In focus 

Reduction of the WHT rate

As a reminder, taxpayers have the possibility to increase or decrease the WHT rate (FTC, art. 204 J, II and III).

While the upward adjustment is allowed without limit, the downward adjustment was only possible if there was at least a 10% difference between the amount of the WHT applicable without any adjustment (i.e., calculated on the basis of the last reported income) and the amount of the WHT for the current year's income, estimated by the taxpayer to be lower than the last reported income.

The 2023 Finance Act eases the process by lowering this threshold from 10% to 5% (FTC, 204 J, III, 1 in its version applicable as of January 1, 2023). It is important to note that this estimation and this downward adjustment of the WHT are the sole responsibility of the taxpayer and that he/she may therefore in some cases be liable to penalties in case of inaccuracy in that estimation.

WHT directly levied from the bank account of employees who are taxable in France rather than a WHT by the employer on salaries

Until now, foreign employers of employees who only worked occasionally in France were subject to the WHT obligation on income effectively taxable in France(in application of double tax treaties where applicable). The WHT was carried out in the form of a withholding tax according to the rate communicated by the French tax authorities, and the amounts withheld were subject to a monthly reporting via the Employer Social Reporting (DSN). This was sometimes complex to manage with, especially when the employer had no social security obligations in France.

From now on, Article 3 of the 2023 Finance Act provides for a new application of the WHT payment method relating to income received as from 1 January 2023 instead of the withholding by the employer. This WHT payment will be deducted directly from the bank account of the employees concerned (FTC, art. 204 C, B, 2°).

The eligible foreign employers are those "established outside France within the European Union or in another State or territory which has concluded with France an administrative assistance agreement to fight against tax fraud and evasion, as well as a mutual assistance agreement on recovery similar in scope to that provided for by Council Directive 2010/24/EU dated 16 March 2010 on mutual assistance for the debt recovery". These employers therefore only have an annual reporting obligation of taxable salaries in France but no longer have a withholding tax obligation regarding the employees covered by the new rule.

The eligible employees are those who are not subject to a French social security scheme in application of the European regulation n°883/2004. This includes employees who occasionally perform their activity in France, for a period not exceeding 25% of their total annual working time. The text also provides that border workers employed in Switzerland and covered by a French mandatory social security scheme pursuant to Article L. 380-3-1 of the French Social Security Code, i.e., on an optional basis, are also concerned by this measure.

The purpose of this measure is to simplify the reporting obligations of foreign employers of employees who occasionally perform their activity in France and are taxable in France, as foreign employers will only be liable for an annual reporting (FTC, new art. 87-0 B). Failure to comply with this reporting obligation is subject to a fine (FTC, Art. 1736, XII).

However, the obligations of employees may be more complex, especially concerning income received in 2023. Indeed, the amount of the withholding due in 2023 is normally made according to the last year reported income earned by the taxpayer that are subject to a direct withholding on the bank account of the taxpayer, but this rule being new, no withholding on the bank account occurred and thus the tax due for the 2023 income will be determined in 2024 and entirely be due in 2024. In any case, the taxpayer will have the possibility to request the immediate payment of the payment of the WHT, based on his/her estimate of the taxable income in France for 2023.

Special attention should be paid to the scope of this measure. Indeed, the new wording of article 204 C seems to exclude employers located in Switzerland. In our view, Switzerland has not actually concluded with France a mutual assistance agreement on recovery similar in scope to that provided for by Council Directive 2010/24/EU dated 16 March 2010 on mutual assistance for the debt recovery, despite the contrary, but debatable, decision of the French Administrative Supreme Court dated January 26, 2021 (French Administrative Supreme Court , 26 January 2021, n° 429381). Thus, according to a strict interpretation of the text, employers established in Switzerland should not be able to benefit from this measure, which seems rather contradictory with the scope expressly including cross-border employees in Switzerland.

We hope that the administration will restore the initial intention of the lawmaker in future administrative guidelines on that topic.