Tax Treaty Case Law around the Globe 2012

France: Lump Sum Tax Credit – An Exemption of Income or a Tax Credit Technique?

24.1. Introduction

The decision in the Chauvin case, dealing with avoidance of double taxation, focuses on the definition of “tax credit” under certain French tax treaties, particularly under the France-United States treaty. This case provides information concerning the scope of the clause eliminating the double taxation of wages under this treaty. If, in theory, this tax credit looks like an imputation, in practice it can lead to an exemption. According to the French Council of State (Conseil d’État, the supreme administrative court), the benefit of the tax credit in France in an amount equal to the French tax on wages earned in the United States is not subject to effective taxation of wages in that state. In consideration of the allocation of taxing powers between the contracting states, the fact that the source state does not actually impose tax on such income does not affect the beneficiary’s right to claim the tax credit in his home state, unless otherwise provided in the treaty. Surprisingly, this case has never been the subject of published comments by French authors.

24.1.1. Notions of tax credit

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