Why is it so difficult to get answers to questions on tax issues for Americans in France?
In the U.S. tax system, when you file your taxes, you indicate the amount of taxes owed. But in the French system, you only declare your revenues, you don’t calculate the taxes due. The tax office does and will send you a bill, months after you make your declarations. So, a tax preparer in France doesn’t necessarily need to know all the intricacies of the tax treaty because they don’t need to figure it out. They simply report to the authorities the revenues and it is the tax authorities who are then tasked with figuring it out. But it is not easy for anyone to understand the rules unless there has been a case reported and disclosed clearly explaining the rules that were applied. The tax treaty governs the tax treatment, but as France has tax treaties with most countries in the world, there is not yet a simple source which focuses on only Americans and the impact of the rules on Americans. So, it becomes for us a process of trial and error. As circumstances arrive, we investigate the rules and how they are applied to our clients. Rules which constantly change as both French and US tax laws are in constant flux.
A case in point is the tax treatment of French pension plans. There is a new plan know by the initials PER (Plan d’epargne retraite). The question is whether Americans can participate in this plan. Several tax preparers who specialize in working with Americans told me, no, they either a U.S. citizen cannot participate because the U.S. IRS would consider it a PFIC, or in most cases, they had no idea. A PFIC is a dirty word meaning the U.S. would tax the income in the worst possible light and should be avoided at all costs. But the reality appears to be that this plan is a valid French pension plan and as such, according to the tax treaty, it is only taxable in France and therefore it is not taxable in the U.S. or as a PFIC. There are no clear rules or instructions on the taxation of this plan. But it appears to conform to the requirements for a French pension plan. The plan documents may specify the tax treatment but the point is made; The rules are not black and white and different people have different knowledge of the implication of French and U.S. rules. Should you take the conservative approach and avoid it? Or should you take the interpretation that seems clear? Until there is a specific ruling, one cannot be sure.