# US taxes on French "tax-free" accounts (Livret A, PEA, Assurance-vie...)



## namo

Hello,

I'm a dual citizen of the US and France and resident of France for the foreseeable future, and I'm wondering where I should start to put the money I save.
In France, there exist some accounts that have provisions to avoid French tax : Livret A for cash, PEA for stocks, PEL, Assurance-vie...

If I open one of those accounts, do I have to declare all the interests on my US tax return every year? Or only when I withdraw money from it (PEA/PEL/Assurance-vie are meant to be open for 5 to 8 years without withdrawal)?

When it comes to dividends, do I pay US taxes on dividends from French stocks? From US stocks (there's at least a 15% tax that I'm aware of)? From other (e.g. Canadian) stocks?
I've read about "qualified dividends", but I'm not sure how to apply that in my situation: it seems US dividends will be qualified, hence subject to a 15% tax only; but I'm not sure about dividends from other sources.

Overall, from my reading of various sources (including the tax treaty), it seems the US doesn't care that these are supposed to be tax-free, and taxes them anyway.

If it matters, my marginal rate is 30% in France and would be 25% in the US. I'm using the Foreign Income Exclusion, so I owe 0$ in taxes to the US. If I invest in a French account, I would at some point fo over the 1500$ threshold for interests/dividends taxability.

Thanks!


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## Nononymous

Should you wish to tell the US to ****** off, it appears that the French tax-free accounts are not subject to FATCA, so will not be reported to the IRS.


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## BBCWatcher

Many things that are U.S. taxable are not (or may not be, at a particular moment in time) subject to data sharing.

....OK, the basic principle is that unless the U.S.-France tax treaty says otherwise, any/all accounts in France are treated exactly the same as any other foreign accounts from the point of view of U.S. personal income tax. There are a number of potential complications with foreign accounts depending on what you invest in, so you ought to tread carefully. There are what are known as PFIC complications, for example.

I recall Bev mentioning that the IRS office in Paris has published helpful information that specifically addresses typical U.S. tax filer scenarios in France, so I would seek out that information.

Don't forget that the U.S. also offers tax-advantaged retirement savings accounts, notably the Roth IRA. If any of those accounts are treaty-protected in France, or at least if you plan to return from France in the future, the U.S. accounts should probably be your first choice. You can also contribute to a Roth IRA on behalf of a non-working spouse if you wish. In order to contribute to an IRA you must have earned income that is outside the Foreign Earned Income Exclusion and Foreign Housing Exclusion. That is, you either must have significant earnings (above the FEIE/FHE), or you must not take the FEIE/FHE and instead take the Foreign Tax Credit (FTC). You've mentioned that your effective tax rate in France is higher than your effective U.S. tax rate. If that is actually correct, then it seems you're better off taking the Foreign Tax Credit anyway and then, as it happens, you would qualify for making U.S. IRA contributions.

You have quite a while to decide whether U.S. IRA contributions are right for you (and your spouse, if applicable) since the deadline for 2014 IRA contributions is April 15, 2015. I wouldn't wait until the last minute, but you've got some time as I write this.

In the event you decide French accounts are not for you, and in the event you want to save more than the IRA limits, then I would investigate U.S. financial institutions that have outposts in France and that let you invest in U.S. financial markets. Here in Singapore we have at least two such U.S. firms: E*Trade and Charles Schwab (OptionsXpress). Your mileage will vary, I'm sure.

Please note also that U.S. investments, notably U.S. municipal bonds, might be attractive from a U.S. tax point of view but not necessarily from a French point of view. Consider both in your planning. Also, if your employer (or somebody else) is offering some type of matching funds, it's probably a very smart idea to accept as much free money as you can even if you have to pay some tax on it. Taxes certainly aren't the only consideration.

Finally, note that employer-provided life insurance with a death benefit in excess of $50,000 is considered U.S. taxable compensation (for the portion of the premium value providing the death benefit above that limit). That may or may not matter, but I thought I'd mention it. In the event you don't need the life insurance there's an easy solution: write a letter to your employer asking that the amount of the death benefit in excess of $50,000 be paid to an IRS-designed 501(c)3 charity of your choice: U.S. UNICEF, American Red Cross, American Cancer Society, Doctors without Borders (U.S.), Save the Children (U.S.), or whatever.


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## Bevdeforges

For a long time it has been assumed that you have to declare the interest on all those "tax free" accounts to the IRS. However, with the advent of FATCA and all the bilateral agreements on its enforcement, the issue has been pretty much thrown wide open again. The US-France bilateral agreement on FATCA reporting specifically excludes the banks' obligation for reporting on a whole range of French tax-free accounts. Why these would be specifically excluded from reporting if the IRS was seriously interested in taxing them is anyone's guess, but it's an interesting bit of trivia to do with as you please.

On dividends, you normally have to rely on the various tax treaty provisions. For the US, it usually means that you use the Foreign Tax Credit to reduce any potential dual taxation.

Think through the option to open US tax-free accounts, as there is also an obligation to report foreign bank accounts and "assurance vie" contracts as part of the French income tax forms. Plus, there is some possible exemption in French tax law for retirement accounts funded when you were not subject to French tax law (i.e. when you were living and working in the US), but that would not apply to something opened up while tax resident in France. So you could be setting yourself up for a form of de facto double taxation by getting too tricky with the cross border stuff. 

