Reference: Council of State, 20 October 2021, No. 19-17.432
Introduction
The acquisition of real property in France by a US national raises complex tax issues, particularly concerning the taxation of rental income. The Franco-American tax convention of 31 August 1994 (as amended) aims to avoid double taxation, but its practical application gives rise to disputes. The judgment of the Council of State of 20 October 2021 (No. 19-17.432) provides crucial clarification on the determination of the place of taxation of rents received by a non-resident. This article analyses this decision and its implications for foreign buyers, whilst presenting the support offered by Maître Cécile Zakine.
1. The legal framework for the taxation of rental income of non-residents
1.1. The provisions of the General Tax Code (CGI)
Under domestic law, Article 4 of the CGI subjects to income tax persons who have their tax domicile in France. For non-residents, Article 164 B of the CGI provides for withholding tax on French-source income, notably rental income (Article 14 of the CGI). The minimum rate is 20% (or 30% depending on the circumstances) for rental income, with a mandatory flat-rate levy.
1.2. The Franco-American tax convention
Article 6 of the convention stipulates that income from immovable property is taxable in the State where the property is situated, i.e., France. However, Article 23 (elimination of double taxation) allows the US resident to benefit from a tax credit in the United States for tax paid in France. The difficulty lies in the classification of the taxpayer: a US resident within the meaning of the convention (Article 4) or a French resident?
2. The judgment of the Council of State of 20 October 2021 (No. 19-17.432)
2.1. The facts
A taxpayer of US nationality, resident in the United States, received rental income from a property located in France. The French tax administration had taxed this income according to domestic law rules, without applying the provisions of the convention. The taxpayer contested the taxation, arguing that the convention granted him an exclusive right of taxation in the United States.
2.2. The decision
The Council of State dismissed the taxpayer's claim, confirming that rental income from a property located in France is taxable in France, in accordance with Article 6 of the convention. The High Court specified that the convention does not preclude the application of French domestic law to determine the methods of taxation (rate, basis), provided that double taxation is avoided through the mechanism of the tax credit. The judgment also recalls that the taxpayer must prove his tax residence in the United States in order to benefit from the advantages of the convention.
2.3. The scope of the judgment
This decision confirms the fiscal sovereignty of the State where the property is situated. For US buyers, it implies:
- The obligation to declare rental income in France (forms No. 2042 and 2044).
- The payment of French tax, with the possibility of a tax credit in the United States.
- The need to prove US tax residence in order to avoid total double taxation.
3. Practical implications for the US buyer
3.1. Mandatory tax procedures
The US buyer must:
- Obtain a French tax number (procedure with the SIE).
- Declare rental income each year (even if the amount is nil).
- Pay the withholding tax (Article 125 A of the CGI) or opt for the actual regime.
- Retain proof of US tax residence (Form 6166).
3.2. Risks of reclassification
The tax administration may reclassify the situation if the taxpayer does not prove his US residence. For example, if the property is used for personal purposes for more than 183 days per year, the taxpayer could be considered a French tax resident (Article 4 B of the CGI). In this case, all of his worldwide income would be taxable in France.
4. Support provided by Maître Cécile Zakine
4.1. Expertise in private international law and taxation
Maître Cécile Zakine, Doctor of Law and attorney at the Paris Bar, lawyer in property and real estate law, offers tailored support:
- Analysis of the personal situation: determination of tax residence, application of conventions.
- Tax optimisation: choice between the micro-landlord regime and the actual regime, deduction of expenses.
- Representation before the administration
Besoin d'un conseil personnalisé ? Contactez Maître Zakine — première consultation 30 min à 45€.
