[Code of Federal Regulations]
[Title 26, Volume 18, Parts 500 to 599]
[Revised as of April 1, 2000]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR514.20]
[Page 71-77]
TITLE 26--INTERNAL REVENUE
CHAPTER 1--INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY
(Continued)
PART 514--FRANCE--Table of Contents
Subpart--Withholding of Tax
Sec. 514.20 Introductory.
(a) Applicable provisions of convention. The income tax convention
between the United States and France, signed on July 28, 1967 (the
instruments of
[[Page 72]]
ratification of which were exchanged on July 11, 1968), provides in part
as follows, effective for taxable years beginning after December 31,
1966, or with respect to the rate of withholding tax, for dividends,
interest, and royalties paid on or after August 11, 1968:
Article 1--Taxes Covered
(1) The taxes which are the subject of the present Convention are:
(a) In the case of the United States, the Federal income tax,
including surtax, imposed by the Internal Revenue Code and
(b) In the case of France:
(i) The income tax on the income of physical persons, the
complementary tax, the corporation tax, including any withholding tax,
prepayment (precompte) or advance payment with respect to the aforesaid
taxes, and
(ii) The tax on Stock Exchange transactions.
(2) The Convention shall also apply to any documentary taxes on
sales or transfers of shares or certificates of stock or bonds which are
subsequently imposed.
(3) The Convention shall also apply to any identical or
substantially similar taxes which are subsequently imposed in addition
to, or in place of, the existing taxes.
(4) For the purpose of Article 24 (Nondiscrimination), this
Convention shall also apply to taxes of every kind and to those imposed
at the national, State, and local level.
Article 2--General Definitions
(1) In this Convention, unless the context otherwise requires:
(a) The term ``United States of America'' means the United States of
America and when used in the geographical sense means the States thereof
and the District of Columbia. The term ``France'' when used in a
geographical sense means Metropolitan France and the Overseas
departments (Guadeloupe, Guyane, Martinique, and Reunion).
(b) The terms ``a Contracting State'' and ``the other Contracting
State'' means the United States or France, as the context requires.
(c) The term ``person'' comprises an individual or a corporation, or
any other body of individuals or persons.
(d)(i) The term ``United States corporation'' or ``corporation of
the United States'' means a corporation, or any entity treated as a
corporation for U.S. tax purposes, which is created or organized under
the laws of the United States or any State thereof or the District of
Columbia; and
(ii) The term ``French corporation'' or ``corporation of France''
means any body corporate or any entity which is treated as a body
corporate under French tax law, which is resident within France for
French tax purposes.
(e) The term ``competent authority'' means:
(i) In the case of the United States, the Secretary of the Treasury
or his delegate, and
(ii) In the case of France, the Minister of Economy and Finance or
his delegate.
(2) As regards the application of the Convention by a Contracting
State any term not otherwise defined shall, unless the context otherwise
requires, have the meaning which it has under the laws of that
Contracting State relating to the taxes which are the subject of the
Convention.
Article 3--Fiscal Domicile
(1) The term ``resident of France'' means:
(a) A French corporation, and
(b) Any person (other than a body corporate or any entity which
under French law is treated as a body corporate) who is resident in
France for purposes of its tax.
(2) The term ``resident of the United States'' means:
(a) A U.S. corporation, and
(b) Any person (other than a corporation or an entity treated under
U.S. law as a corporation) who is resident in the United States for
purposes of its tax, but in the case of a person acting as a partner or
fiduciary only to the extent that the income derived by such person in
that capacity is taxed as the income of a resident.
(3) An individual who is a resident in both Contracting States shall
be deemed a resident of that Contracting State in which he maintains his
permanent home. If he has a permanent home in both Contracting States or
in neither of the Contracting States, he shall be deemed a resident of
that Contracting State with which his personal and economic relations
are closest (center of vital interests). If the Contracting State in
which he has his center of vital interests cannot be determined, he
shall be deemed a resident of that Contracting State in which he has an
habitual abode. If he has an habitual abode in both Contracting States
or in neither of the Contracting States, the competent authorities of
the Contracting States shall settle the question by mutual agreement.
