Outline of the case and new ruling
A recent ruling means that certain French taxpayers are in a position to reclaim social contributions (prélèvements sociaux) paid after 1 January 2016. The taxpayer’s arguments, initially rejected by the tax authorities, were upheld by the local Tribunal Administratif (Strasbourg) and subsequently partially upheld at the Cour d’Appel Administratif (Nancy) level, on the same basis as for the refund of social contributions paid prior to that date. This was widely known as the “De Ruyter ruling”, which provided solid arguments for successful reclaims for many of our clients.
After 1 January 2016, it was theoretically impossible to obtain refunds using the De Ruyter ruling as a result of changes made to the French Social Security Code. These changes were intended to redefine social contributions as “taxes”, and not “social security charges”. This was achieved by re-allocating these social contributions to three non-contributory funds.
In the most recent case, a Swiss national was able to challenge that the social contributions paid in 2016 on his 2015 purchased annuities were still used to finance the French social security system by repaying public debt and subsidising solidarity funds for old age persons. He argued that he should not be subject to such contributions as he had been making regular payments of national insurance in Switzerland.
EU Regulation n°1408/71 provides that a citizen cannot be subject to social security contributions, including those allocated to non-contributory funds, in more than one EU state. It should be noted that Switzerland has an agreement with the EU regarding social security and the same EU law applies even though Switzerland is not an EU member. The French court of Nancy agreed with his arguments.
A new decision from the Conseil d’Etat, who may in turn refer to the ECJ, is now pending. Meanwhile, taxpayers have the green light for new refund claims.
Which taxpayers are concerned?
Non-residents living in another EU/EEA country, who pay social contributions on French property income and gains, are concerned. It is also the case of French residents benefitting from healthcare in France based on social security contributions made in another EU country, who pay social contributions on their investment income and gains. For example, a French-resident in receipt of a UK state pension or working in another EU country and in possession of a S1 form.
Recent case-law is of no assistance for those who cannot justify affiliation with another EU/EEA social security regime, such as tax-payers benefitting from full private medical insurance, those living in third countries outside the EU/EEA, or officials and servants covered by an international organization social security regime (except those of the EU). Although one can question the application of French social contributions to such tax payers, who are not a charge to the French social security regime, the prospect of a successful refund claim is still remote.
On the other hand, early retirees receiving healthcare under a PUMA residence scheme, workers (selfemployed or salaried) carrying out their activity in France or pensioners in receipt of a French state pension, even if it is a trivial pension, are all affiliated with a French social security regime. Consequently they are definitely not in a position to submit a claim.
Contributions made on which income can be reclaimed?
Contributions paid on French-source property income by non-residents of France:
- Furnished or unfurnished rental income (payment via an avis d’imposition the following year);
- Capital gains on French property (payment upon sale of property).
For French residents, a non-exhaustive list of income concerned:
1 / Social contributions paid at source on:
- Capital gains on French property and non-French property taxable in France;
- Accrued income on the guaranteed funds of an assurance-vie contract (prélèvement au fil de l’eau);
- Gain element on a withdrawal from an assurance-vie contract (French and non-French);
- Dividend and interest income;
2/ Social contributions paid via an avis d’imposition on previous year’s declared income:
- French source rental income (unfurnished, furnished/gîtes);
- Purchased annuities not qualifying as pension income;
- Foreign-source dividend and interest on which no social contributions was paid at source;
- Capital gains on stocks and shares;
- Gain element of withdrawals from non-French assurance-vie policies not already subject to
payment at source.
What does the taxpayer have to do next?
You only have two years to appeal following the payment of the contributions. The deadline for the submission of a reclaim for social contributions paid in 2016 is therefore 31 December 2018. This covers 2015 income, which was assessed in 2016, as well as social contributions withheld at source during 2016. After this date, no appeal will be permitted for the year 2016, even in case of a favorable judgment from the ECJ forcing the French tax authorities to reimburse all those who can prove they were eligible for refunds.
The reclaim for all three years (2016, 2017 and 2018) can be made by registered letter or online, via the impots.gouv messagerie sécurisée, with the necessary arguments, proof of social contributions paid and supporting documents proving that the taxpayer was subject to the social security legislation of another EU/EEA country for the years concerned. These will essentially be the same documents as provided for the De Ruyter reclaims, but covering a different period. It is preferable to file separate claims for refund of social contributions paid at source as they are processed by a different tax service.
It should be noted that, even three years on from the De Ruyter ruling, there are still claims waiting to be processed by the tax authorities due to the high volume and complexity in certain cases. We point out that there is no absolute guarantee of success and a claim may take several years to be processed. Failure to answer requests for additional documents in good time may lead to automatic refusal of a claim. A unsuccessful claim may also be re-processed with the help of the conciliateur fiscal in the light of a new court decision, provided it was submitted before the deadline. Patience and responsiveness are required for a successful reclaim.