France and the US signed on August 31, 1994 a new treaty, including two letters in appendix, in order to avoid double taxation and to prevent tax evasion concerning income taxes and wealth tax. This treaty is presently being ratified on the French side.

As soon as it comes into force, this treaty will replace the present double tax treaty dated July 28, 1967 and its four successive amendments. The provisions of the new treaty refer in many ways to the O.E.C.D. model tax convention. However, some of the provisions are original ones, especially those concerning the tax treatment of partnerships incomes, the regime of French source dividends paid to some American retirement organizations (pension funds) and to holders of some pension schemes, the creation of an arbitration procedure and the introduction of a provision for the limitation of the advantages of the treaty, which is rather complicated.

Accordingly, the following provisions may be pointed out:

- the position of resident has been extended to pension funds, non-profit making organizations, mutual funds and French investment funds and to some similar American investment organizations;

- concerning French source dividends paid to some American pension funds, the treaty confirms the part refund of the tax credit;

- as far as interests are concerned, the principle of tax exemption in the state in which it arises is maintained, except for interests computed in reference with the profits of the debtor which are classified as dividends on the American side;

- the exemption of withholding tax provided by the double tax treaty of 1967 for royalties paid for the use of the right to use copyright of literary, artistic or scientific work has been extended to the remuneration of other copyrights;

- the method of allocation of a tax credit, in order to cancel double taxations in terms of incomes and wealth has been generalized. It especially applies to American nationals residents of France who presently benefit from an exemption for their American source non-earned incomes;

- the mutual agreement procedure includes two new measures: the possibility for contracting states to conclude agreements for future years and the recourse to an arbitration procedure;

- the anti-abuse system included by the Amendment dated January 17, 1984 in Article 24 A of the tax treaty of 1967 has been reinforced.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be brought about your specific circumstances. For additional information contact Claire Acard on 33/(1)/ or Lionel Benant on 33/ or enter text search: "ARCHIBALD ANDERSEN Profile". The members of ARCHIBALD ANDERSEN Association d'Avocats (S.G. Archibald and Arthur Andersen International) are registered with the Hauts-de-Seine Bar and the Lyon Bar.