For purposes of this Article, a permanent home is the place in which an
individual dwells with his family. An individual who is deemed to be a
resident of one Contracting State and not a resident of the other
Contracting State by reason of the provisions of this paragraph shall be
deemd a resident only of the former State for all purposes of this
Convention (including Article 22).
[[Page 73]]
Article 4--Permanent Establishment
(1) For the purposes of this Convention, the term ``permanent
establishment'' means a fixed place of business through which a resident
of one of the Contracting States engaged in industrial or commercial
activity.
(2) The term ``permanent establishment'' shall include especially:
(a) A seat of management,
(b) A branch;
(c) An office;
(d) A factory;
(e) A workshop;
(f) A warehouse;
(g) A mine, quarry, or other place of extraction of natural
resources;
(h) A building site or construction or assembly project which exists
for more than 12 months.
(3) Notwithstanding paragraph (1) of this Article, a permanent
establishment shall not include a fixed place of business used only for
one or more of the following activities:
(a) The use of facilities for the purpose of storage, display, or
delivery of goods or merchandise belonging to the resident;
(b) The maintenance of a stock of goods or merchandise belonging to
the resident for the purpose of storage, display, or delivery;
(c) The maintenance of a stock of goods or merchandise belonging to
the resident for the purpose of processing by another person;
(d) The maintenance of a fixed place of business for the purpose of
purchasing goods or merchandise, or for collecting information, for the
resident;
(e) The maintenance of a fixed place of business for the purpose of
advertising, for the supply of information, for scientific research, or
for similar activities which have a preparatory or auxiliary character,
for the resident.
(4) A person acting in a Contracting State on behalf of a resident
of the other Contracting State--other than an agent of an independent
status to whom paragraph (5) applies--shall be deemed to be a permanent
establishment in the first-mentioned State if such person:
(a) Has, and habitually exercises in that State, an authority to
conclude contracts in the name of that resident, unless the exercise of
such authority is limited to the purchase of goods or merchandise for
that resident, or
(b) Maintains substantial equipment or machinery within the first-
mentioned State for a period of 12 months or more.
(5) A resident of a Contracting State shall not be deemed to have a
permanent establishment in the other Contracting State merely because
such resident carries on business in that other State through a broker,
general commission agent, or any other agent of an independent status,
where such persons are acting in the ordinary course of their business.
(6) The fact that a resident of one of the Contracting States is a
related person, as defined in Article 8 of this Convention, with respect
to a resident of the other Contracting State or with respect to a person
which engages in industrial or commercial activity in that other
Contracting State (whether through a permanent establishment or
otherwise) shall not be taken into account in determining whether that
resident of the first Contracting State has a permanent establishment in
the other Contracting State.
(7) An insurance company of one of the Contracting States shall be
considered as having a permanent establishment in the other Contracting
State if, through a representative other than one described in paragraph
(5), such company receives premiums from or insures risks in the
territory of that other Contracting State.
* * * * *
Article 6--Business Profits
(1) Industrial or commercial profits of a resident of one of the
Contracting States shall be taxable only in that State unless such
resident is engaged in industrial or commercial activity in the other
Contracting State through a permanent establishment situated therein. If
such resident is so engaged, tax may be imposed by such other State on
the industrial or commercial profits of such resident but only on so
much of them as are attributable to the permanent establishment.
(2) Where a resident of a Contracting State carries on business in
the other Contracting State through a permanent establishment situated
therein, there shall in each Contracting State be attributed to that
permanent establishment the industrial or commercial profits which would
be attributable to such permanent establishment if such permanent
establishment were an independent entity engaged in the same or similar
activities under the same or similar conditions and dealing at arm's
length with the resident of which it is a permanent establishment.
(3) In the determination of the profits of a permanent
establishment, there shall be allowed as deductions expenses which are
reasonably connected with such profits including executive and general
administrative expenses, whether incurred in the State in which the
permanent establishment is situated or elsewhere.
(4) No profits shall be attributed to a permanent establishment
merely by reason of the purchase of goods or merchandise by that
permanent establishment, or by the resident of which it is a permanent
establishment, for the account of that resident.
