Money

March 2019

“Money” is an iconic Pink Floyd song, written by Roger Waters, from the 1973 album The Dark Side of the Moon.

Like most of my generation, I owned the LP and listened to it endlessly. I am definitely a fan of their early albums, which include this one, although for me, Ummagumma synthesizes best what I like about their music, the atmosphere they created.

This is the last section of the lyrics:

Money, it's a crime
Share it fairly but don't take a slice of my pie
Money, so they say
Is the root of all evil today
But if you ask for a raise it's no surprise that they're
Giving none away, away, away.

Given the topics of some interesting debates right now, I thought this theme was a pertinent one to introduce this issue. Many discussions are being initiated by newly elected Democratic Representatives in the USA, putting forward policies that much of the American media sees as extremist or radical. Yet even for conservative leaders in Western European countries, similar policies are considered as givens and therefore non-political.

This is an example of how different the USA and continental Western Europe are in their government and administrative structure. I hope it will not bore my readers if I once again elaborate on the definitions of socialism and social democracy. I cannot remember how many times I tried to explain it during our 2008 summer vacation in the USA, when the words “socialist” and “communist” were applied to Barack Obama during his presidential campaign. I am pleased to see a growing number of elected officials now explaining these concepts again and outlining what they intend to do if their policies are adopted. As a Frenchman, I take no stand on whether these policies would be good or bad for the USA and the American people.

AN ICON IN PARIS HAS PASSED AWAY – PATRICIA LAPLANTE-COLLINS
When I learned in early February that Patricia Laplante-Collins had died, and read so many remembrances from people who knew her well, I checked my records. She became my client in 1999, when she was still called Patricia Collins, and I helped her with the usual administrative issues foreigners can have in France. My last assignment for her was in 2004, when she was already quite successful with her new enterprise – Paris Soirées, a series of social and networking events that she held in her home or, later, in restaurants.

She invited me a few times as a speaker. The last time was in April 2005. By then she was focusing more on art and culture, Parisian stories and history, often from the viewpoint of African-Americans in Paris. Thus my usual topics, such as immigration, were a lot more boring than those provided by other guests.

I have known steady couples who met at Paris Soirées gatherings. Over the years, I followed Patricia’s several moves from afar, watching as her business grew and she became an icon for the American community. Even though not everybody attended her gatherings, everybody seemed to know about them. With her disappeared a cultural event that will be dearly missed by many. Rest in peace, Patricia.

THE OPPOSITION BETWEEN CAPITALISM AND SOCIALISM
The so-called new Democrats or young Democrats, or even Social Democrats, depending on what media one follows, are proud to announce themselves as socialist and be known as such. Only about ten years ago, that word would have disqualified any American politician: it was considered offensive and un-American. But Bernie Sanders, an avowed socialist, ran in the last presidential campaign with a good deal of success. That showed vividly that something had fundamentally changed in American politics. This was confirmed in last November’s midterm election, when people were elected to the House of Representatives claiming to be associated in one way or another with socialism.

The word is widely being used inaccurately. Many Americans today talk about Venezuela as an illustration of socialism, when it is the Scandinavian countries that have best embodied social democratic ideals.

There are four main schools of socialism, which differ considerably.

The first was founded by 19th-century French Utopian philosophers; among the best known are Mr. François Marie Charles Fourier and Mr. Pierre-Joseph Proudhon.

The second we owe to Karl Marx, who took the work of the French philosophers and developed a historical prediction regarding the political future of the world. By doing so he established a new definition of socialism and elaborated in a new way on the historical concept of communism – a theory or system of social organization in which ownership and control of the means of production and distribution, capital, land, etc., are vested in the community as a whole.

The third version, which was in fact a perversion of the first two, was popularized by Hitler under the name National Socialism, better known by its German contraction, Nazism.

The fourth school of socialism was founded by the German Marxist reformer and social democratic politician Mr. Eduard Bernstein in the early 20th century. This is social democracy as best known today; in Wikipedia’s definition, “a political, social and economic ideology that supports economic and social interventions to promote social justice within the framework of a liberal democratic polity and a capitalist economy.” The first government to fully embrace it, in the form of what became known as the Nordic model, was that of Sweden in 1932.

