Congratulations to Stuart E. Horwich, Horwich Law LLP, London, United Kingdom, and Max Reed,
Polaris Tax Counsel, Vancouver, British Columbia, Canada, for Plaintiff.
Introduction
IRS Medic Presentation – January 20, 2025
The slides are here:
This is the third in a series of posts about “treaty based” foreign tax credits.
The first post detailed the provisions of the U.S. France tax treaty which created the “three bite rule”. By creating the “three bite rule” the U.S. France treaty was used to create a treaty based foreign tax credit.
The second post (also based on the U.S. France tax treaty) described how the U.S. France tax treaty was used to create an independent treaty based foreign tax credit. The purpose was to allow for a foreign tax credit against the NIIT (“Net Investment Income Tax”). Although a major breakthrough, it’s important to note that this case (Christensen):
1. Found that the treaty should be interpreted to create an a foreign tax credit that was independent of the credits allowed under the Internal Revenue Code;
2. Specifically ruled that the language “subject to the limitations of the law of the United States” (found in the opening paragraph of the double taxation clause) should be interpreted to preclude a foreign tax credit for payment of foreign tax on foreign investment income.
This third post continues the “NIIT Tax Treaty Chronicles”. Specifically, this post details how Judge Solomson, in the case of Paul Bruyea, determined that (contrary to Judge Blank’s ruling in Christensen) that the “subject to the limitations of the law of the United States”clause in Article XXIV, Paragraph 1:
1. Does NOT preclude the use of a foreign tax credit to offset the NIIT; and
2. That Article XXIV, Paragraph 1 allows a U.S. citizen or U.S. resident living in Canada to use taxes paid to Canada as a credit against the U.S. NIIT!
Judge Blank in Christensen and Judge Solomson in Bruyea reached opposite conclusions with respect to whether the following clause (as represented in the 2016 U.S. Model Tax Treaty) can be used to create a foreign tax credit which is independent of the foreign tax credit rules in the Internal Revenue Code (Sections 27, 901 and 904).
Article 23
RELIEF FROM DOUBLE TAXATION
1. In the case of __________, double taxation will be relieved as follows:
2. In accordance with the provisions and subject to the limitations of the law of the United States (as it may be amended from time to time without changing the general principle hereof), the United States shall allow to a resident or citizen of the United States as a credit against the United States tax on income applicable to residents and citizens:
a) the income tax paid or accrued to __________ by or on behalf of such resident or citizen; and
Therefore, I expect that this issue has NOT been fully resolved.
Judge Solomson’s decision in Bruyea is a very exciting decision. It goes FAR beyond the decision in Christensen and opens the door to arguing that many (if not all) U.S. treaties guarantee that the NIIT can be offset by foreign tax credits!!
_____________________________________________________________________
How Judge Solomson frames the issue
A. How to interpret tax treaties – page 6
As per Judge Solomson:
“Our appellate court, the United States Court of Appeals for the Federal Circuit, has synthesized the Supreme Court’s treaty interpretation principles as follows:
In construing a treaty, the terms thereof are given their ordinary meaning in the context of the treaty and are interpreted, in accordance with that meaning, in the way that best fulfills the purposes of the treaty. . . . The judicial obligation is to satisfy the intention of both of the signatory parties, in construing the terms of a treaty.
Unless the treaty terms are unclear on their face, or unclear as applied to the situation that has arisen, it should rarely be necessary to rely on extrinsic evidence in order to construe a treaty, for it is rarely possible to reconstruct all of the considerations and compromises that led the signatories to the final document. However, extrinsic material is often helpful in understanding the treaty and its purposes, thus providing an enlightened framework for reviewing its terms.
However, “the ultimate question remains what was intended when the language actually employed . . . was chosen, imperfect as that language may be.” Great–West Life Assurance Co. v. United States, 678 F.2d 180, 188, 230 Ct. Cl. 477 (1982).”