[[Page 74]]
(5) The term ``industrial or commercial profits of a resident''
includes income derived from manufacturing, mercantile, agricultural,
fishing, or mining activities, from the operation of ships or aircraft,
from the furnishing of personal services, from the rental of tangible
personal property, and from insurance activities and rents or royalties
derived from motion picture films, films or tapes of radio or television
broadcasting. It also includes income derived from real property and
natural resources and dividends, interest, royalties (as defined in
paragraphs (3) and (4) of Article 11), and capital gains but only if the
right or property giving rise to such income, dividends, interest,
royalties, or capital gains is effectively connected with a permanent
establishment which the recipient, being a resident of one Contracting
State, has in the other Contracting State. It does not include income
received by an individual as compensation for personal services either
as an employee or in an independent capacity.
* * * * *
Article 9--Dividends
(1) Dividends derived from sources within a Contracting State by a
resident of the other Contracting State may be taxed in that other
State.
(2) Dividends derived from sources within a Contracting State by a
resident of the other Contracting State may also be taxed by the former
Contracting State but the tax imposed on such dividends shall not
exceed--
(a) 15 percent of the amount actually distributed; or
(b) When the recipient is a corporation, 5 percent of the amount
actually distributed if--
(i) During the part of the paying corporation's taxable year which
precedes the date of payment of the dividend and during the whole of its
prior taxable year (if any), at least 10 percent of the outstanding
shares of the voting stock of the paying corporation was owned by the
recipient corporation, and
(ii) Not more than 25 percent of the gross income of the paying
corporation for such prior taxable year (if any) consisted of interest
and dividends (other than interest derived in the conduct of a banking,
insurance, or financing business and dividends or interest received from
subsidiary corporations, 50 percent or more of the outstanding shares of
the voting stock of which was owned by the paying corporation at the
time such dividends or interest were received).
(3) Paragraph (2) of this Article and, in the case of dividends
derived by a resident of France, paragraph (1) of this Article, shall
not apply if the recipient of the dividends has a permanent
establishment in the other Contracting State and the shares with respect
to which the dividends are paid are effectively connected with the
permanent establishment. In such a case, the provisions of Article 6
shall apply.
(4)(a) Except as provided in subparagraph (b), dividends paid by a
corporation of one of the Contracting States shall be treated as income
from sources within that Contracting State, and dividends paid by any
other corporation shall be treated as income from sources outside that
Contracting State.
(b) Dividends paid by a corporation other than a U.S. corporation
shall be treated as dividends from sources within the United States if
such corporation had a permanent establishment in the United States and
more than 80 percent of its gross income was taxable to such permanent
establishment for a 3-year period ending with the close of its taxable
year preceding the declaration of such dividends (or for such portion of
that period as the corporation has been in existence).
(5) When the prepayment (precompte) is levied on dividends paid by a
French corporation to a resident of the United States, such resident
shall be entitled to the refund of that prepayment, subject to deduction
of the withholding tax with respect to the refunded amount in accordance
with paragraph (2) of this Article.
Article 10--Interest
(1) Interest derived from sources within one Contracting State by a
resident of the other Contracting State may be taxed in that other
State.
(2) Interest on bonds, notes, debentures, or any other form of
indebtedness from sources within the United States and paid to a
resident of France may also be taxed by the United States at a rate not
in excess of 10 percent of the amount paid.
(3) Interest on bonds, notes, debentures, or any other form of
indebtedness from sources within France and paid to a resident of the
United States may also be taxed by France at a rate not in excess of 10
percent of the amount paid except that interest on bonds issued before
January 1, 1965, may be taxed at a rate not in excess of 12 percent of
the amount paid.
(4) Paragraphs (2) and (3) of this Article and, in the case of
interest derived by a resident of France, paragraph (1) of this Article,
shall not apply if the recipient of the interest, being a resident of
one of the Contracting States, has a permanent establishment in the
other Contracting State and the indebtedness giving rise to the interest
is effectively connected to such permanent establishment. In such a
case, the provisions of Article 6 shall apply.
[[Page 75]]
(5) The term ``interest'' as used in this article means income from
Government securities, bonds, or debentures, whether or not secured by
mortgage and whether or not carrying a right to participate in profits,
and debt-claims of every kind as well as all other income assimilated to
income from money lent by the taxation law of the State in which the
income has its source.
(6) Interest shall be deemed to be from sources within a Contracting
State when the payer is that State itself, a political subdivision, a
local authority, or 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 in connection
with which the indebtedness on which the interest is paid was incurred,
and such interest is borne by such permanent establishment, then such
interest shall be deemed to be from sources within the Contracting State
in which the permanent establishment is situated.
