1980 U.S. Tax Ct. LEXIS 128">*128
T, a U.S. citizen residing in France, spent 5 business days in the United States during each of the years 1972 and 1973, and received compensation from his employer for services performed here in the amounts of $ 1,108 and $ 1,157, respectively. In computing the foreign tax credit under secs. 901 and 904,
74 T.C. 406">*406 OPINION
The Commissioner determined income tax deficiencies against petitioners, citizens of the United States, for the years 1972 and 1973, in the amounts of $ 236 and $ 155, respectively. Petitioners are husband and wife, but the income of only the husband is here involved; he will be referred to hereinafter as the petitioner. During 1972 and 1973, he was a bona fide resident of France, employed there by "IBM-Europe." In the determination of the deficiencies, the Commissioner made certain uncontested adjustments in the total compensation received by petitioner in each year. Furthermore, the Commissioner recomputed the foreign tax credit with respect to the income taxes 1980 U.S. Tax Ct. LEXIS 128">*131 paid to France for each year. The recomputations thus made are not in dispute, except to the extent that the foreign tax credit is, in effect, reduced by reason of the Commissioner's treatment of a portion of petitioner's compensation 74 T.C. 406">*407 as U.S. source income. The case was submitted to us for decision solely on the basis of a stipulation of facts.
During each of the years in issue, petitioner spent 5 days in the United States on business, and the parties have stipulated that he thus had U.S. source compensation for his services in the amounts of $ 1,108 and $ 1,157 for the years 1972 and 1973, respectively. There is no dispute that petitioner paid income taxes to France on the total amount of compensation received by him in those years, including the portions allocable to his services in the United States. Also, petitioners do not appear to contest the correctness, under our internal revenue laws, of the Commissioner's recomputation of the foregin tax credit. 1
1980 U.S. Tax Ct. LEXIS 128">*132 The sole issue raised in the pleadings is that petitioner is being subjected to double taxation on the portions of his income allocated to U.S. sources in violation of the Income Tax Treaty between the United States and France, and in particular article 25 thereof. United States-France Convention with respect to taxes on income and property, July 28, 1967, 19 U.S.T. 5280,
1980 U.S. Tax Ct. LEXIS 128">*133 1.
If petitioner wishes to proceed under article 25, he must invoke competent authority proceedings in an appropriate manner, 5 not by attempting to present his case on the merits to this Court. We have jurisdiction only to decide whether the deficiency determined by the Commissioner is correct under the laws of the United States, as such laws may be affected by substantive provisions of the convention. And, as we have already pointed out, there is no dispute as to the correctness of the deficiency under our Internal Revenue Code. There remains only the question of whether any substantive provisions of the convention require a different result.
1980 U.S. Tax Ct. LEXIS 128">*135 2.
Although many foreign countries tax their residents on their worldwide income, the United States taxes its citizens, as well as its residents, on their worldwide income. See R. Patrick, "United States Negotiating Objectives and Model Treaties," 5 N.Y.U. Inst. Tax & Bus. Planning 1, 9 (1978). Accordingly, the United States insists on the inclusion of a "savings clause" in its tax treaties; the effect of this clause is to reserve the right of the United States to tax its citizens and residents on the basis of the provisions of the Internal Revenue Code without regard to the provisions of the treaty. See J. Bischel, 1980 U.S. Tax Ct. LEXIS 128">*137 "Basic Income Tax Treaty Structures," Income Tax Treaties 9-11 (J. Bischel ed. 1978); E. Owens,
It is true that the savings clause does not affect the convention rules on relief from double taxation, found in article 23. 91980 U.S. Tax Ct. LEXIS 128">*141 However, a fair reading of this provision indicates that petitioner is entitled to a tax credit from France, and not the United States, in respect of compensation for services performed in the United States. Under article 23, the United States is required to provide a tax credit only for the "appropriate amount" of French taxes paid; and this "amount" is strictly limited so as not to be in excess of the U.S. tax on French source income. The report of the Senate Committee on Foreign Relations recommending that the Senate give its advice and consent to ratification of the treaty explains that although specific reference in the treaty was not made to the foreign tax 74 T.C. 406">*412 credit provisions in the Code, in order that subsequent statutory modifications would not alter the effect of the convention, a per-country limitation on the amount of the credit was to be applied under the convention. S. Exec. Rept. 5,
It would thus appear that under the convention, relief from double taxation is available here only as a credit against the French tax. To be sure, we are aware that petitioner has already sought such relief and it was denied by the French authorities1980 U.S. Tax Ct. LEXIS 128">*143 in reliance upon article 15. But we think they erred in this respect, as more fully explained above. Perhaps petitioner may seek reconsideration by the French authorities in the application of their own law as modified by the convention. And as a last resort, he may be able to present his case to the French competent authority, thereby initiating the international administrative procedure established by article 25, in respect of which this Court has no jurisdiction. However, we express no opinion as to such courses of action.
1. Nor would there be any valid basis for complaining that the Commissioner had not properly followed the applicable provisions of our Internal Revenue Code. The United States taxes its citizens on their worldwide income, regardless of whether they reside here or abroad.
2. The 1970 protocol does not relate in any manner to the issues presented in the instant case. In 1978, subsequent to the taxable years involved here, the convention was further amended by a second protocol. United States-France Income Tax Protocol, Nov. 24, 1978,
3. ARTICLE 25
Mutual Agreement Procedure
(1) Where a resident of a Contracting State considers that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with this Convention, he may, notwithstanding the remedies provided by the national laws of those States, present his case to the competent authority of the Contracting State of which he is a resident.
