Tuesday, 1 September 2015

Tax treaty? - what a joke

Working and living abroad while still keeping any financial ties to one's homeland is fraught with problems. It shouldn't be, but there are always nasty shocks and gross unfairness. I just didn't know until I stumbled into 'international tax law' as it applies to me and many other New Zealanders.

Since I've never had any security of residency or work in France it seemed prudent not to sell my house in Auckland, nor close my bank accounts ... problem 1.
I rent my mortgaged home out to pay its expenses. That means I have an income... problem 2.
I am a tax resident in France ... problem 3.

Lets look at this whole issue of tax from these three issues. NZ and France signed a tax treaty in 1981 to avoid residents being taxed twice by either country. Ha! What a joke. Even my accountant thought I'd be OK but it's not true and I'm feeling pretty grumpy about it.
As a tax resident of France I must declare all revenue from NZ (rental income, interest etc) and I must list every bank account (including the mortgage) and what it's for, including Paypal for goodness sake. While I'm all for the dirty-politicians-hiding-money-overseas getting caught, the vast majority of us are not like that and we end up in the firing line. If you don't declare your NZ revenue and list your overseas accounts (even if you closed them during the year) you can be fined mega thousands of euros. They are policing this more vigorously so it's not a Russian Roulette game you want to play. Anyone convicted of tax fraud would be deported. I did 'the right thing' and declared, feeling that the tax treaty would mean fair play. Wrong!

Rental income etc is taxed in NZ so I pay tax in NZ. I get nothing for it - it doesn't give me a democratic vote and it doesn't give me a pension in my old age unless I return to NZ. Using my accountant's tax report I provided the required calculations and conversions into euros. It's the proof I paid my taxes. OK so I've already paid - I should be fine with that because of the treaty.

I earn very little in France, only slightly over the minimum wage and I pay all my taxes - I should be fine with that. How naive of me.

France taxes on global income, not just what I earn in France, even though there is a tax treaty and even though I've already been taxed in NZ. France wants to tax me again. What makes this worse, the income from renting my home is added to my French income and has put me in a higher tax bracket. This week I received notice of my new tax to pay. It's at least 35% higher yet I have received not a centime more in my bank. What's the use of a tax treaty to avoid paying twice if I have to pay twice on money I only received once, AND get taxed at a higher rate for what I never received in France? I'm pissed off, of course.

Clearly, one day I will have to make a decision about where I belong and cut the other ties. That's lose/lose. For those of you wanting the gobbledygook wording from the horse's mouth about the NZ \France tax treaty here you go... click here.

Convention between the Government of New Zealand and the Government of the French Republic for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income 
Double taxation shall be avoided in the following manner:
  • 1. In the case of France:
    • a) Income other than that referred to in subparagraph b) below shall be exempt from the French taxes referred to in subparagraph a) of paragraph 3 of Article 2 if the income is taxable in New Zealand under this Convention.
    • b) Income referred to in Articles 10, 11, 12, 14, 16, 17 and 22 received from New Zealand may be taxed in France in accordance with the provisions of those Articles, on its gross amount. The New Zealand tax levied on such income shall entitle residents of France to a tax credit which corresponds to the amount of the New Zealand tax levied but which shall not exceed the amount of French tax attributable to such income. Such credit shall be allowed against taxes referred to in sub-paragraph a) of paragraph 3 of Article 2, in the bases of which such income is included.
    • c) Notwithstanding the provisions of sub-paragraphs a) and b), French tax shall be computed on income chargeable in France by virtue of this Convention at the rate appropriate to the total of the income chargeable in accordance with the French laws.
  • 2. In the case of New Zealand:
    Subject to any provisions of the law of New Zealand which may from time to time be in force and which relate to the allowance of a credit against New Zealand tax of tax paid in a country outside New Zealand (which shall not affect the general principle hereof), French tax paid under the law of France and consistently with this Convention, whether directly or by deduction, in respect of income derived by a New Zealand resident from sources in France (excluding, in the case of a dividend, tax paid in respect of the profits out of which the dividend is paid) shall be allowed as a credit against New Zealand tax payable in respect of that income.


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