Question
I WAS surprised to read June’s article on merging social charges and income tax as the European Commission forced French tax authorities to stop levying social charges on expats with a E121 form as it was unfair. Now they want to restore these charges via the back door.
Holders of E121s should not to have to pay extra charges on their pension income, aimed at reducing the French national debt, since they are not responsible for this debt, and all their medical costs (up to the French 70%) are paid by the UK. Indeed, we pay social charges on investment income which is also unfair. Expats should be lobbying now to ensure residents with E121s get their tax burden reduced.
The article’s statement that overall tax is less here than in the UK is not relevant – the bottom line is that it is not acceptable for foreign residents to pay for their healthcare twice, once through UK NI
contributions and again in the French tax system. A.G.J.
Answer
LOOKING at your “bottom line” of healthcare first, it is not actually included in the proposals to amalgamate the tax and social charges system as it is not part of the charges mentioned – “contribution à la réduction de la dette sociale” (CRDS), the “contribution sociale généralisée” (CSG) and the “prélèvement social” (PS).
The term “social charges” takes in the three above-mentioned charges plus the healthcare charge [paid by employers and employees on salaries] and, thirdly, the similar charges paid by the self-employed.
There is also confusion over the relationship – or lack of relationship – of the E121 to the CSG, CRDS and the PS. As said above, healthcare is not, in itself, anything to do with the three social charges.
The E121 certificate is one of several European measures to exempt someone from having to pay healthcare charges in another country, based on their home country’s health contributions, rules and rights. Likewise for the EHIC card, or the E106, and so on. However, “E” certificates only provide an exemption from paying the healthcare costs in another EU country. Nothing else.
You can use the E121 if you are entitled to the state old age pension.
The only link between healthcare and CSG, CRDS and PS is that there is an exemption from the CRDS if you are not benefiting financially from the French health system – such as if you have an E121.
Other than this, and with regard to the three social charges:
- the exemption to CSG, CRDS and PS on state pension income comes as a state pension is paid because social charges were paid in the past – in this case UK national insurance – and one cannot apply social charges to income that is itself generated from social charges.
- the exemption to the three social charges on all other private and company pension income comes from the European Commission, which extended the above exemption by way of penalty.
The French tax authorities cope marvellously well with these exemptions, especially once the proof of the entitlement to the exemption is provided, so there is no reason to suppose that this will change.
So, with regards to your comments:
- the E121 certificate is not an exemption to the three charges. It is an exemption from paying for French healthcare and is linked to receiving a state old age pension.
- the exemption to CSG, CRDS and PS on pension income comes from having the state old age pension and is extended to all private (including pension annuities) and company pensions by way of an European Commission penalty on the French.
- No one suggests the healthcare charge exemption is going to change.
- With regards to the fairness or otherwise of the application of social charges: first, their names are largely academic, chosen in the past to explain the additional levy and make it more politically palatable. Secondly, they are really part of the fiscal system as the French chose social charges as a means of increasing the tax take rather than tinker with the tax system itself. It was simpler, affected all taxpayers and allowed a lower rate to be applied overall.
- Yes, the UK pays for the healthcare costs of the British in France on a forfeit basis, which, as mentioned above, is one reason why there is no change envisaged with this EU arrangement.
Your question focuses on the inconsistent arguments that France has used with reference to social charges: it says they are part of the overall tax system when it suits them – and just as often says they are a separate charge altogether.
This inconsistency was one of the reasons the European Commission penalised France by extending the social charge exemption from state pensions to all pension income.
However, bear two things in mind: income tax raises less income than social charges – and while everyone pays social charges only half the taxpayers pay income tax.
When the first social charge, the CSG, was introduced in 1991 it was set at 1.10% – and today’s system has three charges totalling 12.1% which, collectively, brings in more money than income tax. It is a fundamental problem and is still growing.
Until a few years ago, France never really increased the income tax thresholds; preferring to increase social charges which apply to everyone “en bloc” – no abatements, no reliefs, no reductions and no restrictions. They were simpler to apply and the returns could be more accurately anticipated.
The government feels that amalgamating the social charges and the income tax system will cut costs and increase the field of application.
There is no aim to increase taxation and the government has also clearly stated that, other than for exceptional cases, no taxpayer should pay more than half their income in taxes.
Having said all that, I am not sure why you feel paying social charges on investment income is unfair.
Is it unfair that most Britons pay less income tax in France than in the UK? The reason social charges bring in more money than income tax is only because the income tax system has been left alone for many years.
On balance, most people are better off in France than in the UK, but, again, it is a choice: you are just as free to be exposed to the social charges – as well as income tax – as you are not.
So, what is the bottom line?
The healthcare payments system will not change, nor will the social charges exemption on foreign pensions if in receipt of the state old age pension – but one can foresee difficulties in ensuring that this continues.
What does seem up for a change is the administration of the tax and social charges systems, resulting in a fusion of these services (as one deals with all taxpayers and the other only with half the taxpayers) to reduce the administrative costs and increase the field of application.
Employees contribute on average about 14 different charges to the various URSSAF collectives and what is proposed is that these collectives be amalgamated.
Jean-Francois Copé’s suggestion is, first, to reduce the government’s administrative costs by amalgamating the URSSAF collectives and amalgamating the tax and social charges systems.
Secondly, the government seems to have fixed a maximum of 16.1% for the combined tax and social charges, but rather than increase the tax dues per taxpayer, it will probably reduce these individual dues – but, by applying it to more people, increase its revenue.
