Tax calendar: deadline for completion of annual declarations of income.
For hard copy returns, the deadline for filing the annual declaration of income is fixed for midnight on Thursday 31st May.
Regarding e-returns, three different deadlines have been fixed, according to the taxpayer’s ‘département’ of residence:
- Midnight on Thursday 7th June for those residing in ‘départements’ numbered 01 to 19 ;
- Midnight on Thursday 14th June for those residing in ‘départements’ numbered 20 to 49 ;
- Midnight on Thursday 21st June for those residing in ‘départements’ numbered 50 to 974.
Finally, non-resident taxpayers residing in Europe, the Mediterranean, North America and Africa are required to file their hard copy or e- returns, by midnight, Saturday, 30th June 2012, and by midnight, Sunday 15 July 2012 for those residing in other countries worldwide.
This annual declaration of income must also show the amount of assets subject to wealth tax, where such assets are worth between 1.3 million Euros and 3 million Euros. Taxpayers owning assets worth over 3 million Euros should file a wealth tax return by 15th June 2012 at the latest.
These rules are subject to any potential amendments.
Reporting requirements for taxpayers subject to exit tax (decree n°2012-457 of 6th April 2012)
As a reminder, exit tax applies to individuals transferring their tax residence outside France, having resided in France for at least 6 out of the previous 10 years. The taxable base is made up of unrealised gains, claims arising from an earn-out, as well as tax deferred capital gains on transferable securities held by the taxpayer.
In accordance with Article 167 bis of the General Tax Code, taxpayers are required to list on their annual declaration of income filed in the year following the removal of their tax residence out of France:
- The total amount of unrealised capital gains;
- The amount of debts arising from an earn-out clause ;
- The amount of tax deferred capital gains;
The taxpayer must return, at the same time as the annual declaration of income, a form separate from the annual declaration income, specifying, in particular:
- Date of transfer of tax residence out of France;
- The new tax residence address ;
- The amount of tax corresponding to these capital gains
Any taxpayer intending to request deferral of payment (transfer to a non-EU, or non EEA state having no administrative assistance agreement with France) should use the same form, to be filed with the French tax authorities in the 30 days prior to the transfer of tax residence out of France specifying, as well as the requirements aforementioned, the name, or the company name, as well as the address of the tax representative.
Taxpayers transferring their tax residence between 3rd March 2011 and 1st June 2012, must file the request for deferral of payment at the same time as the 2011 declaration of income.
Shares in a company whose main business is management of a portfolio of transferable securities are not exempt from wealth tax [ISF] (Versailles Court of Appeal, 20 October 2011, n°10/02194)
[In this case] a taxpayer held with his spouse the whole capital of a SARL [limited liability company] of which the main business consisted of management of their portfolio of transferable securities.
The taxpayer, who was also statutory manager, considered that the shares held constituted professional property exempt from wealth tax [Impôt de Solidarité sur la Fortune - ISF], arguing the commercial nature of the business, supported by active management of a professional nature.
The Versailles Court of Appeal reiterated in this ruling that management of a portfolio of transferable securities constitutes, in principle, a civil activity which is not eligible for classification as professional assets. The Court specified that the sole derogation from this principle concerns the stocks and shares of the effective leading holding companies in the group.
Finally, even though income arising from management of a portfolio of transferable securities is taxable in the Non Commercial Profit [BNC – Bénéfices Non Commérciaux] category, where the circumstances in which the operations are carried out may be characterised as within a professional activity, the Court considers that this does not affect the civil nature of the operation of management of a persona portfolio of transferable securities with regard to wealth tax.
Impacts of a change of matrimonial situation in the light of income tax are specified (decree n°2012/448 of 3 April 2012)
From taxation of 2011 income, taxpayers whose matrimonial situation changes during the year, following marriage or civil union, will henceforth be bound to return a sole annual declaration of their overall yearly income.
Joint taxation will be the rule, although taxpayers may opt for separate taxation of their personal incomes that year, as well as their share of joint income.
On the other hand, should separation, divorce or dissolution of a civil union take place during the year, each of the spouses or partners will be subject to separate taxation (individual declarations):
- For all the individual’s personal income for the year in which the separation occurred;
- And on the individual’s share of joint income.
There is no change to the rules concerning taxation in the year of the death of one of the spouses or partners in a civil union.
Possibility of recourse to a trusted third party with regard to the annual income tax return (Instruction 5 J-1-12 of 22 March 2012)
This new provision enables taxpayers to have recourse to a trusted third party to establish their income tax return where they are required to file an annual income tax return, and seek to benefit from deductions to their taxable income, or tax cuts or tax credits.
Status as trusted third party is reserved to members of the regulated professions of lawyer, notary, or chartered accountant.
Implementation of this arrangement is based on the conclusion of two agreements, one national and the other individual, and signature of a contract or engagement letter with the client or member.
In the context of an individual agreement made with the tax authorities, the trusted third party undertakes, in particular:
- To upload, for clients or members having given permission to do so, the annual declaration of income along with appendices, to the tax authorities.
- To communicate to the tax authorities, at their request, and within thirty days of such request or notification, all supporting documentation, in hard copy, or electronic format, pertaining to overall tax deductions, tax credits or reductions claimed by their clients or members, and a list summarising said documentation, as well as the amounts involved.
