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‘Death by a thousand cuts’: Tax warning for Americans in France

Financial advisers have reiterated a warning to Americans in France to beware of certain products - including the popular Assurance Vie - which are likely to lead to problems with the IRS.

'Death by a thousand cuts': Tax warning for Americans in France
US and French flags are displayed in Paris (Photo by BORIS HORVAT / AFP)

Americans have the special pleasure of being taxed based on citizenship, rather than residency. This means that they must file tax returns in the US every year, despite living abroad.

EXPLAINED Who has to file a tax declaration in France?

This also means that Americans living outside of the United States must be very careful of certain financial products in France, including some types of pension plan and investment options.

One popular French investment option – which will often be offered to you by your bank – is the “Assurance Vie.”

While this is an entirely legitimate product that makes good financial sense for other foreigners in France (and French people) wanting to save, Americans should avoid it.

Here’s why;

Assurance Vie” might sound like it should translate as a “life insurance policy” – an insurance policy in which the premium is paid out to dependent family members after one’s death. In fact, however, in French this is actually called “assurance décès” and it is available through most banks.

Assurance Vie, on the other hand, is a life insurance wrapper that holds investments, usually with a minimum deposit.

The primary benefit to an Assurance Vie is that it is a great tool for being tax efficient – you can grow your investments tax free and you can choose who inherits them, rather than going through the traditional French inheritance process.

But Americans should avoid Assurance Vie, and this is because of how the Internal Revenue Service (IRS) views them.

The IRS considers Assurance Vie a Passive Foreign Investment Company (PFIC). These are pooled investments registered outside of the United States – for example a mutual fund, an exchange-traded fund (ETF), a hedge fund, or some insurance products (like the Assurance Vie).

READ MORE: Ask the experts: What do Americans in France need to know about investments and pensions?

Maeve Hoffman, qualified financial adviser and partner at Spectrum Group, explained the reason owning PFICs as an American is complicated: “With funds, there is growth happening in the background, and the financial institutions are not set up to provide the level of detail required [by the IRS].

“I describe a lot of these types of investments like a box. The physical box might be called an ‘Assurance Vie’ and what goes in the box depends on you and your risk appetite, but inside the box it is doing lots of things.

“For US citizens, there is no box. You must declare every year what is happening inside, and a lot of financial institutions either can’t or won’t provide that level of detail. It’s not that the fund is doing anything weird or wonderful that should cause the US to have issues. It is like a blender that is moving all the time, but the U.S. reporting wants to know what all the underlying activities are.”

This is also something that Americans with French spouses (filing tax declarations) should be aware of, particularly if their French spouse wishes to invest in an Assurance Vie. 

While the Assurance Vie is a great tool for being tax efficient for non-Americans, and can offer alternatives to the regimented, traditional French inheritance process, for Americans living in France it can lead to lengthy and complicated dealings with the IRS. 

“It is death by a thousand cuts,” Hoffman said, warning Americans to avoid opening one of these investment tools.

What if I already have an Assurance Vie?

For those who already opened an Assurance Vie in France, do not panic.

Financial adviser Cedric Bernier from Harrison Brook recommends “switching to an investment that is not considered a PFIC.” 

Bernier also said that “in some cases, it is okay to keep an Assurance Vie.” However, this will depend on the age of the client and the amount invested – to do this you would likely benefit from the assistance of both a cross-border financial adviser and tax adviser.

In most cases, the Assurance Vie can be closed down at any time, with funds withdrawn.

Bernier mentioned that people should beware that some Assurance Vie plans have “a surrender penalty charge” to close accounts,” but “each provider is different and there should not be anything stopping a client that wants to close one.”

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POLITICS

Rugby tickets, coffee and stickers – French presidential candidates chastised over expenses claims

From coffee runs to rugby tickets and professional photos - France's election financing body has revealed some of the items it has refused to reimburse from the 2022 presidential race.

Rugby tickets, coffee and stickers - French presidential candidates chastised over expenses claims

Spending on the election trail is tightly regulated in France, with maximum campaign spends per candidate as well as a list of acceptable expenses that can be reimbursed.

In France the State pays at least some of the election campaign costs, with the budget calculated according to how many votes the candidate ends up getting. 

READ MORE: 5 things to know about French election campaign financing

On Friday, the government body (la Commission nationale des comptes de campagne et des financements politiques – or CNCCFP) released its findings for the 12 candidates who ran in the April 2022 presidential campaign. 

All of the candidates had their accounts approved, but 11 out of the 12 were refused reimbursement on certain items. Here are some of the items that did not get CNCCFP approval;

Rugby tickets 

Jean Lassalle – the wildcard ‘pro farmer’ candidate who received about three percent of votes cast in the first round of the 2022 election – bought “19 tickets to attend a rugby match” according to the CNCCFP’s findings. The organisation said it would not be reimbursing the tickets and questioned “the electoral nature of the event”. 

The total cost of the tickets was €465 (or €24.50 each).

Too many coffees

Socialist candidate, and current mayor of Paris, Anne Hidalgo reportedly spent at least €1,600 on coffee for her team during the campaign.

According to the CNCCFP, however, the caffeine needed to keep a presidential campaign running did not qualify under the country’s strict campaign financing rules.

Too many stickers

Hard-left candidate Jean-Luc Mélenchon’s was told that the 1.2 million stickers that were bought – to the tune of €28,875 – to advertise the campaign would not be reimbursed. Mélenchon justified the purchasing of the stickers – saying that in the vast majority of cases they were used to build up visibility for campaign events, but CNCCFP ruled that “such a large number” was not justified. 

Mélenchon was not the only one to get in trouble for his signage. Extreme-right candidate Éric Zemmour was accused of having put up over 10,000 posters outside official places reserved for signage. The same went for the far-right’s Marine Le Pen, who decided to appeal the CNCCFP’s decision not to reimburse €300,000 spent on putting posters of her face with the phrase “M la France” on 12 campaign buses.

Poster pictures

Emmanuel Macron – who won re-election in 2022 – will not be reimbursed for the €30,000 spent on a professional photographer Soazig de la Moissonière, who works as his official photographer and took the picture for his campaign poster. 

The CNCCFP said that Macron’s team had “not sufficiently justified” the expenditure.

Expensive Airbnbs

Green party member Yannick Jadot reportedly spent €6,048 on Airbnbs in the city of Paris for some of his campaign employees – an expense that the CNCCFP said that public funds would not cover.

Translating posters

The campaign finance body also refused to reimburse the Mélenchon campaign’s decision to translate its programme into several foreign languages at a cost of €5,398.

The CNCCFP said that they did not consider the translations to be “an expense specifically intended to obtain votes” in a French election.

Best and worst in class

The extreme-right pundit Zemmour had the largest amount of money not reimbursed. Zemmour created a campaign video that used film clips and historic news footage without permission and also appeared on CNews without declaring his candidacy – because of these two offences, CNCCFP has reduced his reimbursement by €200,000. He has been hit with a separate bill of €70,000 after he was found guilty of copyright infringement over the campaign video. 

The star pupil was Nathalie Arthaud, high-school teacher and candidate for the far-left Lutte Ouvriere party, who apparently had “completely clean accounts”. A CNCCFP spokesperson told Le Parisien that if all candidate accounts were like Arthauds’, then “we would be unemployed”.

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