Under Article 4B of the French tax code, persons (French or foreign nationality) are deemed to be domiciled in France for tax purposes if:
Unless the provisions of applicable international tax treaties state otherwise, French tax law provides that any individual having their tax domiciliation in France (i.e. if one of the criteria above is fulfilled) is subject to French income tax on their worldwide income.
However, Article 13 of the French finance bill for 2020 introduced a new tax domiciliation criterion for executives of large French companies. Under certain circumstances, these executives are considered to be exercising their professional activity mainly in France.
Executives as defined by the new criterion of French tax residency
Executives affected are:
Companies as defined by the new criterion of French tax residency
These new provisions apply to companies having their registered offices in France and whose turnover exceeds 250 million euros. This threshold is the sum of the turnover generated in France by the French company plus the turnover of the companies it controls.
The safeguard clause
Article 13 of the French finance bill for 2020 provides that the executives may avoid the application of this new criterion by proving that their professional activity in France is not their main professional activity.
Impact of tax treaties
One of the aims of international tax treaties is to resolve conflicts of domiciliation of individuals, therefore, they may contravene the criteria of Article 4B of the French tax code. Thus, the principle of taxation for the worldwide income of French tax residents will not be applicable.For income tax purposes, and in practice, the new criterion of tax domiciliation for executives may not be applied frequently. Indeed, the provisions of international tax treaties take precedence over French domestic law. For instance, for an executive who fulfils the new criterion of Article 4B of the French tax code while having his/her permanent home in a state that has concluded an international tax treaty with France that incorporates the provisions of Article 4 of the OECD Model Convention. This executive would then be considered as a non-resident of France.With regard to the impact on wealth tax on real estate (“IFI”) and inheritance or gift taxes, it will be necessary to assess if the international tax treaties’ scope includes these taxes. If not, the new tax domiciliation criterion applicable to executives will apply, but the safeguard clause may be invoked if needed.
Effective date of the new provisions
Article 13 of the French finance bill for 2020 applies as from the taxation of 2019 income with regard to income tax, and as from 1 January 2020 for IFI and gift and inheritance taxes.
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