France-U.S. tax treaty
The France-U.S. tax treaty, signed on 31 August 1994 and effective from 31 December 1995, prevents double taxation between the two states on income and wealth and allocates taxing rights between them.
Definition
The Convention between the French Republic and the Government of the United States of America for the avoidance of double taxation and the prevention of fiscal evasion and avoidance with respect to taxes on income and capital was signed in Paris on 31 August 1994 and published in the French Official Journal by Decree no. 96-222 of 19 March 1996. It was amended by protocols signed on 8 December 2004 and on 13 January 2009 (in force since 23 December 2009). It applies to French income tax, corporate income tax and the IFI wealth tax on the French side, and to the federal income tax and federal estate tax on the U.S. side. It governs tax residence, allocates taxing rights by category of income and provides a tax credit mechanism to eliminate residual double taxation.
In plain English
The tax treaty allows a French executive receiving dividends from a Delaware C-Corp to avoid being taxed twice on the same income, once in the United States at source and once again in France. In concrete terms, article 10 caps U.S. withholding tax on dividends at 15 percent for a stake below 10 percent, and at 5 percent if the French company owns at least 10 percent of the U.S. payer. Interest (article 11) and royalties (article 12) are in principle exempt at source. Capital gains (article 13) are taxable in the state of residence of the seller, with limited exceptions for real estate-heavy companies. Salaries of French expatriates working in the United States are taxable in the United States beyond 183 days of presence (article 15). Article 24 organizes the French tax credit mechanism that eliminates double taxation.
RWM transatlantic case study
For a French tax-resident executive who owns 100 percent of a Delaware C-Corp through a French holding company, dividends flowing back to France are subject to a 5 percent U.S. withholding under article 10§2. The French holding company receives those dividends and benefits in France from the parent-subsidiary regime (article 145 CGI), with a 95 percent exemption and residual taxation on the 5 percent quote-part de frais et charges at the standard corporate income tax rate. For LLCs, the treaty is silent on this hybrid vehicle, which creates familiar friction that the French tax authority addresses through the BOI-INT-CVB-USA administrative guidance. For French tax-resident founders of a Delaware C-Corp, the trump card is article 30 (Limitation on Benefits), an anti-abuse test requiring that at least 50 percent of the beneficial owners be French or U.S. tax residents for the holding company to access treaty benefits. We document this substance from the outset.
Points to watch
- U.S. withholding tax of 5 percent between related companies (article 10), 15 percent otherwise.
- Limitation on benefits at article 30: real economic substance is essential.
- LLCs poorly characterized by the French tax authority: risk of unrelieved double taxation.
- The 2009 protocol significantly updated the rules on pension funds and losses.
- FATCA and CRS add to the treaty: parallel reporting obligations apply.