(7) Where, owing to a special relationship between the payer and the
recipient or between both of them and some other person, the amount of
the interest paid, having regard to the debt claim for which it is paid,
exceeds the amount which would have been agreed upon by the payer and
the recipient in the absence of such relationship, the provisions of
this Article shall apply only to the last-mentioned amount. In that
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.
(8) Interest received by one of the Contracting States, or by an
instrumentality of that State not subject to income tax by such State,
shall be exempt in the State in which such interest has its source.
Article 11--Royalties
(1) Royalties derived from sources within one Contracting State by a
resident of the other Contracting State may be taxed in that other
State.
(2) Except as provided in paragraph (3), royalties derived from
sources within a Contracting State by a resident of the other
Contracting State may also be taxed by the former Contracting State but
the tax imposed on such royalties shall not exceed 5 percent of the
gross amount paid.
(3) Royalties derived from copyrights of literary, artistic, or
scientific works (including gain from the sale or exchange of property
giving rise to such royalties) by a resident of one Contracting State
shall be taxable only in that Contracting State.
(4) The term ``royalties'' as used in paragraph (1) of this Article
means--
(a) Any royalties, rentals, or other amounts paid as consideration
for the use of, or the right to use, patents, designs or models, plans,
secret processes or formulae, trademarks, or other like property or
rights, or for knowledge, experience, or skill (know-how), and
(b) Gains derived from the sale or exchange of any such right or
property, if payment of the amounts realized on such sale or exchange is
contingent, in whole or in part, on the productivity, use or disposition
of such right or property. If the amounts derived from the sale or
exchange of any such right or property are not so contingent, the
provisions of Article 12 shall apply.
(5) Paragraphs (2) and (3) of this Article, and, in the case of
royalties derived by a resident of France, paragraph (1) of this
Article, shall not apply if the recipient of the royalty, being a
resident of one of the Contracting States, has in the other Contracting
State a permanent establishment and the right or property giving rise to
the royalties is effectively connected with such permanent
establishment. In such a case, the provisions of Article 6 shall apply.
(6) Royalties paid for the use of, or the right to use, property
described in paragraph (4) in a State shall be treated as income from
sources within that State.
(7) Where, owing to a special relationship between the payer and the
recipient, or between both of them and some other person, the amount of
the royalties paid exceeds the amount which would have been agreed upon
by the payer and the recipient in the absence of such relationship, the
provisions of this Article shall only apply to the last-mentioned
amount. In that 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.
* * * * *
Article 13--Branch Profits
(1)(a) Dividends paid by a French corporation to a person other than
a citizen, resident, or corporation of the United States shall be exempt
from tax by the United States unless such French corporation had a
permanent establishment in the United States and more than 80 percent of
its gross income was taxable to such permanent establishment for a 3-
year period ending with the close of its taxable year preceding the
declaration of such dividends (or for such portion of that period as the
corporation has been in existence).
* * * * *
Article 16--Governmental Functions
(1) Remuneration, including pensions, paid by, or out of funds
created by, a Contracting
[[Page 76]]
State or a political subdivision or a local authority thereof to any
individual who is a national of that State in respect of services
rendered to that State or a subdivision or local authority thereof in
the discharge of functions of a governmental nature shall be taxable
only in that Contracting State.
(2) The provisions of Articles 15, 19, and 20 shall apply to
remuneration or pensions in respect of services rendered in connection
with any industrial or commercial activity carried on by one of the
Contracting States or a political subdivision or a local authority
thereof.
(3) In the case of an individual who is a national of both
Contracting States, the provisions of Article 22, paragraph (4), shall
apply to remuneration described in paragraph (1) but such remuneration
shall be treated as income from sources within the Contracting State
from which such individual receives such remuneration.
* * * * *
Article 19--Private Pensions and Annuities
(1) Except as provided in Article 16, pensions and other similar
remuneration paid to a resident of a Contracting State in consideration
of past employment shall be taxable only in that Contracting State.
(2) Alimony and annuities paid to a resident of a Contracting State
shall be taxable only in that Contracting State.
