[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: 26CFR514.101]
[Page 87-93]
TITLE 26--INTERNAL REVENUE
CHAPTER 1--INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY
(Continued)
PART 514--FRANCE--Table of Contents
Subpart--General Income Tax
Sec. 514.101 Introductory.
Authority: 53 Stat. 32, 467; 26 U.S.C. 62, 3791.
Source: Treasury Decision 5499, 11 FR 2154, Mar. 2, 1946, as amended
by T.D. 6273, 22 FR 9529, Nov. 28, 1957, unless otherwise noted.
Redesignated at 25 FR 14022, Dec. 31, 1960.
Effective Date Note: By T.D. 8734, 62 FR 53498, Oct. 14, 1997,
Subpart--General Income Tax, consisting of Secs. 514.101 through
514.117, 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.
Regulations Effective Jan. 1, 1945
The tax convention and protocol between the United States and France
(referred to in this subpart as the convention) proclaimed by the
President of the United States on January 5, 1945, and effective January
1, 1945, provide in part as follows:
[[Page 88]]
Title I--Double Taxation
Article 1
The taxes referred to in this Convention are:
(a) In the case of the United States of America: The federal income
taxes, including surtaxes and excess-profits taxes;
(b) In the case of France:
(1) The real estate tax;
(2) The industrial and commercial profits tax;
(3) The annual tax on undistributed profits;
(4) The agricultural profits tax;
(5) The tax on salaries, allowances and emoluments, wages, pensions
and annuities;
(6) The professional profits tax;
(7) The tax on income from securities and movable capital;
(8) The general income tax.
Article 2
Income from real property, including income from agricultural
undertakings, shall be taxable only in the State in which such real
property is situated.
Article 3
An enterprise of one of the contracting States is not subject to
taxation by the other contracting State in respect of its industrial and
commercial profits except in respect of such profits allocable to its
permanent establishment in the latter State.
No account shall be taken, in determining the tax in one of the
contracting States, of the purchase of merchandise effected therein by
an enterprise of the other State for the purpose of supplying
establishments maintained by such enterprise in the latter State.
The competent authorities of the two contracting States may lay down
rules by agreement for the apportionment of industrial and commercial
profits.
The term ``industrial and commercial profits'' shall not include the
following:
(a) Income from real property;
(b) Income from mortgages, from public funds, securities (including
mortgage bonds), loans, deposits and current accounts;
(c) Dividends and other income from shares in a corporation;
(d) Rentals or royalties arising from leasing personal property or
from any interest in such property, including rentals or royalties for
the use of, or for the privilege of using, patents, copyrights, secret
processes and formulae, good-will, trade marks, trade brands, franchises
and other like property;
(e) Profit or loss from the sale or exchange of capital assets.
Subject to the provisions of this Convention the income referred to
in paragraphs (a), (b), (c), (d) and (e) shall be taxed separately or
together with industrial and commercial profits in accordance with the
laws of the contracting States.
Article 4
American enterprises having permanent establishments in France are
required to submit to the French fiscal administration the same
declarations and the same justifications, with respect to such
establishments, as French enterprises.
The French fiscal administration has the right, within the
provisions of its national legislation and subject to the measures of
appeal provided in such legislation, to make such corrections in the
declaration of profits realized in France as may be necessary to show
the exact amount of such profits.
The same principle applies mutatis mutandis to French enterprises
having permanent establishments in the United States.
Article 5
When an American enterprise, by reason of its participation in the
management or capital of a French enterprise, makes or imposes on the
latter, in their commercial or financial relations, conditions different
from those which would be made with a third enterprise, any profits
which should normally have appeared in the balance sheet of the French
enterprise, but which have been in this manner, diverted to the American
enterprise, are, subject to the measures of appeal applicable in the
case of the tax on industrial and commercial profits, incorporated in
the taxable profits of the French enterprise.
The same principle applies mutatis mutandis, in the event that
profits are diverted from an American enterprise to a French enterprise.
