France: Cross-Border Employment And Global Mobility Issues In Europe And Latin America: A Closer Look At International Assignments

The secondment of a US employee to France for a certain period of time raises various issues regarding immigration law, social security law, employment law and tax law. The purpose of this study is to summarize these issues.

US employees seconded to France for a certain period of time need to obtain a work permit (1.1). Different types of work permits exist (1.2) and the applicable procedure for the delivery of the work permit differs depending on the nature of such permit (1.3). Sanctions apply in case of non-compliance with French applicable rules (1.4).

As a general rule, entry in France requires the presentation of a travel document, most often a passport, and a visa. However, US nationals are exempt from the visa requirement for stays in France under three months.

US nationals who come to France without a visa are not allowed to perform any professional activity in France and the right to a long stay is subject to a residence permit. As a general rule, short and long stays are clearly different. In fact, extending a short-term visa to a long-term visa has almost become impossible once in the host country. Most often, the person concerned has to leave the territory, even sometimes having to go back to his/her home country.

US employees are required to get work permits so as to work in France. In most cases, such permit is not easy to obtain as France tends to promote the use of national workforce. The required procedure often demands that the company prove that it cannot find an applicant on the French market. Economic immigration is therefore often restricted to highly skilled workers, or with a view to meeting temporary needs (such as the shortage in data processing engineers).

Waiting periods are often long since an immigration procedure lasts 2 to 3 months on average. One must take such waiting time into account when planning the move.

Available work permits are the following:

A resident card is valid for 10 years. This card is automatically renewed unless its holder has left French territory for more than 3 consecutive years. This card allows its holder to work in metropolitan France in the business area of his/her choice, with the exception of public servant positions.

A Decree dated November 2, 1945 distinguishes the automatic granting of resident cards from situations where the prefect has a large power of appreciation: with the exception of cases where the resident card is automatically granted, the prefect has extensive discretionary power.

US employees who come to work in France for the first time or for a short period are rarely granted a resident card. For these situations, the other types of permits are more adequate.

This card is both a resident card and a work permit.

US employees who do not qualify for a resident card may request a temporary resident card. The temporary resident card is valid for one year and may be renewed. The endorsement indicated on the card reflects the employee's personal situation in France. Only the "salarié" stamp authorizes its holder to work in France, and under certain conditions, the "étudiant" (student) stamp.

The authorized professional activity and geographic area are noted on the back of the card. In spite of the word "temporary", this card is in fact granted to permanent employees, i.e. employees working for a French company under an indefinite-term employment contract or under a fixed-term employment contract, whose term is at least 1 year.

This card is generally intended for foreign employees assigned to carry out short-term missions in France and who are not eligible for a card enabling them to reside and work in France (resident card or temporary resident card stamped "salarié" (employee)):

• either because they cannot demonstrate a direct contractual link with the French company (for example, in the event where the employee is seconded for a short period of time);
• or because the mission was originally expected to last less than one year.

This authorization is valid for 9 months, after which it may be renewed.

There are 2 ways of obtaining this card: the introduction procedure and the regularization procedure.

The introduction procedure is the standard procedure, while the regularization procedure is the exception.

(a) Introduction procedure

This procedure is regulated by Circular n°84-24 dated December 21, 1984.

It is up to the employer to initiate this procedure and it is responsible for filing a request with the French National Employment Agency – "ANPE" – closest to the company's head office.

This request must be made in writing and must include the reasons why the employer intends to hire a foreign employee and not a French or European one. The request must also contain (i) 3 copies of the employment contract signed by the employer, (ii) an undertaking to pay the ANAEM (French National Foreigners and Migrations Agency – "Agence nationale d’accueil des étrangers et des migrations" – formerly OMI) tax and contribution, (iii) a form containing the employee's personal details and (iv) a form concerning the employee's housing conditions.

The employment contract, the undertaking to pay the ANAEM tax and contribution and the other required documents must be drafted on standard forms available at the Departmental Labor Directorate – "Direction départementale du travail et de l’emploi" (DDTE).

For a period of 15 days, the ANPE publishes a job offer for the position to be held by the foreign employee. The ANPE then sends the applications it received to the employer, which must justify its refusal to hire the candidates. The ANPE then sends the file to the DDTE, along with its opinion on the possibility of having the position filled by an unemployed person in France.

