Individuals - Tax shield - Benefeciary

This chapter is not exhaustive and is limited to broadly outline the tax consequences of the main events occurring when doing business in France. It does not constitute a tax advice or a client - attorney relationship. Materials are not suitable for tax analysis. Visitors are invited to consult a tax lawyer before taking any decision.  
 

 Article 74 of finance law for 2006 implement a tax shield in order to prevent that a taxpayer pay an amount of taxes higher than 60% of what he earned the prior year.
This provision is translated in article 1 of the French General Tax Code which give a right to be reimbursed of any direct taxes exceeding 60% of the earnings received.
French tax guidelines 13 A-1-06 dated December 15, 2006and the tax form n° 2041 DRID to request any excess tax payment were published on 15 December 2006.
To claim the tax shield year N, the earnings are those realized in N – 2 and the taxes paid in N – 1.
For example, the 2007 tax shield will apply to earnings made in 2005 and taxes paid in 2006 because most of the time French taxes are due the year following the earnings are made.

As from 2008, the cumulated amount of income tax, social contributions, wealth tax and local taxes of the family house paid in France cannot exceed 50% of the taxpayer’s income. To calculate the 50% threshold, the incomes must be compared to the total amount of taxes and social contributions paid on these incomes plus wealth taxes and local taxes of the preceding years.

For 2008 the tax shield will apply on 2006 earnings and on taxes paid on these incomes in 2006 or 2007. Reimbursement will be done as of January 2008. 

The persons who can ask for a refund are individuals who are tax resident in France according to article 4 B of the French General Tax Code "CGI".

Tax residency test is performed on January 1st of the year where the taxes at stake are paid.

For example, a taxpayer who is French tax resident for the first time in 2006 cannot claim the benefit of the tax shield in 2007 even if liable of Wealth tax in 2006. (e.g. owner of a house in France on January 1st, 2006) if not tax resident in France on January 1, 2006.

As he is a French tax resident in France on 1 January 2007, the tax shield will apply on 2008 on earnings received in 2006 and taxes paid in 2007.