Text - Treaty Document: Senate Consideration of Treaty Document 111-4All Information (Except Treaty Text)

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[Senate Treaty Document 111-4]
[From the U.S. Government Printing 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.