    [Senate Treaty Document 111-4]
    [From the U.S. Government Publishing Office]

    111th Congress
    1st Session                     SENATE                     Treaty Doc.
    111-4
    _______________________________________________________________________

                  PROTOCOL AMENDING TAX CONVENTION WITH FRANCE

                                   __________

                                    MESSAGE

                                      from

                         THE PRESIDENTOFTHEUNITEDSTATES

                                  transmitting

     PROTOCOL AMENDING THE CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED
      STATES OF AMERICA AND THE GOVERNMENT OF THE FRENCH REPUBLIC FOR THE
    AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH
     RESPECT TO TAXES ON INCOME AND CAPITAL, SIGNED AT PARIS ON AUGUST 31,
      1994, AS AMENDED BY THE PROTOCOL SIGNED ON DECEMBER 8, 2004, SIGNED
       JANUARY 13, 2009, AT PARIS, TOGETHER WITH A RELATED MEMORANDUM OF
                     UNDERSTANDING, SIGNED JANUARY 13, 2009

     September 9, 2009.--Treaty 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, September 9, 2009.
    To the Senate of the United States:
        I transmit herewith, for the advice and consent of the
    Senate to its ratification, the Protocol Amending the
    Convention between the Government of the United States of
    America and the Government of the French Republic for the
    Avoidance of Double Taxation and the Prevention of Fiscal
    Evasion with Respect to Taxes on Income and Capital, signed at
    Paris on August 31, 1994, as Amended by the Protocol signed on
    December 8, 2004, signed January 13, 2009, at Paris, together
    with a related Memorandum of Understanding, signed January 13,
    2009 (the ``proposed Protocol''). I also transmit for the
    information of the Senate the report of the Department of
    State, which includes an overview of the proposed Protocol.
        The proposed Protocol provides for the elimination of
    withholding taxes on certain cross-border direct dividend
    payments and on cross-border royalty payments.
        The proposed Protocol also provides for mandatory
    arbitration of cases that the competent authorities of the
    countries have been unable to resolve after a reasonable period
    of time. The proposed Protocol contains a comprehensive
    provision designed to prevent ``treaty shopping,'' which is the
    inappropriate use of a tax treaty by third-country residents.
    It provides for the exchange of information between tax
    authorities of the two countries to facilitate the
    administration of each country's tax laws.
        I recommend that the Senate give early and favorable
    consideration to the proposed Protocol and give its advice and
    consent to ratification.

                                                          Barack Obama.
                              LETTER OF SUBMITTAL

                                  ----------

                                           Department of State,
                                              Washington, May 21, 2009.
    The President,
    The White House.
        The President: I have the honor to submit to you the
    Protocol Amending the Convention between the Government of the
    United States of America and the Government of the French
    Republic for the Avoidance of Double Taxation and the
    Prevention of Fiscal Evasion with Respect to Taxes on Income
    and Capital, signed at Paris on August 31, 1994, as Amended by
    the Protocol signed on December 8, 2004, signed January 13,
    2009, at Paris, together with a related Memorandum of
    Understanding, signed January 13, 2009 (the ``proposed
    Protocol''). The proposed Protocol was negotiated to bring the
    existing income tax Convention with France (the ``existing
    Convention'') into closer conformity with current U.S. tax
    treaty policy, and in recognition of the importance of the
    United States' economic relations with France. I recommend that
    the proposed Protocol be transmitted to the Senate for its
    advice and consent to ratification.
        The proposed Protocol provides for the elimination of
    withholding taxes on certain cross-border direct dividend
    payments and on cross-border royalty payments. The proposed
    Protocol also provides for mandatory arbitration of cases that
    the competent authorities of the countries have been unable to
    resolve after a reasonable period of time.
        The proposed Protocol contains a comprehensive provision
    designed to prevent ``treaty shopping,'' which is the
    inappropriate use of a tax treaty by third-country residents.
    It also provides for the exchange of information between tax
    authorities of the two countries to facilitate the
    administration of each country's tax laws. An overview of key
    provisions of the proposed Protocol is enclosed with this
    report. The proposed Protocol is self-executing.
        The Department of the Treasury and the Department of State
    cooperated in the negotiation of the proposed Protocol, and the
    Department of the Treasury joins the Department of State in
    recommending that the proposed Protocol be transmitted to the
    Senate as soon as possible for its advice and consent to
    ratification.
        Respectfully submitted.
                                                Hillary Rodham Clinton.
        Enclosures: as stated.

