In: Accounting
Going back to the Savary case (TC Summary 2010-150) where Savary , a US citizen, was a flight attendant that lived and worked in Paris. The Tax Court reviewing Art 24 (Relief from Double Taxation) in the US-France DTC, concluded that France should give a credit for the US taxes on Savary's wages. Since France had already declined to provide a credit for the US tax, Savary was subject to double taxation by both contracting states on USD 23,321 (the Tax Court allowed Savary to exclude under sec 911 as foreign earned income USD 14,415).
Is this a correct reading of the Art 24? Art 24 has a 3-bite rule similar to the 3-bite rule in the US MC. The first bite is Art 24(2)(a)(iii). The second bite is Art 24(2)(a). The third bite is Art 24(1)(b)(i). The Treasury Department Technical Explanation to the US-France DTC provides a clear roadmap to the 3-bite rule so you may want to read it.
Articule 24(2)(a)(iii) states" 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;
Articile 24(2)(a) :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.
Articile 24(1)(b)(i) 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.
Answer : All three provisions of the convetion support for credit for french income tax paid and hence same will is correctly allowed by the US tax authorties.