Tax Domicile Is Not Tax Residence | Withholding Tax On French-source Wages, Salaries And Pension (Under Article 182 A Of The French Tax Code): What Practical Implications? – Withholding Tax

In a decision handed down on 5 February this year, CE, 5 févr. 2024, n° 469771,
Société Axa Group Opérations the French
Administrative Supreme Court strictly applied the provisions of
Article 182 A of the French Tax Code (FTC), thereby overturning the
French tax doctrine in force.

As a reminder, article 182 A of the FTC provides for
the application of a withholding tax on French-source salaries,
wages, pensions and life annuities paid to persons who are not
domiciled in France for tax purposes. Although this tax domicile is
not expressly defined by reference to French domestic law or tax
treaties, French tax doctrine indicates that tax residence within
the meaning of the applicable tax treaty should be taken into
account). Where applicable, the withholding tax is calculated
according to an annual scale with three brackets (at rates of 0%,
12% and 20% in mainland France and 0%, 8% and 14.4% in the overseas
departments), only part of which is in full discharge of the income
tax due in France. Such withholding tax applies unless otherwise
provided in the applicable tax treaty.

With this decision, the French Administrative Supreme Court
draws the importance of the distinction that must be made between
tax domicile within the meaning of French domestic law and tax
residence within the meaning of the bilateral tax treaty. In
essence, it points out that an employee won’t have the
withholding tax under Article 182 A of the FTC applied to his
French-source salaries if he/she is domiciled for tax purposes in
France within the meaning of Article 4 B of the FTC, even if he/she
is not a French tax resident within the meaning of the applicable
tax treaty.

Accordingly, a French company to which an employee who is a
foreign resident within the meaning of a tax treaty has been
seconded by a foreign company will not have to apply the
withholding tax on the portion of the remuneration corresponding to
the activity carried out on French territory, but rather the
“prélèvement à la
source” (which is another mechanism), provided that the
employee is domiciled for tax purposes in France within the meaning
of French domestic law and that the applicable tax treaty requires
taxation in France, as the withholding tax is not a tax but a
taxing method.

As a reminder, a person is resident in France for tax purposes
(within the meaning of French domestic law) in one of the following
cases:

• He/she has his/her home or main place of residence on French
  territory,




• He/she carries on a professional activity in France, whether
  salaried or not, unless he/she can prove that this activity is
  carried on in France on an ancillary basis,




• He/she has his/her centre of economic interests in France,




• He/she is a civil servant carrying out his/her duties or
  mission in a country where he/she is not subject to personal tax on
  all his/her income.

Given the above, a parallel could be drawn with the preferential
tax regime for impatriation, which gives employees relocated from a
foreign country in order to work in a company based in France
entitlement to partial exemptions from French income tax. Indeed,
Article 155 A of the FTC expressly states that the impatriation
regime applies, among other conditions, to persons who are
domiciled in France within the meaning of a and b of article 4 B,
paragraph 1 of the FTC. As for the French tax doctrine commenting
on such specific scheme, it adds a further condition not
contained in the law by specifying that if the impatriate
is not a French resident within the meaning of the applicable tax
treaty, even though he or she complies with the conditions of
domicile provided for in article 4 B, 1-a and b of the FTC, the
preferential tax regime of impatriation won’t be
applicable.

This position of the French tax authorities appears highly
questionable, especially as Article 155 B of the FTC only refers to
French domestic law to define tax domicile, unlike Article 182 A,
which refers to “domicile fiscal” without any further
clarification.

As French tax doctrine is not law and has no regulatory value,
the French tax authorities should not be able to base reassessments
on their own doctrine, which any taxpayer could decide not to
follow in this case. To do so would be to run the risk of an
adjustment and subsequent litigation, which should nevertheless be
favourable to the taxpayer.

The French preferential tax regime for impatriation should
therefore theoretically apply to any taxpayer domiciled in France
because he/she has his/her home or main place of residence there or
because he/she carries out a professional activity there on a
principal basis, even if he/she is not a French tax resident within
the meaning of the tax treaty.

It is also legitimate to wonder about the possibility of
extending such reasoning to other levies, such as the withholding
tax on dividends (119 bis of the FTC) or certain capital gains (244
bis A and 244 bis B of the FTC), which might not apply when the
beneficiary has his or her tax residence (within the meaning of
French domestic law) in France.

Lastly, it should be noted that the French Administrative
Supreme Court has not adopted the Court of Appeal’s reasoning
in terms of which the entire remuneration paid to a corporate
officer should be subject to withholding tax in France and not the
sole portion of this remuneration corresponding to the activity
carried out on French territory (It has simply not taken a position
on this issue). There is, however, nothing new in this respect, as
past case law already requires particular attention to be paid to
remuneration in respect of corporate office, which is not
necessarily prorated.

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