DECEITFUL

What do you do when appearances are deceiving? When is someone knowingly hiding the truth to gain something? Victims of such behavior always find out the truth too late. The danger is well hidden, and everything appears really safe. When should the foreigner realize that even though everything looks fine, it is not? At what point does the French professional stop coping with the cultural differences and start taking advantage of the ignorance of his foreign client? How can it be determined whether the foreigner is taking advantage of the probability that he will get the benefit of the doubt to get away with illegal conduct? When should the French professional know that cultural differences cannot be the only explanation for the way a foreigner is behaving? One foreigner could say, “we thought we knew what the right thing to do was.” The other foreigner might say, “we thought we could get away with this.”

FRENCH IMMIGRATION
1 - NEW RULES REGARDING EU CITIZENS
On July 1st citizens of the new EU member states living in France will have full access to the French job market and no longer need to go through the Main d’Oeuvre Etrangère office to acquire the right to work. This alone could help mitigate the shortage of manual laborers in some industries, which in turn could put an end to the current procedure that allows undocumented aliens working in France to obtain legal status if they can prove that they work or have a job offer in an industry that is facing labor shortage.

2 – STATISTICS FOR DEPORTATION OF UNDOCUMENTED ALIENS
2007 ended with a record-high number of deportations of undocumented aliens from France. Since then, the latest government figures have shown a significant increase, with 14,660 deportations over the first five months of this year – 80% more than at the same time period in 2007. Claiming that its policy has been approved by undocumented foreigners themselves, the government underlines that there has been a rise in voluntary departures: 8,349 from June 2007 to May 2008, four times more than in the previous twelve months.

So despite what the news says about issuing immigration documents to workers who merit them, the above figures indicate that the goal of this government is to continue to increase the number of deportations for months and maybe even years to come.

ILLEGAL RENOVATION IN A CO-OWNERSHIP
One of my clients is facing difficulties that arose mainly from a significant cultural misunderstanding over renovations. She had purchased an apartment in Paris that included a maid’s room and decided to do substantial renovations in both the apartment and the room. For the apartment renovations, she arranged everything in Paris and so was able to discuss in detail the work estimate and other issues, some of which I followed with her. However, for the renovation of the maid’s room, she made plans from the USA, communicating with the contractor by phone and email, and I was out of the loop. My client had asked the contractor to do his maximum to make the room as comfortable as possible. Her assumption – based on an extensive career in real-estate in the USA – was that the contractor would stop before doing any illegal work to avoid losing his license. But the French understanding of her request was: “do whatever it takes, legal or illegal, for the place to turn out wonderfully!” The fact is that in France only the owner is liable for any wrongdoing on the premises; the contractor rarely risks losing his license in situations. Even though the renovation resulted in a dramatic improvement to the room – the livable space was significantly increased so the room could be almost fully equipped – it was the result of several illegal actions. When the co-ownership found out, they called for an extraordinary General Meeting to address the issue. In hindsight, my client would have expressed her requests much more carefully if she had known that the contractor risked almost nothing in breeching both the law and the by-laws of the condominium. Likewise, if the contractor had known his client’s limits, he would have checked quite carefully just how far she intended to go to improve the room.

DEFINITION OF FISCAL RESIDENCY IN FRANCE
A recent meeting with one of my clients brought up an interesting aspect of this recurring issue. The maximum time a foreigner can stay in France without immigration status is 90 days. Indeed, a tourist is considered to have finished visiting France at the end of this time period. So, if a foreigner asks whether leaving France after this three-month period puts the meter back to zero or not, it is proof that he is not acting as a tourist and therefore should not be treated like one. Staying in France for 183 days in a calendar year is one of the four situations in which a foreigner becomes a French fiscal resident, whether he has legal immigration status or not. The other three situations are:

1. having immediate family members who reside in France (a spouse and/or children),
2. having a French employer, and
3. running a French business.

The legal assumption underlying this requirement is that your primary residence is where you spend most of your time in a given year.

A foreigner who does not work in France can waive the obligation to pay wealth tax in France on his net worth including worldwide assets for five years. Should the foreigner wish to leave France within this five-year period in order to avoid taxation, I would strongly advise him to stay outside France and cut all financial ties for a solid 365-day period, and ideally longer, before resuming life in France. In this way, a complete year is undocumented for income tax purposes. Also, if a tax audit comes up, there is proof of non-residency in France.

I would simply add that as a rule of thumb, the best way for private individuals to stay out of trouble here is to carefully organize their life according to the above guidelines, and, most importantly, to clearly declare the location of their primary home/domicile. To illustrate residency, I often use the image of an anchor.

