France: New France-UK dual tax treaty

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The new treaty offers exemptions from French wealth tax and closes avoidance loopholes.

France and the UK signed a new tax treaty on 19 June 2009 to replace the current tax treaty which is now more than 40 years old.  However ratification of the new tax treaty is currently being discussed in the French Parliament and it is therefore not yet effective.

Although most of the provisions of the previous tax treaty have been restated without amendment, several changes have been introduced to update the current tax treaty to take account of new international standards and to include recent French tax developments.

The most notable change for individuals is the introduction of an anti-abuse provision.  This is intended to prevent the double exemption which may arise as a result of the application of the UK “remittance basis” system to French source income, with the result that, on some occasions, income or gains are not taxed in either France or the UK.  The new tax treaty will prevent an individual from avoiding taxation in both jurisdictions by providing that France will have the right to tax income or gains from any French source where that income or gain is exempt from taxation in the UK through the operation of the remittance basis rule.

In addition, under the new treaty, individuals who are resident in the UK for tax purposes, who move to France, will benefit from a five year wealth tax exemption on their foreign (that is, non-French) assets and will only be liable to pay French wealth tax on their French assets if the current threshold of EUR 790,000 is exceeded.

For further information or to discuss the issues raised, please contact Pascal Ngatsing (pngatsing@soffal.fr) on +33 (0) 1 53 93 94 00.

This article was produced by, and re-produced with kind permission of, our correspondent firm in France, Société Juridique et Fiscale Franco-Allemande Selas (SOFFAL).  www.soffal.fr

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