【KPMG Global】France – Finance Ministry Clarifies Its Stance on Nonresident Withholding

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2024-113 | May 17, 2024

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2024-113 | May 17, 2024

France – Finance Ministry Clarifies Its Stance on

Nonresident Withholding

The French Finance Ministry recently announced1 that it would ignore a contrary decision of the

State Council2 regarding “the primacy of the notion of resident in conventional law over that of tax

domicile in domestic law” for withholding tax purposes and that it would introduce a measure to that

effect in the next budget law.

WHY THIS MATTERS

The French domestic criteria for French tax residence require a careful analysis of an individual’s

circumstances. For instance, individuals may be considered French tax resident if their main professional

activity is carried out in France.

Nonresident withholding tax is a tax applied to income such as employment and pensions earned in France

by nonresidents. It is important for employers to understand their compliance obligations in relation to non-

French tax resident individuals that are taxable in France.

Court Case: Residence under Treaty Versus Residence under Domestic Law

The initial court case and subsequent appeal3 were about the determination of French-sourced income. The

French Tax Administration contested the pro-rata basis that the employer had used to calculate the taxable

basis for withholding tax purposes, based on actual time spent working in France. It sought instead to tax the

entire remuneration of its director and not just the part related to French work-days.

The case eventually ended up in front of the State Council (Conseil d’Etat). However instead of taking a

stand on the question asked, the Council took a step aside. It questioned the relevance of applying the

nonresident withholding tax to the case at hand.

In the ruling, it made a distinction between tax domicile within the meaning of French law and tax residence

within the meaning of international conventions. Therefore, a person residing abroad for tax purposes, but

who meets one of the French tax domicile criteria, in this case a non-ancillary professional activity in France,

could not be subject to withholding tax because the latter only applies to people who do not have their

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