples and households where one is not resident in France, and the income tax advantages: specially for those working in Jersey.

August 17th 2015

 

 

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.