French tax question

[Wills06]

Hello,

I am new to this forum and this is my first post so if I do something wrong please let me know.

I am frantically doing my French taxes and would like to know the proper way to report US social security pension income (as well as IRA distributions) on form 2047.

Under the tax treaty, this income is not taxable in France, but only in the US.
In the past, I have reported it under Section VII (Exempt income taken into account for the calculation of the "taux effectif") and this was not questioned by the tax authorities.

I have heard however, that some people report it under Pensions on the first page or under Section VI (taxable income from a foreign source giving to rise to a tax credit equal to the amount of the French tax corresponding to this income). This seems much more complicated.

Does anyone know the correct way to report this income?

Thanks in advance for any insight you may have on this issue.

[contentedscot]

I have heard however, that some people report it under Pensions on the first page or under Section VI (taxable income from a foreign source giving to rise to a tax credit equal to the amount of the French tax corresponding to this income). This seems much more complicated.

This is what I did last year and this and seems to be acceptable. But if you have time over the next 3 days get yourself down to your local tax office with whatever documentation you can carry.

[Wills06]

Hi Scot,

Thanks for your reply. Did you report it under Section VI or on the first page under Pensions?

If under section VI, how do you (or they) figure the tax credit?

I dread going to the tax office and standing in line for hours on end. I may see if I can get a call through tomorrow.

[Bevdeforges]

For your US social security, my understanding is that you report it as pension income on the 2042, and then on the 2047, you report it on the first page and then a gain under section VI as you have done.

As far as IRA withdrawals/distributions are concerned, you may want to see if your IRA qualifies under French law as a "foreign assurance vie." I've been declaring my IRA as a foreign assurance vie for years now, though I'm not yet taking any distributions (yet). It seems that the revenue from certain assurance vie contracts are exonerated from tax in France - including those where the payout is linked to a "life change" (such as retirement).
Cheers,
Bev

[Wills06]

Thanks for your reply Bev,

The thing I don't understand is that under the tax treaty, France does not have the right to tax social security or IRA distributions. They are totally exempt so why not report them under Section VII "revenus exonérés". That's what I did last year. They are then used to compute the "taux effectif" but they are not taxed themselves. I didn't get any negative feedback from the tax office so I am thinking of just continuing that way this year.
For the IRA, do you know if we need to report interest or capital gains in the IRA account? I don't think it could be taxable by France under the treaty, but it may be used for computing the taux effectif.

[Bevdeforges]

As far as the IRA is concerned, I swear I found something in the fiscal instructions last year that basically said that, if you funded your retirement fund while resident and working abroad and you're compliant with all the tax rules over there, then the withdrawals from an IRA are considered simply transfer of capital. Of course I should have printed off the section when I found it, because I can't find it in this year's "fiscal guide" (I use Click Impot).

That makes sense - at least for the IRA because both the principle and the earnings have been taxed by the US, so in theory at least, it's nothing but a big savings accounts as far as the French are concerned. But I'd feel a whole lot better if I could find the information I had last year.

On US social security, I'm not sure what the "official" stance is on that. But the general provision in the social security treaty seems to be that social security is taxed by the country in which it is generated. According to the instructions to the form 2047, there are two ways to eliminate double taxation - basically via section VI or section VII . On page 3 of the instructions, the US is included in the list of tax treaties that use the first method (i.e. section VI). To me that indicates that that's how you report it. But I have noticed that it often comes down to "whatever you can get away with." (Often the tax examiners don't seem to really know how to treat these foreign income items.)

I wonder if there is anyone here who is a member of AARO who might be able to pose the question to them?
Cheers,
Bev

[Wills06]

"But I have noticed that it often comes down to "whatever you can get away with." (Often the tax examiners don't seem to really know how to treat these foreign income items.)"



I wholeheartedly agree, no-one seems to really know, that is why I am reluctant to pose the question to the tax office. Your response was very enlightening though. I am going to recheck the treaty and the Tax Code. UK "government" pensions are declared in Section VII as "exempt income" according to the "Connexion" helpguide and there may be a parallel with US Social Security.

In any case, thanks very much for your input, Bev. It was very helpful.

[Wills06]

Hello again to everyone who may also have questions on filing French income tax just a couple days before the deadline.

I just purchased a copy of the "Connexion Helpguide to Income tax forms for American citizens living in France" (2011 edition) Price €9.50. This is actually last year's guide since they didn't publish the American version this year (the UK 2012 version is available however and last year's American version is still available by contacting the Connexion by e-mail). This is an incredibly complete guide including reproductions of forms and detailed answers to almost every imaginable question.

The guide confirmed my approach to reporting US social security pension income on form 2047 in Section VII (Revenus exonérés) and answered many other questions I had.

I don't like making publicity for any particular product in a forum like this, but I found the guide extremely helpful and as far as I know, it is one of the very few sources providing this type of information, which is badly needed by the expat community.

Hoping this information may be of use to some of you.

[Charlot]

Originally Posted by Wills06

Hello again to everyone who may also have questions on filing French income tax just a couple days before the deadline.

I just purchased a copy of the "Connexion Helpguide to Income tax forms for American citizens living in France" (2011 edition) Price €9.50. This is actually last year's guide since they didn't publish the American version this year (the UK 2012 version is available however and last year's American version is still available by contacting the Connexion by e-mail). This is an incredibly complete guide including reproductions of forms and detailed answers to almost every imaginable question.

The guide confirmed my approach to reporting US social security pension income on form 2047 in Section VII (Revenus exonérés) and answered many other questions I had.

I don't like making publicity for any particular product in a forum like this, but I found the guide extremely helpful and as far as I know, it is one of the very few sources providing this type of information, which is badly needed by the expat community.

Hoping this information may be of use to some of you.

Hi,

Just opened this timely thread. Thanks to all for the useful info.

Wills06, I went to the Connexion site's list of Helpguides and couldn't find the American version. Can you help direct me?
Also, does it cover things like capital gains, dividends and IRA's? Does it use the Convention as a basis for the instructions given? Does it address assessment of French social charges?

OK, that's enough questions, thanks in advance if you have the chance to respond. Even after the dreaded 31st would be great.

Regarding "Social Security". To my (perhaps unsound) mind, Social Security is not a pension, it's an obligatory, government-run, old-age survivor's insurance program to which employee and employer contribute. I mention this because the distinction seemed to clarify some point for the very helpful and infinitely patient staff at my local tax office last year.

Bonne chance, Charlot

[Wills06]

Hi,

The American version of the guide is not listed on the site because it wasn't published this year. Last year's version is available by contacting Connexion by e-mail at the "contact" address. Apparently as a newbie I am not authorized to give e-mail addresses or links.

As for your questions, I would answer in the affirmative to all of them with the exception of IRAs. I am going to study the guide more carefully tomorrow before submitting my declaration, but you can also ask specific questions not addressed in it by e-mail to the newspaper.

As regards IRAs, as I'm sure you know, they are dealt with in the tax treaty in the Pensions section (18) and are assimilated with social security. I deduce from this that income within an IRA would not be taxable by France, but I would like to get some confirmation of this and whether or not income within an IRA (before distribution) needs to be declared for the computation of the taux effectif.
The guide states the tax free income in the US is still taxable in France, but I don't see how this could be the case for IRAs since, as I read it, the treaty states that they are not taxable in France. If you have any insight on this issue, I would be interested in hearing it.

I appreciate your remarks on social security. I agree and find it interesting that your French tax office was receptive to the idea.

Good luck with your taxes, Charlot, if you haven't done them yet