United States Concedes Certain French Social Taxes Eligible for U.S. Tax Credits

Ending a long legal battle, on June 13, 2019, the U.S. Internal Revenue Service advised the U.S. Tax Court that it has reached an agreement with the French government that certain taxes in issue may give rise to a foreign tax credit on U.S. tax returns.  The U.S. had previously convinced the Tax Court that the taxes in issue fell under the U.S.-France Social Security agreement, and thus could not be creditable.  However, the Tax Court’s decision was overturned by the U.S. Court of Appeals for the D.C. Circuit in 2016.  See Eshel v. Commissioner, 142 T.C. 11 (2014), reversed and remanded, No. 14-1215, DC Circuit (2016).  

The taxes in question are the French general social contribution (CSG), and contribution for the repayment of the social debt (CRDS).  The taxpayers argued that these were taxes separate from the French general social taxes that are referenced in the Totalization agreement between France and the United States.  The Circuit Court agreed.

In a statement published on June 26, 2019, the IRS announced that it would no longer challenge claims of foreign tax credits for the two taxes and advised that taxpayers have 10 years to claim a refund of U.S. tax with respect to such credits.  The 10-year period begins the day after the regular due date for the return to which the foreign taxes relate.

How This Impacts Mobility

U.S. companies with employees in France who are subject to these taxes will need to change their treatment of the taxes and may enjoy a saving.  U.S. citizens who paid these taxes in the past while working in France may be entitled to refunds of U.S. tax for past years.

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