France – COVID-19: Approach to Tax Residence Is Tightened by Tax Authorities
FR – COVID-19: Approach to Tax Residence
The French tax administration has released new guidance concerning whether individuals who spend more time in France than originally intended due to the COVID-19 health crisis created a permanent home in, or moved their centre of vital interest to, France. Also, amicable agreements concerning cross-border workers with Germany, Belgium, Switzerland, Italy, and Luxembourg have been extended again until 30 June 2021.
The French tax administration has released new guidance concerning whether individuals who spend more time in France than originally intended due to the COVID-19 health crisis created a permanent home in, or moved their centre of vital interest to, France. (For prior coverage, see GMS Flash Alert 2020-209, 29 April 2020.)
Employers with employees in France who are normally resident elsewhere, tax practitioners, and tax administrations have been wondering, as the global health crisis continues to disrupt professional and/or personal lives, what will be the impact on the criteria used to determine whether a person is to be treated as a resident if that person is prevented from returning home?
With the passing of time, the French tax administration has decided to tighten up on its guidelines and take a stricter approach1.
WHY THIS MATTERS
The French tax authorities’ guidance may provide welcome relief in cases where individuals have had to spend additional time in France due to the COVID-19 outbreak. It is, however, important that employers review the tax residence of their employees that have temporarily relocated to France during the coronavirus pandemic to check whether their employees were actually prevented from going back home and did not remain in France for other reasons.
Employers should seek advice as their compliance obligations would be impacted by the tax status of their employees.
Tightening of French Tax Administration’s COVID-19-Related Guidelines on Tax Residence
The French tax administration had issued guidelines quite early on, stating that the fact that a person is temporarily spending time in France due to the exceptional circumstance of the health crisis, is not, for this reason alone, to be considered as having established a permanent home or to have the centre of his or her vital interests in France.
The change in approach reflected in the new guidance is to establish that this concessionary reading of the rules encompasses only those that face or have faced a legal or material impossibility of returning to the State in which they are/were resident for tax purposes, and only for the period during which such an impossibility exists, due, for example, to the closure of the borders in the other country or the absence of any means of transportation between the two.
Cross-Border Workers: Extension of Amicable Agreements until June 30, 2021
In the spring of 2020, the French government concluded amicable agreements concerning cross-border workers with Germany, Belgium, and Switzerland providing that such workers would remain taxable in the State in which they usually carry out their activity although they worked from their State of residence.2 Agreements had also been signed with Luxembourg and Italy in July 2020. (For prior coverage of such agreements, see the following issues of GMS Flash Alert: 2020-253 (27 May 2020) and 2020-247 (22 May 2020).)
All these agreements – already extended twice in 2020 – have been extended again until 30 June 2021.
KPMG NOTE
As a result of these agreements, working from home due to COVID-19 should continue to have no negative consequences on the way cross-border workers are taxed.
FOOTNOTES
1 See (in French) the following webpage “Résidence fiscale et confinement crise Covid” on the www.impots.gouv.fr website (updated 23 March 2021).
2 The details of the amicable agreements can be found here (in French): https://www.impots.gouv.fr/portail/les-conventions-internationales.
The information contained in this newsletter was submitted by the KPMG International member firm in France.
VIEW ALL
SUBSCRIBE
To subscribe to GMS Flash Alert, fill out the subscription form.
© 2024 KPMG Avocats, société d’avocats de droit français, membre de l’organisation mondiale KPMG constituée de cabinets indépendants affiliés à KPMG International Limited, une société de droit anglais (« private company limited by guarantee »). Tous droits réservés. Le nom et le logo KPMG ainsi que le nom KPMG Avocats sont des marques utilisées sous licence par les cabinets indépendants membres de l’organisation mondiale KPMG. Pour en savoir plus sur la structure de l’organisation mondiale KPMG, rendez-vous sur la page https://kpmg.com/xx/en/home/misc/governance.html (en anglais).
GMS Flash Alert is a Global Mobility Services publication of the KPMG LLP Washington National Tax practice. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.