New French tax residency rules for senior executives

Based on the 2020 French Financial Act to be enacted by the end of this year, senior executives of companies with their registered office in France and whose turnover exceeds €250 million would be regarded as French tax residents as they would be considered as performing their professional activity mainly in France (which is one of the French legal criteria for being considered a French resident for tax purposes).

This measure, adopted in reaction to the case of Carlos Ghosn should be applicable as from January 2020, bearing in mind that:

• the definition of “senior executives” is quite broad;
• the €250 million threshold should take into account the group’s consolidated results.

Essentially, to be considered as a French resident for taxation purposes means having to declare worldwide income and/or assets in France.

Whilst the impact of the new measure should remain limited for the many cases, the new tax residency rules should be carefully considered in specific situations…

Indeed, on the one hand, it is important to remember that rules under tax treaties take precedence over French domestic law: therefore in case of conflict of tax residency, we should refer to the tax treaty’s provision allowing for the resolution of such conflict. Normally, taxpayers with no permanent home, no vital interests and no habitual abode in France should not be impacted. In addition, based on this amendment, taxpayers can demonstrate that their professional activity is not mainly performed in France.

However, the new measure may have an impact particularly in cases where there is no applicable tax treaty or the applicable tax treaty does not cover all taxes (especially wealth tax, inheritance and gift taxes although we consider that we have arguments to counter potential negative tax impacts).

Finally, last but not least, there could be a risk in cases where the taxpayer’s links with France are real (permanent home available in France, important presence in France, social and/or economic links in France etc.): in such a situation, depending on the facts and circumstances, they may be considered as a tax resident in France with all the associated consequences.

If you have any questions, please do not hesitate to contact us.