US France Income Tax Treaty

US France Tax Treaty

US France Tax Treaty: International Agreements “US Tax Treaties” between the United States and foreign countries have existed for many years — and the US France Tax Treaty is no different. An Income Tax Treaty like the income tax treaty between France and the United States is designed to minimize inconsistent and double taxation — although a tax treaty cannot (unfortunately) shield certain tax implications of items such as a foreign pension, assurance vie, and SCPI. France and the United States have been engaged in treaty relations for more than 50-years and first entered into a modern-day tax treaty nearly 55-years ago (1967). The treaty has been updated and revised multiple times since then — with the most recent version being 2009. The purpose of the US/France Tax Treaty is to help Taxpayers determine what their tax liability is for certain sources of taxable income involving parties to the treaty. While the US France Tax treaty is not the final word on how items of income will be taxed — it does help Taxpayers better understand how either the US Government and/or France will tax certain sources of income; what the IRS reporting requirements are — and whether or not the saving clause will further impact the outcome. Let’s review the basics of the US France Income Tax Treaty – and which income is taxable:

Saving Clause in US France Tax Treaty

As we work through the treaty, one important thing to keep in mind is the saving clause. The saving clause (essentially) provides that, despite any information provided in the treaty — both countries reserve the right to tax certain citizens and residents as they would otherwise tax them under the general tax principles of their respective countries.

What does the Saving Clause Say?

• • • Notwithstanding any provision of the Convention except the provisions of paragraph 3, the United States may tax its residents, as determined under Article 4 (Resident), and its citizens as if the Convention had not come into effect.

    • “For this purpose, the term “citizen” shall include a former citizen or long-term resident whose loss of such status had as one of its principal purposes the avoidance of tax (as defined under the laws of the United States), but only for a period of ten years following such loss.” (updated in 2004 protocol)

Saving Clause Limitations in the France/US Tax Treaty 

Despite any limitation created by the saving clause, certain portions of the tax treaty are immune from the saving clause — which means the tax treaty will stand despite the Savings Clause.

The provisions of paragraph (4) shall not affect:

• • • • • • (a) the benefits conferred under

            • Paragraph 2 of Article 9 (Associated 8 Enterprises),

            • Paragraph 3 (a) of Article 13 (Capital Gains

            • Paragraph 1 of Article 18 (Pensions),

            • Articles 24 (Relief From Double Taxation)

            • 25 (Non-Discrimination), and

            • 26 (Mutual Agreement Procedure); and

          • (b) the benefits conferred under

            • • Paragraph 2 of Article 18 (Pensions),

              • Articles 19 (Public Remuneration)

              • 20 (Teachers and Researchers)

              • 21 (Students and Trainees), and

              • 31 (Diplomatic and Consular Officers), upon individuals who are neither citizens of, nor have immigrant status in, the United States.”

Resident: Article 4 of France & US Tax Treaty

• • • For the purposes of this Convention, the term “resident of a Contracting State” means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management, place of incorporation, or any other criterion of a similar nature.

    • But this term does not include any person who is liable to tax in that State in respect only of income from sources in that State, or of capital situated therein.

What does this Mean?

It means that for purposes of the tax treaty, a resident is essentially a person who intends on being a resident of that country by way of domicile, place of management or incorporation — or any other situation when considering the totality of the circumstance, would tend to show that the person intended on being treated as a resident of that country.

Permanent Establishment: Article 5 of France & US Tax Treaty

• • • 1. For the purposes of this Convention, the term “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on.

    • 2. The term “permanent establishment” includes especially:

      • (a) a place of management;

      • (b) a branch;

      • (c) an office;

      • (d) a factory;

      • (e) a workshop; and (f) a mine, an oil or gas well, a quarry, or any other place of extraction of natural resources.

    • 3. The term “permanent establishment” shall also include a building site or construction or installation project, or an installation or drilling rig or ship used for the exploration or to prepare for the extraction of natural resources, but only if such site or project lasts, or such rig or ship is used, for more than twelve months.

