A new convention dating from 2018, amended in 2019 by an amendment intended to be beneficial for cross-border workers… then years of extensions in the face of the misunderstanding and the concern of cross-border workers, anxious not to see their taxes increase. In 2025, no more procrastinating: income from 2024 will be taxed according to new calculation methods designed to eliminate the famous double taxation. At least in principle…
What will change?
Traditionally, the French tax authorities consider all of a household’s income to determine the tax rate for French income alone. This will not change.
Previously, social security contributions and Luxembourg tax were deducted from mixed income to calculate the tax rate applicable to French income only. This is what we call the exemption method or exemption with effective rate.
From now on, only social security contributions will be deducted from mixed income when calculating the tax rate. But at the same time, the taxpayers concerned will receive a tax credit which corresponds to the French tax which would have been due if the income actually subject to Luxembourg tax was of French source. This is what we call the imputation methodthrough a tax credit equal to French tax.
Why this change?
In its press release relating to the latest extension of the new tax convention communicated last April, the French Ministry of Finance clearly illustrated the challenge of cleaning up the document which regulates the tax relationship between France and Luxembourg: “This change must allow , without increasing the tax relating to this Luxembourg income taxable exclusively in Luxembourg, to take it into account for the application of the progressiveness of the tax to the taxation of other income, in order to ensure its full effect in a logic of tax justice.»
As the French MP Isabelle Rauch explained to us a few weeks ago during an interview, this “tax justice” should be put in parallel with the alignment of the convention with those in force in most European countries. the OECD, in order to place all French taxpayers on an equal footing. Note that it is also required between France and Germany or Switzerland for example.
Who is affected?
The introduction of the new tax convention only impacts taxpayers with mixed income, Luxembourg and France. For example, a couple of two cross-border workers without any French income will not be affected by the new tax rules.
What is the new calculation method?
In a simulation, the Neofisc site, specializing in the taxation of residents and cross-border workers, projects the calculation of the tax for a married couple without children; she is a cross-border worker and a French resident working in France.
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The annual taxable income is added (the annual gross salary from which only social security contributions are subtracted);
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All income is taxed;
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The corresponding tax is immediately credited (tax due × percentage of cross-border income in the household).
The explanation by Luxembourg
The Ministry of Foreign and European Affairs summarizes the new calculation method as follows: “The imputation method means that employment income, from Luxembourg sources, received by a French resident taxpayer is taxed in France and that a credit tax equal to the taxes paid in Luxembourg relating to this income is granted. However, this credit cannot exceed the amount of French tax corresponding to this income.
Will taxes increase?
This is of course the question that all taxpayers ask themselves. To answer it, an impact study would have been welcome. The French Ministry of Finance had undertaken to provide such a document. Relaunched several times by parliamentarians on the future of such a study, the French government did not follow up. Nor did he respond to Comma this week.
Still, according to Aleba, “there will in fact be an increase in overall income and in the rate applicable to French income”.
“Due to the difference in progressivity of the tax scales of the two countries, the tax burden will increase if, for the same salary in France, the tax is higher than in Luxembourg,” writes the LCGB, which argued for the latter months for a further extension of the exception and for a renegotiation of the bilateral convention in order to go back.
Still in the example chosen by Neofisc, an unfavorable difference of 610 euros is calculated for the married couple with mixed income. A nuance which is reminiscent of the unpleasant surprise discovered in 2021 by taxpayers, and which precipitated the postponement of the new calculation method…
What will be the consequences?
Could the attractiveness of Luxembourg indirectly scare away French cross-border workers? Senator Évelyne Renaud-Garabedian fears it. “Many cross-border workers would consider returning to work in France in the coming years,” the elected representative of French people living abroad said last October, in a question addressed to the now ex-Prime Minister Michel Barnier (remained unanswered) .
Another point raised by the senator: considering the contribution of cross-border workers to the local economy, in Moselle as in Meurthe-et-Moselle, could these territories suffer from a possible drop in purchasing power following more restrictive taxation ?
So many unknowns, such as the management by the tax authorities of the potential numerous requests from tens of thousands of taxpayers concerned…
