[Senate Treaty Document 109-7]
[From the U.S. Government Publishing Office]
109th Congress Treaty Doc.
1st Session SENATE
109-7
_______________________________________________________________________
PROTOCOL AMENDING TAX CONVENTION ON INHERITANCES WITH FRANCE
__________
MESSAGE
from
THE PRESIDENT OF THE UNITED STATES
transmitting
PROTOCOL AMENDING THE CONVENTION BETWEEN THE UNITED STATES OF AMERICA
AND THE FRENCH REPUBLIC FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE
PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON ESTATES,
INHERITANCES, AND GIFTS SIGNED AT WASHINGTON ON NOVEMBER 24, 1978
November 4, 2005.--Protocol was read the first time, and together with
the accompanying papers, referred to the Committee on Foreign Relations
and ordered to be printed for the use of the Senate
LETTER OF TRANSMITTAL
----------
The White House, November 4, 2005.
To the Senate of the United States:
I transmit herewith for the advice and consent of the
Senate to ratification a Protocol Amending the Convention
Between the United States of America and the French Republic
for the Avoidance of Double Taxation and the Prevention of
Fiscal Evasion with Respect to Taxes on Estates, Inheritances,
and Gifts, signed at Washington on November 24, 1978 (the
``Convention''), signed at Washington on December 8, 2004 (the
``Protocol''). Also transmitted for the information of the
Senate is the report of the Department of State with respect to
the Protocol.
The Protocol provides a pro rata unified credit to the
estate of a French domiciliary for purposes of computing U.S.
estate tax. It allows a limited U.S. ``marital deduction'' for
certain estates if the surviving spouse is not a U.S. citizen.
In addition, the Protocol expands the United States
jurisdiction to tax its citizens and certain former citizens
and long-term residents and makes other changes to the treaty
to reflect more closely current U.S. tax-treaty policy.
I recommend that the Senate give early and favorable
consideration to the Protocol and give its advice and consent
to ratification.
George W. Bush.
LETTER OF SUBMITTAL
----------
Department of State,
Washington.
The President,
The White House.
Dear Mr. President: I have the honor to submit to you, with
a view to its transmission to the Senate for advice and consent
to ratification, a Protocol Amending the Convention Between the
United States of America and the French Republic for the
Avoidance of Double Taxation and the Prevention of Fiscal
Evasion with Respect to Taxes on Estates, Inheritances, and
Gifts, signed at Washington on November 24, 1978 (the
``Convention''), signed at Washington on December 8, 2004 (the
``Protocol'').
The Protocol modifies the tax treatment of certain
transfers of property by gift or upon death. The Protocol
provides a pro rata unified tax credit to the estate of a
French domiciliary for purposes of computing the U.S. estate
tax. It allows a limited U.S. ``marital deduction'' for certain
estates, if the surviving spouse is not a U.S. citizen. In
addition, the Protocol makes other changes to the Convention to
reflect more closely current U.S. tax-treaty policy.
The Protocol was conluded in recognition of the importance
of the United States' economic relations with France. The
Department of the Treasury and the Department of State
cooperated in the negotiation of the proposed Protocol. It has
the full approval of both Departments.
Respectfully submitted.
Condoleezza Rice.
Enclosure: Key Provisions of the U.S.-France Estate Tax
Protocol.
Key Provisions of the U.S.-France Estate Tax Protocol
The proposed Protocol amends the Estate and Gift Tax
Convention (the ``Convention'') between the United States and
France, which was signed in 1978 and entered into force in
1980. It makes a number of changes to take account of changes
to U.S. domestic law that were enacted in 1988, in a manner
similar to recent agreements with Canada and Germany. It also
includes a number of minor technical changes and updates to
reflect changes in the law and policy of both countries since
the Convention entered into force.
The Protocol introduces a marital exclusion with respect to
certain property. Under the provision, transfers of non-
community property from a French domiciliary to a spouse who is
not a United States citizen that may be taxed by the United
States solely on the basis of situs under the treaty can be
included in the tax base only to the extent that the value of
the property, after applicable deductions, exceeds 50 percent
of the value of all property that may be taxed by the United
States. This exclusion is not available, however, to certain
transferors who are former U.S. citizens or long-term residents
who lost such citizenship or residency for tax-avoidance
reasons.
The Protocol also introduces a U.S. estate tax marital
deduction up to the Internal Revenue Code's ``applicable
exclusion amount'' ($1,500,000 in 2005) when the surviving
spouse is not a U.S. citizen. Certain 1988 changes in U.S. law
deny a marital deduction when the surviving spouse is not a
U.S. citizen. This provision is intended to provide relief from
these changes in the case of estates of limited value.
The Protocol also modernizes the provisions dealing with
the elimination of double taxation and provides a pro rata
unified credit to the estate of a French domiciliary for
purposes of computing the U.S. estate tax. Under this
provision, a French domiciliary is allowed a credit against
U.S. estate tax ranging from the amount ordinarily allowed to
the estate of a nonresident under the Internal Revenue Code
($13,000) to the amount of credit allowed to the estate of a
U.S. citizen under the Internal Revenue Code ($555,800 in
2005), based on the extent to which the assets of the estate
are situated in the United States.
The Protocol makes other changes to the Convention to
reflect more closely current U.S. tax treaty policy. For
example, the Protocol adds a ``saving'' clause, pursuant to
which the United States reserves the right to tax U.S. citizens
and domici1iaries as if the treaty had not come into effect. It
also preserves U.S. taxing rights with respect to certain
former citizens and certain former long-term residents. The
Protocol defines the term ``real property'' in a manner
consistent with the definition provided in U.S. domestic law
and U.S. income tax treaties, and adds a rule that allows
source state taxation of stock in real property holding
companies.
Article 9 of the Protocol addresses the entry into force of
the Protocol. The United States and France will notify each
other when their respective constitutional and legislative
requirements for entry into force have been satisfied. The
Protocol will enter into force on the date of receipt of the
later of such notifications. Although the Protocol generally
will be effective with respect to gifts made and deaths
occurring after entry into force, the relief provided with
respect to surviving non-citizen spouses and the pro rata
unified credit will be effective with respect to gifts made and
deaths occurring after November 10, 1988. Claims for refunds
asserting the benefits of the Protocol that otherwise would be
barred by the statute of limitations must be made within one
year after the first day of the second month of entry into
force of the Protocol, however; and all claims for retroactive
relief are subject to the rules regarding the United States'
ability to tax former citizens and long-term residents.