Expat Forum For People Moving Overseas And Living Abroad banner

1 - 5 of 5 Posts

·
Registered
Joined
·
144 Posts
Discussion Starter · #1 ·
Besides the Visa questions I am researching, I am also trying to get a handle on taxes. We subsist on interest income, much of it tax free in the US through government vehicles, the rest in mutual funds etc. The total amount of taxable and nontaxable income would place is in the 14% French bracket according to the way they describe splitting income.

I have "read" the tax treaty, meant I got the meaning of it's individual words but not it's implications LOL - it confuses me and seems to imply we would pay tax in france ( and get us tax credit?) on interest income. This (possibly erroneous) conclusion us contradicted by the informal advice from the AARO: "You declare your US interest and dividend income on the French tax form. It becomes part of your taxable income base to determine your tax rate. You are given a tax credit and therefore will not have French tax to pay on that income."

Further complicating matters, the French embassy states:

Sent from my Nexus 5X using Tapatalk
 

·
Registered
Joined
·
144 Posts
Discussion Starter · #2 ·
Ugh Tapatalk problems and surely no delete or edit function in this forum. Revised post:

Besides the visa questions I am researching, I am also trying to get a handle on taxes if we move. We subsist on interest income, much of it tax free in the US through government vehicles, the rest in mutual funds etc. Our US tax filing is pretty simple and straightforward with no weird complicating factors or deductions. The total amount of our taxable and nontaxable income combined would place us in the 14% French bracket according to the way they describe splitting income in French returns - so not a huge income, fairly modest. We would have no French income.

I have "read" the tax treaty - meaning I understood its individual words but not its implications LOL - it confuses me and seems to imply we would pay tax in france (and get US tax credit?) on our interest income. This (possibly erroneous) conclusion is contradicted by the informal advice I got from the AARO: "You declare your US interest and dividend income on the French tax form. It becomes part of your taxable income base to determine your tax rate. You are given a tax credit and therefore will not have French tax to pay on that income."

Further complicating matters, the French embassy in the US states: "Some investments are compensated by interest payment (bonds, Government loans, cash vouchers...). When they are paid to a resident of the United States, they are not taxed in France but subject to the US income tax."

We are not averse to fulfilling our tax obligations. However, we are not keen on double taxation and would also like to get a handle on which country we will be paying tax to first. I wish I could locate the instructions for form 2047, I feel like they would help clear things up...but maybe not! Hoping someone else here has been in my shoes.
 

·
Administrator
Joined
·
50,368 Posts
The instructions for form 2047 are here: https://www.impots.gouv.fr/portail/formulaire/2047/declaration-des-revenus-encaisses-letranger-0

Select "Notice 2047-NOT" to get the instructions.

Further complicating matters, the French embassy in the US states: "Some investments are compensated by interest payment (bonds, Government loans, cash vouchers...). When they are paid to a resident of the United States, they are not taxed in France but subject to the US income tax."
That quote refers only to residents of the US - which you will NOT be once you move to France.

But to simplify things massively (there are always a few "complications" when you're in France <g>), you declare your worldwide income on both your French and your US tax returns. Interest and other investment income (other than IRA or 401K withdrawals, which are handled differently because they are considered "pension plans") are taxable first of all in France. Then, when you do your US taxes, you take a credit in the amount of the French income tax you paid on the investment income against whatever tax liability you run up based on that income. The first year you're in France and filing taxes can be a bit rough because technically speaking, the US is on a "cash basis" for tax, and so you won't know how much French tax you'll be paying until you get your avis d'imposition in August or September (but at that point you can file an amended return to get back any overpayment). Or, you can file for an extension and just file your US taxes after you know what your French tax bill will be. In the meantime, you may want to read through the instructions for form 1116 (US form) to see how the Foreign Tax Credit works.

It's not a perfect solution - and there are circumstances where you'll wind up paying what is, in effect, a sort of double taxation. But it usually works out reasonably well.
Cheers,
Bev
 

·
Registered
Joined
·
144 Posts
Discussion Starter · #4 ·
Thanks for the link. Reading this on page 6:
"Interest: The US source interest derived by a resident of France are

eligible for a tax credit equal to US tax, within the limit of 15% of gross

interest. Thus, if these interests were exempted in the US, they will

qualify for any tax credit in France. However, some US source interest

received by persons resident in France with US citizenship are eligible,

as provided by Article 24 § 1-bis) of the Franco-US tax treaty of 31

August 1994, a credit of tax equal to the amount of french tax

attributable to such income, not the tax credit equal to US tax capped

at 15%."

This sounds more in line with what AARO told me...



Sent from my Nexus 5X using Tapatalk
 

·
Registered
Joined
·
144 Posts
Discussion Starter · #5 ·
Think I am making headway after also looking for article 24 1b.

"The following simplified example illustrates how subparagraph 1(b) works. The U.S. tax
on a dividend paid by a U.S. corporation to a portfolio investor resident in France is limited by

Article 10 (Dividends) of the Convention to 15 percent. The United States, therefore, will impose
a tax of 15 on a dividend of 100, and France will allow a tax credit of 15. Suppose that the
French individual income tax due is 22 percent. In that case, the net tax payable to France will be

7. However, assume that this individual is a U.S. citizen and, therefore, liable to U.S. tax of 22
percent. In the absence of a special relief provision, the individuals total tax would be 35: 28 to

the United States, with no foreign tax credit because the dividend is from U.S. sources, and 7 to
France. Under subparagraph 1(b), the 7 of French tax is credited against the 28 of U.S. tax,

reducing the combined burden to 28, the higher of the two taxes. In this example, in order to
credit the French tax of 7 at a U.S. rate of 28, 25 of the dividend would be treated as from French
sources so that the 7 of French tax could be claimed as a foreign tax credit (7/28 x 100).
Additional examples of the calculation of this additional credit are provided in IRS Publication
901 on U.S. tax treaties."

Of course, I have not yet been able to find additional examples in publication 901...

Sent from my Nexus 5X using Tapatalk
 
1 - 5 of 5 Posts
Top