Not so much an “Année Blanche” as 50 Shades of Grey!
As France moves to the system of “prélèvement à la source” for 2019 it was hoped by many that 2018 would produce something of a tax windfall but, following the final decision taken by President Macron in September to proceed with the plans for prélèvement à la source, then it became clear from the raft of new rules that the “année blanche” would be virtually the same as any other year!
A declaration reporting all 2018 income will still be required in May/June 2019. Broadly, reportable income will then be classified as “non-exceptional” or “exceptional” income. In the first group, there will be income sources such as salary, pensions, and social security benefits whilst exceptional items will include all investment income eg dividends, interest, Assurance Vie gains and capital gains.
Non-exceptional income will be referenced back to similar sources in the previous three years – 2015, 2016 and 2017 – and the highest of those years will be used as a reference income. If the 2018 income exceeds this reference income, then the difference between the 2018 declared income and the referenced income will be subject to tax in 2018. This measure was introduced to prevent individuals with the power to manipulate salary or bonuses etc. being able to generate higher levels in 2018 on the basis that 2018 income would fall out of account.
A tax credit will be applied to the 2018 non-exceptional income. This credit is known as the CIMR (crédit d’impôt modernisation du recouvrement) and will be calculated by reference to the total income, the family co-efficient and the marginal progressive tax rate.
Exceptional income eg dividends, interest, capital gains etc. will be taxed at the “flat rate” applicable which is usually 30% – 12.8% income tax + 17.2% prélèvement sociaux. It is possible to opt for the “old rules” of calculating the liabilities on such income, thereby benefitting from the abatement for dividends and capital gains rather than accepting the 30% flat rate. Whether the old or new rules will be most beneficial can only be determined by doing the maths!
Usual levels of rental income will be eligible for the CIMR for the année blanche but any significant items – such as a lease premium, penalties paid on the breaking of a contract etc. – will be regarded as exceptional and will not receive the CIMR credit.
For individuals with business income (and this is expected to include micro-entrepreneurs) the same rule as for salaries will apply in that the highest of the previous three years will be used as a reference income and if 2018 is more, then the excess will be taxed. If, in 2019, the profit is higher than 2018, it is possible to reclaim the amounts paid on the 2018 excess so as not to penalise growing businesses. Taxpayers have to claim this back themselves as it is not volunteered by the Tax Administration!
Prélèvement à la source ie tax at source will be in the form of a direct withholding from income if the payer is a French entity – think PAYE in the UK from salaries or pensions – or by an on-account or “acompte” payment which the Tax Administration will take directly from a taxpayer’s bank account. On the avis d’impôt issued for 2018 (based on 2017 income) the Tax Administration has already calculated and indicated the monthly acompte payment for each taxpayer.
Households with a RFR (revenu fiscal de référence) of more than €25,000 single occupant or €50,000 for a married/PACs couple are required to report foreign investment income and pay the flat rate tax and prélèvement sociaux by filing form 2778-SD within 15 days of receipt of the income and paying over the tax due. It is not clear how this interacts with the amount taken from bank accounts as an acompte payment so there seems scope for a potential double payment here, although it is clear any tax overpaid in the year via whichever method, does get refunded by the Tax Administration.
As expected there are rafts of penalties for employers who do not withhold or for individual taxpayers who are over-zealous in requesting reductions in their acompte payments. Without doubt it will take a couple of years, at least, to bed in this new system and there are sure to be some penalties applied along the way!