The DDTE then decides if the temporary resident card is to be granted or denied, based on the following criteria:

• the main criteria is the current and anticipated state of the job market in the particular profession and region for which the resident card will be granted;
• the employer's compliance with labor regulations (working time, health and safety, trade union rights, etc.);
• whether or not the working conditions and salary offered to the foreign employee are equivalent to those granted to a French employee;
• if applicable, the lodging offered by the company to the employee.

The state of the job market may not however be used as a basis of refusal when granting resident cards to certain foreign employees (employees whose country has strong ties with France, employees having fought for the French Army, etc.).

While the French Administration has divided the job market into many different types of employment, this system does not however take into account the particularities of the position to be held by the foreign employee. For example, an interpreter who speaks English and German is placed in the same category as an interpreter who speaks Chinese and Japanese, in addition to English and German.

The particular case of highly skilled foreigners

According to a Labor Ministry Circular dated December 21, 1984, the state of the job market will be reviewed less strictly with respect to requests formulated by professors, scientists and top executives.

Article 1 of Circular n°96-216 dated April 15, 1996 further elaborates on these guidelines and grants particularly favorable conditions to top executives, who may benefit from a simplified procedure where:

• the company has a registered capital of at least EUR460,000 and was set up at least 3 years ago; and
• the employee has been working for the parent company for at least 1 year and his/her net monthly salary is at least equal to EUR3,700.

Should the DDTE reach an unfavorable decision, it will immediately inform the employer thereof. Such decision must be motivated and signed by the prefect or a public servant with power of attorney for such signature.

Should the DDTE reach a favorable decision, the employee's contract and file will be sent to the ANAEM.

The authorized professional activities and the geographic sector where the former may be performed are mentioned in the contract.

The employee must undergo a medical examination before arriving in France, the cost of which is borne by the employer. A summons to this medical examination is sent to the employee's residence by the ANAEM. The ANAEM then sends its authorization to the DDTE and the administration at the département level ("préfecture").

The employer is informed beforehand of the employee’s arrival.

Once this procedure has been completed, and unless the foreign employee presents a threat to law and order, he/she is granted a temporary resident card.

(b) Regularization procedure

While this procedure is the exception to the rule, it is the procedure most often used. Under this procedure, the applicant is responsible for submitting his/her case to the competent administration – the "préfecture" – of his/her place of residence. He/she must provide the following:

• 3 copies of his/her employment contract;
• an undertaking by the employer to pay the ANAEM tax;
• a form concerning his/her lodging.

Unless the competent authorities deny authorization, the request is then sent to the DDTE. The DDTE reviews the request while taking into account the same criteria used in the introduction procedure. Should the DDTE deny the request, the applicant is immediately informed of this decision, which must be precisely motivated.

The employer is also informed of both the authorization refusal and the fines it may risk paying should it have recourse to this employee's services despite such refusal.

Finally, the National Health Authority – "Caisse primaire d'assurance maladie" – is also informed of this decision. This notification states the applicant's name and date of birth and the employer's name or the name of the company for whom the applicant was to work.

Should the authorization be granted by the DDTE, the employee's contract is sent to the ANAEM, which then summons the employee to a medical examination.

Should the employee be declared unfit after the medical examination, the ANAEM will inform the DDTE, the prefect authorities and the Caisse Primaire d'Assurance Maladie thereof.

Should the employee be declared fit, the ANAEM will write the exam date on the employment contract and give it to the employee. The DDTE and the prefect are immediately informed when the employee is declared fit. The prefect authorities then issue the resident card to the employee. The employee’s employment contract indicates the authorized professional activities and the geographic area where they may be performed.

The system under which this authorization is granted is determined by Circular n°20 dated January 23, 1990. Exceptionally, French legislation grants the DDTE the possibility of issuing temporary work authorizations.

The procedure to be followed in order to obtain a temporary work authorization varies according to the expected length of the foreign employee's stay.

If the foreign employee holds a temporary resident card that is valid or is stamped student ("étudiant") or family member ("membre de famille"), the request for authorization is made with the DDTE office having jurisdiction over the employee's area of residence. In this scenario, the services of the ANAEM are not required, and consequently no ANAEM tax or contribution is due.

If the foreign employee requests a temporary work authorization of no more than 3 months, this request is also made with the DDTE.

In principle, the state of the job market may be used as grounds for refusal of a temporary work authorization. However, Article 3 of the Order dated December 14, 1984 lists the situations where the state of the job market may not be taken into consideration for such refusal.

The Law No. 2003-1119 of November 26, 2003 increased employer penalties for employing illegal immigrants.

