15,5% Social contributions on French real estate income and capital gains : easy come, easy go….and easy come again !
Non-French tax residents have been subject to 15,5% social contributions on their French real estate income and real estate capital gains since 2012. Thus, the taxation of real estate income and capital gains rose to a minimum of 35,5% and 34,5%, respectively.
Historically, French social contributions were not applied on wages derived by persons not affiliated with the French social security. However, the French tax authorities (FTA) continued to apply social contributions on capital income (including real estate income and capital gains) derived by French tax residents affiliated with a non-French social security system. Such social contributions on capital income are deemed to be taxes with a social nature for French tax purposes.
However, the European Court of Justice (ECJ) decided on February 26 2015 that French social contributions cannot apply to a person affiliated with a social security system in another country of the European Economic Area (EEA) or in Switzerland (ECJ, 26 février 2015, aff n°C-623/13, Ministre de l’économie et des finances c/ de Ruyter). In the case at hand, the ECJ ruled that a French tax resident affiliated with the Dutch social security system did not have to pay French social contributions on his capital income. The legal ground of this decision is regulation (EEC) n°1408/71, which states that people to whom the regulation applies shall be subject to the legislation of a single country only. This was confirmed by the French supreme administrative court on July 27 2015 (Conseil d’État, n° 334551, July 27 2015).
Since the non-French tax residents subject to social contributions on their real estate income and capital gains are in practice often affiliated with a non-French social security system, the ECJ’s decision “De Ruyter” is applicable to their case as well.
Consequently, the FTA recently confirmed the reimbursement upon request of unduly paid social contributions from 2013 to 2015, including social contributions paid on real estate income and capital gains derived by non-French tax residents. The beneficiaries of these reimbursements have to prove that they are affiliated with a social security system in another EEA country or in Switzerland.
The FTA stated that a 2% social levy applicable before January 1 2015 will not be reimbursed. This is based on the ground that this social levy did not finance the social security system, but the income support “revenu de solidarité active”. It seems that the fact that this income support is not provided on the condition that its beneficiaries have contributed to the French social security system leads the FTA to think that the application of this particular social levy is not contrary to EU law. At the end of 2015, the French social legislation was also modified following the same idea in order to counter the ruling of the ECJ. Starting 2016, social contributions are mainly allocated to public funds that provide an income support to French tax residents without any condition for its beneficiaries to have contributed to the French social security system. Based on this change of allocation, the FTA will once again apply social contributions on the real estate income generated in 2015 and to capital gains derived since January 1st 2016 by tax residents of all EEA countries other than France and Switzerland.
The analysis of the applicable EU law suggests that the principle according to which a person shall be subject only to a single social security system, whether or not a social levy is contributory, will most likely apply regardless of the change of allocation. It is therefore doubtful that the government’s position with regard to the 2% social levy and the new legislation voted at the end of 2015 are compliant with EU law.
The right to claim back social contributions paid in 2016 expires on December 31 2018 for social contributions on real estate income and December 31 2017 for social contributions on capital gains. Should the French supreme administrative court or the ECJ consider in the future that the qualification of social contributions as contributory or non-contributory is not relevant and consequently rules that the French legislation is not compliant with EU law, this will not reopen claim deadlines for taxpayers.
This update contains information of general interest about current legal issues, but does not give legal advice.
 A “French tax resident” in this article means a resident of France for tax purposes, regardless of his nationality. A “non-French tax resident” is a resident of a country outside France for tax purposes, also regardless of his nationality.
 For reimbursement modalities, please see the following link (in French) : http://www.impots.gouv.fr/portal/deploiement/p1/fichedescriptive_7660/fichedescriptive_7660.pdf
 i.e. the social levy is “non-contributory”. If a social levy finances an income support for beneficiaries provided they were affiliated to a French security system, the social levy is deemed “contributory”.
 This deadline on December 31 2017 is the strict application of French tax rules regarding claim deadlines. Longer claim deadlines may be applicable depending from on the practice. Short claim deadlines are compliant with EU law only if they do not make the reimbursement of social contributions excessively difficult. Case law has not ruled as of now on this particular issue.