I've been living and working in france for some time and am now a permanent resident here. I normally pay around 2300 euros annually in french income taxes (french foncionnaire working in research). Last year i had some rather large capital gains that were based in the U.S. (gains from the stock market). The total was a little more than my normal french salary. I expected to pay taxes to the U.S. on my american income and taxes to the french on my french income and nothing more, or at least not much more.

Well i filed with the U.S. and paid my taxes there. I paid a fair bit extra due to the french salary. Not that the irs taxed the french salary, but the french income i guess bumped my overall tax rate up, so i paid a fair bit more. Still, nothing to worry about particularly, but still a little painful.

Then i did my french taxes. Well i couldn't do them so i paid someone to do them. First of all, the fees for the tax preparer and the fee for having my american tax and brokerage forms translated (demanded by the french tax office after receiving my return) equaled around 1700 euros!! Not that far from what i normally pay in taxes in france. And that was just to file.

Then i got the results back from the french tax office and the results were rather shocking. All i got in terms of a break on my U.S. income was about 2000 euros (very little more than it cost me to file the return). And i wound up paying almost 5000 euro impôts and 5000 euro social charges.

So yeah, the french recognized that i had paid taxes on the income in the U.S. On the other hand, they hardly cared about it and taxed me 70% of what they would have anyway, plus added on the social charges for good measure.

All in all i lost nearly 50% of my capital gains to the two governments. (things were also made a little worse by the fact that they converted from dollars to euros for every stock transaction, even though the money had always been in dollars - by bad luck i guess this led to a very bad exchange rate for me overall)

So apologies for the extremely long post, but does anyone else have this situation and does this seem about right to you? I *think* my tax preparer did things properly and i suppose the french tax office did things properly, but i'm not totally sure and the whole thing seems very far from avoiding double taxation.

Also any ideas of what to do in terms of investments given this situation we are in as expats? I am thinking i need to just take my money and put it towards an apartment here. After that there is my roth ira which is also taxed in france - i guess nothing i can do about that, but if anyone has heard of anything, i'd love to hear from you.

Of course the other possibility is to get french citizenship and reject my U.S. citizenship, but that will take at least 2 years. (and won't help with the roth)

When you filed in the US, did you take the Foreign Earned Income Exclusion on your French salary? It sounds like you didn't, because normally that should eliminate most tax on your French salary (unless you're awfully well paid here in France), and you would mainly be paying tax on the capital gains in the US.

On the French side, you should have declared your worldwide income again - but for the capital gains, you need to include them a second time on the form 2047, which is for various forms of income from outside France. I'm not sure on capital gains if you get a credit for the amount of tax you actually paid in the US, or if they handle it with a "virtual credit" - but it sounds like that didn't happen either.

The French tax inspectors have been known to make mistakes and sometimes they really don't know how to handle "foreign" items like your capital gain. You may want to contact AARO (a US expat association in Paris) which deals with tax issues. AARO - Association of Americans Resident Overseas I know in the past, they have issued information to their members about "new" French tax rules that the local tax inspectors have a tendency not to understand. (And it's possible your French tax preparer might not be terribly well versed in this area, too.)

It may cost you the price of membership in AARO, but they do run a tax seminar every year that is well worth the price of admission.
Cheers,
Bev

Ok Bev, thanks for the contact. I have seen someone from AARO give a presentation here, that's a good idea to contact them. And no, i work for the french govt and don't earn much.

Yes in the U.S. i did declare the deduction for my foreign income to not be taxed on the french income. And i wasn't taxed on the french income, as in previous years. But this year they had a little worksheet for your U.S. income and yeah, with that i paid more than if i'd just had only the U.S. income. It wasn't a great deal really, and if that's all there was to it, i wouldn't be bothered with the thing.

The part that is so bad is the french taxes on my american income were almost as much as if i'd not been american and filed there too. They gave me only around 2000 reduction on a total of 7000 (7000 taxes owed, not income) - so i still paid around 70% in france of what i would have paid without being american, plus the social charges which weren't reduced at all. If you count both i paid over 80% of what i'd have paid if i were french (plus of course, what i paid to the americans). To add insult to injury, the tax preparer and translator cost me almost as much as my reduction, ha ha!

I called the lady in the tax office and she said that's just the way it is - it has nothing to do with what you paid in the U.S. Which is i guess what i'd expect, what do they care? But it doesn't seem to be much in the spirit of avoiding double taxation to tax the U.S. income at almost the same amount. Not to mention the way the americans tax you on tax-free accounts in france and the french tax you on tax-free accounts in the u.s. Ugh.

There's something wrong with how your French taxes (at least) were figured. But you get 0 points for questioning your assessment over the phone.

See if you can get someone from AARO to explain to you how the French side of things is supposed to work and then set up an appointment to talk to the French fisc. I know a few years ago, AARO had to distribute a letter (in French) to enclose with your French tax filing to explain some new law that most of the tax inspectors were getting all wrong.
Cheers,
Bev

thanks Bev. Zero points for the phone, eh? Ok.

I found out a long time ago that you should NEVER say or even imply to a fonctionnaire that THEY may have made a mistake. (I think that's why the phrase "un erreur s'est produit" is so popular.)

It can, however, be very useful if the fonctionnaire you're confronting refuses to budge on something. You can also say (in a very pleasant tone), "oh, ok, then - I'll go back to the person who told me this and tell them that YOU said they made a mistake and they should correct it." (Well, it worked for me, anyhow... )
Cheers,
Bev

I wasn't trying to tell her she made a mistake at all. I simply called and expressed surprise at the situation and asked what was going on basically, if there hadn't been some mixup or something. But once she answered and gave her explanations there was nothing i could say really. It's not like i know the french tax laws.

I need a tax expert on my side who really knows what they're doing. The one i paid for this go round i wound up not being very impressed with in terms of her familiarity with the american side of things (she only did my french return), and i just didn't get a good vibe from her in the end. I know of another good one in paris who is american, but she wants to be paid before she'll look at it (she was on vacation when i needed her last year). Trouble is, from what i've heard of what boxes to tick and what forms to use, i get the feeling the return was done correctly, and if there's a problem, it's on the side of the tax office. But another 500 euros at least to maybe find out that there's nothing wrong? Kind of hard for me to do that, with all i've paid already.

So i've written to aaro, we'll see what they have to say.