(3) The term ``annuities,'' as used in this Article, means a stated
sum paid periodically at stated times during life, or during a specified
number of years, under an obligation to make the payments in return for
adequate and full consideration (other than services rendered).
(4) The term ``pensions,'' as used in this Article, means periodic
payments made after retirement in consideration for, or by way of
compensation for injuries received in connection with, past employment.
* * * * *
Article 27--Assistance in Collection
(1) The two Contracting States undertake to lend assistance and
support to each other in the collection of the taxes to which the
present Convention relates, together with interest, costs, and additions
to the taxes and fines not being of a penal character according to the
laws of the State requested, in the cases where the taxes are
definitively due according to the laws of the State making the
application.
(2) In the case of an application for enforcement of taxes, revenue
claims of each of the Contracting States which have been finally
determined will be accepted for enforcement by the State to which
application is made and collected in that State in accordance with the
laws applicable to the enforcement and collection of its own taxes.
(3) The application will be accompanied by such documents as are
required by the laws of the State making the application to establish
that the taxes have been finally determined.
(4) If the revenue claim has not been finally determined, the State
to which application is made will take such measures of conservancy
(including measures with respect to transfer of property of nonresident
aliens) as are authorized by its laws for the enforcement of its own
taxes.
(5) The assistance provided for in this Article shall not be
accorded with respect to citizens, corporations, or other entities of
the State to which application is made.
* * * * *
Article 31--Entry Into Force
(1) This Convention shall be ratified and instruments of
ratification shall be exchanged at Washington. It shall enter into force
1 month after the date of exchange of the instruments of ratification.
Its provisions shall for the first time have effect:
(a) In the case of France:
(i) As respects withholding taxes, to any proceeds payable and
transactions completed on or after the date on which this Convention
enters into force;
(ii) As respects other income taxes, to taxes which are levied for
the assessment year 1967; and
(iii) As respects the tax on stock exchange transactions, the date
on which this Convention enters into force.
(b) In the case of the United States:
(i) As respects the rate of withholding tax, to amounts received on
or after the date on which this Convention enters into force;
(ii) As respects other income taxes, to taxable years beginning on
or after January 1, 1967.
(2) Upon the coming into effect of this Convention, there shall
terminate:
(a) The Convention of July 25, 1939, relating to income and other
taxes.
(b) The Convention of October 18, 1946, the supplementary Protocol
of May 17, 1948, and the Convention of June 22, 1956, insofar as they
concern taxes on income, on capital and tax on stock exchange
transactions.
The provisions of those Conventions and of that Protocol will cease to
have effect from the date on which the corresponding provisions of the
present Convention shall for the first time have effect according to the
subparagraph (1) above-mentioned.
[[Page 77]]
Article 32--Termination
This Convention shall remain in force until denounced by one of the
Contracting States. Either Contracting State may denounce the
Convention, through diplomatic channels, by giving notice of termination
at least 6 months before the end of any calendar year after the year
1969. In such event, the Convention shall cease to have effect:
(1) In the case of France:
(a) As respects withholding taxes, on January 1 of the year
following the year in which notice is given.
(b) As respects other income taxes, for any year of assessment
beginning on or after January 1 of the year following the year in which
notice is given; and
(c) As respects the tax on stock exchange transactions, for any
transactions occurring on or after January 1 of the year following the
year in which notice is given.
(2) In the case of the United States:
(a) As respects withholding taxes, on January 1 of the year
following the year in which notice is given;
(b) As respects other income taxes, for any taxable year beginning
on or after January 1 of the year following the year in which notice is
given; and
(c) As respects taxes referred to in paragraph (2) of Article 1, for
any transactions occurring on or after January 1 of the year following
the year in which notice is given.
(b) Definitions. Any term defined in the convention shall have the
meaning so assigned to it; any term not so defined shall, unless the
context otherwise requires, have the meaning which such term has under
the internal revenue laws of the United States.
Effective Date Note: By T.D. 8734, 62 FR 53498, Oct. 14, 1997,
Sec. 514.20 was removed, effective Jan. 1, 1999. By T.D. 8804, 63 FR
72183, Dec. 31, 1998, the effective date was delayed until Jan. 1, 2000.
By T.D. 8856, 64 FR 73408, Dec. 30, 1999, the effective date was delayed
until Jan. 1, 2001.