What is the relationship between social charges on non-resident French income and capital gains and domestic tax liability?

The liability of non-residents to the social charges in France remains a hugely controversial issue, with opponents arguing that those who do not benefit from the French social welfare system should not be obliged to contribute towards it.

The fires have been fanned by the European Commission, who have contested the imposition of these charges on non-residents, eventually obliging the French government to pay millions in refunds and change the allocation of the revenues so that they did not infringe European law.

Even that change may well be subject to legal challenge, and the Constitutional Council have been asked to rule on the status of non-EEA nationals living outside of France, a decision awaited.

However, obtaining redress against the charges opens up the question of whether they can then be offset against liability to domestic income and capital gains taxes.

If the social charges are not a tax but a social insurance charge, does that then imply that the charges are not deductible for the purposes of double taxation relief?

The good news is that, as a general principle, French tax regulations state that social charges should be considered part of the income tax system, stating:

"Pour l'application de ses conventions fiscales, la France considère que ces contributions sont assimilées à l'impôt sur le revenu."

That principle is in line with a decision of the Constitutional Council in 1990, which stated that the social charges were "impositions de toute nature."

However, this principle could only be adopted where there was otherwise no express provision to the contrary in a double taxation treaty.

So the answer to the question depends on the terms of the taxation treaty between your home country and France.

In the case of some countries, there was no provision at all in the tax treaty covering any or all of the social charges, such is the case with Bahrian, India and Monaco.

For the UK, Article 24 of the 2008 Double Taxation Convention with France lists the French taxes that would be used to eliminate double taxation, to the specific exclusion of CSG (Contributions Sociales Généralisées) and CRDS (Contributions pour le Remboursement de la Dette Sociale).

As a result, the regulations state that :

"La convention fiscale du 19 juin 2008 liant la France et le Royaume-Uni écarte quant à elle expressément la possibilité d'imputer la CSG et la CRDS sur l'impôt prélevé au Royaume-Uni......."

Accordingly, non-residents from the UK are unable to offset the social charges they pay on their French income and capital gains against liability to UK taxation.

Although French income tax and capital gains tax is deductible against UK taxes, this is not the case for the social charges. These charges are levied at the rate of 15.5% on French net rental and investment income, and on capital gains arising in France.

In addition, there are some countries that contest the definition of social charges as income tax for the purposes of double taxation, which is particularly the case for the USA, where there is no specific mention of the social charges in the treaty.