Article 6
Income derived by navigation enterprises of one of the contracting
States from the operation of ships documented under the laws of that
State shall continue to benefit in the other State by the reciprocal tax
exemptions accorded by the exchange of notes of June 11 and July 8, 1927
between the United States of America and France.
Income which an enterprise of one of the contracting States derives
from the operation of aircraft registered in that State shall be exempt
from taxation in the other State.
Article 7
Royalties from real property or in respect of the operation of
mines, quarries or other natural resources shall be taxable only in the
contracting State in which such property, mines, quarries or other
natural resources are situated.
[[Page 89]]
Royalties derived from within one of the contracting States by a
resident or by a corporation or other entity of the other contracting
State as consideration for the right to use copyrights, patents, secret
processes and formulae, trademarks and other analogous rights shall be
exempt from taxation in the former State, provided such resident,
corporation or other entity does not have a permanent establishment
there.
Article 8
Wages, salaries and similar compensation and pensions paid by one of
the contracting States or by a political subdivision thereof to
individuals residing in the other State shall be exempt from taxation in
the latter State.
Private pensions and life annuities derived from within one of the
contracting States and paid to individuals residing in the other
contracting State shall be exempt from taxation in the former State.
Article 9
Income from labor or personal services shall be taxable only in the
State in which the taxpayer carries on his personal activity.
This provision does not apply to the income referred to in Article
8.
Article 10
Income from the exercise of a liberal profession shall be taxable
only in the State in which the professional activity is exercised.
There is the exercise of a liberal profession in one of the two
contracting States only when the professional activity has a fixed
center in that country.
Article 11
Gains derived in one of the contracting States from the sale or
exchange of stocks, securities or commodities by a resident or a
corporation or other entity of the other contracting State shall be
exempt from taxation in the former State, provided such resident or
corporation or other entity has no permanent establishment in the former
State.
Article 12
Students from one of the contracting States residing in the other
contracting State exclusively for the purpose of study shall not be
taxable by the latter State in respect of remittances received from
within the former State for the purpose of their maintenance or studies.
Article 13
In the calculation of taxes established in one of the contracting
States on the use of property or increment of property of an enterprise
of the other State, account shall be taken only of that portion of the
capital situated or employed and allocable to a permanent establishment
within the former State.
The foregoing provision shall apply to the French ``patent'' tax and
the United States capital stock tax even though these two taxes have not
been referred to in Article 1 of the present Convention.
In the application of the present Article navigation enterprises of
one of the contracting States, enjoying in the other State the benefits
of Article 6 of the present Convention, shall not be considered as
having a permanent establishment in the latter State insofar as shipping
activities are concerned.
Article 14
It is agreed that double taxation shall be avoided in the following
manner:
A. As regards the United State of America. Notwithstanding any other
provision of this Convention, the United States of America in
determining the income and excess-profits taxes, including all surtaxes,
of its citizens, or residents, or corporations, may include in the basis
upon which such taxes are imposed, all items of income taxable under the
Revenue Laws of the United States of America, as though this Convention
had not come into effect. The United States of America shall, however,
deduct from the taxes thus computed the amount of French income tax
paid. This deduction shall be made in accordance with the benefits and
limitations of Section 131 of the United States Internal Revenue Code
relating to credit for foreign taxes.
B. As regards France--(a) Schedular taxes. Income from securities,
debts and trusts having its source in the United States of America shall
be subject in France to the tax on income from securities; but this tax
shall be reduced by the amount of the tax already paid in the United
States of America on the same income. In consideration of the fiscal
regime to which the legislation of the United States of America subjects
the income of nonresident aliens and foreign corporations or other
entities, the deduction of the tax paid in the United States of America
shall be effected in a lump sum through a reduction of 12 in the rate of
the tax established by the French law.
The income other than that indicated in the preceding paragraph
shall not be subject to any schedular tax in France when, according to
this Convention, it is taxable in the United States of America.