The USSR was founded on Marx’s theory, with private ownership banned and everybody working for the well-being of everybody. The country ended up being a terrible dictatorship that challenged the USA, conquering space before the Americans and wielding military and nuclear power, dominance in sports, and worldwide political influence. Its successor, the Russian Federation, has never achieved this kind of leadership.

Most Northern European countries have lived for decades with social democrat leadership. At the Nordic model’s peak, the Scandinavian countries offered security from cradle to grave when it came to money and housing. Education, health care, highways are free, housing is largely subsidized and unemployment benefits are part of life and enough to live on.

Many multinationals arose after WWII in Germany, which also adopted a form of social democracy, so clearly such a regime is not the enemy of capitalism.

The fundamental question being asked now in the USA involves a choice between two very different political visions.

One arises from the iconic image of the self-made American, alone, successful, with little to no interference from the state, which is limited to guaranteeing security with the army and police and to building and maintaining public infrastructure. More recently, the state’s role has been extended to financially taking care of the elderly and poor with Medicare, Medicaid and Social Security. All three are socialist by nature and were fought as such when created. Nevertheless, at this point the USA already has some socialist programs.

The other vision stems from the time of the New Deal and WWII, when the federal government got heavily involved in people’s lives, creating jobs and raising income tax to the highest level the USA has ever known. For a historical perspective on this critical issue, consider this: the top marginal tax rate was 58% in 1922, 25%in 1925 and 24% in 1929. In 1932, during the Great Depression, the rate was increased to 63% and thereafter steadily increased, reaching 94% in 1944 on income over $200,000, equivalent to $2,868,625 in 2018 dollars.

Today the American political debate is or should be about the legacies of two American presidents, Ronald Reagan and Franklin Delano Roosevelt. (I realize this debate is affected by other issues, notably certain criminal investigations.)

Here are two examples illustrating the differences between the two visions:

1 – Health care
A large portion of the French worker’s earnings finance health care programs, but an even larger portion of the American worker’s earnings finance a similar package of benefits from the private sector. The key difference is that in France, the employee and employer combine to pay social charges and taxes, while in the USA, the employee and employer pay a combination of premiums (health and retirement plans) and taxes for the basic social protection part of the costs. It is generally accepted that public health care programs, also called single payer systems, are more efficient and cheaper, and often result in more immediate treatment, especially in hospital emergency rooms.

Covering everybody, as President Obama intended to do, would make the cost of health care cheaper in the long run because the fear of medical bills would no longer discourage people from getting regular checkups. In the long run, what originally seemed to be the high cost solution would actually end up costing the least. Since 1986, most banking and insurance companies, as well as the health care industry (health insurance, pharmaceutical firms and private hospitals), have generally chosen to act from greed alone and have not served the interests of the American nation. Should the USA ever adopt a single payer program, this would not make it a social-democratic country; it would merely mean it has added one more social program to the existing ones.

2 – The 2009 GM bailout
To take just one small aspect of the Obama bailout package during the Great Recession, did the “Cash for Clunkers” program have the desired effect of getting people to buy new cars and thus help keep car makers solvent? It happened that good business news came out after the program was implemented, and this resulted in rebuilding trust in the future and in the strength of the American economy. This good news gave hope to the public that a brighter future was near. Hope and the good news that nourishes it are important variables when measuring the success of an economic policy. If getting out of the financial crisis costs taxpayer money by subsidizing so-called “poorly manufactured American cars” and deferring the consequences of the free market system of supply and demand, then this is a small price to pay compared with having the crisis last for many months or years, destroying more lives and businesses.

This and other examples illustrate that socially motivated policies aiming for the greater good of the entire population have been implemented again and again in the USA and therefore are totally compatible with what the USA stands for.

I do not believe the USA can ever come even close to the extent to which social democracy existed in Sweden. But it is possible, and even probable, that more federal and state social programs can be added to the existing ones. Today more and more American politicians are advocating free education, single payer health coverage, decent unemployment benefits, maternity leave and so on. This would be no more than following the legacy of FDR. Yes, doing so requires raising taxes. This is probably the one critical political issue that must be addressed head on. The federal government also needs a lot more methods of preventing corporate money from influencing policy. I would like to remind my readers that in March 2016, more than 40 American millionaires proposed that New York raise taxes on the wealthy, under what they called a “1% plan for fairness.” I will address this issue further next month in a discussion of the latest Davos forum. For those interested right now, here is a link.

http://www.theguardian.com/business/2019/feb/01/rutger-bregman-world-economic-forum-davos-speech-tax-billionaires-capitalism/

 

BREXIT IS HERE AND FRANCE HAS RULED
Faced with the likelihood of chaos the day after the Brexit deadline, March 29th, France seems to have put together a solution in case there is no deal. British citizens who can prove they established their residence in France prior to Brexit will have a year to go to the prefecture and ask for immigration status based on the nature of their stay in France.