Oh, and there's no $1500 threshold for interest - other than at that point you must itemize your interest receipts on Schedule B. (I usually do this anyhow, even though my interest receipts fall far short of the requirement - you have to send in Schedule B anyhow, in order to check the boxes at the bottom of the page. Might as well use it for something useful.) If all your income is from salary (earned income) plus interest and dividends, you don't wind up paying any tax until your "unearned" income reaches about $10,000 (for MFS), thanks to the personal exemption and the standard deduction. 
Cheers,
Bev


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## BBCWatcher

Bevdeforges said:


> If all your income is from salary (earned income) plus interest and dividends, you don't wind up paying any tax until your "unearned" income reaches about $10,000 (for MFS), thanks to the personal exemption and the standard deduction.


There are those fortunate individuals who live/work in comparatively low tax jurisdictions -- probably not France -- who earn above the Foreign Earned Income Exclusion/Foreign Housing Exclusion. In that case the earnings above the FEIE/FHE would also count as part of that ~$10K personal exemption/standard deduction. Some individuals can itemize deductions and do better than the standard deduction, though. And some households opt for Married Filing Jointly.

By the way, I wouldn't feel _too_ comfortable about not reporting accounts that are not subject to data sharing, and I certainly wouldn't read too much into that supposed data gap. For one thing, nobody gets penalized for over-reporting -- certainly the U.S. won't penalize any financial institution that over-reports -- and financial institutions are likely to take the easy way out. In other words, the minimum requirement is not necessarily what actually gets shared. I can _easily_ imagine the U.S. Treasury getting more than the agreement requires, even accidentally. There's nothing in these agreements (or anywhere else) that prevents Treasury/IRS from using over-reported data.

Also, don't you think the IRS and/or Treasury could take a "reasonable guess" that if you have one account that turned up in data sharing that you might have other accounts not subject to data sharing? In other words, if you have _any_ accounts in France (or Canada, or wherever) that get shared, it'd be "surprising" if you didn't also have one or more of the popular/common local tax-advantaged accounts.

That's the thing with data sharing. _Any_ data sharing starts to paint a picture, and one can often draw some reasonable conclusions (or at least form reasonable hypotheses) based on partial data.

Finally, there's nothing preventing revision (enhancement) of the agreements. Indeed, I'd be expecting that. Usually data sharing expands in scope over time. And if you've got funds more or less stuck in a controlled tax-advantaged account, it's likely you'd get caught if (or when) the data sharing expands in the future. These are generally not funds that can move quickly.


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## Bevdeforges

How much the IRS is or isn't interested in is a function of the "facts and circumstances" of each particular case. No one is telling anyone not to report particular accounts here. But it does help to evaluate your situation to know what information is and isn't being shared. (Just as a side note, in France the banks report to the Banque de France - and what is or isn't shared with the IRS is up to them, not the individual banks.)

Assurance vie is a particularly tricky one for folks resident in France, because it's "tax advantaged" but not usually tax free (other than contracts entered into before something like 1992 or so). Ultimately, the taxes paid on assurance vie distributions may result in less French tax paid than what the IRS will want (using the US rules for taxation of this type of investment), so you wind up with a sort of "double taxation." Though again, it depends on your financial situation at the time that you take the distribution. At a certain point, you run up against the limits of "tax planning." 
Cheers,
Bev


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## BBCWatcher

Do you imagine the Banque de France will carefully, painstakingly review every record they transmit to the U.S. Treasury in every report? Let's just say I would bet heavily on that.

It's really not realistic to assume the U.S. Treasury Department doesn't know how to data mine while the Banque de France knows how to cleanse data flawlessly. It's far more realistic to assume both organizations have broadly similar levels of competency in handling and processing large quantities of data. That is, I would not assume French (or Canadian, or American) perfection. Moreover, there's nothing in these agreements that prevents the Banque de France from over-reporting. It's at least plausible they'll just hand over what the banks give them after rather cursory checks. If the banks hand over more than they need to, so be it. Everything is biased in favor of over-reporting.

Anyway, the point is I would not bet heavily on secrecy here, for a variety of reasons. If you want better (still not perfect!) assurance that your failure to report accounts will go undetected -- not recommending failing to report! -- then the better advice is not to keep funds in countries with data sharing and, better yet, not in accounts that can be easily traced to you. This is getting more difficult.

Yes, agreed, the IRS and Treasury will be opportunistic in how they use this new data. Though keep in mind letters and questions are cheap.


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## namo

Thank you for your help.

I'll read up on PFIC complications at some point; a quick Google search seems to indicate the topic is indeed complex.

I'm more French than American, by the way (an accidental American, it seems that it's called?), so at some point during this journey of tax discovery :yield: I did realize I should investigate the American side: the Roth IRA did come up as a possibility. I'm not very knwoledgeable about them right now, and from what Bev said, it might not be worth my time.

The French+American dual citizenship is tricky when it comes to taxation, because while overall the French taxes are very high, only some of them can be taken as tax credit, so my findings are that I can't avoid taxation - even if I try to use (constrained) vehicles designed specifically for that! The only saving grace is the 10k$ deduction that Bev mentioned, but I'll probably go over it at some point... Yes, I'll be well off by that time, but I'll also get double-taxed!
I've actually read a few articles about expatriation yesterday: I suspect it might come up in the future.

I did see the rules about sharing (e.g. no reporting mandated for assurance-vie accounts below 250k), but I won't count on them.

As for taking FEIE vs FTC, I've made a little Excel file for myself that takes care of the calculations, so I'll know whether to pick either or both.


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## Bevdeforges

Then again, as an "accidental" American, you're well below the radar to even start with. If you have a non-US place of birth and don't have a US social security number, the chances of the IRS even noticing your existence is pretty slim - unless you've already made use of your US citizenship to open accounts in the US or something similar.
Cheers,
Bev


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