Expats living in France face financial confusion as the country’s lawmakers drag their feet over whether to tax them over the rent and pensions they earn in other countries.
The issue is over whether an expat’s rental or pension income should be assessed for tax in France – but only if the expat has paid no tax on the money earned in another country.
French lawmakers are analysing the double tax treaty rules between the two countries in a bid to resolve the problem.
The situation has been dragging on for several months and officials said they would make a decision of whether income tax and social contributions should be made on income earned in 2012.
Currently, this is something of a grey area for tax officials, especially for British expats, who pay no tax in the UK if it falls below the personal allowance limits.
Bills and refunds
This situation has previously led to expats made exempt from French income tax and their related social contributions.
However, many expats last year reported that they were being handed French tax bills on their UK income as well as demands for hefty social contributions.
This situation led to confusion since many people who contested the bills were reimbursed while others were turned down.
To confuse the situation even further, some French tax offices did not tax the UK incomes of expats at all.
French tax authorities explained that the variety of actions was down to regional differences and differing interpretation of the rules of whether the income was taxed by the UK.
Declaring income
Now expats a desperately waiting to hear how the situation will be resolved and the country’s finance ministry has said it will clarify its policy and communicate this to all of its offices, particularly those with high numbers of British expats living in the area.
In the meantime, expats are being urged to declare all relevant kinds of income on the French income tax form.
The French taxman has said this is the correct course of action if the income declared has not already been taxed in the UK.
Tax experts are also urging expats to use the extra information section to detail precisely what the income is to help avoid attracting social contributions. Under the double taxation treaty between the nations, some income should not be taxed or attract the social contribution charge.
The decision on how tax offices should deal with this situation is expected in the next few weeks but in the meantime expats should file their tax returns, or even amend the ones that have already filed, just in case an announcement is not made before the tax deadline.
In Spain, you are supposed to declare ALL income worldwide. Of course, double-taxation treaties avoid double-taxation to some extent, but you end paying the bigger tax bill of the two you file.
This is part of a pincer movement that’s being attempted, particularly by the most cash-strapped Continental governments, who’ve figured that going after expats, in other words people who tend to have significant assets in their own country but not to have votes in the country in which they currently happen to live, carries fairly limited electoral risk as well as the potential for rich pickings.
Spain, for instance, is introducing compulsory declaration of overseas assets. But this is just half of what’s clearly being planned. Italy is further down the same track, for once overseas assets have been identified, it now applies a swingeing wealth tax to them. In the case of property (and many UK retirees living in Italy will retain a reasonably valuable house in Britain) it’s a whopping 0.76% per annum which, on a UK property worth a not-untypical £350k, works out at an Italian wealth tax bill of £2,700 each year. Worse, Italy is declining to recognise UK council tax as an equivalent imposition for purposes of avoiding double taxation so British expats are being told they can have no mitigation of the full sum due in Italian wealth tax.
Be in no doubt. This is a co-ordinated attack, first requiring disclosure of overseas assets, then imposing a hefty tax on them. It raises numerous issues, not least how a tax specifically targetting people who exploit their treaty rights as EU citizens to reside in one member state while owning assets in another is not a straightforward breach of EU law, as well as a form of discrimination since it’s almost bound to affect residents who are the nationals of other EU states disproportionately far more than natives of the state actually imposing the tax. More practically, wealth taxes are notoriously poorly related to ability to pay since they are based on the paper value of assets rather than actual income: this is especially true for the older expat who may have a relatively low cash income in retirement but still be hit hard by a tax that is calculated on the basis of the notional worth of non-cash assets.
We live in interesting and rather frightening times for those of us who believed that the EU allowed and protected freedom of movement and freedom of capital flows. Indeed, if it doesn’t even do that any longer, and is content to allow EU governments to punish non-nationals and cross-border ownership with punitive taxation, why doesn’t it just abandon all pretence at guaranteeing open borders, permit individual governments to take back the power to restrict immigration and trade too, and effectively abolish itself?