Ory Eshel & Linda Coryell Eshel v. Commissioner , 142 T.C. 197 ( 2014 )

ORY ESHEL AND LINDA CORYELL ESHEL, PETITIONERS
v. COMMISSIONER OF INTERNAL REVENUE,
RESPONDENT
Docket No. 8055–12. Filed April 2, 2014.
In 1987, the United States and France entered into a Total-
ization Agreement to coordinate benefits under their respec-
tive social security systems. Section 317(b)(4) of the Social
Security Amendments of 1977 (SSA), Pub. L. No. 95–216, 91
Stat. at 1540, provides that, notwithstanding any other provi-
sion of law, taxes paid by an individual to a foreign country
‘‘in accordance with the terms of ’’ a totalization agreement
shall not be creditable or deductible for Federal income tax
purposes. In 2008 and 2009 Ps paid two taxes to the French
Government—la contribution sociale ge´ne´ralise´e (CSG) and la
contribution pour le remboursement de la dette sociale
(CRDS)—and claimed credits for these payments under I.R.C.
sec. 901. R disallowed the claimed credits in reliance on SSA
section 317(b)(4), contending that Ps paid CSG and CRDS to
France in accordance with the terms of the U.S.-France Total-
ization Agreement.
1. Held: Taxes are paid to a foreign country ‘‘in accordance
with the terms of ’’ a totalization agreement if those taxes are
covered by, or within the scope of, the totalization agreement.
2. Held, further, CSG and CRDS are covered by, or within
the scope of, the U.S.-France Totalization Agreement because
they ‘‘amend or supplement’’ the French social security laws
enumerated in that Agreement.
3. Held, further, SSA section 317(b)(4) precludes Ps’ foreign
tax credits for CSG and CRDS paid to France in 2008 and
2009.
197
VerDate Mar 15 2010 08:48 Jun 02, 2015 Jkt 000000 PO 00000 Frm 00001 Fmt 3857 Sfmt 3857 V:\FILES\BOUNDV~1.WIT\BV864A~1.142\ESHEL JAMIE
198 142 UNITED STATES TAX COURT REPORTS (197)
Stuart Evan Horwich, for petitioners.
Scott A. Hovey, for respondent.
OPINION
LAUBER, Judge: Respondent determined income tax defi-
ciencies of $12,104 and $47,401 for petitioners’ 2008 and
2009 tax years, respectively, and petitioners timely sought
redetermination under section 6213. 1 The deficiencies stem
from disallowance of foreign tax credits that petitioners
claimed for payment of certain French taxes. The sole
remaining issue for decision is whether two of these taxes—
la contribution sociale ge´ne´ralise´e (general social contribution
or CSG) and la contribution pour le remboursement de la
dette sociale (contribution for the repayment of social debt or
CRDS)—are creditable taxes for Federal income tax pur-
poses. The parties have filed cross-motions for summary
judgment on this question.
The parties agree that CSG and CRDS satisfy the usual
standards for creditability under section 901. The question
we must answer is whether section 317(b)(4) of the Social
Security Amendments of 1977 (SSA), Pub. L. No. 95–216, 91
Stat. at 1540, nevertheless precludes credits for these taxes.
This depends on whether CSG and CRDS ‘‘amend or supple-
ment’’ specified laws making up the French social security
system, in which case they are covered by the social security
totalization agreement between the United States and
France. We answer these questions in the affirmative and
accordingly hold that CSG and CRDS are not creditable for-
eign taxes for Federal income tax purposes. We will therefore
grant respondent’s motion for summary judgment and deny
petitioners’ motion.
Background
Ory and Linda Coryell Eshel, husband and wife, are dual
citizens of the United States and France. They resided in
France during 2008 and 2009. Ory Eshel worked for a non-
American employer that paid him a salary for services per-
1 Unless
otherwise indicated, all statutory references are to the Internal
Revenue Code (Code) in effect for the tax years in issue, and all Rule ref-
erences are to the Tax Court Rules of Practice and Procedure. We round
all monetary amounts to the nearest dollar.
VerDate Mar 15 2010 08:48 Jun 02, 2015 Jkt 000000 PO 00000 Frm 00002 Fmt 3857 Sfmt 3857 V:\FILES\BOUNDV~1.WIT\BV864A~1.142\ESHEL JAMIE
(197) ESHEL v. COMMISSIONER 199
formed in France. Petitioners paid various taxes to France,
including the French income tax, unemployment tax, CSG,
and CRDS. During 2008–09 petitioners also paid French
social security taxes and participated in the French social
security system. Because Ory Eshel worked for a non-Amer-
ican employer, he was not required to pay social security
taxes to the United States. See secs. 3101(a), 3111(a),
3121(b). Petitioners did not otherwise participate in the U.S.
social security system during 2008–09.
By virtue of being U.S. citizens, petitioners were liable for
U.S. income tax for 2008 and 2009, and they timely filed
Federal income tax returns for both years. On these returns
petitioners claimed credits under section 901 for the French
income tax, French unemployment tax, CSG, and CRDS paid
during each year. For 2008 petitioners paid $19,061 on
account of CSG and CRDS; for 2009 they paid $32,672 on
account of CSG and CRDS.
Respondent issued petitioners a notice of deficiency
denying the entire foreign tax credit they had claimed for
each year. Petitioners timely petitioned this Court for
redetermination of the resulting deficiencies. Respondent has
since conceded that all French taxes for which petitioners
claimed credits, apart from CSG and CRDS, are creditable.
The parties filed cross-motions for summary judgment on the
sole issue left for decision, namely, whether CSG and CRDS
are creditable foreign taxes for Federal income tax purposes.
Discussion
I. Summary Judgment Standard
The purpose of summary judgment is to expedite litigation
and avoid unnecessary and expensive trials. See FPL Grp.,
Inc. & Subs. v. Commissioner, 116 T.C. 73, 74 (2001). We
may grant summary judgment when there is no genuine dis-
pute of material fact and a decision may be rendered as a
matter of law. Rule 121(b); Elec. Arts, Inc. v. Commissioner,
118 T.C. 226, 238 (2002). The moving party bears the burden
of proving that there is no genuine dispute as to any mate-
rial fact, and the Court views all factual materials and
inferences in the light most favorable to the nonmoving
party. Dahlstrom v. Commissioner, 85 T.C. 812, 821 (1985).
VerDate Mar 15 2010 08:48 Jun 02, 2015 Jkt 000000 PO 00000 Frm 00003 Fmt 3857 Sfmt 3857 V:\FILES\BOUNDV~1.WIT\BV864A~1.142\ESHEL JAMIE
200 142 UNITED STATES TAX COURT REPORTS (197)
The parties agree on all questions of basic fact and have
expressed that consensus by filing cross-motions for sum-
mary judgment. The parties disagree on one point that may
be relevant in interpreting the international agreement at
issue—namely, how the French Government, at various
times, has characterized CSG and CRDS for purposes of EU
law and internal French law. See infra pp. 221–225. We con-
clude that this disagreement does not give rise to a material
factual dispute that would prevent the Court from deciding
this case on summary judgment.
Under Rule 146, this Court’s determination of foreign law
‘‘shall be treated as a ruling on a question of law.’’ 2 As a
result, disputes about the proper interpretation or character-
ization of a foreign law are not disputes of material fact that
preclude summary judgment. See Reese v. Commissioner, 64
T.C. 395, 397 (1975); Access Telecom, Inc. v. MCI Telecomm.
