It does not take long for a decision of the Court of Justice of
the European Union to have effect throughout the EU legal order
when it benefits the taxpayer.
Article 164 C provides that any non resident of
France who has residential property in France available for their
use is liable to French income tax on three times the annual rental
value of the property.
Previously, the French administration had argued
that the Freedom of movement of capital standstill provisions in
1993 allowed it to maintain this type of discriminatory
taxation. The French administration is very good at ignoring
Unfortunately certain advisors in other
jurisdictions had been advising non EU residents to file and pay
the tax on a voluntary basis, rather than awaiting an enquiry. What
is more, certain British nationals have also been taxed by the
French administration on properties in France. Whilst this
phenomenon has been limited mostly to the area around Monaco, it is
clear that the French administration have been attempting to take
tax under article 164C in other areas.
A decision of the French Conseil d'Etat on 26th
December 2013, N° 360488 applying an CJEU decision of
17th October, 2013, has confirmed that Article 164 C of the French
tax code is in breach of EU law. Note that it did not see the need
to refer the issue to the CJEU, as the law and the issues were
sufficiently clear. There is no appeal from their
Those believing that the French administration's
interpretation of its legislation is in principle an absolute
should take note of this decision. The French Courts are able to
interpret European Principles and apply these independently of a
reference and of the administration's position.
The European Single Market is based on four
fundamental freedoms, freedom of movement of goods, people,
services and capital. As a general rule, the first three freedoms
apply only to transactions or movements within the EU, but the
freedom of movement of capital is expressed to extend to capital
movements involving third countries as well. This is a point which
renders several EU tax administration's positions on property in
other EU States inadmissible.
Member states are prohibited from enacting rules
that prevent or inhibit the free movement of capital into or out of
the EU under article 57 of the Consolidated Version of the Treaty
on the Functioning of the European Union . There are limits to this
prohibition. In particular, by what is now Article 64.1 TFEU, "the
provisions of Article 63 (prohibiting restrictions on the movement
of capital) shall be without prejudice to the application to third
countries of any restrictions which exist on 31 December 1993 under
national law or Union law adopted in respect of the movement of
capital to or from third countries involving direct investment
- including in real estate -
establishment, the provision of financial services or the admission
of securities to capital markets…".
The French tax authorities argued that if Article
164 C could be construed as a restriction on the movement of
capital between Member States and third countries, it was in force
on 31 December 1993, involved direct investment in real estate and
was therefore valid under Article 64.1. The lack of integrity in
the use of the conditional is incredible!
The Conseil d'Etat, basing its decision on a
decision of the European Court of Justice of 17 October 2013,
C-181/12, Welte said that direct investment in real estate,
for the purposes of Article 64.1, meant investment in relation to
an economic activity, not purely private investment, such as the
purchase of a secondary residence, by an individual as part of the
management of his private assets.
Whilst the decision addressed Monaco, a non EC
territory, the principle is a general one.
The upshot of this decision is that Jersey
residents are not liable to French income tax under Article 164 C
and, where they have been influenced into paying it, should
be able to reclaim tax previously paid on this basis.
Those who have declared and paid, despite Overseas
Chamber's previous position to the contrary, should contact the
firms having advised this action to institute reclaims of
taxes unduly paid within the usual time limits.
Overseas Chambers can help in dealing with
repayment claims and advising on other tax ramifications of the
For more information please contact Peter