B. The Crux of the Interpretive Problem (Page 10)
As per Judge Solomson:
“According to Mr. Bruyea, the Treaty in Article XXIV, Paragraph 1 — and particularly Clause [4] of that paragraph — creates a Treaty-based tax credit applicable to the NIIT irrespective of whether the I.R.C. provides for, or permits, that credit. Three textual data points support his view. First, Article XXIV’s purpose, as indicated by its title, is the “Elimination of Double Taxation.” Canada Tax Treaty at 24; see also Pl. MSJ at 20.10 Second, Clause [4] expressly provides that “the United States shall allow to a citizen . . . of the United States . . . as a credit against the United States tax on income the appropriate amount of income tax paid or accrued to Canada[.]” Canada Tax Treaty at 24 (emphasis added). The government does not dispute that the NIIT qualifies as a “United States tax” as defined in Article II and Article III of the Treaty. See Canada Tax Treaty at 2-3. Third, Mr. Bruyea points to Paragraph 4(b) of Article XXIV, which provides that “for the purposes of computing the United States tax, the United States shall allow as a credit against United States tax the income tax paid or accrued to Canada after the deduction referred to in subparagraph (a).” Id. at 25 (emphasis added).
In opposing Mr. Bruyea’s reading, the government relies primarily on the U.S. Law Limitation (i.e., Clause [2] of Article XXIV, ¶ 1). See Def. MSJ at 12, 25, 32. According to the government, any Treaty-based credit — whether based on Paragraphs 1 or 4 of Article XXIV — must be “[i]n accordance with the provisions . . . of the law of the United States[.]” Canada Tax Treaty at 24. Put differently, the government maintains that a Treaty-based credit simply cannot exist independently of the I.R.C.— the “law of the United States.” Id. The government further points out, Def. MSJ at 35, that Clause [2] specifically anticipates that the law of the United States “may be amended from time to time,” thus extending the reach of the U.S. Law Limitation to future I.R.C. provisions that conflict with the Treaty.
Applying the U.S. Law Limitation to the facts of this case, the government contends that the NIIT — or, more accurately, the NIIT’s placement outside of I.R.C. Chapter 1 — precludes the Treaty-based tax credit Mr. Bruyea claims. In particular, the government points to I.R.C. § 27, which provides that “[t]he amount of taxes imposed by foreign countries . . . shall be allowed as a credit against the tax imposed by this chapter to the extent provided in section 901[.]” 26 U.S.C. § 27 (emphasis added). Section 27 is in Chapter 1 of the I.R.C.11 The NIIT, 26 U.S.C. § 1411,resides by its lonesome in Chapter 2A.
Because the I.R.C. provides that a foreign tax credit is only available for taxes within Chapter 1, and because the NIIT is outside of Chapter 1, the government argues that Mr. Bruyea cannot claim a Treaty-based foreign tax credit against the NIIT.”
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OPINION AND ORDER
“Plaintiff, Mr. Paul Bruyea, claims that he overpaid his 2015 taxes by approximately $263,523, and therefore is entitled to a tax refund of that amount from the United States. Mr. Bruyea asserts he is owed the claimed refund once a treaty-based foreign tax credit is properly applied against the Net Investment Income Tax (“NIIT”) he paid to the United States. Although Mr. Bruyea acknowledges that the Internal Revenue Code does not by its terms provide for such a foreign tax credit, he argues that a tax treaty between the United States and Canada independently entitles him to the claimed credit and, thus, the refund. This case turns on the proper interpretation of that tax treaty and how it fits with the text and structure of the Internal Revenue Code.
The interpretative puzzle is complicated but ultimately Mr. Bruyea’s approach makes more sense of the relevant legal data. This Court thus agrees with Mr. Bruyea that he is entitled to the foreign tax credit he claims.
VI. REDUX
Given the relative complexity of the parties’ contentions and arguments, the Court provides this basic summary of its decision:
1. The United States and Canada entered a tax treaty: the Convention between
Canada and the United States of America with Respect to Taxes on Income and
on Capital.
2. Based upon that Treaty, Mr. Bruyea claims he is entitled to a foreign tax credit to
be applied against the NIIT he paid to the United States.
3. The Treaty provides in Paragraph 1 of Article XXIV that “the United States shall
allow to a citizen or resident of the United States . . . as a credit against the United
States tax on income the appropriate amount of income tax paid or accrued to
Canada . . . .”
4. The Treaty similarly provides in Paragraph 4 of Article XXIV that “for the
purposes of computing the United States tax, the United States shall allow as a credit
against United States tax the income tax paid or accrued to Canada.”
5. The government agrees that, in general, a taxpayer may claim a treaty-based
foreign tax credit — i.e., the I.R.C. does not have to implement a treaty-based tax
credit for one to exist.
