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Lockdown due to Covid-19 and its consequences in France on tax residency

Lockdown due to Covid-19 and its consequences in France on tax residency

Published on : 22/07/2020 22 July Jul 07 2020
Advice to individuals

Lockdown measures due to Covid-19 crisis has changed, at least temporarily, daily lives of many people who used to live in more than one country. That can affect the country where a person is deemed, for tax purposes, to have his residence. Ultimately, that can affect the extent of tax liability in France.

v  Background of rules on tax residency
According to domestic law, a person is deemed to have his tax residence in France, if he meets one of the following criteria:
-          He has his household or main place of abode in France
-          Carries on a professional activity, in France
-          He has his centre of economic interests in France.

Double-tax conventions following the model of the Organisation for economic cooperation and development (OECD) has equivalent criteria but their meaning are different from one French domestic law. The criteria of the OECD model tax convention are:
-          Permanent home
-          Centre of vital interests (in particular, personal and economic relations)
-          Habitual abode
-          Nationality of the taxpayer.

Criterion of double-tax convention are examined only if a person may have his tax residence in France and in another country.
Criteria listed by French law are alternative (if one criterion is met, then the taxpayer is deemed to have his tax residence in France) whereas criteria of the conventions are successive (they are examined one at a time. Nationality is a tie-breaker criteria).

v  Legal issue
Many taxpayers travelled outside France for personal or professional reasons at the time the coronavirus outbreak begun to spread extremely fast. Thus, they were stranded abroad because of borders closures. Many taxpayers are I a situation where they do not meet the French residency criteria.
Conversely, some people whose tax residence country was outside France are stranded in France and may become reluctantly, for tax purposes, French resident.
Thus, the tax burden may be heavy. French tax residents are liable to income tax on their worldwide income.
In the opposite, people whose tax resident country is not France are liable to income tax on their French-source income only.
Moreover, non-residents are liable to French income tax at minimum rate of 20%.

v  Guidance issued by tax authorities
Fortunately, French tax authorities issue guidance to take into consideration the exceptional situation due to Covid-19. Tax authorities declare that a temporary stay in France because of lockdown measures or travel restrictions decided by the country of residence will not impact the individuals’ tax residency.

v  Precautions
Lockdown measures have been lifted in France. Almost all travel restrictions have been lifted. However, some individuals have decided by their own and for their own safety, to reduce their traveling routine and have decided rather, to stay longer in the country where they did not leave before lockdown measures.
French tax authorities did not say anything about the situation of self-lockdown.
We believe that the guidance issued by tax authorities are not concerned with that situation. The guidance issued by tax authorities are derogatory. It must be considered strictly.
Given the nature of fact-based approach of residency tests, each situation requires a specific analysis.


The tax law firm located Épône, in the Yvelines department (78), assists individuals in the determination of their tax residence, in filing their income tax return and when, following a tax audit, their tax residence is questioned by tax authorities.

 
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