U.S. income tax treaty with France

Treaty documents and protocols

The France convention has been amended by two protocols, and the IRS lists both with the convention and its technical explanation. The 2009 Protocol changed the dividend and royalty rules, so the original text alone gives outdated rates. IRS Table 3 shows the convention effective January 1, 1996, the first Protocol January 1, 2007 and the 2009 Protocol January 1, 2010. The first Protocol, signed in 2004, amended Article 4 on residence of fiscally transparent entities, Article 10 on dividends, Articles 18 and 19 on pensions and public remuneration, Article 24 on relief from double taxation and Article 29.^[1][4][5][7]

Convention structure

The convention has 34 numbered articles, followed by a Protocol.^[2]

Articles 10, 11 and 12 cover dividends, interest and royalties, respectively. Residence appears in Article 4, while information exchange is covered in Article 27. Limitation on benefits appears in Article 30.

Dividends, interest and royalties

Article 10 permits dividends paid by a company resident in one country to a resident of the other country to be taxed in the recipient's country. The paying company's country may also tax the dividends under its law. When the beneficial owner resides in the other country, the source-country tax limit is 5 percent of gross dividends for a company meeting the ownership test, and 15 percent in other cases. Under the 2009 protocol, a company that has held at least 80 percent of the voting power (or capital, for a French payer) for 12 months and meets the limitation on benefits conditions receives dividends free of source-country tax.^[2][5]

The 5 percent dividend ceiling is tied to direct ownership of at least 10 percent of voting power for a U.S. company, or direct or indirect ownership of at least 10 percent of capital for a French company. The 5 percent category does not apply to dividends from a U.S. regulated investment company or real estate investment trust, or a French société d'investissement à capital variable. For a U.S. real estate investment trust, the 15 percent ceiling applies only when an individual beneficial owner holds less than 10 percent; otherwise the U.S. domestic withholding rate applies.^[2]

Article 11 generally assigns exclusive taxation of interest arising in one country and beneficially owned by a resident of the other country to that other country. A stated exception covers interest determined by reference to the issuer's or an associated enterprise's profits. That interest may also be taxed where it arises, subject to a ceiling tied to the 15 percent rate in Article 10 for other dividends.^[2]

Under Article 12, as amended by the 2009 protocol, royalties arising in one country and beneficially owned by a resident of the other are taxable only in the other country. The 5 percent source-country cap in the original 1994 text no longer applies.^[2][5]

For each of these articles, the text provides a special rule when the beneficial owner carries on business through a permanent establishment in the source country, or performs independent personal services from a fixed base there, and the income is attributable to that establishment or base. In those circumstances, the business profits or independent personal services provisions apply instead. They also address cases where a special relationship causes interest or royalty amounts to exceed an arm's-length amount.^[2]

Residence and dual residence

Article 4 defines a resident by reference to liability to tax under a country's laws because of domicile, residence, place of management, place of incorporation, or a similar criterion. A person taxed there only on income sourced there or capital situated there is excluded from that definition. The article separately says that France treats a U.S. citizen or green-card holder as a U.S. resident for this definition only if the person has substantial presence in the United States or meets the stated third-country residence test.^[2]

For an individual treated as resident in both countries, the convention first assigns residence to the country where a permanent home is available. If a home is available in each, it uses the closer personal and economic relations. If that center cannot be determined, or there is no permanent home in either country, it looks to habitual abode. If habitual abode is in both or neither, nationality controls; dual or absent nationality leaves the matter to agreement between the competent authorities.^[2]

For a dual-resident person other than an individual, the competent authorities are to seek to settle residence by mutual agreement. They consider effective management, place of incorporation or constitution, and other relevant factors. Without agreement, that person is not treated as resident of either country for purposes of convention benefits.^[2]

Exchange of information

Article 27 directs the competent authorities to exchange information pertinent to applying the convention and domestic laws concerning covered taxes, when taxation under those laws is consistent with the convention. Information exchange is not restricted by Article 1's personal scope. Information received is treated under the receiving country's confidentiality rules and is limited to specified tax purposes and officials.^[2]

Limitation on benefits

Article 30 is titled Limitation on Benefits of the Convention and sets out eligibility conditions for convention benefits. Its provisions address qualified ownership, active business activity connected with income, headquarters companies, and additional tests for certain company income. The article also defines terms used in those tests and contains rules addressing income connected with a permanent establishment in a third jurisdiction.^[2]

Saving clause and U.S. citizens

Paragraph 2 of Article 29 states that, notwithstanding the convention except for paragraph 3, the United States may tax its residents under Article 4 and its citizens as if the convention had not taken effect. Paragraph 3 lists exceptions, including specified benefits under the provisions on associated enterprises, pensions, relief from double taxation, non-discrimination and mutual agreement procedure. It also identifies exceptions for certain individuals under provisions on public remuneration and for teachers or researchers, as well as students and trainees and diplomatic and consular officers, subject to the stated citizenship and immigration-status conditions.^[2]

Questions and answers

Related resources

Related glossary terms

• Treaty rate table: A treaty rate table summarizes income categories and tax rates or exemptions under U.S. income tax treaties. The IRS explains the tables' scope and limits.
• Tax residence: Tax residence describes a person's status in a country for tax purposes. Treaty texts address how it affects income items and applicable treaty requirements.
• Specified individual: The Form 8938 instructions use specified individual for several categories of people. U.S. citizens and resident aliens count, as do some nonresident aliens.

Related articles and guides

• U.S. income tax treaty with Kazakhstan: The U.S. treaty with Kazakhstan is the 1993 convention, with 5 and 15 percent dividend limits and 10 percent limits on source tax for interest and royalties.
• U.S. income tax treaty with Switzerland: The U.S. income tax convention with Switzerland dates from 1996, and a Protocol in force since 2019 covers information exchange and binding arbitration.

Tools and official documents

• Form 1116: foreign tax credit: Form 1116 claims the foreign tax credit for U.S. citizens: income categories, supporting information, related forms and filing timing under the instructions.

Related pages

• Tax treaties: All treaty partners listed by the IRS.
• Treaty documents lookup: Find IRS-listed treaty documents by country.