Article L.611-1 and sub. of the French Labor Code increased the labor inspectors’ powers of investigation. Labor inspectors may now request that employers and employees provide proof of their identity during a visit to the company’s premises. In addition, penalties for employing illegal foreign employees have been increased to a maximum of five years in prison and a EUR15,000 fine. If the employer is a company, the fine is multiplied by five. Furthermore, the French law allows the authorities to force the employer to reimburse the cost of sending the illegal immigrants back to their country.

Finally, the Law No. 2005-32 of January 18, 2005 provides for an additional requirement for foreign individuals who intend to reside in France for an extended period of time: they must prove that they have sufficient understanding of the French language. If not, they must agree to acquire such ability within 2 years of their arrival.

French social security law is based on the principle of territoriality, which does however include certain exceptions, in particular when a bilateral social security agreement has been signed between the relevant countries, as is the case between France and the United States (2.1). However, the bilateral social security agreement signed between France and the United States has a limited scope, both with respect to its duration and the contributions covered (2.2).

French social security law is based on the principle of territoriality pursuant to which any person working in France as an employee is subject to social security charges in France on the compensation received for such work, whatever the employee's nationality.

There is however one exception to this rule when the relevant employee qualifies as a "seconded" employee. This specific regime mainly applies to employees seconded within the European Union and to employees who are citizens of a country outside the European Union that has entered into a bilateral treaty with France.

On March 2, 1987, France and the United States signed a bilateral social security agreement (effective 1 July 1988) (the "Agreement").

Pursuant to Article 6 of the Agreement, "where an employed person who is covered under the laws of one Contracting State with respect to work performed for an employer in the territory of that Contracting State is sent by that employer to work in the territory of the other Contracting State, the person shall be subject to the laws of only the first Contracting State as if he were employed in its territory, provided that the period of work in the territory of the other Contracting State is not expected to exceed five years."

According to the Agreement, US employees seconded to France (and their employer) are therefore subject to US laws as if they were employed on US territory, provided that the period of work in France does not exceed 5 years. During that period of time, they are released from the obligation to pay social security contributions in France. In return, however, the employees do not benefit from the French social security scheme.

In order to avoid any confusion as to the identity of the seconded employee’s employer, the seconded employee’s remuneration should be paid by the US company, and only the latter should deliver pay slips to the seconded employee and pay contributions to the US social security administration.

Article 3 of the Agreement provides that it shall apply to:

Therefore, save the situation of refugees or stateless persons, the employee seconded to France by a US company must be a US citizen.

As far as France is concerned, the Agreement covers all social security charges due under the general social security scheme.

The Agreement applies to US nationals employed by a US company, who are seconded to France on a temporary assignment of a maximum duration of five years.

(a) Certificate of coverage

In order to benefit from an exemption from compulsory affiliation and contributions to the French social security system, the US employer must obtain a certificate of coverage (form SE 404-2) from the US Social Security Administration – Social Security Administration Office of International Operations, P.O. Box 17775, Baltimore, Maryland 21235-7775.

(b) Effective date of exemption

The certificate of coverage must show the effective date of exemption from the payment of social security contributions in the country of assignment. As a rule, said effective date of exemption corresponds to the date the employee starts to work in the other country. However, the certificate of coverage cannot have a retroactive effect and should therefore be obtained before the employee’s start date in France.

Copies of the certificate of coverage issued by the aforementioned authority will be provided to both the employee and the employer. It is the responsibility of the employer and/or the employee to present said certificate to the French authorities when required.

The purpose of the Agreement is to avoid the payment of social security charges in the contracting State to which the employee is seconded on a temporary basis, provided that, throughout his/her secondment, the relevant employee (i) remains affiliated to the social security scheme of the country in which he/she is usually employed and (ii) continues to pay social security charges in that country.

(a) General social security scheme

Pursuant to the Agreement, the employee habitually working in the United States and affiliated to the US social security scheme is exempt from the mandatory affiliation with the French social security scheme and the payment of the applicable social security charges. Such exemption also benefits his/her foreign employer.

(b) Compulsory complementary pension schemes

The Agreement does not cover compulsory complementary pension schemes. As a result, an employee seconded to France as well as his/her employer should in principle contribute to the compulsory complementary pension schemes provided for by French law (commonly referred to as ARRCO and AGIRC schemes).