New taxation mechanism for exceptional or differentiated income (instruction 5 B-17-12 du 30 mars 2012)
Exceptional income collected or income deferred due to circumstances beyond the control of the taxpayer may lead to an excessive increase in the tax due, given the progressive tax scale. In order to avoid this situation, Article 163-O-A of the General Tax Code provides a special taxation system, the quotient system.
Income must be exceptional in amount and by nature, although the law provides for a certain number of exceptions. For example, severance pay or indemnities on taking retirement of whatever amount may benefit from the rules covering the quotient system.
Deferred income is that which the taxpayer has available throughout the year, but which relate to one or more previous years due to. Back pay, for example, or rental arrears.
The Financial Act 2010 amended the mechanism for calculation of the quotient and this instruction provides the mechanism for applying it.
Thus, the divider, to be used to calculate tax, is equal to 4 for exceptional income, or, for differentiated income, to the number of calendar years which correspond to the normal payment of income deadlines, increased by 1.
Finally, in order to take advantage of the quotient system, the taxpayer must expressly request it, by completing the appropriate sections on the overall income tax return.
Rules on partial exemption of transfer duties on transfer of a business known as “Dutreil Pact” (instruction 7 G-3-12 of 9th March 2012)
Observations are made in the instruction of 9th March 2012 on the latest amendments made to the rules on partial exemption of transfer duties on transfer of a business.
As a reminder, partial exemption is fixed at 75% of the amount of the company shares transferred by donation, or by inheritance.
This instruction specifies in particular the following points:
Stock in companies having mainly industrial, commercial, craft or agricultural businesses is covered by the arrangements of the Dutreil Pact.
There is no requirement for these companies to exclusively conduct the aforementioned businesses. Therefore, stocks and shares of a company which operates at the same time a civil activity along with an industrial, commercial, craft, agricultural or professional activity may also take advantage of these favourable arrangements, insofar as said civil activity is not preponderant.
The instruction specifies that the preponderance of industrial, commercial, craft, agricultural or professional activity is assessed in the light of two cumulative criteria: turnover of said activity (at least 50% of the total turnover) and the amount of gross fixed assets (at least 50% of the total amount of fixed assets).
Where the stock in the operating company is held indirectly, the fact that the legal obligation to maintain the shareholdings unchanged at each level of intervention for the whole duration of the collective undertaking does not prohibit increase of such indirect shareholding by a signatory to the collective undertaking or by the intermediary company; the additional stock may not however benefit from partial exemption.
It should be specified that the collective undertaking made in accordance with Article 787 B may be valid as a collective undertaking for wealth tax (partial exemption rules provided by Article 885 I bis) and vice versa.
- New stocks and shares may not be submitted to a collective undertaking to retain by the signatories, other than those received in the context of an increase in capital resulting from an incorporation of reserves where the shares are attributed to shareholders in proportion to their rights in their share capital and where the holders retain them for the remaining duration of the undertaking to retain.
Equally, the undertaking is not affected where the increase in the number of shares is motivated by an equal reduction in the face value of each share. In such a case, of course, the undertaking must continue with regard to the stocks received in consideration of this transaction.
New arrangements in the taxation rules regarding capital gains on property (instruction 8 M-3-12 of 19 April 2012)
The rules on capital gains on property were significantly amended in 2011. The purpose of this instruction is to give detail on the mechanism for determining the taxable amount of the said capital gains.
Thus, in order to determine the taxable amount of the capital gain, a new allowance for duration of holding is to be applied from 1st February 2012. The frequency and the rate of the allowance are defined as follows:
- 2 % for each year of holding after the fifth year;
- 4 % for each year of holding after the seventeenth year;
- 8 % for each year of holding after the twenty fourth year.
Thus, the capital gain is totally exempt after 30 years, as opposed to 15 previously.
Indeed, this instruction details the three new exemptions introduced by the new law, i.e.:
- On first transfer of any residence other than a main residence, on condition that all or part of the sale price is reinvested within 24 months of the transfer, on purchase or construction for use as main residence; It should be noted that this exemption only applies where the transferor is not the owner of the main residence on the day of the transfer, and has not been so in the four years prior to the transfer
- On transfer of an elevation right;
- On transfer by a disabled person or senior citizen residing in a residential medical establishment constituting the main residence where such transfer takes place less than two years after the person concerned entered the establishment.
Finally, a new obligation has been created to declare on the annual declaration of overall income, form n° 2042 the net taxable amount of capital gains on the sale of buildings or of rights over buildings, and of sale of furnished property carried out in the tax year, with a view to taking them into account in the reference fiscal income (RFR- revenu fiscal de référence).
Mechanism for application of the increase in the rate of the social security deduction applicable to life insurance products (confirmatory ruling 2012/24 of 10 April 2012)
Life insurance products in Euros are impacted by the increase in the rate of the social security rate to 3,4% then to 5,5%, bringing the overall rate of social security deductions to 13,5% then to 15,5%.
The rate of 13,5% applies to the share of products acquired and, as applicable, recorded between 1st October 2011 and 30 June 2012.
The rate of 15,5% applies to the share of products acquired and, as applicable, recorded from 1st July 2012.
Thus, regarding the application of the rates, reference should be made to the date of purchase of the life insurance products.
For any further information, please contact:
Laurence Clot, Partner, Tax
Rébecca Feliman, Associate, Tax
Vaea Pery, Associate, Tax
Edouard Bouscasse, Associate, Tax
Anton Chyrkov, Associate, Tax