    • 4. Notwithstanding the preceding provisions of this Article, the term “permanent establishment” shall be deemed not to include:

      • (a) the use of facilities solely for the purpose of storage, display, or delivery of goods or merchandise belonging to the enterprise;

      • (b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display, or delivery;

      • (c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;

      • (d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or of collecting information, for the enterprise;

      • (e) the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character;

      • (f) the maintenance of a fixed place of business solely for any combination of the activities mentioned in subparagraphs (a) to (e), provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character.

    • 5. Notwithstanding the provisions of paragraphs 1 and 2, where a person – other than an agent of an independent status to whom paragraph 6 applies – is acting on behalf of an enterprise and has and habitually exercises in a Contracting State an authority to conclude contracts in the name of the enterprise, that enterprise shall be deemed to have a permanent establishment in that State in respect of any activities which that person undertakes for the enterprise, unless the activities of such person are limited to those mentioned in paragraph 4 which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph.

    • 6. An enterprise shall not be deemed to have a permanent establishment in a Contracting State merely because it carries on business in that State through a broker, general commission agent, or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business as such. The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.

What does this Mean?

When it comes to Permanent Establishment rules — it can get very complicated, since it involves business and especially with the introduction of the TCJA, the rules are still kinda sorta in a state of flux. The most important concept of permanent establishment is that unless a company has a permanent establishment “fixed place of business” in this specific country then they are generally not going to be taxed by that country on the income generated in that country.

Real Property Income: Article 6 of US France Income Tax Treaty

• • • 1.Income from real property (including income from agriculture or forestry) situated in a Contracting State may be taxed in that State.

    • 2. The term “real property” shall have the meaning which it has under the law of the Contracting State in which the property in question is situated. The term shall in any case include options, promises to sell, and similar rights relating to real property, property accessory to real property, livestock and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property apply, usufruct of real property and rights to variable or fixed payments as consideration for the working of or the right to work, mineral deposits, sources and other natural resources. Ships and aircraft shall not be regarded as real property.

    • 3. The provisions of paragraph 1 shall apply to income from the direct use, letting, or use in any other form of real property.

    • 4. The provisions of paragraphs 1 and 3 shall also apply to income from real property of an enterprise and to income from real property used for the performance of independent personal services.

    • 5. Where the ownership of shares or other rights in a company entitles a resident of a Contracting State to the enjoyment of real property situated in the other Contracting State and held by that company, the income derived by the owner from the direct use, letting, or use in any other form of this right of enjoyment may be taxed in that other State to the extent that it would be taxed under the domestic law of that other State if the owner were a resident of that State. The provisions of this paragraph shall apply, notwithstanding the provisions of Articles 7 (Business Profits) and 14 (Independent Personal Services).

    • 6. A resident of a Contracting State who is liable to tax in the other Contracting State on income from real property situated in the other Contracting State may elect to be taxed on a net basis, if such treatment is not provided under the domestic law of that other State.

What does this Mean?

When it comes to real property income, the France & US Tax Treaty provides that any income generated from the real property situated in one of the contracting states may still be taxed in that state — in other words, for example if a US person resides in the United States and has an income generated in France, then France can still tax the income even though the person is a resident of the other contracting state — and nothing would prevent the state of residence from taxing it as well. (Foreign Tax Credits should minimize the tax outcome).

Dividends: Article 10 of France & US Tax Treaty

• • • 1 Dividends paid by a company that is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.

    • 2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed: a) 5 percent of the gross amount of the dividends if the beneficial owner is a company that owns: (i) directly at least 10 percent of the voting stock of the company paying the dividends, if such company is a resident of the United States; or (ii) directly or indirectly at least 10 percent of the capital of the company paying the dividends, if such company is a resident of France; b) 15 percent of the gross amount of the dividends in all other cases.