Imagine that a foreigner leaves France every 80 days to spend time in another country and then returns, making sure his annual stay in France is less than 183 days. Now, it also happens that this person makes a living in Paris as an unregistered English tutor and has lived with a French partner for several years, and they are registered as such with several divisions of the French administration and private major companies. His strict compliance with the date requirements indicates his intention to follow the letter of the law in order to avoid becoming a French fiscal resident. This pattern, as well as the rest of the situation, will allow the French tax inspector to prove that in effect this person’s anchor is France. The argument will be made that situations 1 and 3 mentioned above apply to him, and careful review of his lifestyle will prove it. Therefore it is quite certain that a French fiscal inspector will treat him as a French resident and he will be taxed accordingly. This process is called “la requalification.”

OFFICE SPACE FOR SALE
ALLIAGE SARL is selling its headquarters at 37, rue de la Condamine 75017 Paris (in the neighborhood called les Batignolles) to move to a bigger location and has asked me to inform my readership. The ground floor has two rooms: a large showroom with a double opening onto the street and a regular door from inside the building, and a smaller space for an office. It is 32.90 square meters (344.45 square feet). The basement was created by combining three traditional cellars into one big one. The asking price is 190,000 euros. I have offered to help with this matter and therefore interested people should contact me directly.

OFFICE CLOSED FOR SUMMER VACATION
Summertime is coming up and I would like to let my readers know that the office will be closed from Friday, July 11th until 9am Wednesday, August 27th . As always, I can be reached during this time by email for emergencies and important matters. The service I offer of receiving mail for clients will continue while the office is closed. In due time, I will give individual clients the information necessary to receive or retrieve their mail during this period.

As usual there will be no August issue. I wish everybody a nice summer and happy holidays.

Best regards,

Q & A

AMERICAN DRIVER’S LICENSE AND PASSING THE FRENCH DRIVING TEST

QUESTION
We are having a difficult time getting our French driver's license since our American one does not transfer to France. Our prefecture told us we must get our licenses by the end of May, and it sounds like our car insurance will be cancelled if we do not get them by then. We have been enrolled in a driving school since last October. If we do not get our licenses by May 31st but are obviously in the process of trying to get them, will our insurance be cancelled? It also seems unfair that some states in the US have reciprocal license agreements with France while ours does not. This is probably a problem to bring up with our congressman rather than with France.

ANSWER
You raise several issues with this single question. YES, there are thirteen states that have signed a reciprocal agreement with France: Colorado, Connecticut, Delaware, Florida, Illinois, Kansas, Kentucky, New Hampshire, Michigan, Ohio, Pennsylvania, South Carolina, and Virginia. Regarding the licenses issued in these states, the rule is that within the first year of permanent residency in France you can exchange your license for a French one. The agreement must be signed at the state level, and until recently this question of international recognition of an American driver’s license was almost never brought up. France is ready to sign with every state; it is only on the American side that a nation-wide agreement is being blocked. It is true that this question never makes the top of the legislative priorities list, and it takes the lobbying of Americans presently and formerly residing overseas to lead this march.

So this is why you need to take the French driving test. Unfortunately, it is much harder than the American one, which could be a real challenge for you, especially given the fact that it is usually in French. Translators are not provided and dictionaries are forbidden. However, in areas where there is a high concentration of English speakers, some driving schools teach in English and allow the help of a translator during the test. All the Americans I know who had to go through this process dreaded it and found it challenging, probably because they are university graduates who believe a driving test should be simple and passed effortlessly. But taking a foreign test requires a lot more than mastery of the language; it also demands mastery of the culture to properly understand the questions.

As stated above, your American license is valid in France during the first year of your French residency. The starting point of this first year can be difficult to identify since it does not automatically correspond to the initial of your carte de séjour. For example, time and time again civil servants have told me, “the student carte de séjour does not grant the right residency to do the license exchange, so once you have another one, come back and do the exchange.” For you it looks like the end of that one-year period is May 31st. On this date, your license becomes invalid, and since your insurance company must strictly apply French law, so does your coverage. Now, if you were stopped by the police, I am not sure they would automatically issue a ticket or even prosecute you for this felony since you might not have any document showing lack of coverage. On the other hand, if you get in an accident after that date, without a valid license or insurance coverage, the insurance company will state that the policy has been retroactively void to that date, and you will be totally liable for the accident.

What we are dealing with here is "driving without a valid license," and this is a very big deal, both in France and the USA.

GETTING MARRIED IN BOTH FRANCE AND THE USA

QUESTION
My fiancé and I have just been legally married in the USA, even though we are both Americans and French residents. Since our life is in France, we have planned a celebration here in September.

Is it okay to have a civil marriage ceremony at the mayor's office in our village at that time as well?

ANSWER
The answer is very short and dry: by doing this you would be committing a felony and if discovered you would be prosecuted. So, NO, it is not OK.