Corp., 197 F.3d 694, 713 (5th Cir. 1999) (‘‘[D]ifferences of
opinion among experts on the content, applicability, or
interpretation of foreign law do not create a genuine issue as
to any material fact[.]’’). Under Rule 146 the Court ‘‘may con-
sider any relevant material or source’’ in determining a prin-
ciple of foreign law, but expert testimony or affidavits,
accompanied by extracts from foreign legal materials, ‘‘ha[ve]
been and will likely continue to be the basic mode of proving
foreign law.’’ Universe Sales Co. v. Silver Castle, Ltd., 182
F.3d 1036, 1038 (9th Cir. 1999) (citing 9 Charles Alan Wright
& Arthur R. Miller, Federal Practice and Procedure: Civil,
sec. 2444 (2d ed. 1995)).
While the parties’ experts disagree on how the French
Government over time has characterized CSG and CRDS,
this is a difference of opinion among experts on the content,
applicability, and interpretation of foreign law. This dif-
ference of opinion may have some bearing on our evaluation
of these taxes under the international agreement involved
here. However, it does not constitute a genuine dispute of
material fact that prevents the Court from deciding the issue
summarily.
2 Rule 146 is taken almost verbatim from Fed. R. Civ. P. 44.1. See Note
to Rule 146, 60 T.C. 1137. The rules are functionally identical. See Abdel-
Fattah v. Commissioner, 134 T.C. 190, 194–195 (2010); PNC Fin. Servs.
Grp., Inc. v. Commissioner, 503 F.3d 119, 126 (D.C. Cir. 2007), aff ’g T.C.
Memo. 2004–10.
VerDate Mar 15 2010 08:48 Jun 02, 2015 Jkt 000000 PO 00000 Frm 00004 Fmt 3857 Sfmt 3857 V:\FILES\BOUNDV~1.WIT\BV864A~1.142\ESHEL JAMIE
(197) ESHEL v. COMMISSIONER 201
II. Governing Statutory Framework
Subject to certain limitations, a U.S. citizen or resident
may elect to take a foreign tax credit against his U.S. income
tax liability for income taxes paid or accrued to a foreign
country or a U.S. possession. Sec. 901(a). This credit miti-
gates the effect of double taxation where, as here, France and
the United States both seek to tax the same income. A for-
eign levy that is imposed on net gain is generally a creditable
income tax. See sec. 1.901–2(b), Income Tax Regs. The
Internal Revenue Service (IRS) has recognized that foreign
social security taxes imposed on net income may qualify as
creditable taxes under section 901. See, e.g., Rev. Rul. 69–
338, 1969–1 C.B. 194 (Venezuelan social security tax pay-
ments creditable); Rev. Rul. 68–411, 1968–2 C.B. 306(Canadian social security tax payments creditable). Absent
any other limitation, therefore, social security taxes paid to
France generally would be creditable under section 901.
If a U.S. citizen divides his working career among multiple
countries, he may pay social security taxes to various
nations, in various amounts, during various periods of social
security coverage. Before 1977 there was no authority in the
Social Security Act for the United States to enter into agree-
ments with other countries to provide for coordination
between their social security systems. This lack of coordina-
tion posed two potential problems. First, the wages of a U.S.
citizen employed by a U.S. company abroad might be subject
to duplicative social security taxes in both nations. Second,
U.S. citizens who divided their working careers among mul-
tiple countries might suffer a loss of continuity in their social
security coverage. Under the U.S. and many foreign systems,
entitlement to social security benefits depends on a person’s
period of coverage, that is, the number of years during which
he or she has worked and ‘‘paid into the system.’’ A U.S. cit-
izen might work in numerous countries and pay into
numerous social security systems, yet not accrue a sufficient
period of coverage under any one system to qualify for bene-
fits when he retires, becomes disabled, or dies. Alternatively,
a U.S. citizen might qualify only for reduced benefits based
on a period of coverage considerably shorter than his entire
working career. See generally H.R. Rept. No. 95–702 (Part 1),
at 39 (1977), 1977 U.S.C.C.A.N. 4155, 4196.
VerDate Mar 15 2010 08:48 Jun 02, 2015 Jkt 000000 PO 00000 Frm 00005 Fmt 3857 Sfmt 3857 V:\FILES\BOUNDV~1.WIT\BV864A~1.142\ESHEL JAMIE
202 142 UNITED STATES TAX COURT REPORTS (197)
To address these problems, Congress amended the Social
Security Act in 1977 to authorize the President to enter into
social security totalization agreements with foreign countries.
SSA sec. 317(a), 91 Stat. at 1538. This authorization is now
codified in section 233 of the Social Security Act, 42 U.S.C.
sec. 433(a) (2006). It provides in relevant part:
The President is authorized * * * to enter into * * * arrangements
between the social security system established by this subchapter and
the social security system of any foreign country, for the purposes of
establishing entitlement to and the amount of old age, survivors, dis-
ability, or derivative benefits based on a combination of an individual’s
periods of coverage under the social security system established by this
subchapter and the social security system of such foreign country.
Under a totalization agreement, a particular period of
employment or self-employment results in a ‘‘period of cov-
erage’’ under the U.S. social security system or the foreign
social security system, but not both. See 42 U.S.C. sec.
433(c)(1)(B). A ‘‘period of coverage’’ is defined as ‘‘a period of
payment of contributions or a period of earnings based on
wages for employment or on self-employment income.’’ Id.
sec. 433(b)(2). A taxpayer pays social security taxes only to
the country under whose social security system he is covered
for that year. By accruing periods of coverage in each coun-
try’s system, the taxpayer will eventually be entitled to
receive benefits ratably from each.
Pursuant to 42 U.S.C. sec. 433(a), the United States and
France in 1987 executed a totalization agreement. Agreement
on Social Security, U.S.-Fr., Mar. 2, 1987, T.I.A.S. No. 12,106
(Totalization Agreement). This Agreement entered into force
July 1, 1988, and was thus in effect during the tax years at
issue. It implements provisions designed to achieve both of
the objectives that Congress expressed when enacting this
scheme.
The first policy concern is addressed in articles 5 and 7,
which provide that the United States and France will impose
social security taxes on an individual only if he or she is cur-
rently employed within that state. This eliminates the possi-
bility of double taxation. The second policy concern is
addressed in articles 11, 12, and 13, which coordinate bene-
fits between the United States and France. Article 11 pro-
vides that neither country shall ‘‘restrict[ ], suspend[ ] or
terminate[ ] entitlement to or payment of cash benefits solely
VerDate Mar 15 2010 08:48 Jun 02, 2015 Jkt 000000 PO 00000 Frm 00006 Fmt 3857 Sfmt 3857 V:\FILES\BOUNDV~1.WIT\BV864A~1.142\ESHEL JAMIE
(197) ESHEL v. COMMISSIONER 203
because the person resides outside or is absent from’’ that
state, so long as the person resides in the other state. Arti-
cles 12 and 13 implement the coordination of benefits by
guaranteeing ratable entitlement to social security benefits
based on the individual’s respective periods of coverage in
each country. 3
When Congress amended the Social Security Act to
authorize the President to enter into totalization agreements,
it made correlative amendments to the Internal Revenue
Code. It amended Code sections 1401, 3101, and 3111 to
exempt an individual’s wages or self-employment income
from U.S. social security taxes if there is a totalization agree-
ment in effect with a foreign country and, under that agree-
ment, such wages or self-employment income are subject to
social security tax in that other country. SSA sec. 317(b)(1)–
(3), 91 Stat. at 1539. In SSA section 317(b)(4), Congress
added the provision at issue here, as follows:
Notwithstanding any other provision of law, taxes paid by any individual
to any foreign country with respect to any period of employment or self-
employment which is covered under the social security system of such
foreign country in accordance with the terms of an agreement entered
into pursuant to section 233 of the Social Security Act shall not, under
the income tax laws of the United States, be deductible by, or creditable
against the income tax of, any such individual.
