France is facing a wave of litigation on non-resident social charges and higher rate capital gains tax, but claims for a refund need to be submitted by 31st Dec 2014.

In recent months we have given regular coverage to the taxation of the rental income and capital gains of non-residents, which has been the source of considerable legal controversy.

Earlier this month the Avocat General of the European Commission gave an opinion that the social charges on the rental income and capital gains of non-residents did not conform with European law.

We still await the decision of the European Court of Justice on this matter, but it is entirely likely that the opinion of the AG will be followed in their ruling.

In addition, in a recent legal ruling in the highest administrative court in France, the Conseil d’État, the rate of capital gains tax of 33% imposed on residents from outside of the European Economic Area (EEA) was also declared contrary to European law. The standard rate is 19%.

Clearly, the prospective ruling of the ECJ and the decision of the Conseil d’Etat is of huge significance to all former international French property owners who have paid social charges and capital gains at the higher rate, and who may now be entitled to a refund of overpaid taxes.

Existing non-resident French property owners who rent out French property on which they pay social charges will also be entitled to claim a refund of these charges.

However, a legal ruling does not by itself mean that a tax that may be considered illegal results in an automatic refund of the overpaid tax. Rarely has a French government acted in such a noble manner, preferring instead to respond (or not!) on an individual basis to claims. Tax claims are frequently challenged by the authorities on 'technical' grounds, when claimants are then required to resort to legal action

It is not surprising that the authorities will resist such claims, for the sums involved are colossal, with social charges on the rental income of non-residents alone amounting to an estimated €134 million last year.

Accordingly, in order to obtain a refund it is necessary to make a claim to the tax authority, and to do within a prescribed period.

The maximum period permitted depends on the source of the income; for rental income it is up to two years following the year of imposition, but for capital gains on a sale it is the year following the year of imposition.

So for rental income, if you were imposed in 2012 (on 2011 income) you would need to make a claim this year. For capital gains on a sale, those imposed in 2013 would need to get their claim in to the tax office by the end of this year.

In our last Newsletter we invited interest from readers affected by these rulings to join in a collective approach to a claim, under the auspices of specialist professional advisors, who have an intimate knowledge of this issue and the claims process.

We have received a strong level of interest in that approach, with several hundred claims now having been filed or in the process of being filed.

If you wish to add your own interest, then please contact us at [email protected] by 22nd December at the very latest and we will endeavour to ensure that the claim is submitted by the deadline.