This is good news for the many I know who are still undecided and waiting to see what kind of Brexit is voted on. Most analysts now think the most probable scenario is “no deal,” which means the UK and EU do not sign an agreement addressing all the pending issues linked to Brexit. Such an agreement has yet to be endorsed by the Parliament, and due to the time constraints involved in reaching such a deal, the chances of this happening are now very slim.

British people living in France should not be worried about their ability to obtain a carte de séjour. Even though they will be subject to the regulations for non-EU citizens, there are so many grounds on which to issue one that it is almost certain they will fit one of those cases.

Nevertheless, I urge British citizens living in France to secure an appointment with the prefecture BEFORE Brexit. The difference is huge. Before Brexit the applicant gets an EU card, which offers all the rights to work and is issued on the basis of fiscal/legal residence in France. I repeat: After Brexit, based on the information I have, the request will be linked to proof that the applicant falls under at least one of the grounds for issuing a non-EU carte de séjour. That is not the same thing by any means.

SOCIAL MEDIA AND BEING A PROFESSIONAL
As time goes by, I can see how old fashioned I am. This is how I see modern communication:

Emails are professional; I write them like I would write an old-fashioned letter, maybe a tad less formal. A text message is either to state that I am on my way to an appointment, or it is a private, non-professional communication. Facebook is volunteer activity; I end up getting clients this way, and to my mind, it is the same as clients coming to me by reading my column, which is free either by email or on my website. Facebook Messenger is the same, although when the questions are too professional for my taste, I ask to receive an email so I can address the issue properly. WhatsApp is great for sending pictures when I deal with the condition of an apartment or a building; I discovered that it can be a great alternative to Skype to have this kind of meeting. But aside from that it is more a personal and private way of communicating.

I do not mind appearing as old-fashioned – I have the excuse of turning 60 pretty soon. The key reason for my choice is that I prefer working with a format and size of screen that lets me feel I am drafting a professional document that has some structure. Being French, and having gone through my entire education in France, I need to write in an orderly fashion.

So please be tolerant of my inability to juggle social media outlets. Going through my website or sending an email directly is the best way to reach me, and lately just about the only way, as I have less and less opportunity to pick up the phone since I am usually in a meeting or outside the office.

MY DAUGHTER LUCILLE HAS LEFT FOR SOUTH KOREA
My daughter Lucille has left for South Korea. I have been very open about the impressive project Lucille has been working on for years now, to live in South Korea. She has gone without any sponsor or on-the-ground support. She has studied the country for years, and her Korean is sufficient for her to be autonomous. This is a huge endeavor for a 27-year-old: she will be living there for a year. My son went by himself to Ghana for almost two months, and my wife and I travelled extensively during our 20s. As we say in French, a new page in Lucille’s life has been turned.

OFFICE CLOSED FOR MY 60th BIRTHDAY
The office will close for slightly over two weeks for this occasion. It will start on Friday June 14th evening and will reopen on Tuesday July 2nd morning. As always, I will only be reachable by email for emergencies and important matters as I will be out of France. The service I offer of receiving mail for clients will continue while the office is closed. I have not figured out how I will send the July issue considering the situation.

Best regards,

FILING TAXES IN FRANCE WITH THE WRONG ID NUMBER

QUESTION

I recently registered as self-employed through the URSSAF website. I am trying to contact Sécurité Sociale to find out how I can send them my dossier to get my carte vitale and be able to log on to my URSAFF account and pay my cotisations, but I've been run around to different phone numbers for three hours. One answer I got was that I’ll receive a bill, so I don’t need to declare. I really want to get this information squared away because I think I should be declaring my income and I want to make sure I'm doing everything right. I'm really frustrated and can't get anyone to give me a straight answer about getting organized!

