Your right to be reimbursed for the social withdrawals has been established by the French justice in a decision of the administrative court of appeal of Nancy on 31st May 2018 !
This decision is the fruit of a long judicial fight against the French State and is based upon the community law which is superior than the French law :
Year 2000: the beginning
The European court of justice considers for the first time that the levy of the CSG and the CRDS on the employment income of taxpayers who are subjected to the social security legislation of another Member State is:
“Inconsistent both with the prohibition against overlapping social security legislation laid down in Article 13(1) of Regulation No 1408/71 and with the Treaty guarantees of freedom of movement for workers and freedom of establishment”.
France has since complied with this decision.
However, the fate of social contributions on capital revenues remained unresolved.
Year 2015: a key year in 3 acts
1st act: France is sanctioned by the European courts:
The European court of justice ruled again in favour of taxpayers by its famous decision “De Ruyter” dated 26thFebruary 2015, stating that, in accordance with the principle that the legislation of a single Member State applies in matters of social security, it is forbidden to require a person to pay social contributions in a State other than the one he is affiliated to.
In its decision dated 17th April 2015, the French supreme court for administrative matters (“Conseil d’Etat”) has aligned its position with the European court of justice by reminding the fundamental principles as follow:
- The existence or the lack of counterparts in terms of benefits is not relevant,
- The fact that a contribution is described as a tax by the legislation of a Member State does not exclude the application of Regulation No 1408/71
- Persons who are not subject to the French social legislation shall not pay contributions within the scope of Regulation No 1408/71.
2nd act: France bowing before the courts decisions:
Forced to abide by the decisions of the highest European and French courts, the French tax administration accepted to refund social contributions.
Our law firm was at the forefront in this first phase of the litigation and was able to obtain the refund of the amounts wrongly paid to the tax administration for a large number of our cross-border and foreign customers.
3rd act: France circumvents by a sleight of hand the jurisprudence “De Ruyter” to maintain the social levies!
The French government has voted under the Social Security Financing Act for 2016 (Law No. 2015-1702 of 21 December 2015), a provision (Article 24 of the law) intended to defeat the Community case law and thus authorize the tax administration to re-impose social security contributions on the capital of taxpayers in the social security system of another State!
In broad terms, the law has affected the proceeds of social security contributions to social organizations – namely the Solidarity Fund (FSV), the Social Security Debt Fund (Cades) and the National Solidarity Fund for Social Security autonomy (Cnsa) – providing non-contributory benefits, that is to say, paid without the beneficiaries having to contribute to a compulsory social security scheme.
Since 1stJanuary 2016: capital revenues are again subjected to social contributions.
The scope and the methods of application of the social contributions are maintained.
Payment of social contributions on capital revenues is reactivated against:
- Individuals residing in France, even if they are not subjected to the French social legislation
- Non-residents as far as their rental revenues and capital gains on real estate of French origin are concerned.
Moreover, social contributions also apply:
- With retroactive effect, to the capital revenuesearned as of 2015 and which are mentioned on the tax declaration. This is the case for the rental revenues earned in France in 2015 by non-residents.
- Starting from 1st January 2016, to capital gains on real estate that have been sold after the 1st January 2016.
Finally, since the 1stJanuary 2018, the amount of social contributions has switched from 15.5% to 17.2%.
Year 2017: first cases and first decision sanctioning the new scheme
As claims were quickly filed to challenge the new legislation and obtain reimbursement of social contributions, a first favourable ruling was issued by the administrative court in July 2017.
According to this decision, the Social Security Financing act for 2016 has been declared inconsistent with the European law and, in particular, with the prohibition against overlapping social security legislation.
The court’s reasoning is clear and straightforward:
At first, the judge outlines the intention of the French government concerning the adoption of this Social Security Finance act, which aims to find a legal solution to subject again to social contributions the capital revenues of persons who belong to another social security legislation:
There is no doubt about the fact that the article 24 of the Social Security Finance act for 2016 has transferred the income resulting from social contributions to non-contributory benefits in order to take into account the “De Ruyter” decision and to subject again to social contributions the capital revenues of persons who belong to another social security legislation.
By allocating the product of social contributions to different branches of the health system such as the Old age solidarity fund (“Fonds de solidarité vieillesse” – FSV), the Social debt redemption fund (“Caisse d’amortissement de la dette sociale” – Cades) and the National solidarity fund for autonomy (“Caisse nationale de solidarité pour l’autonomie” – Cnsas), the legislator wanted to bring the French law into conformity with the European law but also to maintain the income resulting from social contributions on capital revenues in the “social sphere” and to allocate it to non-contributory benefits that are outside the health system according to the European laws and are not subjected to the affiliation to the social security system.
In a second step, the judge considers that the new scheme implemented by the French government does not lead to a compliance of the French law with the Regulation No 1408/71.
Indeed, even if the allocation of the income resulting from social contributions has changed, it is still assimilated to “social security contributions” under Regulation No 1408/71.
This is the case for the Old age solidarity fund (“Fonds de solidarité vieillesse” – FSV) as far as it is destined to finance old-age benefits that are under the article 4 of the Regulation No 1408/71.
This also applies to the Social debt redemption fund (“Caisse d’amortissement de la dette sociale” – Cades) which aims to reduce the debt of the mandatory social security system caused by the funding of benefits served in the past.
