Reply from a Taxation Advisor with the Company Pelican Consulting

Dear Mrs. Johnston,  Further to our discussion this morning, some comments for you. With all best regards, Dr. Michael Annett     [ mpfa@pelican-consulting.fr ] Social charges on pensions Firstly, there is absolutely no relation whatsoever between the healthcare system (e.g.. CPAM) and the social charges on pension income. There is an exemption from some of the social charges on pension income if not a liability to the French social security system as a whole.  As far as healthcare was concerned, the only way in which to show non-liability to the system was to show the E121, now the S1, since this confirmed that all healthcare costs were paid by the person's host country social services. Accordingly, the relation is between the E121/S1 and some of the Social charges. The general exemption from social charges on pension income stems ONLY from having an EU State Old Age pension, since social charges cannot be applied to income which is being paid due to social charges themselves having formerly been paid.  This exemption has been extended by the EU to all pension income in the case of British nationals resident in France. The Franco British double tax treaty This has been the cause of many issues, mainly due to tax offices applying the Treaty's provisions a year earlier than they should have. Essentially, as far as International Treaties are concerned, there is a master international treaty that states that, unless otherwise indicated in a particular Treaty, the effective date of entry into force of a Treaty is the last date on which the countries party to that Treaty legally ratified it. The Franco-British Treaty, pursuant to this start date system, can be seen to therefore become applicable from the 1st January 2010. However, article 31 of the new Franco-British double tax treaty clearly states that the Treaty will become effective only once both countries have terminated their relevant legal procedures for bringing the Treaty into effect.  Then the the same article confirms the applicable date of the Treaty for France being the start of the following tax year.  French civil law states that no law can be effective until it is published in the 'Journal Officiel', which, in the case of the Treaty was not effected until January 2010.  This being later than the UK's date of completion of its legal requirements means that the applicable date of the provisions of the Treaty is the start of the following tax year - 1st January 2011. Changes in the new Franco-British double tax treaty The Treaty did not change the manner in which income was generally assessed, but it did change the manner in which the French assimilated the effect of the foreign-assessed income, the new system resulting in a tax credit being given on this income. Essentially, the new system is that world income is assessed , and French tax calculated in the normal manner.  This total tax is then expressed as a percentage of the assessable income.   Then, this tax percentage is applied to the foreign-assessed income in order to provide the tax credit to which the taxpayer is due. Changes in the manner in which foreign-assessed income is Declared Foreign-assessed income, such as government income and foreign rentals, are declared in section VI of the pink 2047 form, and then transferred to box 8TK on the main blue 2042 form. Issues with the tax office on pension, government and foreign rental income The first point to bear in mind is that, just as with every country, the French tax forms are intended for French nationals declaring their income.These forms are not specifically designed for foreigners or income that falls under the provisions of a double tax treaty. Therefore, whilst a French national would declare income in section VI of the pink 2047 form, this is then, yes, liable to the social charges. However, a foreign national declaring, for example, UK rental income, in the same section of the form, would not be liable to the social charges. So there is a conflict in the manner in which income is to be treated. Sadly, the provisions of the double tax treaty came into effect before the tax authorities changed their computer systems, causing many incorrect assessments. However, article 6 of the Treaty which covers foreign rental income does still quite clearly state that this income is assessable in the UK.  Full stop.  Accordingly, it is not assessable and cannot be assessed in France. As a result, is not and cannot be made liable to the social charges. Furthermore, and as a safety clause, article 24 which deals with the double tax provisions, states equally clearly that in order to compute French taxation the foreign income will be taken into account - but note that the expression is 'taken into account', and not 'assessed'.  The article then goes on to state that it is not the UK tax paid that is taken into account by the French, but French tax computed in the French manner ... and hence the tax credit as mentioned above. Incidentally, the French tax credit applies whether or not UK tax has been paid. So, clearly, not only is their no right to assess foreign rental income in France, this is confirmed by the manner in which the French account for this income as part of the taxpayer's world income. Now, one reason for which the tax office may apply the social charges can be pursuant to their view of mitigating tax evasion and in order to raise an objection from the taxpayer as to the assessment dues ... so as to then be able to ask for Proof that the rental income has been declared to the UK tax authorities (since too many people don't, in the belief that this is not necessary). Contentions with the tax office One word of warning, as the procedure for complaints and Rectifying incorrect assessments is fairly defined, you should use a professional as frequently taxpayers initially try themselves before seeking profession help, only by then things are frequently too advanced for the tax authorities to accept possibly being in the wrong, to then only confirm prior decisions, and the whole process is then geared to only being solved in court. Finally, unfortunately this year there have been many errors with the tax assessments.    Dr. Michael Annett     Diverses qualifications professionnelles britanniques en  Comptabilité, Fiscalité, Droit, Finance et Gestion de  Patrimoine Université Aix-Marseille Diplôme Universitaire  en Gestion de Patrimoine, Master I, Master II et Maitrise  en Droit, Fiscalité,  Gestion, Finance et  Gestion de Patrimoine   [ mpfa@pelican-consulting.fr ]      PELICAN consulting www.pelican-consulting.fr Consultants in wealth management, financial investments,  banking operations, finance and mortgages,  independant insurance brokers and international taxation. Val says Michael Annett is available to take on your cases  against the tax authorities   and he can be contacted at mpfa@pelican-consulting.fr