IRS clarifies agreement with France on foreign tax credits

The Internal Revenue Service issued some clarifications on an agreement with the French government not to challenge foreign tax credits for certain kinds of tax payments in France.

The IRS originally issued a statement on the matter in late June and expanded on it last Friday. It applies to the French Contribution Sociale Generalisee (CSG) and Contribution au Remboursement de la Dette Sociate (CRDS). “In 2019, the United States and the French Republic memorialized through diplomatic communications an understanding that the French Contribution Sociale Generalisee (CSG) and Contribution au Remboursement de la Dette Sociate (CRDS) taxes are not social taxes covered by the Agreement on Social Security between the two countries,” said the IRS. “Accordingly, the IRS will not challenge foreign tax credits for CSG and CRDS payments on the basis that the Agreement on Social Security applies to those taxes. The IRS’s change in policy means individual taxpayers, who paid or accrued these taxes but did not claim them, can file amended returns to claim a foreign tax credit.”

The IRS said that individual taxpayers generally will have 10 years to file a claim for refund of any U.S. income taxes they paid if they find they paid or accrued more creditable foreign taxes than what they previously claimed. The 10-year period starts the day after the regular due date for filing the return (without extensions) for the year in which the foreign taxes were paid or accrued. This means amended returns can be filed using Form 1040X to include accompanying Form 1116, going back to tax year 2009.

French President Emmanuel Macron (left)
Emmanuel Macron, France's president, waits to receive guests at the Elysee Palace ahead of a dinner with Mohammed bin Salman, Saudi Arabia's crown prince, in Paris, France, on Tuesday, April 10, 2018. Macron and Mohammed, who is on his first visit to France as Crown Prince, already met in Riyadh in November. Photographer: Christophe Morin/Bloomberg

To claim refunds, individual taxpayers should write “French CSG/CRDS Taxes” in red at the top of Forms 1040X, and file them with the accompanying Forms 1116 in accordance with the instructions for these forms. However, U.S. employers cannot file for refunds claiming a foreign tax credit for CSG/CRDS withheld or otherwise paid on behalf of their employees. For more information, head to the IRS's site here, here or here.

The move comes as the U.S. is challenging a French plan to impose digital service taxes on U.S. technology giants, such as Facebook, Google and Amazon. Lawmakers in France passed legislation last week to levy a tax of up to 5 percent on giant technology companies whose annual global revenue surpasses $845 million and local revenue is over $28 million. However, the two countries have agreed to work on the matter through the Organization of Economic Cooperation and Development, putting off a broader clash for now (see U.S., France sidestep tax feud for now after G-7 confrontation).

“The way companies are taxed is increasingly becoming as much a political issue as an economic one,” said RSM International tax leader Rob Mander in a statement. “With an internationally agreed approach a long way off, countries are still forging ahead with their own solutions. U.S. pressure on France to abandon new digital taxes demonstrates just how divisive the issue is. A cohesive solution to taxing multinational tech companies can only come from international consensus. Protectionist instincts from the U.S., Ireland and others could put a global solution to taxing the modern digital economy at risk.”

Separately, a French court last week upheld the ability of the French tax authorities to pass along information to the IRS in accordance with the Foreign Account Tax Compliance Act, or FATCA, according to Bloomberg News. The court rejected contentions by dual citizens that FATCA violated their privacy rights and that the U.S. wasn’t sharing similar information with the French tax authorities.

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