Lastly, the National solidarity fund for autonomy (“Caisse nationale de solidarité pour l’autonomie” – Cnsas) is also concerned because it is destined to the help the elderly who are losing their autonomy as well as disabled persons and shall be assimilated to “health benefits” under article 4 paragraph 1 a) of the Regulation No 1408/71.
Moreover, the judge considers that non-compliance of the French law with the European law – because of the direct and relevant link between the social contributions and different branches of the French health system – is so obvious that it is not necessary to bring the case to the European Court of Justice!
Year 2018 : the recognition of the right to reimbursement by the Administrative Court of Appeal of Nancy
By judgment of 31stMay 2018, the Administrative Court of Nancy decided that the major part (14.05% of the taxable income) of the overall products of the social security contributions (total of 15.5% of the taxable income) allocated to the financing of the “financement du Fonds de solidarité vieillesse” (FSV) Old Age Solidarity Fund (FSV) and “la Caisse d’amortissement de la dette sociale” the Social Security Debt Fund (CADES) was to be immediately reimbursed to the taxpayer.
For the Court, since they finance social security benefits, these social security contributions fall within the Regulation (EC) No 883/2004 and are therefore governed by the principle of unity of the legislation provided for by this text and that the taxpayer cannot be subject to social security contributions in another state than the one he depends on for his social security.
For the lesser part of social security contributions, being 1.45% of the taxable income, serving to finance the Caisse nationale de solidarité pour l’autonomie (CNSA), the court decided to stay proceedings and to ask the European Court of Justice to statue on whether the services rendered by the CNSA, being the “independence social allowance” (APA) and the disability compensation allowance (PCH) (…) are illness benefits covering additional expenses of everyday life, in which case they would also be fall within the Regulation EC No. 883/2004 or whether they are welfare benefits since the beneficiary’s income is taken into account for granting them.
In a judgment dated the 14thof March 2019 (Case. C-372/18), the Court of Justice of the European Union answered this question by classifying the services managed by the CNSA as « prestations de sécurité sociale » “social security benefits” so that the French government was not allowed to subject taxpayers not covered by French social legislation to the social security contributions that provided the financing (e, 45% of taxable income).
It is therefore the totality of the social security contributions which burdened the income of the property of the taxpayers falling under another social legislation which has been invalidated, thus opening the way to actions in repayment.
As a result, today the taxpayers who were not affiliated to the French social security system and who were wrongly subjected to social contributions which intended to finance the Old age solidarity fund (“Fonds de solidarité vieillesse” – FSV) and the Social debt redemption fund (“Caisse d’amortissement de la dette sociale” – Cades) are entitled to claim the refund of those social contributions (CSG, CRDS).
The reimbursement of the share (1.45%) serving to finance the National Solidarity Fund for autonomy (CNSA) will be claimed as part of the same reimbursement proceeding. It is indeed not necessary to wait for the decision of the European Court of Justice to form a complaint now.
Finally to be complete, the Minister of action and public accounts appealed in cassation on July 31, 2018 against the judgment n ° 17NC02124 of May 31, 2018 by the Administrative Court of Appeal of Nancy. The cassation appeal was registered at the Conseil d’Etat (8th Chamber) under number 422780.
Concerning the non-residents, the Conseil d’Etat has cancelled by its decision of April the 16th2019 the fiscal documentation published by the French administration concerning the taxation of the capital gains on real estate to the social levies by considering this documentation resumed the content of a French tax law contrary to the community law.
With regards to the cross-border workers, the Conseil d’Etat, by a decision dated the 1stof July 2019, considered that, in so far as they finance social security contribution, those social levies fall within the scope of regulation CE n°883/2004 and are governed by the principle of uniqueness of the legislation provided by this text, which means that cross-border taxpayers cannot be subject to social security contributions in a state other than the one for which the tax payer is dependent for its social security.
All lights are green to take an action before it’s too late!
Finally, the fact that the French government eventually acknowledged the non-compliance of these social levies by having adopted at the Parliament a provision that deletes them for the future (see below) fully justifies the taxpayer taking action to obtain the return of the levies for the years 2016 to 2018.
The finance bill 2019 has adopted the abolition of the social security contribution with effect from 1 January 2019.
Article 26 of the Finance Bill has finally put an end to all these years of procedure by releasing taxpayers under other European social legislation social levies which they were wrongly paid so far on their income.
According to this provision, which results from a parliamentary amendment, the taxpayers – whether they are in a non-fiscally domiciled in France – are for the future exempt from CSG and CRDS on their income from capital to the extent that they fall under a social security scheme of another EEA country or Switzerland.
The attention of the taxpayers must however be drawn to the fact that this suppression is only valid for the future so that the tax administration will not spontaneously make any refund compared to previous years (2016 to 2018).
Taxpayers must take the initiative to initiate an action for reimbursement.
Clearly, the law will apply in time and for the future as follows:
- for property income and other capital income shown on the tax notice: from the 2019 tax notice – income for the year 2018 is no longer subject to the CSG / CRDS.
- for property sales: since January 1, 2019, real estate gains are no longer subject to CSG / CRDS social security contributions.
Attention: taxpayers will have to pay a new contribution, namely “prélèvement de solidarité” (solidarity levy) of article 235 ter of the CGI, at the rate of 7.5%.