(b) General tax on revenue. Notwithstanding any other provision of
the present Convention, the general income tax can be determined
according to all the elements of taxable income as imposed by French
fiscal legislation.
However, the provisions of the first paragraph of Article 114 of the
French Code on direct taxation relative to the taxation of aliens
domiciled or resident in France shall continue to be applied.
[[Page 90]]
Article 15
In derogation of Article 3 of the Decree of December 6, 1872,
American corporations which maintain in France permanent establishments
shall be liable to the tax on income from securities on three-fourths of
the profits actually derived from such establishments, the industrial
and commercial profits being determined in accordance with Articles 3
and 4 of this Convention.
The remaining one-fourth shall, in all cases, be taken as the basis
of the annual tax on undistributed profits applicable to the same
corporations.
Article 16
An American corporation shall not be subject to the obligations
prescribed by Article 3 of the Decree of December 6, 1872, by reason of
any participation in the management or in the capital of, or any other
relations with, a French corporation. In such case, the tax on income
from securities continues to be levied, in conformity with French
legislation, on the dividends, interest and all other distributions made
by the French enterprise; but it is moreover collectible, if the
occasion arises, and subject to the measures of appeal applicable in the
case of the tax on income from securities, with respect to the profits
which the American corporation derives from the French corporation under
the conditions prescribed in Article 5.
Article 17
The American corporations subject to the provisions of Article 3 of
the Decree of December 6, 1872 who were not placed under the special
regime established by Articles 5 and 6 of the Convention for the
avoidance of double income taxation between the United States of America
and France, signed April 27, 1932, may, during a new period of six
months from the date of the entry into force of the present Convention,
exercise with reference to past years, the option provided in those two
articles under the conditions which they prescribe.
Moreover, the American corporations contemplated in the third
paragraph of Article 10 of the Convention of April 27, 1932, may be
admitted to benefit from the provisions of that paragraph, when the tax
has not yet been paid, if the latter was not found to be payable, prior
to May 1, 1930, by a definitive judicial decision or if such decision
has been the subject of an appeal in cassation.
Article 18
Any United States income tax liability remaining unpaid as at the
effective date of this Convention for years beginning prior to January
1, 1936 of any individual resident of France (other than a citizen of
the United States of America) or of a French corporation may be adjusted
by the Commissioner of Internal Revenue of the United States of America,
on the basis of the provisions of the United States Revenue Act of 1936.
However, no adjustment will be made more than two years subsequent to
the effective date of this Convention unless the taxpayer files a
request with the Commissioner of Internal Revenue prior to such date.
Article 19
Notwithstanding any other provision of this Convention, in order to
avoid double taxation on public servants, employees of one of the
contracting States being citizens of that State and remunerated by it,
who have been received by the other State to perform services in such
State shall be exempt in their principal place of residence from direct
and personal taxes whether national, State or local.
Such employees who own real property in the State in which they
perform services shall not benefit from the above exemptions with
respect to the taxes levied on such real property. Employees who engage
in any private gainful occupation in such State shall not be entitled to
any exemption under this Article.
Title II--Fiscal Assistance
Article 20
With a view to the more effective imposition of the taxes to which
the present Convention relates, the contracting States undertake, on
condition of reciprocity, to furnish information of a fiscal nature
which the authorities of each State concerned have at their disposal, or
are in a position to obtain under their own laws, that may be of use to
the authorities of the other State in the assessment of the said taxes.
Such information shall be exchanged between the competent
authorities of the contracting States in the ordinary course or on
request.
Article 21
In accordance with the preceding Article, the competent authorities
of the United States of America will transmit to the competent
authorities of France, as regards any person, corporation or other
entity (other than a citizen, corporation or other entity of the United
States of America) having an address in France and deriving from sources
within the United States of America rents, dividends, interest,
royalties, income from trusts, wages, salaries, pensions, annuities, or
other fixed or determinable periodical income, the name and address of
such person, corporation or other entity as well as the amount of such
income.