3 For example, assume that a French citizen spends 7 years (28 calendar
quarters) working in the United States and 20 years (80 calendar quar-
ters) working in France. Absent the Totalization Agreement, this person
would not be eligible for U.S. old-age benefits at all, despite paying U.S.
social security taxes for 7 years, because 10 years of covered employment
are generally required for eligibility. 42 U.S.C. sec. 414 (2006). Under the
Totalization Agreement, the United States would take into consideration
the total number of years that this person worked in the United States
and France; compute the old-age benefit for a worker with 27 years of U.S.
coverage; and pay the individual a ‘‘totalized’’ old-age benefit equal to 7/
27 of a 27-year benefit. France would also totalize benefits by paying the
individual 20/27 of a 27-year benefit computed under its system. This to-
talization would ensure that the individual receives an old-age benefit re-
flecting all 27 years of his working career (7/27 of U.S. benefit and 20/27
of French benefit). See Georgiou v. Apfel, 50 F. Supp. 2d 913, 917 (E.D.
Mo. 1999).
VerDate Mar 15 2010 08:48 Jun 02, 2015 Jkt 000000 PO 00000 Frm 00007 Fmt 3857 Sfmt 3857 V:\FILES\BOUNDV~1.WIT\BV864A~1.142\ESHEL JAMIE
204 142 UNITED STATES TAX COURT REPORTS (197)
This statutory provision currently appears at 26 U.S.C. sec.
1401 note. 4
This provision has the effect of preserving parity between
taxpayers who spend their entire careers working in the
United States and those who spend part of their careers
working abroad. No credit or deduction can be claimed
against Federal taxable income for U.S. social security taxes.
In order to prevent disparity of treatment, SSA section
317(b)(4) bars a credit or deduction for foreign taxes paid for
a period that will be ‘‘counted’’ in determining the taxpayer’s
social security benefits under a totalization agreement.
While disagreeing about the proper interpretation of this
statute, the parties agree about its syntactic structure. The
clause beginning ‘‘which is covered’’ must modify ‘‘period of
employment or self-employment,’’ because ‘‘which is’’ cannot
modify the plural word ‘‘taxes.’’ Further, the phrase ‘‘in
accordance with the terms of * * * [a totalization] agree-
ment’’ must modify ‘‘taxes paid’’ at the beginning of the sen-
tence, even though such a phrase would generally be deemed
to modify the closest noun. That must be so because if ‘‘taxes
paid’’ were not modified in this way, SSA section 317(b)(4)
would bar a credit or deduction for all taxes paid to a foreign
country—including ordinary income taxes—for a period in
which a U.S. citizen was covered by a foreign social security
system. The parties agree, and the Court concurs, that Con-
gress did not intend to bar a credit for ordinary income taxes.
In this case, petitioners paid CSG and CRDS to France
with respect to a period of employment (2008–09) that was
covered under the French social security system. The focus
of the parties’ interpretative dispute is whether petitioners
paid these taxes ‘‘in accordance with’’ the terms of the Total-
4 The
fact that Congress did not codify this provision in the United
States Code has no impact on its authoritativeness or legal force. The best
evidence of the laws of the United States is not the United States Code,
but the Statutes at Large. Compare 1 U.S.C. sec. 112 (‘‘[t]he United States
Statutes at Large shall be legal evidence of laws’’) with 1 U.S.C. sec. 204(a)
(the United States Code is ‘‘prima facie’’ evidence of the laws of the United
States). See, e.g., U.S. Nat’l Bank of Or. v. Indep. Ins. Agents of Am., Inc.,
508 U.S. 439, 448 (1993) (‘‘Though the appearance of a provision in the
current edition of the United States Code is ‘prima facie’ evidence that the
provision has the force of law, it is the Statutes at Large that provides the
‘legal evidence of laws[.]’ ’’ (quoting 1 U.S.C. sec. 112)); Smith v. Commis-
sioner, 114 T.C. 489, 491 (2000), aff ’d, 275 F.3d 912 (10th Cir. 2001).
VerDate Mar 15 2010 08:48 Jun 02, 2015 Jkt 000000 PO 00000 Frm 00008 Fmt 3857 Sfmt 3857 V:\FILES\BOUNDV~1.WIT\BV864A~1.142\ESHEL JAMIE
(197) ESHEL v. COMMISSIONER 205
ization Agreement. If so, SSA section 317(b)(4) denies a
credit for these taxes ‘‘[n]otwithstanding any other provision
of law.’’ It is to that question that we now turn.
III. ‘‘In Accordance With’’ the Terms of a Totalization Agree-
ment
When construing a statute, a court’s ‘‘analysis begins ‘with
the language of the statute’ ’’ and, ‘‘where the statutory lan-
guage provides a clear answer, it ends there as well.’’ Hughes
Aircraft Co. v. Jacobson, 525 U.S. 432, 438 (1999) (quoting
Estate of Cowart v. Nicklos Drilling Co., 505 U.S. 469, 475
(1992)). In Erlich v. United States, 104 Fed. Cl. 12 (2012), the
U.S. Court of Federal Claims issued what appears to be the
only judicial opinion that has addressed the interpretation of
SSA section 317(b)(4). The court in Erlich concluded that the
phrase ‘‘in accordance with’’ as used in that section has a
readily discernible plain meaning. We agree with that conclu-
sion.
In Erlich, the question was whether a U.S. citizen could
claim a foreign tax credit for taxes paid to France, including
CSG and CRDS. The taxpayer participated in the French
social security system during the relevant years, and the
Government argued, as it does here, that SSA section
317(b)(4) precluded a credit. The court determined that ‘‘in
accordance with’’ means ‘‘in agreement with’’ or ‘‘in con-
formity with,’’ finding ‘‘no reason to believe that in Section
317(b)(4) Congress used the phrase’’ to imply anything other
than its plain meaning. Erlich, 104 Fed. Cl. at 16. The court
ruled that taxes are paid ‘‘in accordance with’’ the terms of
a totalization agreement when ‘‘this payment is consistent
with the obligation of the taxpayer under the agreement.’’ Id.
at 17.
Generally speaking, international agreements impose
obligations on contracting states, not on taxpayers or citi-
zens. But we agree that the court’s interpretation of ‘‘in
accordance with’’ in Erlich makes perfect sense in the context
of SSA section 317(b)(4). Where a totalization agreement is
in effect, a U.S. citizen participates during a given year in
only one country’s social security system, namely, the system
of the country in which he is employed. For that year, his
‘‘obligation’’ is to pay exclusively to that country whatever
VerDate Mar 15 2010 08:48 Jun 02, 2015 Jkt 000000 PO 00000 Frm 00009 Fmt 3857 Sfmt 3857 V:\FILES\BOUNDV~1.WIT\BV864A~1.142\ESHEL JAMIE
206 142 UNITED STATES TAX COURT REPORTS (197)
taxes are covered by the agreement. Thus, if particular for-
eign taxes are covered by, or within the scope of, a total-
ization agreement, the payment of those taxes to the foreign
country is ‘‘consistent with the obligation of the taxpayer
under the agreement,’’ Erlich, 104 Fed. Cl. at 17, and the
taxes are thus paid ‘‘in accordance with’’ the agreement. 5
In Erlich, the court’s conclusion that ‘‘in accordance with’’
means ‘‘consistent with the obligation of the taxpayer under’’
a totalization agreement was sufficient to resolve the sum-
mary judgment issue. That is because the parties had
assumed, for purposes of summary judgment, that CSG and
CRDS are ‘‘social security taxes’’ covered by the Totalization
Agreement. See 104 Fed. Cl. at 13 n.1. Far from so stipu-
lating, petitioners here vigorously dispute that proposition.
The instant case thus requires us to decide a question that
Erlich had no occasion to address, namely, whether CSG and
CRDS are covered by, or within the scope of, the U.S.-France
Totalization Agreement.
