A taxpayer; Mr X, went to live inEgypton June 1, 2005 and stayed there until the end of August 2009. Pursuant to article 885 A of the General Tax code (“CGI”) any natural person fiscally domiciled in France on January 1 of any given year is subject to the annual net wealth tax (“ISF”) on both French a foreign qualifying assets. The tax is paid on the following June 15.

Article885 ACGI makes reference to article 4 B 1 CGI for the definition of the criteria to determine whether the person is a French tax domiciliary or not. These are the familiar tests of where the taxpayer has his home (the “foyer” test) or principal place of residence, where he conducts his professional activity and whence he obtains his principal income. Although financial investments are excluded by article885 LCGI from the ISF taxable basis if the tax payer is not a French domiciliary,  a taxpayer may still be found to be domiciled in France under 4 B 1 CGI if he derives his principal revenue from financial investments in France.

Thus885 Adetermines a tax point: January 1 of each year, but 4 B 1 lays down tests which need to be considered over a period of time. The rules to determine domicile are the same for ISF and income tax (IR) purposes. But the tax points are different.

Mr. X duly filed his ISF return and paid the corresponding tax (ISF is self-assessed) on June 15, 2005. He subsequently thought better of this and sought to have the tax reimbursed arguing that the issue of domicile had to been determined by examining the whole of the tax year (as one does for IR and not just January .

There was no real debate that he and his wife were French domiciled on January 1, 2005 and that they were not from June 2005 onwards. But the French Supreme Court (Cour de Cassation) upheld the first instance ruling to the effect that, for ISF purposes, only the situation of the taxpayer on January 1 is taken into account. The fact that Mr X was no longer French domiciled on June 1, 2005 simply meant that he did not have to pay ISF on January 1, 2006 (unless of course he had French situs taxable assets).

References: Cour de Cassation com. June 21, 2011 n° 10-23.136 and Instruction of December 23, 2011, BOI 7 S-6-11 of January 6, 2012.

Charles Campbell