The competent authorities of France will transmit to the competent
authorities of the United States of America, as regards any
[[Page 91]]
person, corporation or other entity (other than a citizen, corporation
or other entity of France) having an address in the United States of
America and deriving from sources within France rents, dividends,
interest, royalties, income from trusts, wages, salaries, pensions,
annuities, or other fixed or determinable periodical income, the name
and address of such person, corporation or other entity as well as the
amount of such income.
The information relating to each year will be transmitted as soon as
possible after December 31.
Article 22
The competent authorities of each of the contracting States shall be
entitled to obtain, through diplomatic channels, from the competent
authorities of the other contracting States, except with respect to
citizens, corporations or other entities of the State to which
application is made, particulars in concrete cases necessary for the
establishment of the taxes to which the present Convention relates.
However, the competent authorities of each State shall not be
prevented from transmitting to the competent authorities of the other
State information relating to their own nationals (citizens,
corporations or other entities) if they deem it opportune for the
prevention of fiscal evasion.
Article 23
Each contracting State undertakes to lend assistance and support 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.
In the case of an application for enforcement of taxes, revenue
claims of each of the contracting States which have been finally
determined shall 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.
The application shall 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.
If the revenue claim has not been finally determined, the State to
which application is made may, at the request of the State making the
application, take such measures of conservancy as are authorized by the
laws of the former State for the enforcement of its own taxes.
The assistance provided for in this Article shall not be accorded
with respect to the citizens, corporations or other entities of the
State to which application is made.
Article 24
In no case shall the provisions of Article 22 relating to
particulars in concrete cases, or of Article 23 relating to mutual
assistance in the collection of taxes, be construed so as to impose upon
either of the contracting States the obligation to carry out
administrative measures at variance with the regulations and practice of
either contracting State, or to supply particulars which are not
procurable under the law of the State to which application is made, or
that of the State making application.
The State to which application is made for information or assistance
shall comply as soon as possible with the request addressed to it.
Nevertheless, such State may refuse to comply with the request for
reasons of public policy or if compliance would involve violation of a
business, industrial or trade secret. In such case it shall inform, as
soon as possible, the State making the application.
Article 25
Any taxpayer who shows proof that the action of the revenue
authorities of the contracting States has resulted in double taxation in
his case in respect of any of the taxes to which the present Convention
relates, shall be entitled to lodge a claim with the State of which he
is a citizen or, if the taxpayer is a corporation or other entity, with
the State in which it is created or organized. Should the claim be
upheld, the competent authority of such State may come to an agreement
with the competent authority of the other State with a view to equitable
avoidance of the double taxation in question.
Article 26
The competent authorities of the two contracting States may
prescribe regulations necessary to interpret and carry out the
provisions of this Convention. With respect to the provisions of this
Convention relating to exchange of information and mutual assistance in
the collection of taxes, such authorities may, by common agreement,
prescribe rules concerning matters of procedure, forms of application
and replies thereto, rates of conversion of currencies, transfer of sums
collected, minimum amounts subject to collection, payment of costs of
collection, and related matters.
Title III--General Provisions
Article 27
The present Convention shall be ratified, in the case of the United
States of America by the President, by and with the advice and consent
of the Senate, and in the case of
[[Page 92]]
France, by the President of the French Republic with the consent of the
Parliament.
This Convention shall become effective on the first day of January
following the exchange of the instruments of ratification.
The Convention shall remain in force for a period of five years and
indefinitely thereafter but may be terminated by either contracting
State at the end of the five-year period or at any time thereafter,
provided six months' prior notice of termination has been given, the
termination to become effective on the first day of January following
the expiration of the six-month period.
Upon the coming into effect of this Convention, the Convention for
the avoidance of double income taxation between the United States of
America and France, signed April 27, 1932 shall terminate.