    • 3. Notwithstanding the provisions of paragraph 2, such dividends shall not be taxed in the Contracting State of which the company paying the dividends is a resident if the beneficial owner is a company that is a resident of the other Contracting State that has owned, directly or indirectly through one or more residents of either Contracting State, shares representing 80 percent or more of the voting power of the company paying the dividends in the case of the United States, or 80 percent or more of the capital of the company paying the dividends in the case of France, for a 12-month period ending on the date on which entitlement to the dividends is determined and: a) satisfies the conditions of clause (i) or (ii) of subparagraph c) of paragraph 2 of Article 30 (Limitation on Benefits of the Convention); b) satisfies the conditions of clauses (i) and (ii) of subparagraph e) of paragraph 2 of Article 30, provided that the company satisfies the conditions described in paragraph 4 of that Article with respect to the dividends; c) is entitled to benefits with respect to the dividends under paragraph 3 of Article 30; or d) has received a determination pursuant to paragraph 6 of Article 30 with respect to this paragraph.

    • 4. Paragraphs 2 and 3 shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.

What does this Mean?

When it comes to dividends, the general proposition is that even if dividends are paid by a company of one contracting state (France) to a resident of the other contracting state (US), it is the other contract state that gets to tax the dividends (US) — although they can still be taxed in this state of source but only up to a limited amount of tax.  When it comes to dividends, there are many exceptions, exclusions and limitations to be cognizant of — which will vary based on the taxpayer specific facts and circumstances.

Interest: Article 11 of US France Income Tax Treaty

• • • 1.Interest arising in a Contracting State and beneficially owned by a resident of the other Contracting State shall be taxable only in that other State.

    • 2. Notwithstanding the provisions of paragraph 1:  (a) interest arising in a Contracting State that is determined with reference to the profits of the issuer or of one of its associated enterprises, as defined in subparagraph (a) or (b) of paragraph 1 of Article 9 (Associated Enterprises), and paid to a resident of the other Contracting State may be taxed in that other State; (b) however, such interest may also be taxed in the Contracting State in which it arises, and according to the laws of that State, but if the beneficial owner is a resident of the other Contracting State, the gross amount of the interest may be taxed at a rate not exceeding the rate prescribed in subparagraph (b) of paragraph 2 of Article 10 (Dividends).

    • 3. The term “interest” means income from indebtedness of every kind, whether or not secured by mortgage, and whether or not carrying a right to participate in the debtor’s profits, and in particular, income from government securities and income from bonds or debentures, including premiums or prizes attaching to such securities, bonds, or debentures, as well as other income that is treated as income from money lent by the taxation law of the Contracting State in which the income arises. However, the term “interest” does not include income dealt with in Article 10 (Dividends). Penalty charges for late payment shall not be regarded as interest for the purposes of the Convention.

    • 4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State, in which the interest arises, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the interest is attributable to such permanent establishment or fixed base. In such case the provisions of Article 7 (Business Profits) or Article 14 (Independent Personal Services), as the case may be, shall apply.

    • 5. Interest shall be deemed to arise in a Contracting State when the payer is a resident of that State. Where, however, the person paying the interest, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment or fixed base, then such interest shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.

    • 6. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the interest, having regard to the debt-claim for which it is paid, exceeds the amount that would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention.

What does this Mean?

The taxation of interest is a bit more straightforward than dividends, but still has its own set of complexities to be aware of. From a baseline perspective, interest earned in a contracting state (France) which arises from the beneficial ownership for a person in the other contracting state (US) is only taxable in that other state — shall vs may. Of course, there are some exceptions and exclusions to the first paragraph which taxpayers should evaluate carefully for their specific situation.

Capital Gain: Article 13 of France & US Tax Treaty

• • • Gains from the alienation of real property situated in a Contracting State may be taxed in that State. For purposes of paragraph 1, the term “real property situated in a Contracting State” means:

      • (a) where the United States is the Contracting State, real property referred to in Article 6 (Real Property) that is situated in the United States, a United States real property interest (as defined in section 897 of the Internal Revenue Code, as it say be amended from time to time without changing the general principle thereof), and an interest in a partnership, trust, or estate, to the extent attributable to real property situated in the United States; and

      • (b) where France is the Contracting State,

        • (i) real property referred to in Article 6 (Real Property) that is situated in France; and

        • (ii) shares or similar rights in a company the assets of which consist at least 50 percent of real property situated in France or derive at least 50 percent of their value, directly or indirectly, from real property situated in France; iii) an interest in a partnership, a “société de personnes”, a “groupement d’intérêt économique” (economic interest group), or a “groupement européen d’intérêt économique” (European economic interest group) (other than a partnership, a “société de personnes”, a “groupement d’intérêt économique” (economic interest group), or a “groupement européen d’intérêt économique” that is taxed as a company under French domestic law), an estate, or a trust, to the extent attributable to real property situated in France.

