France’s newly-ratified tax treaty with Andorra contains a clause which U.S. Persons abroad will find rather familiar:
|la France peut imposer les personnes physiques de nationalité française résidentes d’Andorre comme si la présente convention n’existait pas. Lorsque la législation fiscale française permet l’application de la présente disposition, les autorités compétentes des États contractants règlent d’un commun accord la mise en œuvre de cette dernière.||France may tax natural persons of French nationality resident in Andorra as if this convention did not exist. When the tax legislation of France allows for the application of this provision, the competent authorities of the contracting States shall come to a mutual agreement on its implementation.|
Have a read over the full record of the debate on this treaty in the National Assembly last Monday. France does not currently impose tax on the basis of nationality, except in the case of French citizens who move to Monaco (not French citizens actually born in Monaco, though). However, people seem worried that this is what the future may hold.
Most people around here certainly speak much better French than me, so I won’t embarass myself by attempting to translate the National Assembly speeches myself. But it’s worth noting what was absent from these speeches: any attempt to claim that the human right to return to your own country is some sort of benefit for which you should be paying the government. No one even dared to bring up such nonsense.
Those in favour of the treaty (namely, Minister of State for Development and Francophonie Annick Girardin, Rapporteur of the Committee on Foreign Affairs François Rochebloine, and deputies Jacques Moignard and Pierre Aylagas) only spoke in vague terms about how without the treaty France’s economic relations with Andorra would suffer, and gave meaningless non-binding promises that France would never actually use the Article 25. This led Frédéric Lefebvre (deputy for French citizens in North America, who has previously spoken out against the extreme effects of FATCA) to ask why France couldn’t then simply offer to remove the clause unilaterally.
Claudine Schmid, another one of the deputies for French citizens residing abroad, spoke in much more strident terms against the clause and the mentality behind it, asking the obvious question: if you are going to sneak towards imposing “solidarity” on the diaspora, what services do you plan to provide them in return, or is the solidarity only going to be one-way, flowing from the diaspora to the homeland? Michel Piron, deputy for Maine-et-Loire (i.e. not a diaspora representative) also expressed suspicion of Article 25.
In the end, however, the National Assembly voted to ratify the treaty. As the supporters noted, no tax has actually been imposed on the French diaspora by the ratification; they claim they’ve merely opened a door, not actually stepped through it.
Newspaper and blog responses
I’ve seen almost nothing about this treaty in English, aside from a post on a tax law blog last month. There have been various irticles in French newspapers about the Andorran treaty over the past few months (Le Figaro and Les Echos, for example), as well as after its ratification (e.g. Le Monde, Libération). Among other public reactions by French politicians, Frédéric Lefebvre posted about the treaty on his blog, while Claudine Schmid wrote an editorial for the French edition of Huffington Post.
Another opinion piece which a few Brockers have already tweeted is that by Gaspard Koenig, “La poche des expatriés, nouvel eldorado du fisc”, which argued that the imposition of tax based on nationality violates the foundational principles of the French tax system, and represents a dangerous acceptance of an alien idea that payment of taxes — rather than participation in national institutions such as education and voting — is the act which makes people into members of the nation.
Coincidentally, this news comes almost at the same time as Spanish motorcycle racer Marc Márquez is under fire for his decision to move to Andorra. Citizens of Spain who move to countries listed as tax havens continue to be deemed tax residents of Spain during the year in which they move and the next four years as well.
As of January 2014, Andorra is still listed; however, this may change due to the tax treaty with Spain that is under negotiation. (Correction: I’m wrong — Andorra was delisted in 2011. I guess you can tell who read the footnotes and who didn’t.)
How about the French–U.S. treaty?
Given what’s going on in Andorra, it’s rather amusing to read Article 29, Paragraph 2 (the “saving clause”) of France’s current treaty with the U.S. for the “prevention” of double taxation, as amended by the Protocol of 13 January 2009. The first part of the saving clause is unilateral with respect to human beings: only American sovereignty extends over immigrants to France, while French sovereignty does not extend over immigrants to the U.S.:
2. Notwithstanding any provision of the Convention except the provisions of paragraph 3, the United States may tax its residents, as determined under Article 4 (Resident) and its citizens as if the Convention had not come into effect, and France may tax entities which have their place of effective management and which are subject to tax in France as if paragraph 3 of Article 4 of the Convention had not come into effect.
However, the second part of the saving clause, regarding former citizens and residents, is bilateral. France cannot tax current French citizens in the U.S. on U.S.-source income. However, if France decided to adopt a U.S.-style tax on the human right of changing nationality, it could tax former French citizens in the U.S. on their French income (or income “treated as” being French) without giving them any of the benefits of the treaty.
Notwithstanding the other provisions of this Convention, a former citizen or former long-term resident of a Contracting State may, for the period of ten years following the loss of such status, be taxed in accordance with the laws of that Contracting State, with respect to its income from, or treated as from, sources within that Contracting State. For this purpose, the term “long term resident” means, with respect to a Contracting State, any individual (other than a citizen of that Contracting State) who is a lawful permanent resident of that Contracting State in at least eight taxable years during the preceding fifteen taxable years.
