December 21, 2006
HP-210

TREASURY WELCOMES ENTRY INTO FORCE OF US-FRENCH INCOME, ESTATE TAX PROTOCOLS

Washington, DC-  The Treasury Department today welcomed the entry into force of protocols to the income tax and estate tax treaties between the United States and France.  The protocols were signed in December 2004, and amend the existing income tax treaty concluded in 1994 and the existing estate tax treaty concluded in 1978.

The protocol to the income tax treaty makes technical changes to resolve several issues that have arisen under the treaty following its entry into force in 1995.  The most important provision clarifies the manner in which the treaty will apply in the case of investments made into France by U.S. persons through partnerships and other fiscally-transparent entities.

In general, this protocol will have effect, with respect to taxes withheld at source, for amounts paid or credited on or after February 1, 2007, and with respect to other taxes, for taxable periods beginning on or after January 1, 2007.  However, because the rules benefiting U.S. residents investing through partnerships are intended to ensure that the treaty provides results that are consistent with the intent of the negotiators of the 1995 treaty, those changes will be applicable as of the effective dates of the 1995 treaty.

The protocol to the estate tax treaty was negotiated following changes in the U.S. estate tax law in 1988 that affected non-citizen spouses of U.S. decedents.  The protocol provides some estate tax relief in the form of a marital deduction in the case of a French spouse of a U.S. decedent where the estate is of relatively modest size.  The estate tax protocol also makes a number of technical changes to take into account changes in each country's tax law since the estate tax treaty entered into force in 1980.

Although the estate tax protocol generally will be effective with respect to gifts made and deaths occurring after the exchange of instruments of ratification, 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 (the effective date of the 1988 legislative changes). 

Claims for refund asserting the benefits of the protocol that otherwise would be barred by the statute of limitations must be made within one year 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.

The two protocols are an important step forward in keeping our existing treaty network up to date and serve to strengthen an already strong relationship with an important treaty partner.  They are the latest manifestation of the close economic ties and deep friendship between our two countries.

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