Protocol Amending Tax Convention on Inheritances with FranceSenate Consideration of Treaty Document 109-7
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[Senate Treaty Document 109-7] [From the U.S. Government Printing Office] 109th Congress Treaty Doc. 1st Session SENATE 109-7 _______________________________________________________________________ PROTOCOL AMENDING TAX CONVENTION ON INHERITANCES WITH FRANCE __________ MESSAGE from THE PRESIDENT OF THE UNITED STATES transmitting PROTOCOL AMENDING THE CONVENTION BETWEEN THE UNITED STATES OF AMERICA AND THE FRENCH REPUBLIC FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON ESTATES, INHERITANCES, AND GIFTS SIGNED AT WASHINGTON ON NOVEMBER 24, 1978 November 4, 2005.--Protocol 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, November 4, 2005. To the Senate of the United States: I transmit herewith for the advice and consent of the Senate to ratification a Protocol Amending the Convention Between the United States of America and the French Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Estates, Inheritances, and Gifts, signed at Washington on November 24, 1978 (the ``Convention''), signed at Washington on December 8, 2004 (the ``Protocol''). Also transmitted for the information of the Senate is the report of the Department of State with respect to the Protocol. The Protocol provides a pro rata unified credit to the estate of a French domiciliary for purposes of computing U.S. estate tax. It allows a limited U.S. ``marital deduction'' for certain estates if the surviving spouse is not a U.S. citizen. In addition, the Protocol expands the United States jurisdiction to tax its citizens and certain former citizens and long-term residents and makes other changes to the treaty to reflect more closely current U.S. tax-treaty policy. I recommend that the Senate give early and favorable consideration to the Protocol and give its advice and consent to ratification. George W. Bush. LETTER OF SUBMITTAL ---------- Department of State, Washington. The President, The White House. Dear Mr. President: I have the honor to submit to you, with a view to its transmission to the Senate for advice and consent to ratification, a Protocol Amending the Convention Between the United States of America and the French Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Estates, Inheritances, and Gifts, signed at Washington on November 24, 1978 (the ``Convention''), signed at Washington on December 8, 2004 (the ``Protocol''). The Protocol modifies the tax treatment of certain transfers of property by gift or upon death. The Protocol provides a pro rata unified tax credit to the estate of a French domiciliary for purposes of computing the U.S. estate tax. It allows a limited U.S. ``marital deduction'' for certain estates, if the surviving spouse is not a U.S. citizen. In addition, the Protocol makes other changes to the Convention to reflect more closely current U.S. tax-treaty policy. The Protocol was conluded in recognition of the importance of the United States' economic relations with France. The Department of the Treasury and the Department of State cooperated in the negotiation of the proposed Protocol. It has the full approval of both Departments. Respectfully submitted. Condoleezza Rice. Enclosure: Key Provisions of the U.S.-France Estate Tax Protocol. Key Provisions of the U.S.-France Estate Tax Protocol The proposed Protocol amends the Estate and Gift Tax Convention (the ``Convention'') between the United States and France, which was signed in 1978 and entered into force in 1980. It makes a number of changes to take account of changes to U.S. domestic law that were enacted in 1988, in a manner similar to recent agreements with Canada and Germany. It also includes a number of minor technical changes and updates to reflect changes in the law and policy of both countries since the Convention entered into force. The Protocol introduces a marital exclusion with respect to certain property. Under the provision, transfers of non- community property from a French domiciliary to a spouse who is not a United States citizen that may be taxed by the United States solely on the basis of situs under the treaty can be included in the tax base only to the extent that the value of the property, after applicable deductions, exceeds 50 percent of the value of all property that may be taxed by the United States. This exclusion is not available, however, to certain transferors who are former U.S. citizens or long-term residents who lost such citizenship or residency for tax-avoidance reasons. The Protocol also introduces a U.S. estate tax marital deduction up to the Internal Revenue Code's ``applicable exclusion amount'' ($1,500,000 in 2005) when the surviving spouse is not a U.S. citizen. Certain 1988 changes in U.S. law deny a marital deduction when the surviving spouse is not a U.S. citizen. This provision is intended to provide relief from these changes in the case of estates of limited value. The Protocol also modernizes the provisions dealing with the elimination of double taxation and provides a pro rata unified credit to the estate of a French domiciliary for purposes of computing the U.S. estate tax. Under this provision, a French domiciliary is allowed a credit against U.S. estate tax ranging from the amount ordinarily allowed to the estate of a nonresident under the Internal Revenue Code ($13,000) to the amount of credit allowed to the estate of a U.S. citizen under the Internal Revenue Code ($555,800 in 2005), based on the extent to which the assets of the estate are situated in the United States. The Protocol makes other changes to the Convention to reflect more closely current U.S. tax treaty policy. For example, the Protocol adds a ``saving'' clause, pursuant to which the United States reserves the right to tax U.S. citizens and domici1iaries as if the treaty had not come into effect. It also preserves U.S. taxing rights with respect to certain former citizens and certain former long-term residents. The Protocol defines the term ``real property'' in a manner consistent with the definition provided in U.S. domestic law and U.S. income tax treaties, and adds a rule that allows source state taxation of stock in real property holding companies. Article 9 of the Protocol addresses the entry into force of the Protocol. The United States and France will notify each other when their respective constitutional and legislative requirements for entry into force have been satisfied. The Protocol will enter into force on the date of receipt of the later of such notifications. Although the Protocol generally will be effective with respect to gifts made and deaths occurring after entry into force, 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. Claims for refunds asserting the benefits of the Protocol that otherwise would be barred by the statute of limitations must be made within one year after the first day of the second month 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.