The Loi de Finance 2013 scrapped the old Prélèvements Libératoire flat rate taxation of dividends
The Loi de Finance 2013 scrapped the old Prélèvements Libératoire flat rate taxation of dividends and introduced a withholding tax of 21% and the concept of dividends being subject to tax at the taxpayer’s marginal rate of tax. However, if the household Revenu fiscal de Référence (RFR) in the year before last was below prescribed amounts, (being 50,000€ for singles and 75,000€ for couples) then it is possible to opt out of the requirement to suffer withholding tax at source.
There was much discussion in the early part of this year about the short time available to make this opt-out declaration, as the time limit imposed was just 31 March 2013 for 2013 and 30 November 2013 for the 2014 year.
Since it was thought unlikely that foreign companies would be prepared to act as unpaid tax collectors for the French Government, it was generally understood that if no withholding tax was accounted for and paid over by the company paying the dividend, then responsibility for paying the tax to the French Government rested with the individual –so called “self-withholding”. The payment mechanism is enshrined in the new form 2778-DIV-SD and the payment of the 21% income tax and the prélèvements sociaux is due within 15 days of the end of the month in which the dividend is received.
Now it appears, the goal posts have moved slightly but this has had a significant and unforeseen, impact.
Firstly, the tax code (tax legislation) categorically states that taxpayers resident in France who receive foreign dividends are only required to comply with the “self withholding” if their RFR is equal to or above the limits detailed above. So there is no requirement, or even a mechanism, for those with lesser incomes actually to “opt-out” .
However, the Code Général des Impôts is not mirrored by the Code de la Sécurité Sociale which leads to a strange dichotomy. Taxpayers with average income and UK dividends are not required to do anything different for 2013 on the tax front – there is no 21% “self-withholding” BUT they are caught up in the need to make the “self-withholding” for CSG/CRDS, the so-called social charges!!
Such a taxpayer does not even have the option to opt-out of this whole fiasco for 2014 because the tax code says he is not caught in it, in the first place!
This is an intolerable situation; far from being exonerated from filing this form, such a taxpayer is required to complete and file the form 2778-DIV-SD and pay over their 15.5% CSG/CRDS social charges each and every month they receive dividend income! There seems to be no logic to this situation and it has never crossed the consciousness of the relevant authorities that the poor taxpayer is caught in a Catch 22 trap between the tax code and the social security code over his foreign dividends. A Gallic shrug of the shoulders suggests that it is not high on their list of priorities but we have written to explain the issues and, at the very least, asked the authorities to consider establishing a de minimus limit for CSG/CRDS reporting.
As with many things relating to the French tax system , local interpretation often puts a different slant on things but we sincerely hope that some common sense is applied to this particularly frustrating situation. In the meantime, the taxpayer has to play Russian roulette with their reporting – file and pay or ignore and hope their particular Tax Office does not impose a penalty later!
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