The Court of Justice of the European Union struck hard at the beginning of the year.
The international jurisdiction ruled that France cannot collect social levies on foreign-source capital income from cross-border workers.
The regulations regarding the generalized social contribution (CSG) or the social debt repayment contribution (CRDS) have admittedly rolled through several twists and turns these last years.
The context preceding the court decision is quite straightforward. A debate was opened regarding the nature of those contributions. The question pertained to their qualification as either ‘taxations of all types’ (“impositions de toute nature” in the French Constitution) or ‘social security contributions’? The question is far from anecdotal. If both contributions were qualified as taxes, cross-border workers would have to pay them. Conversely, if the generalized social contribution and the social debt repayment tax were considered as social security taxes, they were logically exempt.
The French Constitutional Council had ruled in favour of the ‘taxations of all types’ qualification (Decision n°2014-698 DC of 6 August 2014). Cross-border workers had to pay those taxes, as did French citizens residing in another Member State and generating income from real property located.
It is this state of affairs that the Court of Justice has just reversed with the radical RUYTER decision of 26 February 2015. Indeed, the Court considers that “people belonging to a social security scheme from another State cannot be subject in France to social levies on their foreign-source estate income in view of the allocation of these direct debits to the financing of the French social protection”.
The attitude of the High Court does not really come as a surprise from a European Union perspective. As a matter of fact, in 2013, the European Commission had already opened a procedure following several complaints lodged against France (EU Pilot 2013/4168). The purpose of this procedure was to penalize the double taxation of non-residents. The Commission had therefore foreseen the Court of Justice of the European Union‘s decision…
On a practical level, the concerned parties have been given a two-year period to petition the tax administration for repayment of social levies unduly levied by France. This period expires on the 31st of December 2015 for social levies on capital income collected in 2013.
By Justine Kauffmann