On June 13, 2019, the Internal Revenue Service (the IRS) submitted documents to the U.S. Tax Court indicating that the contribution sociale généralisée (CSG) and the contribution pour le remboursement de la dette sociale (CRDS) are not social contributions covered by the U.S.-French Social Security Totalization Agreement. As a result, U.S. tax residents may claim as a tax credit against their U.S. tax liability any CSG/CRDS owed in France.
Whether the CSG/CRDS are taxes or social contributions has been a debate for over a decade. In 2008, the IRS took the position that the CSG/CRDS are social contributions. Thus, it disallowed tax credit claimed by U.S. tax residents for the CSG/CRDS paid in France. Six years later, in its Eshel decision, the U.S. Tax Court upheld the IRS position.
However, the petitioner in Eshel appealed the decision. The Court of Appeals for the District of Columbia Circuit reversed and remanded the case to the U.S. Tax Court for further proceedings consistent with its opinion. During these additional proceedings, the IRS filed documentation with the Court indicating that the U.S. and French governments have a shared understanding that the CSG/CRDS are not social contributions.
This new position of the IRS may benefit people who are both U.S. and French tax residents. First, in some situation, they could obtain refunds for taxes paid in previous tax years by claiming a tax credit for the CSG/CRDS paid during these years. Second, if during these tax years the French taxes, increased by the CSG/CRDS, were more than the U.S. taxes, they could benefit from a tax credit carryover that could be claimed during the 2018 “année blanche” in France.
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This article only includes general information and IMS is not, by means of this article, rendering any tax, legal or other professional services. This communication should not be relied upon for any decision or action that may have an impact on your business. Prior to taking any action, you should be in contact with your advisor.