A. Taxes Covered by the Totalization Agreement
When interpreting a treaty or other international agree-
ment, we begin with its text. Volkswagenwerk Aktiengesell-
schaft v. Schlunk, 486 U.S. 694, 699 (1988). A treaty is to be
interpreted in accordance with the ordinary meaning of its
terms, consistently with their context and the agreement’s
object and purpose. Sanchez-Llamas v. Oregon, 548 U.S. 331,
346 (quoting 1 Restatement (Third) of Foreign Relations Law
of the United States sec. 325(1) (1986)). Treaties are con-
tracts between sovereigns and, as such, should be construed
to give effect to the signatories’ intent. United States v.
Stuart, 489 U.S. 353, 365–366 (1989). Because treaties are
construed more liberally than private agreements, we may
ascertain their meaning by looking beyond the written words
to the history of the treaty, the parties’ negotiations, and the
practical construction they have adopted. Air France v. Saks,
470 U.S. 392, 396 (1985); see Estate of Silver v. Commis-
5 For example, the French income tax meets all the criteria under SSA
section 317(b)(4) to have a credit precluded, except that the income tax is
not covered by, or within the scope of, the Totalization Agreement. Thus,
petitioners’ payments of French income tax were not made ‘‘in accordance
with’’ the Totalization Agreement and SSA section 317(b)(4) does not bar
a credit for these tax payments.
VerDate Mar 15 2010 08:48 Jun 02, 2015 Jkt 000000 PO 00000 Frm 00010 Fmt 3857 Sfmt 3857 V:\FILES\BOUNDV~1.WIT\BV864A~1.142\ESHEL JAMIE
(197) ESHEL v. COMMISSIONER 207
sioner, 120 T.C. 430, 434 (2003); N.W. Life Assurance Co. of
Can. v. Commissioner, 107 T.C. 363, 378–379 (1996).
Article 2 of the Totalization Agreement defines the laws of
each country that are within its scope. As regards the United
States, the ‘‘applicable laws’’ for purposes of the Agreement
are specified provisions of the Social Security Act and the
Internal Revenue Code. As regards France, the ‘‘applicable
laws’’ are defined in article 2(1)(b) to include the following:
i. laws establishing the administrative organization of social security
programs;
ii. laws establishing the social insurance system for nonagricultural
employees and laws establishing the social insurance system for agricul-
tural employees;
iii. laws on prevention and compensation of occupational accidents and
illnesses; laws on nonoccupational accident insurance and insurance
against occupational accidents and illnesses for self-employed persons in
agricultural occupations;
iv. laws on family benefits;
v. laws concerning special social security systems to the extent they
relate to the risks or benefits covered by the laws enumerated in the pre-
ceding clauses, but excluding the special system for civil servants;
vi. the law on the system for seamen;
vii. laws concerning sickness and maternity insurance for non-
agricultural self-employed workers and laws concerning sickness and
maternity insurance for agricultural self-employed workers; [and]
viii. laws concerning old-age allowances and old-age insurance for non-
agricultural self-employed workers, laws concerning old-age and inva-
lidity insurance for clergymen and members of religious orders, laws
concerning old-age and invalidity insurance for attorneys, and laws con-
cerning old-age insurance for agricultural self-employed workers.
The French taxes at issue here, CSG and CRDS, were
enacted after the effective date of the Totalization Agreement
and thus are not specifically listed among the eight enumer-
ated categories of laws. However, article 2(3) further pro-
vides:
This Agreement shall also apply to legislation which amends or supple-
ments the laws specified in paragraph 1; however, it shall apply to
future legislation of a Contracting State which creates new categories of
beneficiaries only if the Competent Authority of that Contracting State
does not notify the Competent Authority of the other Contracting State
in writing within three months of the date of the official publication of
the new legislation that no such extension of the Agreement is intended.
VerDate Mar 15 2010 08:48 Jun 02, 2015 Jkt 000000 PO 00000 Frm 00011 Fmt 3857 Sfmt 3857 V:\FILES\BOUNDV~1.WIT\BV864A~1.142\ESHEL JAMIE
208 142 UNITED STATES TAX COURT REPORTS (197)
The parties agree that the text following ‘‘however’’ has no
application here because CSG and CRDS do not create any
new category of beneficiary. Thus, the question we must
answer is whether CSG and CRDS ‘‘amend or supplement’’
the specified French laws.
Article 1(10) of the Totalization Agreement, the definitional
provision, provides that ‘‘[a]ny term not defined in this
Article shall have the meaning assigned to it in the laws
which are being applied.’’ Neither ‘‘amend’’ nor ‘‘supplement’’
is a defined term in article 1. As a result, we apply U.S. legal
concepts in determining whether CSG and CRDS ‘‘amend or
supplement’’ the laws in question.
Respondent contends that ‘‘[t]he Court need look no further
than the plain language of the Totalization Agreement to
reach the conclusion that the CSG and CRDS are covered
taxes.’’ In respondent’s view, the terms ‘‘amend’’ and ‘‘supple-
ment’’ have a plain meaning that is readily ascertainable by
using dictionaries and related tools. Petitioners have not pro-
vided the Court with a definition of either term that directly
supports their position. Rather, they contend that article 2(3)
cannot have a ‘‘plain meaning’’ because the Totalization
Agreement has been ‘‘interpreted by the French authorities
to lead to precisely the opposite result’’ of that urged by
respondent. In effect, petitioners contend that later-enacted
laws ‘‘amend or supplement’’ the specified laws only if the
new laws ‘‘accord with [the] traditional definition of social
security taxes.’’
On this point we agree with respondent. The words
‘‘amend’’ and ‘‘supplement’’ are terms of potentially broad
scope in U.S. jurisprudence. Had the signatories desired to
limit covered taxes in the manner petitioners suggest, the
signatories could have so provided in article 2(3) or by com-
parable provision in the definitional article. They did not do
so. Rather, they defined ‘‘applicable taxes’’ for purposes of the
Totalization Agreement to include ‘‘legislation that amends
or supplements’’ the eight enumerated categories of French
laws. It is certainly possible for a new law to amend or to
supplement the specified laws without itself being a ‘‘tradi-
tional * * * social security tax[ ].’’ The fact that French offi-
cials at times have taken the position that CSG and CRDS
are not covered by the Totalization Agreement is not disposi-
tive, especially because the terms ‘‘supplement’’ and ‘‘amend’’
VerDate Mar 15 2010 08:48 Jun 02, 2015 Jkt 000000 PO 00000 Frm 00012 Fmt 3857 Sfmt 3857 V:\FILES\BOUNDV~1.WIT\BV864A~1.142\ESHEL JAMIE
(197) ESHEL v. COMMISSIONER 209
must here be interpreted according to U.S., rather than
French, legal principles.
The verb ‘‘amend’’ is defined to mean ‘‘formally alter (a
statute, constitution, motion, etc.) by striking out, inserting,
or substituting words.’’ Black’s Law Dictionary 94 (9th ed.
2009). The verb ‘‘supplement’’ means ‘‘provide or form a
supplement,’’ and the noun ‘‘supplement’’ is defined to mean
‘‘[s]omething added to complete a thing, make up for a defi-
ciency, or extend or strengthen the whole.’’ American Herit-
age Dictionary 1739 (4th ed. 2000); see Webster’s New World
Dictionary 1430 (2d coll. ed. 1980) (defining the verb ‘‘supple-
ment’’ to mean ‘‘provide a supplement to; add to, esp. to
make up for a lack or deficiency’’); Webster’s New World Col-
lege Dictionary 1438 (4th ed. 2010) (same); Black’s Law Dic-
tionary 1577 (defining ‘‘supplemental’’ to mean ‘‘[s]upplying
something additional; adding what is lacking’’).
We will adopt the ordinary, contemporary understanding of
these words for purposes of our analysis. 6 We must accord-
ingly determine whether CSG and CRDS amended or supple-
mented the specified French social security laws by (1) for-
mally altering one or more of these laws by striking out,
inserting, or substituting words; (2) adding something to
make up for a lack or deficiency in one or more of these laws;
or (3) adding something to extend or strengthen the French
social security system as a whole.
