Tax

France Has Overturned Tax Rule Affecting Second Homes, But Caution Still Needed - BDO

Tom Burroughes Group Editor London 8 December 2014

France Has Overturned Tax Rule Affecting Second Homes, But Caution Still Needed - BDO

Accountants at BDO in Guernsey are urging clients to be careful about making claims about tax in cases where French holiday homes are rented out to non-residents, after a recent part of France’s tax code was axed.

Accountants at BDO in Guernsey are urging clients to be careful about making tax claims in cases where French holiday homes are rented out to non-residents, after a recent part of France’s tax code was axed.

In a note, the firm pointed out that what is called notional income taxation (Article 164c of the French tax code) that affects French second homes owned by certain non-residents may, at last, be history.

On 26 December 2013 and 11 April 2014 the Conseil d’Etat ruled that notional income taxation breached European Union rules about freedom of movement of capital. Although both these rulings concerned residents of Monaco, they give "solid ground for residents of other concerned jurisdictions to appeal against this form of taxation without incurring high legal costs", the accountancy firm said. BDO said it was quoted as much as €20,000 ($24,567) to take the matter to court in the past.

“Initial claims filed on behalf of Jersey and Guernsey French home owners were met by robust resistance and systematic rejection from the tax office. The matter had to be taken to the ombudsman on several occasions. Thankfully, we are now seeing a steady flow of tax refunds going back to 2011 and cancellations of the 2013 liabilities,” the firm said.

“Caution should nevertheless be exercised when considering lodging a claim where the French property has been rented out. Indeed Article 164c is not abolished and the notional income tax refunds may thus only apply in situations where the property is purely for private use. Furnished rentals in France are treated as a commercial activity,” it said.

And BDO finished with this warning: “The deadline to claim the 2011 tax back is 31 December 2014 and the normal French tax appeal procedure must be respected.”

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