However, pursuant to the decisions dated October 25, 1999 (for the non-executive complementary pension scheme - ARRCO) and November 10, 1999 (for the executive complementary pension scheme - AGIRC), an employee, who is exempt from the obligation to be affiliated to the French general social security scheme, is also exempt from the mandatory affiliation to the compulsory complementary pension schemes and the payment of the applicable contributions. Such exemption also benefits his/her foreign employer.

(c) Unemployment insurance scheme

The Agreement does not cover the mandatory unemployment insurance scheme managed by the ASSEDIC and to our knowledge, no exemption has been granted by the unemployment authorities.

As a result, an employee seconded to France as well as his/her employer are required to contribute to the mandatory unemployment insurance scheme.

In spite of an increase in the international mobility of employees, significant disparity persists in the treatment of employees in different countries. This is certainly true between France and the United States. Therefore, the assessment of the law applicable to the employment contract is crucial, particularly in situations where a US employee is seconded to France for a limited period of time and for a specific assignment.

In that respect, France has ratified the EC Convention on the Law applicable to Contractual Obligations (the "Rome Convention") dated June 19, 1980 and applies the rules set forth by the Rome Convention when the law applicable to the employment contract is uncertain.

Although, in accordance with the Rome Convention, the parties to an employment contract are free to choose the governing law (3.1), French law strictly limits this choice (3.2). As a result, the choice of law made by the parties rarely deprives the seconded employees of the protection afforded by mandatory rules of French law (3.3) and in any event, cannot deprive such employees of the protection afforded by the French public policy rules (3.4).

French courts apply the Rome Convention to resolve conflicts of laws relating to contractual obligations. Under Article 10, the law applying to a contract shall, in particular, govern its interpretation, performance, termination and potential damages.

The basic rule set forth by the Rome Convention is that "a contract shall be governed by the law chosen by the parties" (Article 3). The choice of law must be expressed or demonstrated with reasonable certainty within the terms of the contract or the circumstances of the case. The parties can select the law that applies to all or part of the employment contract (dépeçage).

Therefore, when a US company seconds an employee to France, it should ensure that US law expressly governs the whole employment contract and not only, for instance, its termination. It is also advisable to subject other important obligations, such as non-compete, confidentiality or working time clauses, to US law. If the employment contract does not state that US law applies, the letter of assignment - which sets out the terms and conditions of the secondment - should stipulate that the entire employment contract is governed by US law, even during the secondment in France.

The freedom of choice is, however, limited by the provisions of Article 6 of the Rome Convention.

Under Article 6, a choice of law made by the parties in a contract of employment shall not have the result of depriving the employees of the protection afforded to them by the mandatory rules of the law that would apply in the absence of choice.

In the absence of choice of the applicable law or if it is impossible to prove this choice, the employment contract is governed by the law of the country in which the employee habitually carries out his/her work in performance of his/her contract.

If the employee does not habitually carry out his/her work in any one country, the employment contract is governed by the law of the country where the place of business, through which he/she was hired, is located. This provision is designed to apply to employees, generally in sales-related positions, who work in several countries at the same time. This would not be the case for a US employee posted in France and who would work consecutively in two countries.

Given the foregoing, the primary criteria used by the courts in order to determine the law that would be applicable in the absence of choice, is the law of the country where the employees habitually carry out their work. This concept of the habitual place of work is a traditional tool used to resolve conflicts of jurisdictions and laws.

Article 5 of the Brussels Convention on jurisdiction (as replaced by Article 19 of Regulation 44/2001/EC) contains a provision similar to the Rome Convention, stating that an employer registered in a member state may be sued before the courts in the place where the employees habitually carry out their work. This text was added to the Brussels Convention in 1989. When drafting the amendment, the viewpoint was that disputes should, as much as possible, be brought before the courts of the state governing the contract in line with case law of the European Court of Justice (Report on the Convention on the Accession of Spain and the Portuguese Republic to the Brussels Convention, OJ 1990 C 189, pg.35, paragraph 23).

Since courts first determine whether they are competent and subsequently which law applies, case law on the habitual place of work is generally based on Article 5 of the Brussels Convention.

(a) Habitual place of work

Pursuant to case law, the habitual place of work is the location where the employees actually perform the work covered by their employment contract – or, in other words, the main location where they perform their professional activities.

The ECJ set out the applicable rules in Weber vs. Universal Ogden Services Ltd [2002]:

Therefore, where the employee carries out his/her work consecutively in two countries, as would be the case for an employee seconded by a US company to France, the court will choose the location where the employee has worked the longest.

