[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.