To explain why, I believe I should give some historical background:

In 1901 France implemented the final step in the complete separation of church and state, resulting in violent clashes between police forces and clergy personnel. The French government wanted to regain control over all the activities that the Catholic Church had presided over for centuries and totally separate the religious sacraments from the state procedures or celebrations. At that time France was almost 100% Catholic, so the government’s fear was that a large segment of the French population would ignore administrative procedures in favor of religious sacraments. Therefore, laws were passed that made it a major felony to bypass state procedures for religious celebrations. For weddings, then, French law demands that the civil ceremony precede the religious one. So a tradition developed in which couples get married at the city hall first and then cross the main street or square to go to the church for the religious ceremony. Since the French administration is centralized by nature and the wedding is recorded on the birth certificate, there is almost no way to cheat here if everything takes place in France.

Thus between France and the USA, there can be only one legal marriage. Since you have already been legally married in the USA, you cannot get married a second time in France at the city hall. But you can have a religious ceremony in France.

Considering the fact that a French marriage license and “livret de famille” would make your life in France much easier, I understand the temptation to have a French legal wedding. All I can say here is that if you never use your American wedding certificate outside the USA and only use the French marriage license with the “livret de famille,” then you run a very small risk of getting caught and facing charges, and therefore could get away with having two legal marriages. The “livret de famille” is a booklet that has an official transcript of both the marriage license and the birth certificates of all the couple’s children.

CAPITAL GAINS TAX IN FRANCE

QUESTION
We have a problem with the capital gains tax that must be paid when property is sold.

Four years ago we bought an old barn on a chateau estate which was uninhabitable. We did everything necessary to make it a house, and for this work we spent more than what we paid for the property.

We have the receipts for all the companies we hired to help us with this work; they are licensed professionals, and there should not be a cap for the amount of deduction. Plans sometimes change, and it is possible we will need to sell this house.

The notaire informs us that our capital gains tax will be calculated on whatever money we get over and above the purchase price plus 15% for any and all improvements, regardless of the necessity of these improvements. So it seems we will be taxed on our own investment as if it were a profit. We hired licensed contractors and workers and paid tax on all of the materials and labor, which in effect means we will be taxed on the taxes we paid, and of course we regularly pay the “taxes foncières” and habitation on this now more valuable property.

As you can imagine, from our perspective this is hugely unjust. And of course, it makes one regret having had the work done legally instead of more cheaply. And it makes one consider selling the property to someone willing to pay a portion in unreported cash.

ANSWER
It happens that for the most part you are right regarding the way the capital gains should be calculated, and it seems that you should be able to use the payments you made on your massive improvements to decrease the amount of profit and therefore the amount of related tax.

At the same time, in some ways you have been caught in a conflict between French and American culture.

The first issue is about what is involved in the capital gains calculation and how this amount is taxed, considering that after fifteen years of ownership no more tax is owed. The selling price is the amount paid by the buyer and no further discussion about it is possible. The purchase price is a lot more complex to identify since it takes into consideration the amount of money paid to the notaire at the time of purchase and the initial improvement done before moving in. If no renovation was done then the tax office allows that this purchase price be increased by 15%, as there is always a minimum of renovation and repairs done.

A critical aspect of this issue explains why your notaire is so cautious about this calculation and appears to favor this 15% possibility. Indeed, a notaire is personally liable for any tax cheating committed through his firm. This means that if he is insufficiently careful in his evaluation of the proofs you submit to decrease the amount of profit, he will be called to pay the excess of taxes owed. Therefore the name of the game for him is to present proofs that are so solid that the tax inspector will accept them without question. The notaire has absolutely no incentive to take any risks and trigger a potential tax audit. However, if you clearly let him know that you understand his concerns and where they come from, I am certain you will then be able to work together to get all the benefits from your receipts and pay only the taxes you really owe on the profit of the sale of the house.

The second issue is that in France professionals are supposed to do the professional work, while owners do the cosmetic work. Complying with French law should guarantee all the benefits one expects from a professional. Considering all the horror stories I have heard and cases I have worked on, I know that choosing the proper professional in France does not always mean getting customer satisfaction or even the right court decision if you file in court. When it comes to capital gains tax, using only the paid invoices of professionals licensed as contractors or craftsmen to renovate real-estate makes absolute sense, since it should cover all the "real work" done on the premises. If more of this type of work has been done but there is no documentation for it, then it was either paid under the table (and so punishable as tax cheating) or the owners themselves have done more than they should have, also an illegal action with consequences.

Interestingly, the French seem to be good “handymen,” but it is only in the USA that I have known people who actually built their house from the ground up, leaving almost nothing to a professional. In France this is unthinkable – and illegal.