This rule has been applied by the French Supreme Court (Cour de Cassation) in a number of cases. In accordance with this rule, the Employment Section of the Supreme Court has ruled that:

• Portuguese law applied when the employee had worked in Portugal for 30 years and in France for four years prior to his dismissal (Gasalho vs. Tap Air Portugal [2000]);
• US law applied when the employee had worked in Amsterdam for six years, in Singapore for four years, and in New York for six years prior to his dismissal (Ferwerda vs. BNP [1999]);
• French law applied when the employee had worked in Argentina for 14 years and in France for 15 years prior to his dismissal (Carlos Olivia Campos vs. Banco de la Nacion Argentina [2001]); and
• French law applied when the employee had worked in France for the last ten years out of 15 (Trans Mediterranean Airways vs. Raphaël [1996]).

Obviously, if the employees perform their work in only one country, the law of that country applies (see Steinman vs. Société Générale [1999], Paris Court of Appeal).

(b) Dual employers

Given that French employment law is more favorable to employees, in particular in the event of termination of the employment contract, and in addition to the claim that French law should apply to the employment relationship as being the law of the habitual place of work, US employees seconded to France frequently claim that they have two employers, i.e. their US employer of origin and the French host company. Indeed, where a French company acts as if it were the posted employee’s employer, a court would be likely to rule that it is the actual employer, even if the US company continues to manage and supervise the employee during the secondment.

To reduce the risk of having French law govern the employment relationship with one of its seconded workers, a US employer should therefore ensure that:

• it determines the terms and conditions of the secondment, and that the French company does not enter into an employment contract with the seconded employee (see, for example, Sethurman vs. Mandataire Liquidateur de la BCCI [1996]);
• the French company does not carry out an annual review of the employee or give him instructions;
• the management of the French company does not take disciplinary action or dismiss the employee (see BP France vs. Panetier [2001]);
• the employee’s remuneration is not paid by the French company and is not dependent on the French company’s performance – and that the employee is not included in the French payroll (see Jego-Quéré vs. Beauséjour [1998]);
• the management of the French company does not inform the employee of the upcoming termination of his/her secondment (see International Harvester vs. Klaus Helkov [1988]);
• the French company does not carry out any of the above measures "on behalf" of the US company (see Barrat vs. Angelloz-Nicoud [1998]);
• the French immigration services consider that the employee is seconded to and not hired in France (see International Harvester vs. Klaus Helkov);
• the employee is seconded in accordance with the bilateral Agreement – in other words, his/her US social security coverage should be maintained during the secondment and the French company should not pay social security contributions to the French authorities for said employee (see Jego-Quéré vs. Beauséjour); and
• the letter of assignment specifies that the employee will be reinstated in a similar position upon his/her return to the United States.

Pursuant to Article 7 of the Rome Convention, whatever choice of law made by the parties, if, in the absence of choice, French law applies, the employee will benefit from the mandatory rules of French law.

Under French law, the concept of "law" further to the Rome Convention covers the aggregate of legislation, regulations, judicial decisions and accepted legal principles. It also covers industry-wide collective bargaining agreements. However, it does not apply to the common practices for a particular industry or company.

Pursuant to Article 3.3 of the Rome Convention, "mandatory rules" are the rules that cannot be bypassed by way of a contract. Under French employment law, it is almost always possible to bypass, by way of a contract, rules set forth by statutes, regulations or collective bargaining agreements.

However, rules may only be sidestepped to the employee’s advantage. Therefore, in any given situation, the rules of the law chosen by the parties will not apply if they are less favorable than the rules of French law.

Although case law frequently addresses dismissals and their direct consequences, this rationale would apply to any other rules (such as leave of absence, compensation and working time).

Consequently, if – notwithstanding the choice of law made by the parties – French law applies in the absence of choice, US employees seconded to France will benefit from most of French employment law, including the provisions of the industry-wide collective bargaining agreement applicable to the host company or, in the absence of a host company, the industry-wide collective bargaining agreement corresponding to their US employer’s activity.

Where French law applies, the US employer should compare the French and US rules of law relating to the same matter in order to determine which is more favorable to the employee. If the matter is not covered by US law, the French provisions will be deemed more favorable and will therefore apply.

Finally, if the employee has already received payments under US law, the courts will offset them from the payments due under French law if they relate to the same matter (for example, the notice period).

In the Air Afrique vs. Maillard case [1992], the Supreme Court ruled that French rules on redundancy were more favorable than Ivory Coast law and constituted mandatory rules of law.

