The United States generally allows taxpayers to claim a credit against their US taxes for foreign income taxes paid or accrued during the tax year. However, a foreign tax credit claim is not permitted for social security taxes payable to a country with which the US has a Social Security Agreement e.g. France.
The IRS recently withdrew its contention that two French taxes (Contribution Sociale Généralisée and Contribution au Remboursement de la Dette Sociale) were social taxes, governed by the Social Security Agreement so not eligible for credit against US tax.
Following the decision, the way is potentially open for affected taxpayers to claim refunds by filing amended US tax returns for past years by claiming foreign tax credits paid or accrued 10 years from the due date of the return for the tax year the foreign taxes were paid or accrued.
What are these social security taxes?
The IRS’s refusal to grant a foreign tax credit on the US return was based on the position that the taxes were not income taxes but social taxes and were therefore not available to credit against US income taxes under the provisions of the Social Security Agreement between the US and France.
On June 13, 2019, the IRS indicated that, following discussions between the Department of State and the French government, they accepted the position that the CSG and CRDS do not fall under the provisions of the Social Security Agreement.
What does this mean?
The change has significant implications for US taxpayers resident, or previously resident, in France who has been paying these taxes. Taxpayers may file amended US returns for the previous ten years in order to claim foreign tax credits for the CSG and the CRDS, potentially generating US tax refunds or increasing foreign tax credits available for use in future years.
France introduced a withholding tax system in 2019. In 2018, income taxes were forgiven to avoid paying current year withholding and prior year taxes at the same time.
The insufficient foreign tax credit carryover for 2018 may be offset by any carryover of credits from amending prior year tax returns.
Taxpayers should review their situation to determine the potential benefit of filing amended returns.
If you believe, you could benefit from the change in the IRS’ position please do reach out to our key contacts below.
Find out more about US tax challenges and our solutions here.
By Geoffrey Leys, Alex Saluveer and Miyuki Hara - Global Employer Services
Sponsoring Partners
David Wigersma - Partner, Global Employer Services
David has 20 years of experience in the area of international corporate and individual taxation planning. He specialises in addressing the complex compliance needs of a cross-border workforce with varied elements of compensation.
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Key contacts
Geoffrey Leys - Director, Global Employer Services
Geoffrey is a Director in our Global Employer Services (GES) Practice and leads the Individual US Tax Services group in Switzerland. He has advised international organisations and their employees on the employment tax, personal tax and HR implications of global relocations and workforce mobility for almost 20 years, with particular focus on the complexities of taxation of US citizens working abroad and a strong understanding of the interactions with Swiss individual taxation. Geoff holds a Bachelor of Science degree in Business Finance and Economics from the University of East Anglia and holds qualifications in both UK and US taxation.
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Alexander Saluveer - Senior Manager, Global Employer Services
In a career spanning more than 20 years, Alex has worked in the field of international expatriate tax, reward consulting and global mobility in London, New York, Paris, Sao Paulo and Geneva. He has widespread experience in US individual taxation, having worked with US executives and high net worth individuals throughout his career. Alex has led global as well as country specific engagement teams within a varied client base providing advice in respect of individual tax matters as well as employer responsibilities. He has worked extensively in assisting organisations manage international incentive and deferred compensation plans. Alex holds a MA Degree from the University of Cambridge and is UK and US tax qualified.
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