          • • (a) Gains from the alienation of movable property forming part of the business property of a permanent establishment or fixed base that an enterprise or resident of a Contracting State has in the other contracting State, including such gains from the alienation of such permanent establishment (alone or with the whole enterprise) or of such fixed base, may be taxed in that other State. Where the removal of such property from the other Contracting State is deemed to constitute an alienation of such property, the gain that has accrued as of the time that such property is removed from that other State may be taxed by that other State in accordance with its law, and the gain accruing subsequent to that time of removal may be taxed in the first-mentioned Contracting State in accordance with its law.

            • (b) Any gain attributable to a permanent establishment or a fixed base according to the provisions of subparagraph (a) during its existence may be taxed in the Contracting State in which such permanent establishment or fixed base is situated, even if the payments are deferred until such permanent establishment or fixed base has ceased to exist.

What does this Mean?

Capital gains is also a common source of passive income.  Essentially, if real property is alienated which culminates in a taxable event in a contracting state, then it is taxable in that contracting state. There are specific definitions to be aware of depending on whether the property is located in France or the United States –and different rules may apply to each based on their own respective tax regimes. In addition, there is specific definitions involving what is termed as “real property situated in a contracting state.”

Exchange of Information: Article 27 of US France Income Tax Treaty

• • • 1. The competent authorities of the Contracting States shall exchange such information as may be relevant for carrying out the provisions of this Convention or to the administration or enforcement of the domestic laws concerning taxes of every kind and description imposed on behalf of the Contracting States, insofar as taxation thereunder is not contrary to the Convention. The exchange of information is not restricted by Articles 1 (Personal Scope) and 2 (Taxes Covered).

    • 2. Any information received under this Article by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) concerned with the assessment or collection or administration of, the enforcement or prosecution in respect of, the determination of appeals in relation to the taxes referred to in paragraph 1, or the oversight of the above. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions.

    • 3. In no case shall the provisions of paragraphs 1 and 2 be construed so as to impose on a Contracting State the obligation: a) to carry out administrative measures at variance with the laws and administrative practice of that or of the other Contracting State; b) to supply information which is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State; c) to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information the disclosure of which would be contrary to public policy (“ordre public”). 

    • 4. a) If information is requested by a Contracting State in accordance with this Article, the other Contracting State shall use its information gathering measures to obtain the requested information, even though that other State may not need such information for its own tax purposes. The obligation contained in the preceding sentence is subject to the limitations of paragraph 3 but in no case shall such limitations be construed to permit a Contracting State to decline to supply information solely because it has no domestic interest in such information.

    • b) If specifically requested by the competent authority of a Contracting State, the competent authority of the other Contracting State shall, if possible, provide information under this Article in the form of depositions of witnesses and authenticated copies of unedited original documents (including books, papers, statements, records, accounts, and writings), to the same extent such depositions and documents can be obtained under the laws and administrative practices of the other Contracting State with respect to its own taxes.

    • c) A Contracting State shall allow representatives of the other Contracting State to enter the first-mentioned Contracting State to interview taxpayers and look at and copy their books and records, but only after obtaining the consent of those taxpayers and the competent authority of the firstmentioned State (who may be present or represented, if desired), and only if the two Contracting States agree, in an exchange of diplomatic notes, to allow such inquiries on a reciprocal basis. Such inquiries shall not be considered audits for purposes of French domestic law.  In no case shall the provisions of paragraph 3 be construed to permit a Contracting State to decline to supply information solely because the information is held by a bank, other financial institution, nominee or person acting in an agency or a fiduciary capacity or because it relates to ownership interests in a person.” 