In the Nelet vs. Technol International case [1997], the Grenoble Court of Appeal ruled that although the parties had decided to apply the law of the State of Texas, the more generous provisions of French law on severance indemnities were applicable in the case of the termination of a US employee employed by a US company and working in France as a sales manager.

In the Institut Culturel Autrichien vs. Maria Marceglia case [2002], the Employment Section of the French Supreme Court distinguished a number of French rules as mandatory rules in accordance with the Rome Convention. It considered that the French rules governing the preliminary meeting in the event of a dismissal, and those governing damages for dismissal without cause, were more favorable than Austrian law. It also found that state-funded measures for employees faced with redundancy, which do not exist under Austrian law, were more favorable under the French rules.

Article L.341-5 of the French Labor Code stipulates that companies, which are not established in France and which second employees to France on a temporary basis to provide services, are obliged to apply the provisions of French employment law relating to compensation, working hours and conditions to the seconded employees, irrespective of the law applicable to the employment contract.

Therefore, assuming that US law would apply to the employment relationship and that pursuant to the provisions of the Rome Convention, mandatory rules of French law would not apply, the US employee seconded to France would still benefit from the provisions of French law that are of public policy and from the corresponding provisions of the collective bargaining agreement that apply to the main business activity performed in France.

Rules of public policy mainly relate to:

• compensation (minimum wage);
• working hours, overtime, Sunday work and night work;
• pregnant employees and maternity leave;
• indemnification of leave due to illness or an accident;
• rest periods and holidays: daily rest, bank holidays, paid holidays, leave for family events; and
• health and safety.

French tax law is based on the principle of territoriality pursuant to which any person working in France as an employee is normally subject to income tax in France on the compensation received for such work, whatever the employee's nationality.

However, it is possible for US employees seconded to France on a short-term basis to be taxable only in the US, provided certain conditions are met (4.1). US employees seconded to France on a long-term basis may also be entitled to certain tax exemptions with regard to specific income linked to their secondment (4.2).

The double tax treaty entered into between France and the United States dated August 31, 2004 provides that the income derived by a US employee from his activity carried out in France must be subject to income tax in France.

However, compensation derived by a US employee with respect to an employment performed in France may be taxable in the US only, provided that:

(a) the employee is present in France for a period or periods not exceeding the aggregate 183 days in any given 12-month period commencing or ending in the taxable period concerned;

(b) the compensation is paid by, or on behalf of, an employer who is not a French resident; and

(c) the compensation is not borne by a permanent establishment that the US employer has in France.

If the US employee fails to meet these conditions, the income derived from his/her activity carried out in France remains taxable in France.

As mentioned above, the principle is that compensation received in consideration of employment carried out in France is subject to French income tax.

However, the Amended Tax Bill for 2003 sets forth partial exemption applicable to foreign employees seconded to France.

Article 81 B of the French Tax Code (the "FTC") allows a seconded employee to benefit from a tax exemption on the supplemental compensation linked to his/her secondment in France.

This tax exemption is subject to the following conditions:

• the US employee must not have been considered a French tax resident during an uninterrupted five-year period prior to his/her working activity in France;
• the US employee must settle in France and become a French tax resident from the beginning of his/her working activity in France;
• the US employee must have been employed by a home country entity and seconded to a company established in France; and
• in order to avoid any tax planning (particularly, the shifting of regular salary into premium), it is provided that the regular salary granted to the US employee may not be lower that than "normal" remuneration paid to French employees for similar functions.

Once these conditions are met, supplemental compensations paid with respect to the secondment are exempt from French taxation. The benefits are available until December 31^st of the fifth year following the year the activity started in France.

The Amended Tax Bill for 2005 dated December 31, 2005 allows seconded employees, in compliance with the abovementioned conditions, to elect a tax exemption with respect to the income received in consideration of their activity performed in their home country (in the US, in the case at hand) within the assignment period. However, the part of exempt income cannot exceed 20% of the French taxable compensation.

Since France and the US entered into a specific agreement with regard to social security expenses (cf. Section 2 above), Articles 83 1°0-bis and 83 2°0-ter of the FTC have been providing that in order to determine the personal income tax basis:

• social security charges paid by the seconded employee in the US may be deductible from the French taxable compensation;
• contributions to pension schemes paid by the seconded employee in the US (provided that this employee meets the conditions set forth by Article 81 B (cf. 4.2.1(i) above)) are deductible from the French taxable compensation, under the limits generally applicable to local French employees and until December 31st of the fifth year following the year the activity started in France.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.