Done at Paris, in duplicate, in the English and French languages,
this 25th day of July, 1939.
[seal]
William C. Bullitt
[seal]
Georges Bonnet
Protocol
At the moment of signing the present Convention for the avoidance of
double taxation and the establishment of rules of reciprocal
administrative assistance in the case of income and other taxes, the
undersigned Plenipotentiaries have agreed that the following provisions
shall form an integral part of the Convention:
I. The present Convention is concluded with reference to American
and French law in force on the day of its signature.
Accordingly, if these laws are appreciably modified the competent
authorities of the two States will consult together.
II. The income from real property referred to in Article 2 of the
present Convention shall include profits from the sale or exchange of
the said property, but shall not include interest on mortgages or
obligations secured by the said property.
III. As used in this Convention:
(a) The term ``permanent establishment'' includes branches, mines
and oil wells, plantations, factories, workshops, stores, purchasing and
selling and other offices, agencies, warehouses, and other fixed places
of business but does not include a subsidiary corporation.
When an enterprise of one of the contracting States carries on
business in the other State through an employee or agent, established
there, who has general authority to negotiate and conclude contracts or
has a stock of merchandise from which he regularly fills orders which he
receives, this enterprise shall be deemed to have a permanent
establishment in the latter State. But the fact that an enterprise of
one of the contracting States has business dealings in the other State
through a bona fide commission agent or broker shall not be held to mean
that such enterprise has a permanent establishment in the latter State.
Insurance enterprises shall be considered as having a permanent
establishment in one of the States as soon as they receive premiums from
or insure risks in the territory of that State.
(b) The term ``enterprise'' includes every form of undertaking
whether carried on by an individual, partnership, corporation, or any
other entity.
(c) The term ``enterprise of one of the contracting States'' means,
as the case may be, ``United States enterprise'' or ``French
enterprise''.
(d) The term ``United States enterprise'' means an enterprise
carried on in the United States of America by a resident of the United
States of America or by a United States corporation or other entity.
The term ``United States corporation or other entity'' means a
partnership, corporation or other entity created or organized in the
United States of America or under the law of the United States of
America or of any State or Territory of the United States of America.
(e) The term ``French enterprise'' is defined in the same manner,
mutatis mutandis, as the term ``United States enterprise''.
IV. The term ``life annuities'' referred to in Article 8 of this
Convention means a stated sum payable periodically at stated times
during life, or during a specified number of years to the person who has
paid the premiums or a gross sum for such an obligation.
V. Citizens and corporations or other entities of one of the
contracting States within the other contracting State shall not be
subjected as regards the taxes referred to in the present Convention, to
the payment of higher taxes than are imposed upon the citizens or
corporations or other entities of such latter State.
VI. The provisions of the present Convention shall not be construed
to restrict in any manner any exemption, deduction, credit, allowance,
or other advantage accorded by the laws of one of the contracting States
in the determination of the tax imposed by such State.
VII. Documents and information contained therein, transmitted under
the provisions of this Convention by one of the contracting States to
the other contracting State shall not be published, revealed or
disclosed to any person except to the extent permitted under the laws of
the latter State with respect to similar documents or information.
VIII. As used in this Convention the terms ``competent authority''
or ``competent authorities'' means, in the case of the United States of
America, the Secretary of the Treasury and in the case of France, the
Minister of Finance.
[[Page 93]]
IX. The term ``United States of America'' as used in this Convention
in a geographic sense includes only the States, the Territories of
Alaska and Hawaii, and the District of Columbia.
X. The term ``France'', when used in a geographic sense, indicates
continental France, exclusive of Algeria and the Colonies.
XI. Should any difficulty or doubt arise as to the interpretation or
application of the present Convention, or its relationship to
Conventions between one of the contracting States and any other State,
the competent authorities of the contracting States may settle the
question by mutual agreement.
Done in duplicate at Paris, this 25th day of July, 1939.
William C. Bullitt
Georges Bonnet