Introduction of a Temporary Minimum Tax on High Incomes
Reflecting the government's desire to involve the wealthiest individuals in reducing the public deficit, a temporary minimum effective tax of 20 percent on "the highest incomes" would be introduced to apply to the taxation of income for the year 2024 until the taxation of income for the year 2026.
This tax would apply to individuals tax resident in France whose household income (reference tax income) exceeds €250,000 for single taxpayers and €500,000 for joint taxpayers, when their effective tax rate is less than 20 percent of their adjusted reference tax income. According to the explanatory memorandum for the measure,2 this contribution would only concern "a few tens of thousands of tax households."
The tax taken into account for the calculation of the effective tax rate would correspond to the sum of income tax, the contribution on high incomes, and certain withholding taxes on income tax. The tax included in the calculation may be increased by €1,500 per dependent and €12,500 for joint taxpayers, as well as the ability to ‘add-back’ for tax advantages provided by various tax reductions and certain tax credits (exhaustively listed in the budget, though notably including foreign tax credits provided for by a treaty).
The additional contribution payable would be equal to the difference between the tax calculated and 20 percent of the adjusted reference taxable income. In order to mitigate the threshold effect of entry into force, a discount mechanism is intended to be provided. Further details are expected to follow.
Securing Tax Arrangements Applicable to Non-Residents of France
Recent case law in France3 had stated that, for determining the application of non-resident withholding tax, the analysis turned on the residence status of the employee under French domestic law only. This focus on the primacy of domestic residence status gave rise to uncertainty around the withholding tax mechanism for individuals resident in France under French domestic law, but resident of another jurisdiction under an applicable treaty.
This decision had overturned the interpretation adopted by the French tax administration, which stated that the residence status of an employee under an applicable tax treaty had primacy over the domestic tax position.
However, following the case, the tax administration had announced by press release4 that it would maintain its interpretation of tax residence despite censure by the Council of State (Conseil d’Etat), with the aim of helping ensure stability in the tax treatment of persons who are not French tax residents.
The budget announced that the primacy of the concept of tax residence in treaty law over that of tax residence in domestic law would now be legally provided for.