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ANSWER

You need to know that in France we get many ID numbers, of which we might know only one or two by heart. Unlike in the USA, our Social Security number only works for health coverage and retirement. The tax office, business registration and URSSAF (the social charges collection agency) each use a different number. This seems a nuisance at first and totally confusing, until you realize there is almost no identity theft in France because knowing someone’s Social Security number does not allow access to any other pertinent information.

Therefore, I need to break down the issues you have unknowingly raised because you are dealing with multiple agencies. First, you are dealing with two completely separate authorities, each of which deals with issuing a different critical ID number, and they exchange information only when they have to.

One is URSSAF, which has registered you as self-employed, probably as profession libérale, if you did it right. This means you started a consulting activity. It issues your SIRET/SIREN number and APE/NAF code. (There’s no need to know what they stand for, but SIREN, for instance, is Système d'identification du Répertoire des entreprises.) First comes your business ID number. The SIRET number is the complete one, which includes specifics about what you are doing and where; the SIREN is just the first nine digits of SIRET, and you keep it for life. The APE/NAF code broadly identifies the nature of your activity. SIRET and APE must appear on your letterhead and invoices, and many people put them on their business cards to show that they run a legitimate business.

About two weeks after your register the business, INSEE, the French statistics office, issues a statement containing these numbers, which – and this is very important – are definitive once you receive them. That means you can register with them on the URSSAF site, create your account and get set up to be paperless and have payments made through the site.

The other authority is Assurance Maladie, whose branches are called caisses primaires d’assurance maladie (CPAM). Its situation has changed radically under President Macron. Before, there was a separate division for independents. But there were a lot of problems with the Régime Social des Indépendants (RSI), so the government shut it down and moved everything regarding health coverage for self-employed workers to Assurance Maladie, which has managed the coverage by default ever since it was created right after WWII. This is where your problem lies, because it is this authority that will eventually issue your definitive social security number.

Assuming that you were born in the USA and are a woman, this is how a French social security number is constructed. Virtually the entire number is based on the location and date of birth.

Take, for example, the number 2 64 04 99 404 xxx xx

  • 2 is for a woman (a man’s number would start with 1)
  • 64 is 1964, the year of birth
  • 04 is the month of birth, i.e. April
  • 99 means the person was born outside France
  • 404 stands for the USA, the birthplace.

Then come three digits issued by the computer system, followed by two digits called the key, which are the result of a complex mathematical formula.

Once you receive the number showing all this, you know you have the definitive one. The reason it takes so long to get the definitive number is that INSEE needs official proof of this information, so you have to produce an original birth certificate (or a copy of excellent quality) and official translation of it – although the latest news is that no translation is needed if the document is in English.

Before that, INSEE quickly produces a temporary number based on the most reliable information, the date of birth. The rest is filled out with the digits 0 and 9. No website recognizes a temporary number because it does not match the information the organization has about you. Furthermore, it is common for INSEE to issue several temporary numbers before the definitive one. The entire process takes about a year. The main reason is that INSEE asks the authorities in the city of birth to confirm the information found on the birth certificate, even when it is an original certified under the Hague Convention. Try to imagine an American civil servant, probably at city hall, receiving this seemingly odd request. Chances are that at least the first one goes in the trashcan without a second thought.

Hence, creating your account takes a long time. Rest assured, you have health coverage and your temporary number allows for reimbursement of health expenses. At the hospital you are not asked to pay upfront.

You mention declaring income because you are an independent and you were told you only need to declare once a year. You are mistaking your fiscal status for your status as an independent. An auto-entrepreneur submits a quarterly declaration of the amount of sales and pays the related social charges; those who opt for it also pay the related income tax at the same time. The classic status requires one annual declaration in April, with the payment amounts adjusted the following autumn. (This is why many independents in France complain that they are broke at Christmas time.) URSSAF calculates the amount you pay throughout the year and sends you a payment schedule you at the beginning of the calendar year.

The last income declaration for the tax office is done mostly in May, with the deadline varying from about May 15th to May 21st. Those two have little do one with each other.

In short, no need to be frantic about registering and declaring your earnings. It will come in due time, and due to the status you chose, you will get the documents in the mail, so make sure your postal mail is reaching you in a secured way.

