US-France Income Tax Treaty

September 17, 2010

The existing US-France Incolme Tax Treaty was recently amended once again in certain key areas.  An important amendment is to the  Exchange of Information provision, whereby one of the two countries has the right to obtain information from the other.  The new provision, effective as of 1 January 2010, requires one country, at the request of the other, to supply information held by a bank, other financial institution, by a nominee or by a person acting in an agency or fiduciary capacity (such as a trustee).    

Practice insight:  We have seen the French fisc implementing the treaty Exchange of Information provision more frequently.  Those taxpayers seeking to maintain anonymity behind the sort of arrangements listed above may find themselves exposed in the event of audit.    This concern applies mainly or exclusively to US citizens or Green Card holders fiscally residing in France.

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SCI or not?

September 14, 2010

Client: I want to purchase an apartment in Paris with my wife. We are Americans living in Rhode Island, and will use it as a summer getaway and maybe rent it out at other times. Any suggestions about structuring the purchase?
Okoshken: The first question is whether you should buy it outright in your own names or create an SCI or other holding company.
Client: What is an SCI?
Okoshken: A form of French company usually used to hold real estate. “SCI” stands for Société Civile Immobilière.
Client: How would it be useful for us?
Okoshken: It is useful if you wish to retain full control over testamentary disposition of the apartment. If you buy it in your own names (i.e., no SCI), then your children will have an automatic right to a share in the property at your death(s). This may complicate your estate planning.
Client: One of my children is from a prior marriage and is independently wealthy.  He does not need anything from me, and besides, my present wife and he don’t get along. 
Okoshken: Children from prior marriages often cloud the waters of French estate planning due, mainly, to the so-called “forced heirship rules”.   To excise that problem, you son would eventually renounce his interest in the property; but owning it through an SCI would restore the estate planning waters to crystal clarity.  
Client: Sounds good. Any downside to buying through an SCI?
Okoshken: Yes. If you are going to rent the apartment on a short term basis, there are adverse tax consequences when it is done through an SCI. (Besides, there is a movement afoot in Paris to make it much more difficult to do short-term rentals.)
Client: Please explain.
Okoshken (Looking at his watch): I’ll explain both at our next meeting.