B. The French Social Security System, CSG, and CRDS
The following summary of French law derives from the
affidavits of the parties’ expert witnesses, the parties’ memo-
randa, and the accompanying primary sources. Under French
law, social security is based on the principle of national soli-
darity. The social security system is designed to provide
6 Of the 24 totalization agreements currently in force between the United
States and other countries, 18 contain terms similar to the ‘‘amends or
supplements’’ clause in article 2(3). France, in its totalization agreements
with other countries, generally uses the words ‘‘amends’’ and ‘‘extends’’ for
the same purpose. See Agreement on Social Security, Fr.-Ind., July 30,
2008, art. 2(2). We have been unable to find any instance in U.S. law
where ‘‘amend or supplement’’ is treated as a verbal collocation with an
unusual or unique significance or as a specialized term of art. We accord-
ingly look to the plain meaning of each verb separately in its ordinary
sense.
VerDate Mar 15 2010 08:48 Jun 02, 2015 Jkt 000000 PO 00000 Frm 00013 Fmt 3857 Sfmt 3857 V:\FILES\BOUNDV~1.WIT\BV864A~1.142\ESHEL JAMIE
210 142 UNITED STATES TAX COURT REPORTS (197)
protection for French workers, French residents, and their
families against risks of any nature likely to reduce or limit
their earning capacity. The eight categories of laws enumer-
ated in article 2(1)(b) of the Totalization Agreement con-
stitute the bulk of the French social security system. The
benefits provided by these laws cover illness (work-related or
not), occupational accidents, maternity and paternity,
increases in family costs, disability, old age, and death, with
specialized coverage for particular industries and professions.
The French social security system is financed through
national insurance contributions paid by employers and
workers and through taxation and earmarked charges. Social
security contributions are generally calculated on a percent-
age of the worker’s gross income. Contributions are withheld
at the source by employers and paid directly by self-employed
individuals.
The legal retirement age in France varies from 52 to 62
depending on one’s occupation. The retirement benefit
received depends upon average annual earnings (25 highest
earning years), the payment rate (between 27.5% and 50%),
and the total period of insurance, which is calculated in cal-
endar quarters. To receive the full payment rate (50%), a
participant must have accumulated a total period of insur-
ance of at least 160 calendar quarters.
France has a dedicated bureaucracy consisting of
numerous public entities that coordinate the provision of
social security benefits. These include the Central Agency for
Financial Entities (ACOSS), a public agency charged with
managing the cashflows of numerous social security funds.
ACOSS monitors private entities responsible for the collec-
tion of social security contributions and family allowances
(URSSAF) and also acts to ensure the uniform interpretation
of the laws and regulations these entities apply.
The CSG law was enacted in December 1990 and is cur-
rently codified in the French Social Security Code (CSS),
which includes most provisions governing social security
benefits in France. See Code de la Se´curite´ Sociale, Articles
L136–1 et seq. CSG is assessed annually at a rate of 7.5%
on most employment income; at a rate of 8.2% on income
from property and financial investments (including capital
gains and income from life annuities); and at a rate of 6.6%
on income received in connection with retirement or dis-
VerDate Mar 15 2010 08:48 Jun 02, 2015 Jkt 000000 PO 00000 Frm 00014 Fmt 3857 Sfmt 3857 V:\FILES\BOUNDV~1.WIT\BV864A~1.142\ESHEL JAMIE
(197) ESHEL v. COMMISSIONER 211
ability. Approximately two-thirds of CSG assessed on
employment income is a deductible expense for purposes of
computing the French individual income tax. In 2012, CSG
was extended to apply to capital gains from the sale of
French real property by non-French residents.
CSG on employment income is withheld by the employer in
the same manner as other social security taxes and appears
on the employee’s pay stub as a social contribution.
Employers remit CSG directly to URSSAF, the entities
responsible for collection of French social security contribu-
tions generally. CSG is collected on passive income by with-
holding at the source with respect to French-source income
and is otherwise reported on the individual’s personal tax
return.
Initially, all proceeds from CSG were allocated to the
National Family Allowances Fund, which is directly linked to
French laws on family benefits (one of the eight enumerated
categories of laws in article 2(1)(b) of the Totalization Agree-
ment). The CSG law was subsequently amended, directing a
portion of CSG revenues into two other funds directly linked
to the social security system (compulsory health schemes and
the Old-Age Solidarity Fund). This amendment also directed
a variable, but apparently small, portion of CSG into the
National Solidarity Fund for Autonomy, which supports the
elderly and disabled, and a fund dedicated to retirement of
debt incurred by the French social security system, described
more fully below. 7
The CRDS law was enacted in January 1996 and is not
codified. CRDS is assessed annually at a rate of 0.5% on the
same base as CSG, expanded slightly to include certain cat-
egories of income that are otherwise exempt from tax (e.g.,
proceeds from the sale of art, jewelry, antiques, and collec-
tor’s items). CRDS is withheld and collected in the same
manner as CSG and is a nondeductible expense in computing
the French individual income tax.
7 Petitioners’ expert did not opine on the percentage of CSG that goes
into each specific fund. At oral argument, petitioner’s counsel represented
that the percentage varied from year to year, but that the amount allo-
cated to the National Solidarity Fund for Autonomy and the social security
debt reduction fund is not less than 0.1% ‘‘and it’s not 50[%]. It’s sort of
a variable amount.’’
VerDate Mar 15 2010 08:48 Jun 02, 2015 Jkt 000000 PO 00000 Frm 00015 Fmt 3857 Sfmt 3857 V:\FILES\BOUNDV~1.WIT\BV864A~1.142\ESHEL JAMIE
212 142 UNITED STATES TAX COURT REPORTS (197)
All CRDS proceeds, and a portion of CSG proceeds as men-
tioned above, go to the Caisse d’Amortissement de la Dette
Sociale (Social Debt Redemption Fund or CADES). CADES is
administered by a public body under the joint supervision of
the Minister for Social Security and the Minister for the
Economy and Finance. The primary purpose of CADES is to
discharge debt incurred to fund French social security pro-
grams. Most or all of this debt was contracted by ACOSS, the
public agency responsible for managing the cashflows of
France’s various social security funds. ACOSS incurred this
debt to finance the deficits accumulated by the French social
security system during 1994 and 1995 and to finance the sys-
tem’s predicted deficit for 1996.
CSG and CRDS do not create any new category of bene-
ficiary under the French social security system. By paying
these taxes, individuals do not become entitled to additional
or increased benefits under any French social security law.
Neither CSG nor CRDS provides a ‘‘period of coverage’’ sepa-
rate from or in addition to the ‘‘period of coverage’’ that an
individual accrues by being employed in France and paying
the French social security taxes he would otherwise pay. In
effect, CSG and CRDS put into place a pair of tax increases
that left the benefit structure the same as it was previously.
C. Analysis
1. Plain Meaning of Article 2(1)(b)
We agree with respondent that CSG and CRDS are covered
by, or within the scope of, the Totalization Agreement
because they ‘‘amend or supplement’’ the French social secu-
rity laws specified in article 2(1)(b). CSG and CRDS are both
administered by French social security officials. These taxes
are collected in the same manner as French social security
taxes. In the case of employees, these taxes are collected by
URSSAF, the entities responsible for collecting French social
security charges generally. The URSSAF entities are mon-
itored by ACOSS, the public entity in charge of managing
cashflows for France’s social security funds. As a rule CSG
and CRDS are imposed only on persons who otherwise
participate in the French social security system. In 2001 the
French Government amended the social security code to pro-
vide that CSG and CRDS are payable only by individuals
VerDate Mar 15 2010 08:48 Jun 02, 2015 Jkt 000000 PO 00000 Frm 00016 Fmt 3857 Sfmt 3857 V:\FILES\BOUNDV~1.WIT\BV864A~1.142\ESHEL JAMIE
(197) ESHEL v. COMMISSIONER 213
who are covered by a compulsory French sickness insurance
scheme. See Code de la Se´curite´ Sociale, Article L136–1. The
compulsory French sickness insurance scheme is one of the
eight categories of social security laws enumerated in article
2(1)(b). 8
These facts make it clear that CSG and CRDS are part of
the French social security system in a practical sense. More
specifically, these two taxes ‘‘amend or supplement’’ the laws
that make up this system. CSG is codified in the CSS, which
includes most provisions governing social security benefits in
France. CSG thus ‘‘amends’’ the French social security laws
by adding words to the relevant statute.