6. The government nevertheless argues that the I.R.C. only provides for foreign tax
credits against income taxes contained within Chapter 1 of the I.R.C. Because
Congress placed the NIIT in Chapter 2A of the I.R.C., no foreign tax credit may
be applied against the NIIT. This is for two reasons: (a) because the NIIT was
enacted after the Treaty, the NIIT’s terms and placement in Chapter 2A trump the
Treaty pursuant to the “last-in-time rule”; and (b) pursuant to the Treaty’s terms,
any Treaty-based foreign tax credit must be “[i]n accordance with the provisions
and subject to the limitations of the law of the United States.” In that regard,
Mr. Bruyea agrees that the I.R.C. does not provide for the foreign tax credit he
seeks.
7. The government’s “last-in-time” argument fails because the Court is required to
harmonize the Treaty and the I.R.C. where possible, and here it is possible to do
so; the NIIT contains no text specifically and expressly inconsistent with the
Treaty-based foreign tax credit language upon which Mr. Bruyea relies.
8. More importantly, the government concedes that Article XXIV of the Treaty
contains several paragraphs that are incompatible with the I.R.C. but that are not
trumped by the I.R.C. Thus, the government does not read the phrase “[i]n
accordance with the provisions and subject to the limitations of the law of the
United States” (the U.S. Law Limitation clause) to mean that Treaty provisions
must be consistent with the I.R.C. to be enforceable. That phrase must be read consistently across Article XXIV, but the government does not do so. Instead, the
government sometimes applies it (i.e., to preclude Mr. Bruyea’s claimed foreign
tax credit) and sometimes does not (i.e., the government implements the credit
calculation rules contained within Paragraphs 3-6, even though they are
inconsistent with the U.S. Law Limitation). As a result, the Court rejects the
government’s overly-broad reading of that provision.
9. The parties in the Treaty defined “United States tax” in a manner that covers the
NIIT and further agreed that “[t]he Convention shall apply also to . . . any taxes
identical or substantively similar to those taxes to which the Convention applies
under paragraph 2 [of Article II].” These Treaty terms support Mr. Bruyea’s
claim.
10. One purpose of the Treaty is to eliminate or avoid double taxation and
Mr. Bruyea’s interpretation best effectuates that purpose of the parties to the
Treaty.
11. Mr. Bruyea’s interpretation also better accounts for the extrinsic evidence, which
substantiates that the parties contemplated Treaty-based foreign tax credits even
where inconsistent with the I.R.C.
12. The U.S. Law Limitation clause is focused on how a Treaty-based credit is
computed but not its existence. Thus, the Treaty may provide for a tax credit even
where the I.R.C. does not otherwise effectuate that credit.
VII. CONCLUSION
For the foregoing reasons, Mr. Bruyea is entitled to partial summary judgment on
the issue of entitlement to a Treaty-based foreign tax credit for his 2015 tax year. See
RCFC 56. On or before January 16, 2025, the parties shall file a joint status report
regarding how this case should proceed.
IT IS SO ORDERED.
s/Matthew H. Solomson
Matthew H. Solomson
Judge”
John Richardson – Follow me on X.com @ExpatriationLaw
Appendix
Article XXIV – Canada U.S. Tax Treaty
Article XXIV
Elimination of Double Taxation
1. In the case of the United States, subject to the provisions of paragraphs 4, 5 and 6, double taxation shall be avoided as follows: In accordance with the provisions and subject to the limitations of the law of the United States (as it may be amended from time to time without changing the general principle hereof), the United States shall allow to a citizen or resident of the United States, or to a company electing to be treated as a domestic corporation, as a credit against the United States tax on income the appropriate amount of income tax paid or accrued to Canada; and, in the case of a company which is a resident of the United States owning at least 10 per cent of the voting stock of a company which is a resident of Canada from which it receives dividends in any taxable year, the United States shall allow as a credit against the United States tax on income the appropriate amount of income tax paid or accrued to Canada by that company with respect to the profits out of which such dividends are paid.
2. In the case of Canada, subject to the provisions of paragraphs 4, 5 and 6, double taxation shall be avoided as follows:
(a) subject to the provisions of the law of Canada regarding the deduction from tax payable in Canada of tax paid in a territory outside Canada and to any subsequent modification of those provisions (which shall not affect the general principle hereof)
(i) income tax paid or accrued to the United States on profits, income or gains arising in the United States, and
(ii) in the case of an individual, any social security taxes paid to the United States (other than taxes relating to unemployment insurance benefits) by the individual on such profits, income or gains
shall be deducted from any Canadian tax payable in respect of such profits, income or gains;
(b) subject to the existing provisions of the law of Canada regarding the taxation of income from a foreign affiliate and to any subsequent modification of those provisions – which shall not affect the general principle hereof – for the purpose of computing Canadian tax, a company which is a resident of Canada shall be allowed to deduct in computing its taxable income any dividend received by it out of the exempt surplus of a foreign affiliate which is a resident of the United States; and
(c) notwithstanding the provisions of subparagraph (a), where Canada imposes a tax on gains from the alienation of property that, but for the provisions of paragraph 5 of Article XIII (Gains), would not be taxable in Canada, income tax paid or accrued to the United States on such gains shall be deducted from any Canadian tax payable in respect of such gains.
