French social levies on real estate income: opportunity to claim a refund

January 28, 2015

The context 

Real estate incomes and gains received by non-French resident individuals are subject to social levies at the global rate of 15.5% (in addition to the applicable income tax), as of 17 August 2012. 

In regards to real estate gains, these charges will apply after the computation of an annual allowance which reduces the taxable basis of the gain depending on how long the property has been owned (total exemption after 22 years of ownership for income tax and 30 years of ownership for social levies). 

The expected decision 

The application of the social levies in France is currently being challenged before the European Court of Justice (“ECJ”) (Case C-623/13); the European Commission has also opened an infringement procedure against France (EU Pilot 2013/4168 – the procedure is currently suspended while awaiting the reply of the ECJ). 

The question arises whether French social levies applicable to income from real estate assets fall within the scope of the EU regulation No 1408/71, that states that a European individual should be subject to only one social security regime and pay social levies only in that State. 

Advocate General Sharpston at the ECJ rendered her opinion on 21 October 2014, stating that it is very likely that French social levies on properties are not compliant with EU Regulation. Although the ECJ can decide not to follow the Advocate General’s opinion, it is usually a clear indication. 

Who can claim 

Assuming that the ECJ rules a favorable decision, the EU residents who have paid social levies in France in the sale of French property or on French rental income should be able to claim back the levied social contributions from the French tax authorities. 

In such a case, non-EU residents may also be able to claim for the repayment of the social levies paid in the past on the ground that non-EU residents must be treated equally with EU residents. 

Procedure to claim a refund 

Basically, taxpayers could make a claim until 31 December of the second year following the year of payment of the contributions. Although, based on a recent decision of Administrative Tribunal of Paris, the opportunity seems to be reduced from two years to one year for capital gains (rental income should not be in the scope of such unfavorable regime). 

Accordingly, social levies paid on capital gains related to French real estate properties which occurred in 2014 are concerned (and, of course, the sales that will occur in 2015). Some arguments could be made for the sale of French property in 2013.

Either way, time limits to file a claim should be checked carefully on a case-by-case basis. 

Claims should be filed by taxpayers as soon as possible (despite the fact that the ECJ has not yet rendered its decision) in order to preserve their right as the possible abrogation of litigious provisions does not have retroactive effects.

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