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Paris Administrative Court of Appeal, 17 January 2025, no. 23PA04058
In a court ruling of January 17, 2025, the Administrative Court of Appeal of Paris reiterated the critical importance of the center of economic interest criterion in determining tax residence, particularly concerning expatriates.
As a reminder, a person considered to be a French tax resident in France is liable for tax on their worldwide income, apart from the exceptions provided for in international tax treaties signed by France.
Pursuant to Article 4 B of the French General Tax Code, there are three alternative criteria for determining the tax residence of a taxpayer:
– The household or the main place of residence;
– The main professional activity;
– The center of economic interests.
The administrative guidelines specifies that the center of economic interests relates to “the place where taxpayers have made their main investments, where they have their place of business, where they have the center of their professional activities or from where they derive, directly or indirectly, the major part of their income”[1].
The case at hand involved an employee of a French company who had been detached by her employer to Hungary and had moved there with her family. Her spouse had then ceased all professional activity in France and their children had been enrolled in school in Hungary.
However, the French tax authorities had considered that she had remained a French tax resident because of her close economic ties with France, since not only (i) all of her income was from French source, regardless of whether the activity was carried out in Hungary, but also (ii) since she still owned an apartment in Paris and had received substantial capital gains from the sale of securities from French financial portfolios.
Following a previous judgement before the Administrative Court of Melun, which had not upheld her request for relief from the additional taxes incurred, the taxpayer filed an appeal.
In its ruling, the Administrative Court of Appeal followed the reasoning of the tax authorities and confirmed her tax residency in France on the basis of the local criterion of the center of economic interests, thereby resulting in the taxation in France of all capital gains realized by the taxpayer. It should be noted that the taxpayer did not invoke the provisions of the tax treaty signed between France and Hungary, and had simply provided a certificate from her employer, which was insufficient to establish her tax residence in Hungary.
The decision demonstrates that, even if a taxpayer physically and effectively resides abroad, significant economic ties with France may lead to the characterization of a tax residency in France.
A thorough analysis of tax residency is therefore recommended, particularly in light of the recently adopted Finance Act for 2025, which extended the tax authorities deadline for auditing individual’s tax situations to ten years (compared to three years up to now) for all persons claiming false tax residence abroad.
[1] BOI-IR-CHAMP-10 no. 230 of July 28, 2016.