French tax-grab on 'foreigners' could be replicated across EU

Brussels is to stand by and let the French impose new taxes on non-resident homeowners. By doing nothing about what is clearly a discriminatory law, the European Commission has once again allowed a member state to clamp down on 'foreigners' from within the European Union

Owners of second homes in France will be bitterly disappointed if they think Brussels is going to come to their aid. The tax hikes for non-resident owners included in the latest French budget are perfectly legal, says the European Commission. Despite claims of discriminatory taxation and reassurances given by French President Francois Hollande, the "disastrous" increase has already been approved by the commission. The Brussels executive says it will take "no action" despite bitter complaints from British homeowners in particular.

President Hollande reportedly reassured United Kingdom Prime Minister David Cameron that there would be no tax increase for British non-resident homeowners when the two met in July this year. Maybe the Frenchman was playing with words; the increases are technically "social contributions" rather than taxes. The tens of thousands of Britons who enjoy second homes in "Dordogne-shire" and other idyllic countryside spots bombarded their MEPs with complaints when the tax was first announced - an avenue of recourse that will no longer be available if the UK leaves the European Union.

Two British Labour Party MEPs - Michael Cashman and Arlene McCarthy - tabled a written question to the commission in support of their constituents' protests. "With the imposition of the 'social charge' element of the French taxes on those living outside the country, capital gains tax will increase from 19 per cent to 34.5 per cent, while the tax on rental income will rise from 20 per cent to 35.5 per cent," they pointed out. "Many of our constituents believe that the effects of this increase could prove disastrous, given the current economic climate and the difficulties many homeowners already face in maintaining their properties," they said.

The pair suggested that the French law was discriminating on the basis of nationality, which is in most cases illegal under EU law. They asked "whether this tax increase breaks any EU laws, particularly as the French Government is discriminating on the basis of nationality by imposing a social charge on foreign-owned second homes, despite the fact that the homeowners affected will not gain all the benefits to which such a charge should entitle them".

European Taxation Commissioner Algirdas Šemeta, who is responsible for taxation and the customs union, dismissed the complaint out of hand. "It appears that the social charges are applied in France on a wide variety of income sources such as income from investment, rental income and capital gains," he said in his reply. "They are not only levied on wages, salaries or on pensions. According to the European Court of justice, these charges could be considered as part of the general system of taxation." Šemeta said the changes to social contributions rules were merely making the system fairer. "

French residents and non-residents would pay this contribution at the same rate, which is currently 15.5 per cent," he wrote. "Previously, non-residents were not subject to the general social security contribution on these types of income while residents were." Given that non-resident and residents will from now on be "equally subject to the general social security contribution", there is "no discriminatory treatment" and therefore "no action is envisaged to be taken by the commission in this respect".

A source close to McCarthy told PublicServiceEurope.com that the reply came as a surprise. "We first asked the commission about this a year ago and they said they were monitoring it," the source said. "We didn't expect them to then come back and say the tax was ok." The idea of taxing non-resident homeowners was first mooted under former French President Nicolas Sarkozy, but was dropped. The French have got around the ban on discriminating against foreigners by devising a law that discriminates against non-residents including, technically speaking, French non-residents. While evidently a legal fiction given that almost all non-residents are foreigners, this formula has already been used by other European governments.

In the southern provinces of the Netherlands, for example, non-residents have been banned from buying marijuana legally available in so-called coffee shops. The measure is designed to put an end to drug tourism and, whatever the merit, is clearly aimed at foreigners. It has however been approved by the European court. The French property tax grab can be seen in this light. Whatever the politicians say, voters are unlikely to object to the taxation of foreigners. Expect more laws such as this one as governments become ever more desperate for revenues. European citizens are no longer all equal under EU law. You are free to protest, but do not expect the current bunch in Brussels to do anything about it.