CSG and CRDS also ‘‘supplement’’ the French social secu-
rity laws in two ways. Both taxes were enacted to address
systemic funding shortfalls in the French social security
system. The bulk of CSG revenues is directed into funds that
directly support the payment of benefits under one or more
social security laws enumerated in article 2(1)(b). The bal-
ance of CSG revenues, and all of CRDS revenues, is used to
discharge debt incurred by ACOSS to fund social security
benefits. In ascertaining whether CSG and CRDS ‘‘supple-
ment’’ French social security laws, we see no meaningful
distinction between paying off debt incurred by French social
security programs and paying money into those program
funds directly. In either event, the new taxes ‘‘supplement’’
the specified French social security laws by ‘‘making up for
a deficiency’’ in them or by ‘‘strengthening’’ them.
2. European Court of Justice Cases
The European Court of Justice (ECJ) has issued several
rulings regarding the proper characterization of CSG and
CRDS for purposes of European Union (EU) law. While not
binding on us, the decisions of an international court are
entitled to respectful consideration. See Sanchez-Llamas, 548
U.S. at 333.
8 The general rule stated in the text is now subject to an exception, cre-
ated by the 2012 amendment that made CSG and CRDS applicable to
gains realized on the sale of French real property by non-French residents.
Typically, non-French residents would not be covered by the compulsory
French sickness insurance scheme and would not be participating (for that
year anyway) in the French social security system.
VerDate Mar 15 2010 08:48 Jun 02, 2015 Jkt 000000 PO 00000 Frm 00017 Fmt 3857 Sfmt 3857 V:\FILES\BOUNDV~1.WIT\BV864A~1.142\ESHEL JAMIE
214 142 UNITED STATES TAX COURT REPORTS (197)
In two cases decided in February 2000, the ECJ was called
upon to decide whether France, consistently with EU regula-
tions, could impose CSG and CRDS on French residents who
worked in, and paid social security taxes to, another EU
member state. See Case C–169/98, Comm’n v. France, 2000
E.C.R. I–1052; Case C–34/98, Comm’n v. France, 2000 E.C.R.
I–1028. In order to protect constitutional freedoms to move
and work in any member state, EU regulations provide that
citizens of one state cannot be required to pay social security
contributions to two different states for the same period of
work. See Regulation No. 1408/71, 1971 O.J. (L 149) 2. Gen-
erally, social contributions may be imposed only by the
member state in which the individual is employed.
The EU Commission commenced an investigation and
determined that, by levying CSG and CRDS on the wages of
French residents who worked in another member state,
France violated Regulation No. 1408/71 by imposing social
charges on income that had already borne social charges in
that other state. The French authorities disagreed, con-
tending (among other things) that CSG and CRDS are not
social charges because the individuals subject to these taxes
do not receive any additional benefits by virtue of paying
these taxes. The cases were brought to the ECJ for resolution
of this dispute.
The ECJ ruled against France, holding that CSG and
CRDS are social charges under EU law. The Court ruled that
‘‘[t]he fact that a levy is categorized as a tax under national
legislation does not mean that, as regards Regulation No.
1408/71, that same levy cannot be regarded as falling within
the scope of that regulation and caught by the prohibition
against overlapping legislation.’’ Case C–34/98, 2000 E.C.R.
at I–1041. According to the ECJ, the dispositive question is
whether there is a direct and sufficiently relevant link
‘‘between the provision in question and the legislation gov-
erning the branches of social security.’’ The Court concluded
that CSG and CRDS each had a sufficiently direct link to the
French social security system.
As regards CSG, the ECJ determined that this tax ‘‘is allo-
cated specifically and directly to financing social security in
France.’’ Case C–169/98, 2000 E.C.R. at I–1066. The link
between CSG and the French social security system, the
court found, ‘‘is also clearly revealed by the fact that, as the
VerDate Mar 15 2010 08:48 Jun 02, 2015 Jkt 000000 PO 00000 Frm 00018 Fmt 3857 Sfmt 3857 V:\FILES\BOUNDV~1.WIT\BV864A~1.142\ESHEL JAMIE
(197) ESHEL v. COMMISSIONER 215
French Government itself asserts, the levy replaces in part
social security contributions which were a heavy burden on
low and medium levels of pay, and means that an increase
in existing contributions can be avoided.’’ Ibid. As regards
CRDS, the court determined that this tax ‘‘is in part
designed to discharge a debt of the social security scheme
caused by the financing of benefits paid out in the past.’’
Case C–34/98, 2000 E.C.R. at I.1042–1043. These links to the
French social security system, the court concluded, were
sufficient to characterize both CSG and CRDS as social
charges. 9
The ECJ concluded that CSG and CRDS are social charges
because they are directly linked to the French social security
system. The purpose of these taxes was to finance the French
social security system, and the proceeds of these taxes fund
the payment of social security benefits or retire debt incurred
to pay social security benefits. While we are not bound by
ECJ opinions, its conclusion that CSG and CRDS are social
charges, and its reasoning in support of that conclusion,
directly support our determination that CSG and CRDS
‘‘amend or supplement’’ the French social security laws.
D. Petitioners’ Arguments
Petitioners agree that CSG ‘‘was a new tax codified in the
French Social Security Code’’; that CSG and CRDS were
‘‘expressly imposed upon participants in the French Social
Security program’’; and that these taxes ‘‘funded (to some
degree) the French Social Security Programs.’’ Petitioners
9 Petitioners note that, under article 2(4), ‘‘applicable laws’’ for purposes
of the Totalization Agreement do not include EU regulations. That is cor-
rect, but immaterial. The question is whether CSG and CRDS are ‘‘applica-
ble laws’’ by virtue of ‘‘amending or supplementing’’ the French social secu-
rity system. Nothing in the Totalization Agreement prevents us from con-
sidering ECJ decisions persuasive as to the proper characterization of CSG
and CRDS, and we will grant these opinions respectful consideration. Peti-
tioners also note that the ECJ, in finding a sufficient ‘‘link,’’ relied in part
on ‘‘the specific allocation of the CSG and CRDS to fund the French social
security system.’’ According to petitioners, ‘‘[t]he concept of specific alloca-
tion of tax receipts to a social security system * * * is not the criterion
at stake here.’’ We disagree. The specific allocation of taxes to fund the
French social security system is one highly relevant factor in determining
whether CSG and CRDS ‘‘amend or supplement’’ the specified social secu-
rity laws.
VerDate Mar 15 2010 08:48 Jun 02, 2015 Jkt 000000 PO 00000 Frm 00019 Fmt 3857 Sfmt 3857 V:\FILES\BOUNDV~1.WIT\BV864A~1.142\ESHEL JAMIE
216 142 UNITED STATES TAX COURT REPORTS (197)
advance three main arguments as to why CSG and CRDS
nevertheless are not covered by the Totalization Agreement.
We address these arguments in turn.
