Home > Everyday Life > Taxes Are a Matter of Perspective

Taxes Are a Matter of Perspective

So my checking account is breathing a sigh of relief now.  Why?  Because there is barely any money in it.  The big tax deadline in France just passed on the 15th of September.  I just paid mine in one sum for all my income earned in 2010.   So how painful are taxes in this country?  So far, I don’t find them that much more painful than the American experience.  Plus there are other European states that have a higher rate of income tax than the Gauls.  I’ve heard rumor Germany can be as much as 60% and let’s not talk about Denmark.  So what is different?

First I believe there is a psychological impact that makes one feel that taxes in France are significantly higher.  How so?  Well for one, it is 100% the responsibility of each citizen and resident to manage their own taxes.  Not a single company in France assist their employees in managing their incomes taxes.  (Please note that French companies do contribute towards the social security taxes of each employee that funds the health system and sick leave.)  In the States, we always fill out our W2 forms on the first day of hire declaring how much we are authorizing the company to take out of your paycheck to send directly to Uncle Sam.  In France, the company stays completely out of this relationship.  It is the only European nation set up in this way as everyone else has followed a variation of the American model.  So your paycheck in France may feel a bit bigger in the pockets but you have to remember that there is a big tax bill arriving in your mail later.  And that is where the psychological impact comes in – you get a full lump sum of taxes staring at you in the face.  (Instantly any foreigner will know how to curse in French upon receipt.) In the States the average person is contributing a little here, a little there throughout the year and then trying to claim a tax rebate because they have contributed too much.  Tax rebates don’t exist here; the best you can do is have a zero tax bill (which does happen).

Donnez-moi votre argent!

Donnez-moi votre argent!

Now the French government has done progressive things to enable the average citizen to pay this daunting bill.  First, I have heard more than once that the people working at the tax office are actually nice (contrary to the stereotype of French customer service) and more than willing to help you as long as you show willingness to pay.  Next there are actually 3 due dates throughout the year: February 15th, May 15th and September 15th.  The government will graciously divide the previous year’s tax declaration into thirds.  Of course if there is a change in your tax declaration for the year, you calculate that difference on the last date in September.  Another support mechanism is the famous Livret A account.  This is a savings account that automatically comes with your checking account at your local bank.  The benefit?  It is tax-free interest.  The motivation is for you to put aside money in this account to pay your taxes.  If you are good at managing your money and depending on your income, you can easily gain a few hundred euros by the end of the year from your Livret A.  These mechanisms help form the French society to be more known as savers and not spenders like their American counter-parts.  The French are apt to save up for a big purchase instead of buying on credit.  Credits card do exist here but aren’t seen in your average French poche (pocket).

Click to expand image.

Cross Comparison of Income Taxes

Another interesting approach is that the French government approaches taxes by people’s address than the actual person.  I created a very high level flow chart comparing the two systems.  Of course I have left out a lot of details on both sides but it gives a general sense of perspective.  I welcome my reader’s feedback on the flow in case of errors.  As you can see, you are declaring all revenues earned at your home address.  Those revenues include all accounts you have signature power over, all accounts your partner has signature power over, all accounts your parents (if living with you) have signature power over and all accounts your children (if living with you) have signature power over.  Notice how revenue remains vertical along family lines and not by individuals.

By law, when you die your estate is automatically given to your children (looking down); if they don’t exist the estate is given to your parents (looking up); if they don’t exist then your partner (looking horizontal); if they don’t exist then your declared beneficiaries.  You can’t override this algorithm by moving your declared beneficiaries to the front of the line.  It explains why estates in this country have remained along family lines for centuries – literally.  I even read a legal advice column advising a woman seeking divorce to demand alimony on the basis of her children’s financial needs, not hers.  By approaching the legal situation this way, she will be awarded more money in the French courts.

Sound crazy?  Not really.  You have to keep in mind that France has been around a lot longer than the United States with a legacy of royalties, monarchs and empires.  The United States is culturally too dynamic to view finances, taxable revenues and estates this way.  Plus you see direct results of your taxes in France.  The infrastructure is top of the line throughout the country.  Public transport is well-developed and affordable.  Cities and villages provide so many cultural opportunities free to the public.  You have a landmark distribution of health care.  Education is at a shockingly minimal cost compared to American rates.  The biggest public sector is the department of education, not the military.  It is also nice to simply pay one governmental system instead of several like in the States.  There is one Public Treasure that will gladly accept any of my checks for taxes.  Then that system will allocate the funds to my corresponding Région, Département and Commune.  Again it is a daunting system but streamlined and maintainable.

Give me your money!

Give me your money!

What is crazy is I can never escape Uncle Sam.  My American social number is tattooed to my fesse (butt) and Uncle Sam knows it.  Looking back at the French model, you may wonder how does the French tax its expatriates that live in another country?  Well they don’t.  The French views it that if you are living in another country, you should be paying that country’s taxes.  Your address is no longer in France allowing you to escape the tax flow.  Uncle Sam doesn’t see things this way which is flip side of taxing by individual.  The United States is the only country that taxes its citizens regardless of where in the world that citizen resides.  (yea, read that sentence one more time)  Many will argue that “Wait, there is a tax treaty between the United States and France!”  True, no denying that fact.  As they say the devil is in the details.  Americans living in France are in no way exempt from filing taxes with Uncle Sam; they are simply given a tax credit.  Currently that limit is set at $91,500 for a calendar year.  Once an American earns in revenue greater than that amount, they are expected to pay American taxes in addition to the French taxes they already paid.

Luckily I am not near that threshold but I still have to watch out and be attentive of that figure.  Remember that wonderful Livret A account I mentioned above?  Well it is tax-free through Marianne’s eyes but not through Uncle Sam’s eyes.  I have to declare that interest on my American tax form.  There are other ways of saving for the future here in France that I have to keep in mind how it will play out in the American tax system.  Then don’t forget there is the currency exchange.  I may not earn more salary in a year but if the Euro becomes that much stronger, I get that much closer to the threshold.

Also as a resident outside of the States, I now have to declare two forms to the government.  My tax form goes to the IRS and a thing called the FBAR goes to the Treasury Department.  That FBAR form doesn’t declare my revenues but just lists all foreign bank accounts in my name.  If the IRS decides to audit me, they knock on the Treasury Department’s door and asks for my FBAR.  If the accounts don’t match on the two forms, then I get a lovely fine.

So now who do you prefer to pay, Marianne or Uncle Sam?

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Categories: Everyday Life
  1. Russell
    20 September 2011 at 4:09 am

    Thanks, Scott, for the taxing information. Should we consider the Statue of Liberty an expat? So she pays income tax to Marianne or Uncle Sam? Did she ever become a US citizen?

  2. London
    20 September 2011 at 10:52 am

    Excellent question Russell! I will have to ask her family (since there are several Statues of Liberty in France) the next time I am in Paris. 😉

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