March 24, 1994
TO: ACCOUNTING/TREASURERS COMMITTEE NO. 12-94
TAX COMMITTEE NO. 13-94
RE: SURVEY OF UNPAID FRENCH TAX RECLAIMS
Introduction
As you know, in late 1992/early 1993, the French
government stopped refunding excess French tax withholding, i.e., withholding
in excess of the level prescribed by the U.S.-France income tax treaty, to
U.S. pension funds, individual retirement accounts, regulated investment
companies ("RICs") and other U.S. taxpayers with respect to dividends paid by
French companies in 1991 and later years. The Institute has been working with
the Treasury Department, the Internal Revenue Service and various custodial
banks to ensure that RICs receive prompt refunds of all amounts withheld in
excess of the applicable treaty rate.
Treaty Provisions
Two different provisions of the U.S.-France income tax treaty relate to
RICs investing in French equities. First, the treaty provides that all RICs
are entitled to a withholding rate of 15 percent (rather then the statutory 25
percent rate) on cash dividends. In addition, the treaty provides that RICs
that (1) own less than 10 percent of the French company paying the dividend
and (2) are owned at least 80 percent by U.S. citizens or residents are
entitled to recover the French tax paid by the French company with respect to
its distribution (the "avoir fiscal"), less 15 percent withholding on the
avoir fiscal reclaim. For example, on a 100 French Franc ("FF") dividend, a
RIC would ultimately receive 85 FF on the distribution plus 85 percent of the
related 50 FF avoir fiscal (42.5 FF) for a total payment, including reclaim,
of 127.5 FF.
* Please call me at (202) 326-5832 if you would like to receive a copy of this March 1 letter.
- 2 -
Recent French Pronouncement
On March 1, France took an important step toward processing pending
claims by sending a letter to French paying agents which describes procedures
that various entities must follow to receive treaty benefits.* Under these
procedures, a RIC seeking to reclaim "avoir fiscal" will be required to
provide "a certificate from the Internal Revenue SErvice, or any other
probative document" which establishes that:
(1) the entity is, in fact, a RIC;
(2) it owns less than 10 percent of the French company paying the
dividend; and
(3) at least 80 percent of its shares are owned by U.S. citizens or
residents.
To date, the Institute has been unable to ascertain what documents France will
accept as "probative" on these three conditions. Prompt clarification of the
required documentation is needed because it appears that France will only
process claims for which all documentation has been received by December 31,
1994.
Survey
To assist the Institute in its effort to ensure administrable procedures
for proving treaty eligibility, we are asking each fund complex with
representation on the Tax on Accounting/Treasurers Committee to complete the
attached short survey regarding RIC investments in French equities. If at all
possible, please fax the results to me at (202) 326-5841 or (202) 326-5839 no
later than Thursday, March 31. If you have any questions or comments
regarding the survey, please call me at (202) 326-5832. Your help is greatly
appreciated.
We will keep you informed of developments.
Keith D. Lawson
Associate Counsel - Tax
Attachment