Today is:
Service France
Conversation between David Anderson solicitor and chartered tax adviser at Sykes Anderson LLP London Solicitors and Chartered Tax Advisers and a UK Resident who owns properties in France.
Please note that French property and tax law is a complex subject and you should not rely on this article without professional advice on the facts of your case.
Q: I have seen in the news recently that European countries are assisting each other in recovering tax debts. Has this co-operation always existed?
A: No it hasn’t always been the case as it used to be the rule that one country could not enforce the tax debts of another. This meant that if you left the UK to live in France, it would be impossible for the UK Revenue to enforce any outstanding tax debt against you in France. Of course, if you had assets in the UK, which the UK Inland Revenue became aware of enforcement could be taken against them, even though you were resident in France. This has changed gradually over the years and cooperation on enforcement between the UK and French Inland Revenues is now close and efficient. This is shown clearly by a recent illustration where a Liechtenstein list of secret bank accounts was purchased by the UK Revenue and then passed onto the French Revenue.
Q: How has this new situation come about?
A: The main rules were introduced by the EU in a 1976 Directive. This was subsequently modified by a further Directive in 2001. The European Legislation provides that any EU country which is owed tax can request that another EU country collects and enforces that tax for it. This can come as something of a shock to UK former residents who move to France and ignore tax demands from the UK Inland Revenue.
Q: Could you explain this legislation to me?
A: Certainly. The legislation provides that the tax authority in a country in which a debt has arisen (known as the Applicant Authority – say in this case the UK) has the right to request the tax authorities in another country (the Requested Authority- say France) to provide information which would be useful in the recovery of an outstanding claim. The Directives establish that the UK Revenue can request the French Revenue to enforce the debt. When such requests are made, the French Revenue must act in accordance with the French laws, regulations and administrative provisions applying to the recovery of similar claims in France. The claim for recovery is treated as a claim in France but will not necessarily benefit from the privileges given to similar claims in France.
Q: How does this procedure operate here?
A:The procedure provided for is simple and straightforward for the UK Revenue. The UK tax inspector has to issue a certificate stating that tax has been assessed on the UK taxpayer which has not been paid by the due date, which has now passed. This is subject to a minimum outstanding debt of the sterling equivalent of €1,500. The UK Inland Revenue sends the certificate, along with a translated version to their French counterpart. The French authority operates out of a centralised office which has the right under French Law to treat the certificate by the UK Revenue as a legal document, giving it the right to take enforcement procedures in France.
Q: And how does the French Revenue go about enforcing these kinds of debts?
A: In most cases, the enforcement procedures will involve putting a mortgage (hypotheque légale) on the UK taxpayer’s home in France. The French procedural rules do not require them to inform the UK taxpayer that they are about to put a mortgage on the property in order to enforce the UK tax debt. In practice in France you will not be notified by the French Inland Revenue until after the mortgage is registered. We have seen cases of people not receiving letters sent to their French address and only becoming aware via their notaire. The mortgage is in favour of the French Inland Revenue, which has all the powers of enforcement, effectively as agent for the UK Revenue. This charge over the property will remain noted on the publicly available title even after it has been discharged, potentially causing problems when you come to sell the property or if you attempt to re-mortgage it. This is unlike the UK in which a mortgage is deleted from the public register after it is repaid. In addition, you must pay for a French notaire to release the mortgage. The notaire’s fees for the removal of the mortgage generally work out to be expensive.
Q: I see. Are there any other expensive aspects which I should be aware of?
A: Under the Directive the debt has to be calculated in the currency of the Requested Authority. Therefore when recovering a UK debt in France the debt is the amount in euros at the date the French Inland Revenue begin the commencement proceedings and accordingly the debt may actually be more or less, depending upon the movement of sterling against the euro. The French Inland Revenue is entitled to claim all the costs it incurs which are linked to the recovery of the debt. Generally it will be the taxpayer who has to pay these costs although in actions which are held to be unfounded the French Revenue may claim its costs and expenses from the UK Revenue. In practice the French Revenue will always be paid because they will not release their mortgage until they receive all the tax claimed and their costs. The same also applies to the notaire’s fees.
Q: How would I find out if a mortgage has been taken over my French properties?
A: In practice, the French Revenue will not inform you of the action they are taking, as in their view there is a risk that you may seek to transfer the French property into some other person’s name. The legal mortgage will typically be taken over all assets in France which may include several properties. There is no requirement for the French Revenue only to proceed against one property, even though the equity in that property may be more than sufficient to repay the debt due to the UK Revenue. In practice the French Revenue will check to see what other properties are registered in your name for French local property tax and put a mortgage on all of them. The procedure is very efficient especially if the properties are all in one locality. It also means that the UK Revenue will be made aware of all properties you own in France. The risks for you in France are increased as the enforcement file is administered from a central unit and not from the local tax office where the property is situated.
The French Revenue will then inform you that the mortgages have been taken and you must then correspond with the French Revenue and make all payments in euros to the French Revenue and not the UK Inland Revenue. If any payments have been made on account, then you will need of course to contact the UK Revenue so that they can communicate with the French Revenue as to any reduced amount which the enforcement proceedings must now relate to. In practice the communication between the two taxing authorities seems good.
Q: What happens if the tax is not paid?
A: If the tax is not paid within a relatively short period of time, then the French Revenue is empowered to take enforcement proceedings, which is known as a ‘saisie immobiliere’ on all the assets over which they have taken the legal mortgage. This will result in the properties being sold by the French Revenue as effectively mortgagees in possession. This can put you in a difficult position though the French Revenue will agree a reasonable time to pay. Unless you have a strong argument it is unwise not to make payment.
Q: Is there anything which can prevent the Revenue from taking this action?
A: The UK Revenue is precluded from making a request if their claim for tax is being contested in the UK which will rarely be the case. It may also not make a claim unless it has applied appropriate recovery procedures in the UK and the measures taken will not result in the full payment of the claim. The French Revenue has the right to refuse to carry out enforcement proceedings if the request for assistance relates to claims over 5 years old or if granting assistance will result in serious economic or social difficulties in the France. However, if the request is accepted and mortgages have been taken, the taxpayer will be under considerable pressure, especially if other mortgagees in France become aware of the position. It is also likely to lead to a closer examination of the taxpayer’s position in France.
Q: This seems like a very useful procedure for the Revenue. Are they likely to use it on a regular basis?
A: This enforcement option is an attractive option to the UK Revenue if they are aware of a second home abroad. The French enforcement procedures are quick and efficient and all the enforcement costs are paid by the taxpayer out of the mortgage taken over his French property. Informally a UK Revenue collection officer has told me that the UK Revenue is very pleased with the efficiency of the French Revenue’s collection procedures. All communications must be to the French Inland Revenue and with the danger of a quick sale by the French Revenue of the taxpayer’s holiday home quick payment of the outstanding tax is likely. More information of the taxpayer’s foreign assets may also be revealed to the French and UK Revenues. Politically it is also easier as there will be less sympathy in a French court to the sale of a holiday home abroad than the UK Revenue bankrupting a taxpayer or forcing the sale of a taxpayer’s main residence in the UK. It seems likely that this way for the UK Revenue to outsource its tax collection role will take off in a big way!