The European Commission has started infringement proceedings against France over the imposition of social charges on the property income of non-residents.

Since 2012, non-residents with property in France have been liable for the social charges (prélèvements sociaux) on rental income and on the capital gains from the sale of real estate.

The level of these charges is at the rate of 15.5%. They grant no entitlement to health or social security cover in France and visitors to France from within the EEA are covered for health by European Health Insurance Card (EHIC) arrangements.

In a recent reply to a question raised by an MEP, the Commission stated that "the French authorities have been consulted on the conformity with European law of the extension of CSG and CRDS on the property income received by non-residents."

The reply continued, "After a deep analysis of the response of the French authorities, the Commission are of the opinion that social levies on unearned income are allocated specifically and directly to financing social security in France and therefore have a sufficiently relevant link the laws of the branches of social security within the meaning of Article 3 of Regulation (EC) No 883/2004. "

It concluded by saying, "An infringement procedure has been opened and a letter of formal notice is being prepared."

At the time the law on the imposition of social charges was passed we published an article in our Newsletter in which we expressed the view that such a measure was contrary to European regulations.

When the question was raised in front of the French Constitutional Council last year they ducked the issue, by stating whether or not it was consistent with European law was a matter for the courts, thereby implicitly allowing passage of the law. This was an extraordinary decision for the Council to take, for it is part of their remit to ensure that national laws comply with international treaties and laws.

Although there has frequently been a debate about the nature of the social charges, whether a tax or a social security contribution, the European Court of Justice (ECJ) has previously ruled that it is part of the system of social insurance. In a landmark judgement in February 2000, the Court confirmed that individuals should only be required to pay social charges in the country in which they were resident. This judgement was ignored by the French Constitutional Council.

When we questioned the European Commission on the issue last year, Emer Traynor, spokeswoman of the European Commission stated that: "From our initial assessment, the Commission doesn't believe there to be discriminatory treatment, which would go against EU law, in the French social charge".

She continued, "French social charges are applied on a wide variety of income sources, such as investments, rental income and capital gains. They are not only levied on wages, salaries or pensions. These social charges therefore form part of the general system of taxation."

Clearly, a more detailed analysis of the matter has now brought them to a different, final conclusion.

Next Steps

At this stage the Commission proceedings do not involve litigation, but a formal request to France to voluntarily come into line with European law.

If they fail to comply within a reasonable time-scale, then the Commission will commence legal proceedings in the ECJ.

If such an action becomes necessary, on average, it takes about two years for the Court of Justice to rule on cases brought by the Commission.

Even then the ECJ cannot impose its judgement; it will be up to France to change the national law or be subject to a continuing fine.

In theory, such a change in law would need to be retrospective, involving a repayment of social charges to those on whom they had been illegally imposed. However, we need to wait to see how the French government responds and whether the Commission decides to call off the hounds in the light of their response.

In the meantime, those who face liability to these charges will continue to be obliged to pay them, although they are equally entitled to contest the charge through the formal complaints procedures, and ultimately lodge an action in the French courts.