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ILLEGALLY RENOVATING A HOUSE IN FRANCE
QUESTION

We are an American couple trying to buy a large property in the South of France. Just before signing the first contract (compromise de vente) with the real-estate agent, we learned that almost the entire main house burned and was rebuilt about five years ago, in 2013. The seller confirms that the structural work was done with contractors but without the insurance policy called dommage d’ouvrage and without any supervision of an architect. The seller also confirms the “smaller work” was done by family members throughout 2014, including:

  • installing the heating system,
  • upgrading the electricity network,
  • creating two bathrooms upstairs,
  • installing the wooden floor everywhere on the ground floor.

Finally, the seller refuses amendments stating that the seller retains the full responsibility for the complete rebuilding.

The property is perfect for running a B&B, and it would not take much upgrade to have a wonderful place to live and run such a business. Are we taking any risk going through with this purchase?

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ANSWER

I can sum up my advice in two words: RUN AWAY!

Let’s review one illegal thing after another so you can see what is wrong at each step.

The first big problem is that the house was rebuilt without an architect or a request for a building permit. A building permit is not needed if the house is rebuilt so as to be scrupulously identical to what existed before the fire. But in this kind of situation, things are almost always changed, even if people are just following their desires and changing a few minor things. This makes the reconstruction illegal.

Having an architect involved would have made this operation a lot safer. As a professional, the architect can identify which tiny changes strictly inside the house do not require a building permit, and which ones do.

This is a big deal because of the statutes of limitation that apply. There are three to keep in mind. For any aspect that proves to be criminal, it is three years, so that has already passed. Regarding action by a third party, it is ten years. The release of absolutely all liabilities is thirty years. The risk is that anybody can file a lawsuit against you for another four years without having to prove that they suffered damage; all they have to prove is that the reconstruction was illegal. I have no idea where you are buying, but it would not take much for you as a foreigner to upset someone in the vicinity, probably without realizing it. All it takes is someone who wants revenge to get the information and your life becomes hell, with a difficult court battle to win.

Another huge big deal is the lack of dommage d’ouvrage insurance. Buying such a policy before having any construction work done is required by law. This policy covers immediate repairs in case anything goes wrong with the building work, including all damage repair work covered by the ten-year guarantee that all contractors must have, and all of this happens without waiting for a court decision. Not having this policy means that if you discover a construction problem, you will face a difficult lawsuit against the contractor, who is not likely to voluntarily file a claim with his insurance company. The only way you might have some reassurance and guarantee as to the quality of the work is to obtain all the bills paid to the contractors. (Note that good contractors often mention on their letterhead who insures their business.) If the seller refuses to give you the bills, you might have no information except the contractors’ names. Then it becomes virtually impossible to get the ten-year guarantee enforced.

Those are the issues regarding the structural work. The second set of issues is just as bad. Unlike in the USA, few people dare to install the electrical system of a house by themselves, and even if they did, getting it approved by the authorities for use would be quite difficult. Without knowing what “upgrading the electricity network” describes, you could have an uninsurable house until you verify that everything is up to code. This means hiring an electrician, who I am sure will find things to fix, for which you will pay.

The installation of two bathrooms upstairs was legal as long as the plumbing is great. As for the heating system installation, the legality depends on the nature of the system. I doubt that only a set of radiators has been installed; that would have been described differently. It is unlikely to be a fuel-burning furnace because that would have meant putting a tank in the ground, which would have been noted in the list of the structural jobs. The system most likely to fit the description is a gas furnace. If that is the case, just like with the new wiring, you will need an inspection to get approval, which means hiring a professional, with the same risk of having to pay for repairs.

And that is not even the worst part. Running a B&B almost always means being affiliated with Gîtes de France, Gîtes Ruraux or Relais et Châteaux, depending on the quality of the services and premises. It is virtually impossible to run a successful B&B business without such affiliation. All three organizations would inspect the premises and want to see the building permit, the architect’s reports, the contractor’s invoices and so on. If you buy this property without any solid documentation, the lack of such will prevent you from exploiting your purchase as planned. Better not to buy at all.

If you are set on your plan to run a B&B in the French countryside, run away from this place and find another. Most important: Learn from this experience. Ask for the title and the initial building permit. That way you will not waste your time on unsuitable properties.

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DISCLAIMER

Please forward this message to all those who would be interested in its contents. The information contained in this newsletter is intended only as general information. I strongly urge readers to seek professional guidance concerning the legal and tax matters mentioned. This newsletter is intended as a general guide and is not to be taken as professional advice.

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