Confinement and tax residence in France: risks for non-residents
In response to the progression of COVID19, a number of governments have put in place confinement measures to prevent the free movement of people. To this was added the slowdown or even the stopping of air traffic limiting or blocking foreigners outside their home.
Some non-residents were thus stayed in France, unable to return to their country of usual residence. Thus, the duration of their stay in France is lengthened. This situation raises the question of whether this prolonged and forced stay of non-residents in France, due to containment measures, could jeopardize their tax residence. The stakes are high since individuals who have their tax domicile in France are taxable on all of their income (French and foreign) while those who have their tax domicile outside France are liable to French based income only.
In the same way, natural persons having their fiscal domicile in France (as soon as the value of their taxable net property heritage is greater than 1.3 million euros) are subject to property wealth tax (IFI) , on account of their immovable property and property rights held directly and indirectly in France and outside France, whereas non-residents are only subject to the IFI on the basis of their property and property rights located in France.
Under French internal law, a person will be considered to be domiciled for tax purposes in France if one of the following conditions is met (article 4 B of the General Tax Code):
- She/he has home in France (ie her/his family) or the place of her main stay (for taxpayers who have no home); or
- She/he exercises a professional activity in France, whether salaried or not, unless she/he can justify that this activity is exercised there on an ancillary basis (since the finance law for 2020, the directors of companies whose headquarters are located in France and who have an annual turnover of more than 250 million euros there are considered to be exercising their professional activity in France primarily, unless they provide proof to the contrary. the conditions defined in Article L. 233-16 of the French Commercial Code, turnover means the sum of their turnover and that of the companies they control); or
- She/he has in France the center of its economic interests.
These criteria being alternative and not cumulative, it is sufficient that only one is fulfilled for tax domiciliation in France to be established, regardless of whether the person is considered, in foreign law, as a tax resident of another country. In the event of a conflict of tax residences (the natural person being considered as both a tax resident in France and abroad by the tax authorities of the countries concerned), the question will be decided by the application of the applicable tax convention, which prevails over national internal law.
Therefore, if due to confinement, a person, alone or with his family, remained in France for an extended period, could he be considered to have transferred his home to France for the year 2020?
The Council of State ruled on this question in 1995 regarding an extended stay in France due to illness. A couple had stayed in this case for long periods in France for a period of 2 years in an apartment which they owned due to the illness of the mother of the taxpayer’s wife. It had been clarified in this judgment that “the home means the place where the taxpayer normally lives and has the center of his family interests, without taking into account stays temporarily made elsewhere because of the necessities of the profession or exceptional circumstances ”(CE, sect., 3 Nov 1995,“ Larcher ”). The extended stays in France during these two years did not therefore lead to the transfer of the household to France.
The Direction of Taxes of Non-Residents (DINR) has also indicated in a recent press release that a temporary stay for confinement in France, or travel restrictions (“travel ban”) decided by the country of residence, is not likely to characterize a tax domiciliation in France, under article 4 B of the General Tax Code. The tax administration also specifies, in this press release, that with regard to international conventions, the fact that a person is temporarily detained in France, due to a case of force majeure, is not of such nature, because sole reason, to consider her as having established her permanent home or the center of her vital interests there.
Thus, assuming that non-residents certainly do not meet any other criteria for tax domiciliation in France (for example, not having France as the center of his economic interests), their prolonged stay in France in 2020 due confinement should be considered as resulting from exceptional circumstances and should not entail transfer of their home to France.
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