3. For the purposes of this Article:
(a) profits, income or gains (other than gains to which paragraph 5 of Article XIII (Gains) applies) of a resident of a Contracting State which may be taxed in the other Contracting State in accordance with the Convention (without regard to paragraph 2 of Article XXIX (Miscellaneous Rules)) shall be deemed to arise in that other State; and
(b) profits, income or gains of a resident of a Contracting State which may not be taxed in the other Contracting State in accordance with the Convention (without regard to paragraph 2 of Article XXIX (Miscellaneous Rules)) or to which paragraph 5 of Article XIII (Gains) applies shall be deemed to arise in the first-mentioned State.
4. Where a United States citizen is a resident of Canada, the following rules shall apply:
(a) Canada shall allow a deduction from the Canadian tax in respect of income tax paid or accrued to the United States in respect of profits, income or gains which arise (within the meaning of paragraph 3) in the United States, except that such deduction need not exceed the amount of the tax that would be paid to the United States if the resident were not a United States citizen; and
(b) for the purposes of computing the United States tax, the United States shall allow as a credit against United States tax the income tax paid or accrued to Canada after the deduction referred to in subparagraph (a). The credit so allowed shall not reduce that portion of the United States tax that is deductible from Canadian tax in accordance with subparagraph (a).
5. Notwithstanding the provisions of paragraph 4, where a United States citizen is a resident of Canada, the following rules shall apply in respect of the items of income referred to in Article X (Dividends), XI (Interest) or XII (Royalties) that arise (within the meaning of paragraph 3) in the United States and that would be subject to United States tax if the resident of Canada were not a citizen of the United States, as long as the law in force in Canada allows a deduction in computing income for the portion of any foreign tax paid in respect of such items which exceeds 15 per cent of the amount thereof:
(a) the deduction so allowed in Canada shall not be reduced by any credit or deduction for income tax paid or accrued to Canada allowed in computing the United States tax on such items;
(b) Canada shall allow a deduction from Canadian tax on such items in respect of income tax paid or accrued to the United States on such items, except that such deduction need not exceed the amount of the tax that would be paid on such items to the United States if the resident of Canada were not a United States citizen; and
(c) for the purposes of computing the United States tax on such items, the United States shall allow as a credit against United States tax the income tax paid or accrued to Canada after the deduction referred to in subparagraph (b). The credit so allowed shall reduce only that portion of the United States tax on such items which exceeds the amount of tax that would be paid to the United States on such items if the resident of Canada were not a United States citizen.
6. Where a United States citizen is a resident of Canada, items of income referred to in paragraph 4 or 5 shall, notwithstanding the provisions of paragraph 3, be deemed to arise in Canada to the extent necessary to avoid the double taxation of such income under paragraph 4(b) or paragraph 5(c).
7. For the purposes of this Article, any reference to “income tax paid or accrued” to a Contracting State shall include Canadian tax and United States tax, as the case may be, and taxes of general application which are paid or accrued to a political subdivision or local authority of that State, which are not imposed by that political subdivision or local authority in a manner inconsistent with the provisions of the Convention and which are substantially similar to the Canadian tax or United States tax, as the case may be.
8. Where a resident of a Contracting State owns capital which, in accordance with the provisions of the Convention, may be taxed in the other Contracting State, the first-mentioned State shall allow as a deduction from the tax on the capital of that resident an amount equal to the capital tax paid in that other State. The deduction shall not, however, exceed that part of the capital tax, as computed before the deduction is given, which is attributable to the capital which may be taxed in that other State.
9. The provisions of this Article relating to the source of profits, income or gains shall not apply for the purpose of determining a credit against United States tax for any foreign taxes other than income taxes paid or accrued to Canada.
10. Where in accordance with any provision of the Convention income derived or capital owned by a resident of a Contracting State is exempt from tax in that State, such State may nevertheless, in calculating the amount of tax on other income or capital, take into account the exempted income or capital.
