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CCH® UNEMPLOYMENT INSURANCE — 10/20/16

Taxes paid to couple working in France were creditable under Social Security Act

The Court of Appeals for the District of Columbia Circuit ruled that the Tax Court incorrectly determined that taxes paid to the French government by a married couple who worked in France were not creditable under Section 317(b)(4) of the Social Security Act. The lower court had held that the taxes, Contribution SocialeGeneralisee (CSG) and Contribution pour le Remboursement de la DetteSociale (CRDS), were paid in accordance with the terms of a totalization agreement between France and the United States and so were neither creditable nor deductible. According to the court, the CSG and CRDS both amended and supplemented specified laws making up the French Social Security system under the plain meaning of the terms. Thus, the taxes were covered by the totalization agreement.

However, the Tax Court reached the conclusion that the CSG and CRDS "amend or supplement" the designated French laws without looking to the text of the totalization agreement or the signatory countries' shared understanding; the Tax Court only looked at what "amends" or "supplements" means in domestic dictionaries, as it might do if construing a purely domestic statute. Yet, the totalization agreement is not a domestic statute. It is an executive agreement with a foreign country, initiated by the State Department, negotiated by the Social Security Administration, signed by the president and a foreign government, and approved by Congress. Thus, it must be interpreted under the same principles as international treaties.

The appellate court found that whether the CSG and CRDS "amend or supplement" the enumerated French laws was fundamentally an inquiry into the content and meaning of the French laws referred to in Article 2(b) of the totalization agreement. For that reason, when determining the meaning of "amend or supplement," the French laws should have been consulted. Further, the plain text of the totalization agreement foreclosed the definition the Tax Court applied because it looked not to the laws specified in Article 2(3), but the French Social Security system as a whole. Moreover, the question of whether the CSG or CRDS amend or supplement the French laws turned on the shared expectations of both governments, which are grounded in the provisions of the agreement. Finally, the IRS failed to provide any evidence of how the U.S. or French governments interpreted the agreement. Neither the IRS nor its witnesses asserted any authority to speak for the State Department or the U.S. government as a party to the agreement. Accordingly, the judgment of the Tax Court was reversed and the case was remanded for further proceedings (Eshel, CA-DC, No. 14-1215, August 5, 2016).