                                    Overview

        The Protocol amending the income tax Convention with
    France, together with a related Memorandum of Understanding
    (proposed Protocol), was negotiated to bring the existing
    Convention, signed in 1994 and amended by a protocol signed in
    2004 (existing Convention), into closer conformity with current
    U.S. tax treaty policy. There are, as with all bilateral tax
    conventions, some variations from these norms. In the proposed
    Protocol, these differences reflect particular aspects of
    French law and treaty policy, the interaction of U.S. and
    French law, and U.S.-French economic relations.

    Taxation of Dividend and Royalty Income

        The withholding tax rates in the proposed Protocol are the
    same as or lower than those in the existing Convention. The
    proposed Protocol reduces or eliminates source-country taxation
    of dividends distributed by a company resident in one
    Contracting State to a resident in the other Contracting State.
    More specifically, the proposed Protocol provides for the
    elimination of source-country taxation of certain direct
    dividends (i.e., where an 80-percent ownership threshold is
    met). The proposed Protocol also generally allows for taxation
    at source of 5 percent on dividends when a 10-percent ownership
    threshold is met, and 15 percent on all other dividends.
        The proposed Protocol replaces the existing Convention's 5-
    percent limit on source-country withholding tax on cross-border
    royalty payments with an exemption from source-country
    withholding tax on such payments.

    Treatment of Fiscally Transparent Entities

        The proposed Protocol modernizes the provisions of the
    existing Convention with respect to the treatment of fiscally
    transparent entities such as partnerships and certain trusts
    and estates. Because different countries frequently take
    different views as to when an entity is fiscally transparent,
    the risks of double taxation and double non-taxation in this
    area are relatively high. In addition to achieving closer
    conformity with current U.S. treaty policy, the proposed
    Protocol eliminates certain technical issues that have
    prevented United States Regulated Investment Companies and Real
    Estate Investment Trusts, in particular, from claiming treaty
    benefits through fiscally transparent entities. To accommodate
    certain aspects of French law, the proposed Protocol also
    provides that certain French partnerships that would not
    qualify as fiscally transparent entities will be treated as
    residents of France for purposes of the Convention.

    Dispute Resolution Through Mandatory Arbitration

        The proposed Protocol updates the provisions of the
    existing Convention with respect to the mutual agreement
    procedure by incorporating mandatory arbitration of certain
    cases that the competent authorities of the United States and
    France have been unable to resolve after a reasonable period of
    time. The arbitration provision is largely consistent with the
    arbitration provisions included in the recent treaties
    negotiated with Canada, Germany, and Belgium, although a number
    of modifications were made to reflect concerns expressed by the
    Senate during its approval of the other treaties.

    Anti-Abuse Provisions

        The proposed Protocol replaces the existing Convention's
    ``Limitation on Benefits'' article with an updated provision
    that is consistent with current U.S. tax treaty practice. The
    new Limitation on Benefits article is designed to address
    ``treaty shopping,'' which is the inappropriate use of a tax
    treaty by third-country residents.

    Exchange of Information

        The proposed Protocol replaces the existing Convention's
    tax information exchange provisions with updated rules that are
    consistent with current U.S. tax treaty practice. The proposed
    Protocol allows the tax authorities of each country to exchange
    information relevant to carrying out the provisions of the
    Convention or the domestic tax laws of either country. The
    proposed Protocol allows the United States to obtain
    information (including from financial institutions) from France
    whether or not France needs the information for its own tax
    purposes.

    Entry Into Force

        The proposed Protocol will enter into force once both the
    United States and France have notified each other that their
    respective constitutional and statutory requirements for entry
    into force of the proposed Protocol have been satisfied. It
    will have effect, with respect to taxes withheld at source, for
    amounts paid or credited on or after the first day of January
    of the year in which the Protocol enters into force. With
    respect to other taxes, the proposed Protocol will have effect
    for taxable years beginning on or after the first day of
    January next following the date upon which the proposed
    Protocol enters into force. The mandatory arbitration provision
    will have effect with respect both to cases that are under
    consideration by the competent authorities as of the date on
    which the Protocol enters into force and to cases that come
    under consideration after that date.