Amended France - U.S. Treaty in Effect

By Mitchell R. Kops, Sanford J. Davis, and William J. Kambas

A new France-U.S. income tax treaty protocol...  Once ratified by both countries, and after exchange of instruments and entry into force, the Protocol will become effective in three stages:

(i) First, the new withholding tax provisions will apply as of January 1 of that year.

(ii) Next, the mandatory arbitration provisions will apply beginning on the date that the Protocol enters into force.

(iii) Finally, the balance of the Protocol will apply on the first day of the calendar year following the year the Protocol enters into force.

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The Protocol imposes significantly stricter limitations on benefits ("LOB") rules, generally following the 2006 US Model Tax Treaty, to bring the Treaty in conformity with other recent US tax treaties.

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Mandatory Arbitration: The Protocol imposes new mandatory arbitration that applies if the competent authorities are unable to reach agreement under the Mutual Agreement procedure. However, the mandatory arbitration provision only applies if: (a) tax returns have been filed in one of the Contracting States for the tax years at issue; (b) the competent authorities do not agree it is not suitable for determination by arbitration; and (c) all concerned persons agree not to disclose to any other person any information received during the arbitration proceedings.

Mandatory arbitration is a new addition to US tax treaties generally (e.g. Belgium, Germany, as well as in the recent Protocol with Canada).

Residency: The Protocol contains entirely new provisions relating to the residence of partnerships and fiscally transparent entities (i.e., taxed only at the owner level). It also clarifies that certain French investment entities are automatically characterized as residents of France...

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Exchange of Information: The Protocol contains a new Exchange of Information provision, generally consistent with the 2006 US Model Income Tax Treaty, that requires each party to supply any requested information, even if such information is held by a bank, other financial institution, nominee or person acting in an agency or fiduciary capacity or it relates to ownership interests in an entity.

First, the new withholding tax provisions (Dividends and Royalties) will apply for amounts paid or credited as of January 1 of the year in which the Protocol enters into force. Since the Protocol was entered into force on December 23, 2009, the withholding tax provisions apply retroactively for the entire 2009-year.

Second, the mandatory arbitration provisions are apply beginning on December 23, 2009, the date that the Protocol entered into force.

Third, the balance of the Protocol will apply on the first day of the calendar year following the calendar year in which the Protocol enters into force. In other words, since the Protocol entered into force December 23, 2009, it took full force and effect as to all provisions on January 1, 2010...

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Limitations on Benefits: The Protocol imposes significantly stricter limitations on benefits ("LOB") rules, generally following the 2006 US Model Tax Treaty, to bring the Treaty in conformity with other recent US tax treaties...

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LEXIS users can view the entire commentary here. Additional fees may be incurred. (Approx. 9 pages)LexisNexis® Tax CenterLexisNexis® Store

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