1. Tax Base
Petitioners contend that the tax base on which CSG and
CRDS are imposed shows that they are not ‘‘social security
taxes within the definition of the French Totalization Agree-
ment.’’ Petitioners note that CSG and CRDS ‘‘apply to
unearned income.’’ In 2012, moreover, these taxes were
extended to apply to gains realized by nonresidents of France
on the sale of French real property. Under the Totalization
Agreement and comparable EU regulations, France is not
supposed to impose social security taxes on U.S. or EU citi-
zens unless they are employed in France. Thus, by extending
CSG and CRDS to sales of property by nonresidents, France
has expressed, according to petitioners, its understanding
that CSG and CRDS are not social security taxes.
We reject these arguments. First, the relevant question
under the Totalization Agreement is not whether CSG and
CRDS are ‘‘social security taxes,’’ but whether they ‘‘amend
or supplement’’ the specified social security laws. As noted
supra p. 208, a new law can ‘‘amend or supplement’’ the
enumerated laws without necessarily imposing a social secu-
rity tax in its own right.
Second, the fact that a tax is imposed on unearned income,
including income from sales of property, has little if any
bearing on whether it is a ‘‘social security tax’’ or on whether
it ‘‘amends or supplements’’ social security laws. A sovereign
state is free to impose a social security tax on whatever tax
base it thinks proper.
Third, we give little weight to the 2012 amendment. In
assessing the character of the taxes at issue, we will not let
the tail wag the dog. The revenue derived by extending CSG
and CRDS to sales of real property by nonresidents appears
to be trivial when compared with the revenue raised by these
taxes generally. If substantially all the proceeds of a tax are
consistent with its character as a social charge, a trivial
anomaly is the exception that proves the rule. Moreover, the
tax years before the Court are 2008 and 2009. In assessing
the character of CSG and CRDS for the years at issue, we
decline to give weight to postenacted legislation. Finally, the
VerDate Mar 15 2010 08:48 Jun 02, 2015 Jkt 000000 PO 00000 Frm 00020 Fmt 3857 Sfmt 3857 V:\FILES\BOUNDV~1.WIT\BV864A~1.142\ESHEL JAMIE
(197) ESHEL v. COMMISSIONER 217
thrust of petitioners’ argument is that the 2012 amendment
shows that the French Government regards CSG and CRDS
as income taxes and not social security taxes. As noted
above, the ECJ has rejected France’s position and ruled that
these taxes are social charges under EU law. See supra pp.
214–215. And as we discuss infra pp. 222–225, France’s
treatment of these levies as income taxes for purposes of
French domestic law does not control our decision as to
whether they ‘‘amend or supplement’’ the laws specified in
the Totalization Agreement.
2. ‘‘Period of Coverage’’ or ‘‘Benefit’’
SSA section 317(b) provides that foreign taxes paid ‘‘in
accordance with’’ the terms of a totalization agreement shall
not be creditable ‘‘[n]otwithstanding any other provision of
law.’’ We have determined that petitioners paid CSG and
CRDS ‘‘in accordance with’’ the Totalization Agreement and
hence that no credit is available. Petitioners contend that we
must go further. According to petitioners, SSA section
317(b)(4) precludes a credit only if the taxpayer receives a
‘‘period of coverage’’ for the specific foreign tax paid. Since a
totalization agreement is ‘‘designed to totalize ‘periods of cov-
erage,’ the clear implication of the SSA § 317(b)(4) disallow-
ance,’’ according to petitioners, ‘‘is that it applies only when
the payment of tax gives rise to a period of coverage.’’
Petitioners offer no textual support for this argument, and
we find no such ‘‘implication’’ in the statute or its legislative
history. Nothing in SSA section 317(b)(4) links the preclusion
of a credit to an individual’s receiving a ‘‘period of coverage.’’
Petitioners cite the definition of ‘‘period of coverage’’ in
article 1(6) of the Totalization Agreement and try to link the
word ‘‘laws’’ in that definition to the ‘‘laws’’ covered under
article 2, which lists the applicable U.S. and French social
security laws. This argument is flawed. The fact that a
‘‘period of coverage’’ can be provided only by laws specified in
article 2 does not mean that every law specified in article 2
must provide the taxpayer with a distinct ‘‘period of cov-
erage.’’ Petitioners similarly try to establish a link with arti-
cles 12 and 13, which coordinate periods of coverage. But
these articles likewise do not require that each tax specified
in article 2 provide the taxpayer with a distinct ‘‘period of
VerDate Mar 15 2010 08:48 Jun 02, 2015 Jkt 000000 PO 00000 Frm 00021 Fmt 3857 Sfmt 3857 V:\FILES\BOUNDV~1.WIT\BV864A~1.142\ESHEL JAMIE
218 142 UNITED STATES TAX COURT REPORTS (197)
coverage.’’ They simply coordinate benefits when the req-
uisite ‘‘periods of coverage’’ exist.
In any event, the provision that determines the allow-
ability of a credit here is SSA section 317(b)(4), and nothing
in that statute supports petitioners’ argument. Petitioners
would have us ignore the statute’s plain meaning and inter-
pret ‘‘in accordance with’’—in the absence of any statutory
language or legislative history pointing us in that direction—
to mean ‘‘in a manner that affords the taxpayer a period of
coverage under a foreign social security law.’’ Like the court
in Erlich, we decline to give ‘‘in accordance with’’ such an
idiosyncratic meaning. If Congress had intended to limit
credit preclusion to situations where the taxpayer obtained a
distinct period of coverage under the foreign social security
system by paying the tax at issue, Congress could easily have
drafted the statute to say this. The legislative history sug-
gests no such intent, because it refers to the desirability of
coordinating the U.S. and foreign ‘‘social security systems,’’
not to the desirability of ensuring that U.S. taxpayers derive
a benefit from paying a particular foreign tax. See H.R. Rept.
No. 95–702 (Part 1), supra at 10–11, 1997 U.S.C.C.A.N. at
4167–4168. 10
10 The
Court of Federal Claims’ opinion in Erlich, by analogy, supports
rejection of petitioners’ argument here. The taxpayer in Erlich worked for
a non-U.S. employer in France. Because he was not liable for U.S. social
security tax, there was no risk of double taxation. On the facts of that case,
therefore, the Totalization Agreement did not operate to effect Congress’
first purpose in providing for such agreements—the elimination of double
taxation—and the taxpayer argued that SSA section 317(b)(4) should not
preclude a credit in such circumstances. The court in Erlich rejected this
argument, holding in effect that ‘‘in accordance with’’ does not mean ‘‘in
a manner that accomplishes a specific purpose of.’’ See Erlich, 104 Fed. Cl.
at 17. Here, petitioners focus on Congress’ second purpose in providing for
totalization agreements—the coordination of benefits. Because CSG and
CRDS do not provide ‘‘periods of coverage,’’ petitioners argue that there are
no distinct periods of coverage to coordinate; that the Totalization Agree-
ment therefore does not operate to effect Congress’ second purpose in pro-
viding for such agreements; and that SSA section 317(b)(4) should not pre-
clude a credit in these circumstances. Like the court in Erlich, we decline
to hold that ‘‘in accordance with’’ means ‘‘in a manner that accomplishes
a specific purpose of.’’ It is immaterial whether one of Congress’ stated
purposes is fully realized on a particular set of facts. Our focus is on the
language of the statute, and we will not override its plain meaning.
VerDate Mar 15 2010 08:48 Jun 02, 2015 Jkt 000000 PO 00000 Frm 00022 Fmt 3857 Sfmt 3857 V:\FILES\BOUNDV~1.WIT\BV864A~1.142\ESHEL JAMIE
(197) ESHEL v. COMMISSIONER 219
Besides lacking textual support, petitioners’ argument has
little to recommend it in common sense or policy terms. Peti-
tioners paid various social security taxes to France during
2008–09 and thereby accrued a French ‘‘period of coverage’’
of eight calendar quarters. Obviously, petitioners could not
possibly accrue an additional ‘‘period of coverage’’ for that
two-year period. In both the United States and France, social
security benefits are based on the period of employment
during which a person pays social security taxes, not on the
total amount of taxes paid. If France had amended its social
security laws to increase the tax rate, and if petitioners had
paid that increased tax during 2008–09, they would have
derived no benefit in terms of increased entitlement and
would have accrued no ‘‘period of coverage’’ distinct from the
two-year period of coverage they were already accruing. But
that amendment would indisputably ‘‘amend or supplement’’
the French social security laws specified in article 2(1)(b).
