WRITTEN QUESTION E-3819/00

by Robert Goebbels (PSE) to the Commission

(7 December 2000)

Subject: French tax law restricting Community insurers' freedom to provide services

The French legislator has adopted what may be described as discriminatory tax rates in the case of redemption of a life assurance policy by French residents wishing to benefit from the freedom of Community insurers to provide services.

The effect of Articles 125 OA as amended (Article 21 of the French 1998 finance act) and 125 A of the French general code of taxation is to exclude policy holders who have taken out a policy under the freedom to provide services from the benefit of the prélèvement libératoire (release tax) rates. The rate is 35 % for a contract period of less than four years, 15 % for a contract period of between four and eight years, and 7,5 % for a contract period of eight or more years, with the stipulation that policies must have been taken out by 26 September 1997 or premiums paid after that date.

French residents who have taken out their life assurance policy under the freedom to provide services cannot benefit from these rates. The profit they realise when redeeming their policy is subject to taxation under the sliding scale for income tax, the highest rate of which is 54 %. So taxpayers subject to the maximum rate of income tax who redeem their life-assurance policy after eight years will pay 7,5 % tax if they have taken out their policy with an insurer established in France, by opting for the release tax, but 54 % tax if they take out a policy under the freedom to provide services.

This blatant discrimination, to which a number of financial journals and magazines have drawn attention, severely handicaps the activities of foreign insurers operating in the French market under the freedom to provide services, and has led to the lodging of complaints with the Commission. In response to the complaints the Directorate-General for Taxation and Customs Services expressed its intention of proposing that the Commission institute proceedings against France under Article 226 of the EC Treaty on the subject of these discriminatory tax rates. However, more than a year after the first complaints reached the Commission it has still not responded.

Could the Commission say what action it intends to take on this matter?

Answer given by Mr Bolkestein on behalf of the Commission

(12 February 2001)

French legislation has been found to exclude income from the release tax rate under Articles 125(A) and 125(0A) of the French general code of taxation which is subject to income tax if the payer is not resident or based in France. Income from such investments or policies taken out with companies or individuals based outside France is always subject to the aggregation of taxable income and, as a result, to a rate of taxation which is generally higher, or in any case can be higher. The legislation therefore appears to give rise to discrimination against services from finance and insurance companies based outside France.

The Commission wrote to the French authorities on 30 October 2000, asking them to send their comments within two months of receiving the letter. After studying any comments, the Commission reserves the right to deliver the reasoned opinion referred to in Article 226 (formerly Article 169) of the EC Treaty.

It should be stressed that the complaints received in this connection contained a number of points which necessitated meetings with the complainants and requests for further information from the French authorities. The complainants were informed of the Commission's views.