A convention between FRANCE and the UNITED KINGDOM for the avoidance of double taxation and the prevention of fiscal evasion and avoidance with respect to taxes on income and capital gains, together with a protocol, was signed in London on June 19, 2008.
The agreement of June 19, 2008, replaced the agreement of May 22, 1968, as amended by four successive addenda.
In terms of general provisions, the agreement has similar features to other international agreements with FRANCE.
- Persons covered :
The agreement applies to residents of FRANCE, THE UNITED KINGDOM or both.
- Taxes covered :
Paragraph 1 of Article 2 of the agreement lists the taxes covered by the agreement:
“The taxes to which this Convention shall apply are: (a) in the case of the United Kingdom: (i) income tax; (ii) corporation tax; (iii) capital gains tax; (hereinafter referred to as “United Kingdom tax”) ; b) in the case of France, all taxes levied on behalf of the State or its local authorities, irrespective of the system of collection, on total income or on items of income, including taxes on gains from the alienation of movable or immovable property, taxes on the total amount of salaries paid by companies, and taxes on capital gains, and in particular : (i) income tax; (ii) corporate income tax; (iii) social security contributions on corporate income tax; (iv) payroll tax; (v) general social security contributions; (vi) social security debt repayment contributions”.
For FRANCE, these include income tax, corporate income tax, the social contribution on corporate income tax, payroll tax, general social contributions and contributions for the repayment of the social debt.
- Real estate wealth tax :
Since January 1, 2018, the ISF has been replaced by the real estate wealth tax (“l’impôt sur la fortune immobilière”), whose base is restricted to real estate and real estate rights held by the taxpayer, directly or through a company or organization.
In its administrative comments on this new tax, the French tax authorities stated in a remark that “the principles guiding the interpretation of the provisions of tax treaties used for the wealth tax are used for the wealth tax. However, a treaty applicable to the solidarity tax on wealth is not necessarily applicable to the wealth tax, as a case-by-case examination of the treaty provisions is necessary”.
- Tax credit for French tax residents :
The tax credit for French tax residents is equal to the amount of French tax corresponding to income taxable in the UNITED KINGDOM. The income qualifying for the tax credit is income included in the UK tax base, without the person concerned being exempt on the grounds of his or her status or activity but does not require such income to have been subject to effective taxation. As regards French social security contributions, the granting of a tax credit equal to their amount is not subject to the condition that the income subject to these contributions has been included in the base of an equivalent or similar tax in the UNITEDKINGDOM.
In a ruling handed down on February 12, 2020 (no. 435907), the French State Council (“Conseil d’Etat”) clarified the contours of the tax credit intended to eliminate the double taxation provided for in the treaty between France and the United Kingdom.
The tax credit for residents of FRANCE is equal to the amount of French tax corresponding to income taxable in the UNITED KINGDOM. Income qualifying for the tax credit is income included in the UK tax base, without the person concerned being exempt on account of his or her status or activity. In the absence of a condition of effective taxation in the UNITED KINGDOM, social security contributions must be counted among the taxes giving entitlement to the credit.
- Tax credit for UK tax residents :
When a person becomes tax resident in the UNITED KINGDOM and continues (or starts) to receive income and/or gains abroad, there is generally an obligation to submit a UK tax return.
The fact that an individual resident in the UNITED KINGDOM is only taxable on foreign-source income if the latter is repatriated to the UNITED KINGDOM, the person must file the tax declaration in both countries.
At the same time, such a person is not deprived of the status of resident within the meaning of the current treaty insofar as such income is theoretically taxable in the UNITED KINGDOM subsequent to the year in which it is received.
Similarly, tax residency is not conditional on unlimited tax liability in the country of residence, as the French State Council (“Conseil d’Etat”) considers that the decisive criterion for qualifying as a tax resident is the taxpayer’s tax liability on the basis of the ties he or she has developed with the country of residence, and not the extent of the tax liability to which the taxpayer is subject there.