(2) The competent authorities of the Contracting States shall endeavor to resolve by mutual agreement any difficulties or doubts arising as to the application of the Convention. In particular, the competent authorities of the Contracting States may consult together to endeavor to agree:
(a) To the same attribution of industrial or commercial profits to a resident of one of the Contracting States and its permanent establishment situated in the other Contracting State;
(b) To the same allocation of income between a resident of one of the Contracting States and any related person, provided for in Article 8; or
(c) To the same determination of the source of particular items of income.
(3) The competent authorities of the Contracting States may communicate with each other directly for the purpose of reaching an agreement in the sense of the preceding paragraphs. When it seems advisable for the purpose of reaching agreement, the competent authorities may meet together for an oral exchange of opinions.
(4) In the event that the competent authorities reach such an agreement, taxes shall be imposed on such income, and refund or credit of taxes shall be allowed, by the Contracting States in accordance with such agreement.↩
4. We express no opinion as to whether, in addition to the procedure specified in art. 25, petitioner might be permitted to invoke competent authority proceedings by presenting his case to the competent authority of the United States. Cf.
5. Petitioner contends that he has already unsuccessfully sought relief from the French authorities. However, we have no indication that he has attempted to invoke the "competent authority" procedure as opposed to merely seeking relief from the French officials in administering their own law. Those officials apparently relied upon art. 15 of the convention in denying relief to petitioner, and we think they did so erroneously, as will appear hereinafter. But there is nothing before us to show that "competent authority" proceedings were involved. In any event, this Court is not a proper forum in which to engage in or review any such proceedings.↩
6. ARTICLE 15
Dependent Personal Services
(1) Salaries, wages, and other similar remuneration paid to a resident of a Contracting State for labor or personal services shall be taxable only in that State unless such labor or personal services were performed in the other Contracting State. Remuneration received for labor or personal services performed within such other State may be taxed by such other State.
(2) Notwithstanding the provisions of paragraph (1), remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall not be taxable in such other State if:
(a) The recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in the fiscal year concerned,
(b) The remuneration is paid by, or on behalf of, an employer who is not a resident of the other State, and
(c) The remuneration is not borne by a permanent establishment which the employer has in the other State.
[19 U.S.T. 5280, 5301-5302,
7. There does not appear to be any dispute as to the applicability of pars. (2)(b) and (c).↩
8. ARTICLE 22
General Rules of Taxation
(4)(a) The United States may tax its citizens and residents as if the present Convention had not come into effect.
(i) This provision shall not affect the rules laid down in Article 20 (Social Security Payments), Article 23 (Relief from Double Taxation), and Article 24 (Nondiscrimination).
[19 U.S.T. at 5307,
9. ARTICLE 23
Relief from Double Taxation
Double taxation of income shall be avoided in the following manner:
(1) The United States shall allow to a citizen, resident, or corporation of the United States as a credit against its tax specified in paragraph (1) of Article 1 the appropriate amount of income taxes paid to France. Such appropriate amount shall be based upon the amount of French tax paid but shall not exceed that portion of the United States tax which net income from sources within France bears to the entire net income.
(2) In the case of France:
(a) Income other than that mentioned in paragraph (b) below shall be exempt from the French taxes mentioned in paragraph (1) of Article 1 while the income is, by reason of the Convention, taxable in the United States.
(b) As regards income taxable in both Contracting States in accordance with the provisions of this Convention, France shall allow to a resident of France receiving such income from United States sources a tax credit corresponding to the amount of tax levied in the United States. Such tax credit, not exceeding the amount of French tax levied on such income, shall be allowed against taxes mentioned in paragraph (1)(b)(i) of Article 1 of this Convention, in the bases of which such income is included.
(c) Notwithstanding the provisions of paragraphs (a) and (b), French tax may be computed on income chargeable in France by virtue of this Convention at the rate appropriate to the total of the income chargeable in accordance with French law.
[19 U.S.T. at 5309-5310,
10. This was clearly the assumption under the terms of the income tax treaty with France in effect prior to the entry into force of the 1967 Convention. Art. 14A of that treaty read as follows:
ARTICLE 14
It is agreed that double taxation shall be avoided in the following manner:
A -
Notwithstanding any other provision of this Convention, the United States of America in determining the income and excess-profits taxes, including all surtaxes, of its citizens, or residents, or corporations, may include in the basis upon which such taxes are imposed, all items of income taxable under the Revenue Laws of the United States of America, as though this Convention had not come into effect. The United States of America shall, however, deduct from the taxes thus computed the amount of French income tax paid. This deduction shall be made in accordance with the benefits and limitations of
[United States-France Convention for the Avoidance of Double Taxation, July 25, 1939, 59 Stat. 893, 900-901,
The relevant Senate committee reports recommending that the Senate advise and consent to ratification of the 1939 convention indicate that this provision was interpreted to mean that "the United States adheres to its existing system of credit for foreign taxes," as then provided by
11. ARTICLE 2
General Definitions
(2) As regards the application of the Convention by a Contracting State any term not otherwise defined shall, unless the context otherwise requires, have the meaning which it has under the laws of that Contracting State relating to the taxes which are the subject of the Convention.
[19 U.S.T. at 5283-5284;
12. Source of income rules are provided for dividends, interest, royalties, and capital gains. 1967 Convention, art. 9(4), 10(6), 11(6), 12(1), 19 U.S.T. at 5293-5296, 5298,