What does this Mean?

The exchange of information portion of the tax treaty is commonplace. It basically provides that each contracting state will exchange information with the other — necessary to carry out the purpose of the treaty. It also explains how the exchange of information may not be restricted under certain other articles of the treaty — but there are also limitations regarding the requirements that a contracting state may or may not have to adhere to.

Pension Article 18 of France/US Tax Treaty 

One of the most important aspects of tax treaty law is how pension income is taxed. This is especially true, so that retirees can plan for their golden years.

Looking at the saving clause, there is a more broad (a) limited carve-out as follows:

Article 18 (1)

• • • • “Payments under the social security legislation or similar legislation of a Contracting State to a resident of the other Contracting State or to a citizen of the United States, and pension distributions and other similar remuneration arising in one of the Contracting States in consideration of past employment paid to a resident of the other Contracting State, whether paid periodically or in a lump sum, shall be taxable only in the first-mentioned State.

      • For purposes of this paragraph, pension distributions and other similar remuneration shall be deemed to arise in a Contracting State only if paid by a pension or other retirement arrangement established in that State.” (2009 Protocol)

What does this Mean?

 This article refers to Pensions and Social Security —

Social Security

When the payments refer to payments that are Social Security — and payments are being made to a resident of the other state or to a citizen of the United States – it is only taxable in the first state (in other words, the state that made the payments). It further clarifies that in this situation in which a US citizen resides in France, and receives Social Security or similar payments from France — France is the only country that gets to tax the income (despite US worldwide income rules).

Pension

When the payments refer to pension, it refers to pension distributions that arise in one state as a result of past employment paid to the resident of the other state — it is only taxable in the first state (in other words, the state that made the payments). But, it is limited to Social Security and pension distributions that were established in that state. In other words, the taxpayer cannot use some crafty “Malta treaty planning” or the light to include a third-party triangular scenario to avoid tax.

Paragraph 2 of Article 18 (Pensions)

This is limited in scope for temporary residents who do not have immigrant status and who are not US Citizens.

Article 19 Public Remuneration in the US France Income Tax Treaty

1. 1. 1. • (a) Remuneration, other than a pension, paid by a Contracting State, a political subdivision (in the case of the United States) or local authority thereof; or an agency or instrumentality of that State, subdivision, or authority to an individual in respect of services rendered to that State, subdivision, authority, agency, or instrumentality shall be taxable only in that State.

           (b) However, such remuneration shall be taxable only in the other Contracting State if the services are rendered in that State and the individual is a resident of and a national of that State and not at the same time a national of the first-mentioned State.

         • The provisions of Articles 14 (Independent Personal Services), 15 (Dependent Personal Services), 16 (Directors’ Fees), and 17 (Artistes and Sportsmen) shall apply to remuneration paid in respect of services rendered in connection with a business carried on by a Contracting State, a political subdivision (in the case of the United States) or local authority thereof, or an agency or instrumentality of that State, subdivision, or authority.” (2004 Protocol)

What does this Mean?

It means that in general, government compensation (other than pension) is going to be exempt from tax in the other jurisdiction. And there are some limitations in the situation in which, for example, the Taxpayer resides in France, performs the services in France, is a payee and national of France — and is not a national of the United States.

*Original Article 19, Paragraph 2 was deleted, and the technical explanation provides the following:

• • • The Protocol deletes paragraph 2, which deals with the taxation of pensions paid in respect of government services described in paragraph 1. The provisions of new Article 18 now govern the treatment of such pensions.”

**Paragraph 1 of Article 18 was also expanded again in the 2009 protocol.

Reporting Forms for France Pension

The following is a summary of five (5) common international tax forms.

FBAR (FinCEN 114)

The FBAR is used to report “Foreign Financial Accounts.” This includes investments funds, and certain foreign life insurance policies.

The threshold requirements are relatively simple. On any day of the year, if you aggregated (totaled) the maximum balances of all of your foreign accounts, does the total amount exceed $10,000 (USD)?

