811.512351 Double/345
The Chargé in France (Wilson) to the Secretary of State
[Received September 15.]
Sir: I have the honor to refer to the Department’s circular instruction of September 12, 1935,52 concerning the question of reciprocal exemption from taxation of the official compensation received by consular officers and employees and other non-diplomatic officers and employees and to report that the portions of the American law quoted [Page 113] in the above instruction were transmitted to the Foreign Office in a note dated September 30, 1935. In this note the Embassy requested to be informed whether the French Government was prepared to grant similar exemptions with respect to taxation on the compensation paid to American Government employees in France.
The Foreign Office on December 31, 1935, replied in a note which stated that it had been advised by the Ministry of Finance that all American diplomatic and consular agents in France, as well as American employees of the Embassy and Consulates, are exempted from all income tax on the compensation which they receive from their Government. With regard to other officers and employees of the American Government serving in France, the remuneration which they receive from their Government is exempted from the tax on wages and salaries by virtue of Article 7 of the Franco-American Double Taxation Convention. However, since the Protocol of the Convention in defining the taxes referred to in Article 7 indicates that the exemption applies in France to the “tax on wages and salaries, pensions and life annuities” but omits mention of the “general income tax”, persons in this latter category would run the risk of having to pay the general income tax on the compensation received from their Government.
While from the tone of the Ministry’s note it might be hoped that every effort would be made towards the exercise of leniency in the imposition of the general income tax, it would nevertheless technically apply to American officials here such as officers at the Ecole de Guerre, and those serving with the Battle Monuments Commission or the Public Health Service.
In view of this unsatisfactory situation, the Embassy took up the matter verbally with the Foreign Office which promised to endeavour to get the Ministry of Finance to include in the exemption from all income tax on compensation that received by all American Government employees in France.
The Foreign Office requested that pending a reply from the Ministry of Finance the above-mentioned note not be sent to Washington. For this reason it was not sent. However, in view of the present situation a copy and translation of this note are transmitted herewith.53
Under date of August 1, 1936, the Foreign Office addressed a note to the Embassy confirming its note of December 31, 1935, and pointing out that the Protocol of Signature to the Franco-American Double Taxation Convention lists certain definite taxes which are covered by Articles 7, 8 and 9 of the Convention, which list does not include the general income tax.
The Foreign Office likewise points out that during the course of the negotiations of the Double Taxation Convention the American [Page 114] Delegation did not feel enabled to accept the proposals made by the French Government relative on the one hand to the American surtax and, on the other hand, to the French general income tax.54
The note goes on to state that if the Government of the United States attaches importance to having its functionaries serving in France exempted from the general income tax on their remuneration the question could be adjusted by joint accord between the two Governments, to be negotiated in connection with the negotiations which the French Government proposed in its note of October 12, 1935, concerning an addendum to the Franco-American Double Taxation Convention (see Embassy’s despatch No. 2238 of October 14, 1935).55 The French Government would not refuse to extend the exemption cited in Article 7 of the Convention to the general income tax if on its part the American Government would agree to give satisfaction to the French claims in the matter of the American surtax.
On the basis of reciprocity the French administration is prepared to suspend application of the general income tax to the remunerations referred to in Article 7. Instructions are being given in this sense insofar as it concerns American functionaries designated on the list sent by the Embassy to the Foreign Office in December 1935.
This list includes American employees of the Embassy, the Agricultural Attaché, the office of the Building Superintendent, the office of the Commercial Attaché, the District Accounting and Disbursing Office, the office of the Military Attaché, the office of the Naval Attaché, the National Advisory Committee for Aeronautics, the Public Health Service and the office of the Treasury Attaché.
In summing up it may be stated that the French Government in its note of December 31, 1935, said that American diplomatic and Consular agents in France, as well as American employees in the Embassy and Consulates are exempted from all income tax on the compensation which they receive from their Government. With regard to Americans on official mission in France, not included in the above categories, the French Government states that they are not exempt from the general income tax but that under Article 7 of the Franco-American Double Taxation Convention they are exempted from the tax on wages and salaries. In the note of August 1, 1936, the French Government confirms its note of December 31, 1935, but stresses the point that the exemption from general income tax on compensation received by employees in France of the American Government is not covered by Article 7 of the Franco-American Double Taxation Convention. It [Page 115] also does not specifically state that all American diplomatic and Consular officers and American employees of the Embassy and Consulates are exempt from all taxes on their compensation. It proposes that the question of the exemption from the general income tax be included in the negotiations which it proposed in its note of October 12, 1935, and which, in accordance with the Department’s instruction No. 1142 of December 19, 1935,56 the Embassy informed the Foreign Office the Department was not ready to take up at that time. However, it states that, on the basis of reciprocity, it is offering that exemption to the persons on the list mentioned above. Thus, practically speaking, at least for the moment, all American officials on duty in France, with the exception of any officers of the Army or Navy who are here as language students or at one of the Staff schools, are actually exempt from all taxes, including the general income tax, on their salaries.
The Foreign Office requests to be informed whether the Department is disposed to consider the French proposal of October 12, 1935, with regard to an addendum to the Franco-American Double Taxation Convention and also if it will accept the inclusion in the addendum of a clause relative to the extension of the provisions of Article 7 of the Convention so as to include the general income tax.
Respectfully yours,
- Not printed.↩
- Not printed.↩
- See enclosures 1 (pt. I) and 3 with despatch No. 934, October 15, 1930, from the Ambassador in France, Foreign Relations, 1930, vol. iii, pp. 41, 45, 51.↩
- Ibid., 1935, vol. ii, p. 251.↩
- Foreign Relations, 1935, vol. ii, p. 253.↩