France is embroiled in yet more tax litigation with the European Commission, this time over the taxation of certain foreign income of residents.

We understand from the European Commission that they are at the first stage of infringement proceedings against France for the manner in which they tax certain foreign income of residents.

Under the infringement process, the Commission have served on France a 'formal notice', seeking observations on a possible breach it has identified, in order that it can investigate the matter in greater detail.

At this stage, the precise details of the infringement remain confidential, but it seems to turn on the question of whether the tax credit arrangements by which France deals with double taxation relief constitutes a breach of European law.

In particular, certain residents do not benefit from the full tax credit arrangements to which other residents are entitled.

Brussels considers that it is contrary to the treaty on the functioning of the European Union (TFUE) the fact that a taxpayer living in France, but receiving a part of his income of another member the European Economic Area (EEA), loses certain family advantages (family quotient, deduction of allowances) and tax credits (for real estate investment for example).

It is a dispute that affects tens of thousands of foreign nationals resident in France and in receipt of business, rental and investment income from their home country.

Whether or not you will be affected will depend on the nature of the tax treaty arrangements between France and your home country.

In some cases income will be completely exempt from taxation in France, but in the majority of cases the income is imputed into other income and a tax credit granted to the level of the tax payable in France.

The latter approach is that used under the 2008 Double Tax Convention (DDC) between the UK and France, notably relating to government service pensions and rents from the UK.

Although the income from the UK is included in your French tax assessment, you are entitled to a tax credit against French taxes, including the social charges.

There should be tax relief at the rate of 100% on social charges, as well as an additional tax credit equivalent to the amount of tax you would pay in income tax in France.

It is clear from the mails we regularly receive from you that the DDC between France and the UK is often incorrectly applied by many tax offices, mainly because many seem incapable of correctly entering the data into the computer system. In addition, other errors also occur due to incorrect completion of the tax return by French property owners.

A suivre donc.