Determining tax residence has important implications. Indeed, under the terms of Article 4 A of the General Tax Code, "persons who have their tax domicile in France are liable for income tax on all of their income. Those whose tax domicile is located outside France are liable for this tax on their income from French sources only."
Thus, from the moment a taxpayer establishes that he has transferred his tax residence outside France, the French tax administration will not be able to tax an income unless it establishes that it is income from a French source, such as income from real estate located in France or income from a professional activity carried out in France. Article 164 B of the General Tax Code lists all other income that may be classified as a French source.
The determination of tax residence also has important issues in terms of IFI (property wealth tax). Indeed, article 964 of the CGI provides that French tax residents are taxable on real estate located in France and abroad, while non-French tax residents are only taxable on property located in France.
It may also happen that a taxpayer wishes to retain the status of French tax resident (in order to benefit in particular from tax advantages reserved for French tax residents).
How do you know if you are a French tax resident?
Contrary to a commonly held idea, it is not enough to automatically stay abroad for more than six months to become a non-French tax resident .
Indeed, Article 4 B of the General Tax Code provides in particular that taxpayers who are French tax residents are:
who have their "home" or main place of residence in France
OR who exercise a professional activity in France, whether salaried or not, unless they can prove that this activity is exercised there on an ancillary basis;
OR who have the center of their economic interests in France
The concept of "home" referred to in Article 4 B is highly subjective and casuistic. It is not the one usually understood when speaking of "tax household". The Council of State ruled in the Larcher judgment of 3 November 1995 that the concept of home is understood to mean the place where the taxpayer normally lives and has the centre of his family interests, without taking into account stays made temporarily elsewhere due to professional requirements or exceptional circumstances. Thus, a taxpayer may very well stay more than six months abroad for professional reasons and have his home in France if, for example, he returns to France to see his family during the school holidays.
Contrary to what is often said or even written, it is only in the absence of being able to be part of a "household" within the meaning of Article 4 B that the judge will attempt to determine the main place of residence in which the length of stay abroad will this time be important (this may sometimes be the case for a single or divorced person without dependent children).
In practice, in the event of a tax audit , it is very difficult for a taxpayer to escape each of the three criteria of Article 4 B. It is therefore very common for the taxpayer to find himself in a situation of dual tax residence to the extent that the domestic law of the foreign state with which the taxpayer has links may also consider this taxpayer as a tax resident of his country under its domestic law.
Fortunately, France has concluded tax treaties with more than 120 countries to combat double taxation. These treaties make it possible, in particular, to determine the country of tax residence of a taxpayer in the event of tax residence disputes.
Criteria for determining tax residence under most tax treaties
Many tax treaties follow the so-called "OECD" model. The latter establishes a list of criteria to be taken into account successively in order to resolve tax residence disputes. For example, it is stipulated that the first criterion to be taken into account is that of the permanent home, namely a dwelling that the taxpayer can freely dispose of. In other words, if the taxpayer does not have a permanent home in the country with which France has not concluded a tax treaty, the taxpayer will be considered a French tax resident (provided that one of the criteria of Article 4 B of the CGI seen above are met).
If the taxpayer has a permanent home in both states, then the next criterion must be analyzed, which is the "center of vital interests", i.e. the country with which the taxpayer has the "closest personal and economic" ties.
Here again, this notion is very subjective and casuistic. A decision of the Administrative Court of Lyon of October 26, 2006 involving the former international football player Laurent Blanc perfectly illustrates this complexity.
In this case, the Administrative Court of Lyon first considered that Laurent Blanc had his home in France within the meaning of Article 4 B on the grounds that he had maintained his French address in his income tax returns and had not declared his transfer of tax residence. The Court then considered that he also had his centre of vital interests in France since, even though he had received a very comfortable salary from an Italian club, namely Parma (6,298,965 F between 1 July 1991 and 21 September 1992), he also held significant shareholdings in various French companies, which meant that the "economic branch" of the centre of vital interests criterion was relatively indeterminable. However, since the "personal branch" of the centre of vital interests criterion leaned more towards France since his closest family resided there, the Court considered that the centre of vital interests was located in France. Laurent Blanc was therefore considered by the Court to be a French tax resident.
This ruling was however overturned by the Council of State in a decision of 17 March 2010 on the grounds, in particular, that the simple fact of providing a French address and not declaring the transfer of tax residence is not sufficient to consider that Laurent Blanc's home was in France. In this decision, the Council of State takes up a concept specific to the determination of the homes of single people, namely the centre of personal life (as opposed to the centre of family interests for non-single people).
As we have seen, determining the country of French tax residence is complex and requires significant mastery of case law to apply this concept to a given case. The office of Me Nicolas Rozenbaum is at your disposal for any questions relating to the determination of your tax residence, particularly in the event of a transfer of this to another state.
Please note that this information, up to date as of February 12, 2021, has been deliberately simplified and summarized for educational purposes and does not constitute legal advice.
For any consultation request, particularly remotely, you can contact Me Nicolas Rozenbaum directly by clicking here.
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