Article XXIV of the U.S. France Tax Treaty
ARTICLE 24
Relief From Double Taxation
1. (a) In accordance with the provisions and subject to the limitations of the law of
the United States (as it may be amended from time to time without changing the general
principle hereof), the United States shall allow to a citizen or a resident of the United
States as a credit against the United States income tax:
(i) the French income tax paid by or on behalf of such citizen or resident;
and
(ii) in the case of a United States company owning at least 10 percent of
the voting power of a company that is a resident of France and from which the
United States company receives dividends, the French income tax paid by or on
behalf of the distributing corporation with respect to the profits out of which the
dividends are paid.
(b) In the case of an individual who is both a resident of France and a citizen of
the United States:
(i) the United States shall allow as a credit against the United States
income tax the French income tax paid after the credit referred to in subparagraph
(a) (iii) of paragraph 2. However, the credit so allowed against United States
income tax shall not reduce that portion of the United States income tax that is
creditable against French income tax in accordance with subparagraph (a) (iii) of
paragraph 2;
(ii) income referred to in paragraph 2 and income that, but for the
citizenship of the taxpayer, would be exempt from United States income tax under
the Convention, shall be considered income from sources within France to the
extent necessary to give effect to the provisions of subparagraph (b) (i). The
provisions of this subparagraph (b) (ii) shall apply only to the extent that an item
of income is included in gross income for purposes of determining French tax. No
provision of this subparagraph (b) relating to source of income shall apply in
determining credits against United States income tax for foreign taxes other than
French income tax as defined in subparagraph (e) ; and
(c) In the case of an individual who is both a resident and citizen of the United
States and a national of France, the provisions of paragraph 2 of Article 29
(Miscellaneous Provisions) shall apply to remuneration and pensions described in
paragraph 1 or 2 of Article 19 (Public Remuneration) , but such remuneration and
pensions shall be treated by the United States as income from sources within France.
(d) If, for any taxable period, a partnership of which an individual member is a
resident of France so elects, for United States tax purposes, any income which solely by
reason of paragraph 4 of Article 14 is not exempt from French tax under this Article shall
be considered income from sources within France. The amount of such income shall
reduce (but not below zero) the amount of partnership earned income from sources
outside the United States that would otherwise be allocated to partners who are not
residents of France. For this purpose, the reduction shall apply first to income from
sources within France and then to other income from sources outside the United States. If
the individual member of the partnership is both a resident of France and a citizen of the
United States, this provision shall not result in a reduction of United States tax below that
which the taxpayer would have incurred without the benefit of deductions or exclusions
available solely by reason of his presence or residence outside the United States.
(e) For the purposes of this Article, the term “French income tax” means the taxes
referred to in subparagraph (b) (i) or (ii) of paragraph 1 of Article 2 (Taxes Covered), and
any identical or substantially similar taxes that are imposed after the date of signature of
the Convention in addition to, or in place of, the existing taxes.
2. In the case of France, double taxation shall be avoided in the following manner.
(a) Income arising in the United States that may be taxed or shall be taxable only
in the United States in accordance with the provision of this Convention shall be taken
into account for the computation of the French tax where the beneficiary of such income
is a resident of France and where such income is not exempted from company tax
according to French domestic law. In that case, the United States tax shall not be
deductible from such income, but the beneficiary shall be entitled to a tax credit against
the French tax. Such credit shall be equal:
(i) in the case of income other than that referred to in subparagraphs (ii)
and (iii), to the amount of French tax attributable to such income;
(ii) in the case of income referred to in Article 14 (Independent Personal
Services), to the amount of French tax attributable to such income; however, in
the case referred to in paragraph 4 of Article 14 (Independent Personal Services),
such credit shall not give rise to an exemption that exceeds the limit specified in
that paragraph;
(iii) in the case of income referred to in Article 10 (Dividends), Article 11
(Interest), Article 12 (Royalties), paragraph 1 of Article 13 (Capital Gains),
Article 16 (Directors’ Fees), and Article 17 (Artistes and Sportsmen), to the
amount of tax paid in the United States in accordance with the provisions of the
Convention; however, such credit shall not exceed the amount of French tax
attributable to such income.