The treaty as it stands creates some rather perverse incentives, to put it mildly. The most obvious one is that France can tax a former American expat who moves back to the U.S., but cannot tax an American who naturalised as a French citizen right before moving back to the U.S., because as a French citizen he is excluded from the definition of “former long-term resident”. (I guess this is one of the “benefits of citizenship” that I keep hearing about.) However, France can start taxing him again if he gives up his French citizenship.
Perhaps in the future, Hollande will pressure Obama or his successor to make this “saving clause” fully bilateral for current citizens as well as former ones, so that France too can enjoy the Americo-Eritrean prerogative of unrestricted diaspora harassment. As a matter of human rights, and in sympathy with French readers, I hope such a thing never comes to pass. If it does, however, I will be very amused to see the reaction of Chuck Grassley on the Senate Finance Committee — who, like all the other Senators, thinks extraterritoriality is only for he and not for thee — when he finally understands that his ridiculous sound bite about Paris and Peoria bites both ways.
France will end up with more like Gerard Depardieu who renounced his French citizenship over tax a few years ago.
The French may act very patriotic, but as long as they can listen to/speak in French somewhere, and get the food, they’re happy. What the French want is the culture not necessarily a French passport.
France needs to sort out it’s high than average European taxes because the French government plays a much larger role in the economy than other countries.
On a wider point how on earth can governments make budgets if everyone is trying to tax each other? Eroding each other’s tax bases can’t be politically smart.
Firstly, according to my reading (“lorsque” is rather “when” than “if”) this is “france can, but we have to amend our national legislation and agree with each other how to implement”, which is a distinction to the US savings clauses.
If an EU country tries to expand this to apply to EU/EFTA/Shengen countries, it’ll run up immediately up against the principle of free movement of people and capital within EU/EFTA/Shengen. The EU won’t look kindly on that at all, and the (politicised) EU court will knock it down in a heartbeat… Imagine the reaction if the Eastern European countries started taxing their millions of citizens working in Western countries!
As a side note, as the French system currently stands, French citizens working in CH and living in FR pay quite a chunk less tax than if they were living in one of the 3 border cantons of Switzerland. Plus, they get to earn in CHF and spend in EUR, which is rather a good deal with the lopsided exchange rate.
If France really does try to implement CBT, I’d imagine they’ll go for the low-hanging fruit first and make something like the Spanish rule declaring you to remain tax resident if you move to a listed tax haven:
Then we will see if they dare list the U.S. as a tax haven in order to pick the pockets of all the French bankers in New York and techies in Silicon Valley.
Let’s just hope there’s no dual FR-US citizens living in Andorra………..
President François Hollande should be taxed by Andorra the same as Queen Elizabeth II is taxed by the UK. After all, he is a co-prince of Andorra, so doesn’t that give them jurisdiction?
Monkey see, Monkey do, that what I see here. Just because I choose to slit my own throat–not literally–just figuratively, then must we all slit our throats.
This may well be a trend, but lets hope not. There are millions of us trying to stop the Asylum keepers from declaring the world their asylum, but alas it seems the inmates of the world are running the greater asylum.
updated post with an aside about Marc Márquez
@Tom: ironically, in that case he’d probably “renounce”, the way Sarkozy threatened to do:
Oh, brother! The U.N. had better act on our Complaint soon and abolish CBT worldwide. If other countries begin entertaining the thought …. well, I don’t want to entertain *that* thought!
I really don’t think that France will actually adopt CBT, and even if it does, it will be restricted to very few and small countries, probably only those considered tax havens, because France has tax treaties with 120 countries and these treaties don’t allow CBT. EU law also prohibits CBT within the EU. France could in theory renegotiate a tax treaty, but this is very time-consuming and the other country would have to accept it as well. France was able to add the “saving clause” with Andorra because it was a new treaty, as Andorra just introduced an income tax.
@Eric, Andorra is not considered a tax haven by Spain since 2011. See note 10 in the link you posted.
@Tom Alciere, Queen Elizabeth is a sovereign and not subject to taxation but the UK. In fact, technically she is the one who receives the taxes. She agrees to pay income tax voluntarily, as a sign of solidarity, but not inheritance tax, for example.
As of 2011, Italy still considered Andorra to be a tax haven. Italy has the most comprehensive tax haven list in the EU.
Interesting article – Swiss bank dumps FATCA.
I would not jump to conclusions based upon French actions relative to Andorra.
The micro-states of Europe have an ambiguous relation to the nations around them and many, including Andorra, are well-known as tax havens. They have maintained their independence mostly by making concessions to their more powerful neighbors.
Off topic but interesting interview (in English) by Vladimir Poser (Russian Journalist who is a US citizen and went to high school in NYC) talking with Oliver Stone.
I think it reflects ex-pat’s feeling about the current state of play in America.