If it does, then you most likely have to file the form. The most important thing to remember is you do not need to have more than $10,000 in each account; rather, it is an annual aggregate total of the maximum balances of all the accounts.

Form 8938

This form is used to report “Specified Foreign Financial Assets.”

There are four main thresholds for individuals is as follows:

• Single or Filing Separate (in the U.S.): $50,000/$75,000
• Married with a Joint Returns (In the U.S): $100,000/$150,000
• Single or Filing Separate (Outside the U.S.): $200,000/$300,000
• Married with a Joint Returns (Outside the U.S.): $400,000/$600,000

Form 3520

Form 3520 is filed when a person receives a Gift, Inheritance or Trust Distribution from a foreign person, business or trust. There are three (3) main different thresholds:

• Gift from a Foreign Person: More than $100,000.
• Gift from a Foreign Business: More than $16,076.
• Foreign Trust: Various threshold requirements involving foreign Trusts

Form 5471

Form 5471 is filed in any year that you have ownership interest in a foreign corporation, and meet one of the threshold requirements for filling (Categories 1-5). These are general thresholds:

• Category 1: U.S. shareholders of specified foreign corporations (SFCs) subject to the provisions of section 965.
• Category 2: Officer or Director of a foreign corporation, with a U.S. Shareholder of at least 10% ownership.
• Category 3: A person acquires stock (or additional stock) that bumps them up to 10% Shareholder.
• Category 4: Control of a foreign corporation for at least 30 days during the accounting period.
• Category 5: 10% ownership of a Controlled Foreign Corporation (CFC).

Form 8621

Form 8621 requires a complex analysis, beyond the scope of this article. It is required by any person with a PFIC (Passive Foreign Investment Company).  The analysis gets infinitely more complicated if a person has excess distributions. The failure to file the return may result in the statute of limitations remaining open indefinitely.

*There are some exceptions, exclusions, and limitations to filing.

Received a Gift or Inheritance From France?

If you are a U.S. Person and receive a gift from a Foreign Person, Foreign Business or Foreign Trust, you may have to file a Form 3520. The failure to file these forms may lead to IRS Fines and Penalties (see below).

Which Banks in France Report U.S. Account Holders?

There are thousands Foreign Financial Institutions within France that report US account holder information to the IRS. The list can be found here: FFI List:.

What is important to note, is that the list is not limited to just bank accounts. Rather, when it comes to FATCA or FBAR reporting, it may involve a much broader spectrum of assets and accounts, including:

• Bank Accounts
• Investment Accounts
• Retirement Accounts
• Direct Stock Ownership
• ETF and Mutual Fund Accounts
• Pension Accounts
• Life Insurance or Life Assurance Policies

Totalization Agreement & the United States/France

The purpose of a Totalization Agreement is to help individuals avoid double taxation on Social Security (aka U.S. individuals living abroad and who might be subject to both US and foreign Social Security tax [especially self-employed individuals] from having to pay Social Security taxes to both countries).

As provided by the IRS:

• • • An agreement, effective July 1, 1988, between the United States and France improves Social Security protection for people who work or have worked in both countries.  It helps many people who, without the agreement, would not be eligible for monthly retirement, disability or survivors benefits under the Social Security system of one or both countries.  It also helps people who would otherwise have to pay Social Security taxes to both countries on the same earnings.

    • The agreement covers Social Security taxes (including the U.S. Medicare portion) and retirement, disability and survivors insurance benefits.  It does not cover benefits under the U.S. Medicare program or the Supplemental Security Income (SSI) program.

    • This document covers highlights of the agreement and explains how it may help you while you work and when you apply for benefits.

The United States has entered into 26 Totalization Agreements, including France (as of 1988).

US France Income Tax Treaty is Complex

In conclusion, The US and France tax treaty is a great source of information to help better understand how certain income may be taxed by either country depending on the source of income, the type of income and the residence of the taxpayer. The tax outcome may be changed depending on whether or not the savings clause impacts how tax rules will be applied for certain types of income.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure on matters involving the United States-France Tax Treaty.

Contact our firm for assistance.