(b) In the case where the beneficial owner of the income arising in the United
States is an individual who is both a resident of France and a citizen of the United States,
the credit provided in paragraph 2 (a) (i) shall also be granted in the case of:
(i) income consisting of dividends paid by a company that is a resident of
the United States, interest arising in the United States, as described in paragraph 5
of Article 11 (Interest), or royalties arising in the United States, as described in
paragraph 6 of Article 12 (Royalties), that is derived and beneficially owned by
such individual and that is paid by:
(aa) the United States or any political subdivision or local authority
thereof; or
(bb) a person created or organized under the laws of a state of the
United States or the District of Columbia, the principal class of shares of
or interests in which is substantially and regularly traded on a recognized
stock exchange as defined in subparagraph (e) of paragraph 6 of Article 30
(Limitation on Benefits of the Convention) or
(cc) a company that is a resident of the United States, provided that
less than 10 percent of the outstanding shares of the voting power in such
company was owned (directly or indirectly) by the resident of France at all
times during the part of such company’s taxable period preceding the date
of payment of the income to the owner of the income and during the prior
taxable period (if any) of such company, and provided that less than 50
percent of such voting power was owned (either directly or indirectly) by
residents of France during the same period; or
(dd) a resident of the United States, not more than 25 percent of the
gross income of which for the prior taxable period (if any) consisted
directly or indirectly of income derived from sources outside the United
States;
(ii) capital gains derived from the alienation of capital assets generating
income described in subparagraph (i); however, such alienation shall be taken into
account for the determination of the threshold of taxation applicable in France to
capital gains on movable property;
(iii) profits or gains derived from transactions on a public United States
options or futures market;
(iv) income dealt with in subparagraph (a) of paragraph 1 of Article 18
(Pensions) to the extent attributable to services performed by the beneficiary of
such income while his principal place of employment was in the United States;
(v) income that would be exempt from United States tax under Articles 20
(Teachers and Researchers) or 21 (Students and Trainees) if the individual were
not a citizen of the United States; and
(vi) U.S. source alimony and annuities. The provisions of this
subparagraph (b) shall apply only if the citizen of the United States who is a
resident of France demonstrates that he has complied with his United States
income tax obligations, and subject to receipt by the French tax administration of
such certification as may be prescribed by the competent authority of France, or
upon request to the French tax administration for refund of tax withheld together
with the presentation of any certification required by the competent authority of
France.
(c) A resident of France who owns capital that may be taxed in the United States
according to the provisions of paragraph 1, 2, or 3 of Article 23 (Capital) may also be
taxed in France in respect of such capital. The French tax shall be computed by allowing
a tax credit equal to the amount of tax paid in the United States on such capital. That tax credit
shall not exceed the amount of the French tax attributable to such capital.
(d) (i) For purposes of this paragraph, the term “resident of France” includes a
“société de personnes,” a “groupement d’intérêt économique” (economic interest group),
or a “groupement européen d’intérêt économique” (European economic interest group}
that is constituted in France and has its place of effective management in France.
(ii) The term “amount of French tax attributable to such income” as used
in subparagraph (a) means:
(aa) where the tax on such income is computed by applying a
proportional rate, the amount of the net income concerned multiplied by
the rate which actually applies to that income;
(bb) where the tax on such income is computed by applying a
progressive scale, the amount of the net income concerned multiplied by
the rate resulting from the ratio of the French income tax actually payable
on the total net income in accordance with French law to the amount of
that total net income.
(iii) The term “amount of tax paid in the United States” as used in
subparagraph (a) means the amount of the United States income tax effectively
and definitively borne in respect of the items of income concerned, in accordance
with the provisions of the Convention, by the beneficial owner thereof who is a
resident of France. But this term shall not include the amount of tax that the
United States may levy under the provisions of paragraph 2 of Article 29
(Miscellaneous Provisions).
(iv) The interpretation of subparagraphs (ii) and (iii) shall apply, by
analogy, to the terms “amount of the French tax attributable to such capital” and
“amount of tax paid in the United States,” as used in subparagraph (c).
(e) (i) Where French domestic law allows companies that are residents of
France to determine their taxable profits on a consolidation basis, including the
profits or losses of subsidiaries that are residents of the United States or of
permanent establishments situated in the United States, the provisions of the
Convention shall not prevent the application of that law.
(ii) Where in accordance with its domestic law, France, in determining the
taxable profits of residents, permits the deduction of the losses of subsidiaries that
are residents of the United States or of permanent establishments situated in the
United States and includes the profits of those subsidiaries or of those permanent
establishments up to the amount of the losses so deducted, the provisions of the
Convention shall not prevent the application of that law.
(iii) Nothing in the Convention shall prevent France from applying the
provisions of Article 209B of its tax code (code général des impôts) or any
substantially similar provisions which may amend or replace the provisions of that
Article.