[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.


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