Towards the euro-compatibility of French social surtaxes on investment income
In order to make the French social surtaxes levied on investment income euro-compliant, the State secretary for the Budget has announced last week that the Social security financing Act for 2016 would change their allocation in the French budget. He also confirmed that the necessary steps had been taken to ensure the refund of additional social taxes unduly levied in the past.
Social surtaxes under French law
Taxpayers subject to French income tax (residents or non-resident only for some of their French source income) currently are liable to social surtaxes at a flat 15.5% tax rate on their investment income, in particular, interests and dividends, rental income and some capital gains.
Contradiction with EU law: the CJEU case law and its recognition by the French “Conseil d’Etat”
The CJEU stated, in its February 26, 2015 de Ruyter decision, that investment income should not be subject to French social surtaxes when the taxpayer is affiliated to a non-French EU social security scheme.
The French “Conseil d’Etat” (Administrative Supreme Court) has already applied twice this solution in French tax law. He confirmed that the principles highlighted by the EU Court must be applied, and that as a consequence, no social surtaxes should be levied in France on investment income whose beneficiaries benefit from another EU social security scheme.
The Government response: ensuring compliance via a Reallocation
Although French tax authorities had initially informed taxpayers that social surtaxes would remain applicable as long as the Government had not decided the consequences to draw from this case-law (2015 French income tax bills were therefore all issued with social surtaxes), the announcement of last week set out that the necessary steps have finally been taken to ensure the refund of social surtaxes unduly levied.
In addition, and in order to make the provision euro-compliant for the future, the Social security financing Act for 2016 should provide to reallocate these social surtaxes to the financing of non-contributive benefit. It was indeed their close connection with the financing of Social security system that had grounded the CJEU decision.
We recommend that taxpayers in this situation keep filing claims to ask for refunds of the overpaid French taxes. Given the applicable statute of limitations, tax years 2012, 2013 and 2014 are open. We remind you that this case law is applicable not only to all EU citizens, but also to those from the EEA and Switzerland.
We remain at your service to explore this opportunity with you and calculate its financial impacts.