The same principle applies here: There is an additional tax
but no additional benefit. In determining whether a new law
‘‘amends or supplements’’ the French social security laws, it
simply does not matter whether taxpayers derive a benefit by
paying the additional tax. 11
3. Postratification Understandings of the Signatories
Because a treaty is an agreement among sovereign powers,
‘‘ ‘the postratification understanding’ ’’ of the signatory
nations may assist in interpreting it. Medellı´n v. Texas, 552
U.S. 491, 507 (2008) (quoting Zicherman v. Korean Air Lines
Co., 516 U.S. 217, 226 (1996)). The parties’ conduct may evi-
dence their understanding of the agreement they signed, and
their postratification practice may thus shed light on the
treaty’s proper interpretation. See Trans World Airlines, Inc.
11 In its February 2000 opinion, the ECJ rejected France’s argument that
CSG and CRDS are not social charges because the individuals who pay
these taxes do not thereby accrue any additional benefits. The ECJ noted
that CSG and CRDS effected a tax increase on upper-income people, with-
out any correlative increase in benefits, to avoid burdening lower and mid-
dle-income people. See Case C–169/98, 2000 E.C.R. at I–1066 (‘‘[A]s the
French Government itself asserts, the [CSG] levy replaces in part social se-
curity contributions which were a heavy burden on low and medium levels
of pay, and means that an increase in existing contributions can be avoid-
ed.’’).
VerDate Mar 15 2010 08:48 Jun 02, 2015 Jkt 000000 PO 00000 Frm 00023 Fmt 3857 Sfmt 3857 V:\FILES\BOUNDV~1.WIT\BV864A~1.142\ESHEL JAMIE
220 142 UNITED STATES TAX COURT REPORTS (197)
v. Franklin Mint Corp., 466 U.S. 243, 259 (1984). To deter-
mine postratification practice, we look to the actual practice
of the political arms of both nations.
a. Position of the United States
‘‘Respect is ordinarily due the reasonable views of the
Executive Branch concerning the meaning of an international
treaty,’’ El Al Israel Airlines, Ltd. v. Tseng, 525 U.S. 155, 168
(1999), but respect is not the same as uncritical acceptance,
see N.W. Life Assurance Co. of Can., 107 T.C. at 380. Indeed,
the Supreme Court has noted that ‘‘ ‘courts interpret treaties
for themselves,’ ’’ so that the construction adopted by Govern-
ment agencies is not necessarily conclusive. Id. at 380–381
(quoting Kolovrat v. Oregon, 366 U.S. 187, 194 (1961)). The
deference afforded depends upon the degree to which the
interpretation proffered by the Government is reasonable and
consistent with what appear to be the circumstances sur-
rounding the convention. Id. at 381.
The U.S. Government has consistently regarded CSG and
CRDS as covered by the Totalization Agreement. In February
1997 the U.S. Embassy in Paris wrote the French Minister
of Social Affairs and Employment to complain about France’s
application of CSG and CRDS to so-called detached U.S.
workers in France. Under the ‘‘detached worker’’ rule, an
individual sent from one nation to another to work for a rel-
atively short time—up to five years under the Totalization
Agreement, article 6(1)—may elect to be covered exclusively
by the social security system of the sending nation. Thus, a
U.S. detached worker in France is typically exempt from
French social charges.
In the February 1997 letter, the United States argued that
the French Government could not properly levy CSG or
CRDS against detached U.S. workers who, under the Total-
ization Agreement, are excluded from paying French social
security taxes. The letter took the position that CSG and
CRDS are covered by the Totalization Agreement and that
the application of these taxes to employees temporarily in
France ‘‘constitutes a pure and simple violation’’ of that
agreement. Letter from Donald K. Bandler, Embassy of the
United States of America, to Jacques Barrot, Minister of
Social Affairs and Employment, French Government (Feb-
ruary 20, 1997).
VerDate Mar 15 2010 08:48 Jun 02, 2015 Jkt 000000 PO 00000 Frm 00024 Fmt 3857 Sfmt 3857 V:\FILES\BOUNDV~1.WIT\BV864A~1.142\ESHEL JAMIE
(197) ESHEL v. COMMISSIONER 221
Respondent has also provided the Court with a declaration
from Vance Teel, the Acting Associate Commissioner for the
Office of International Programs, Social Security Administra-
tion. The Office of International Programs represents the
agency in negotiating international social security agree-
ments, formulating policies concerning program operations
outside the United States, and issuing certificates of coverage
for U.S. detached workers. Mr. Teel declared: ‘‘Based on
information available to me and to the best of my under-
standing and belief, * * * [the Social Security Administra-
tion] considers the French * * * (CSG) and * * * (CRDS) to
be covered by the * * * [Totalization Agreement].’’
The Embassy letter and the Teel declaration clearly state
a position consistent with that adopted by the IRS in this
litigation. However, neither document explains the basis for
the Government’s position in detail. Thus, while we find
these statements helpful, we do not regard them as entitled
to ‘‘great weight.’’ Cf. Sumitomo Shoji Am., Inc. v. Avagliano,
457 U.S. 176, 184–185 (1982) (‘‘Although not conclusive, the
meaning attributed to treaty provisions by the Government
agencies charged with their negotiation and enforcement is
entitled to great weight.’’). We accept these documents as
enunciating the postratification understanding of the United
States concerning the status of CSG and CRDS as taxes cov-
ered by the Totalization Agreement.
b. Position of the French Government
The Government of France does not appear to have taken
a definitive position as to whether CSG and CRDS are cov-
ered by the Totalization Agreement. Petitioners’ and
respondent’s experts concur that there is no French judicial
or administrative precedent that explicitly addresses this
question. Petitioners cite certain court cases, governmental
materials, and administrative practice as evidence of
France’s postratification understanding. But these materials
are susceptible to different inferences; they do not yield an
unambiguous position as to France’s interpretation of the
Totalization Agreement. In any event, while we may give
weight to the interpretation adopted by a treaty partner, we
are not bound by it. See Karaha Bodas Co., L.L.C. v.
Perusahaan Pertambangan Minyak Dan Gas Bumi Negara
(‘‘PERTAMINA’’), 313 F.3d 70, 92 (2d Cir. 2002); United
VerDate Mar 15 2010 08:48 Jun 02, 2015 Jkt 000000 PO 00000 Frm 00025 Fmt 3857 Sfmt 3857 V:\FILES\BOUNDV~1.WIT\BV864A~1.142\ESHEL JAMIE
222 142 UNITED STATES TAX COURT REPORTS (197)
States v. A.L. Burbank & Co., 525 F.2d 9, 15 (2d Cir. 1975)
(holding that Canadian interpretation of tax treaty between
United States and Canada is not determinative in U.S.
courts); cf. Iceland Steamship Co. Eimskip v. U.S. Dep’t of the
Army, 201 F.3d 451, 458 (D.C. Cir. 2000) (deference to an
agency’s determination of a treaty term is eroded ‘‘where an
agency and another country disagree on the meaning of a
treaty’’).
Respondent contends that two agencies of the French
Government—ACOSS and URSSAF, the agencies tasked
with collecting social security taxes and distributing social
security proceeds—have recognized that CSG and CRDS are
covered by the Totalization Agreement. Some background is
necessary to understand respondent’s position. Before 2000,
France levied CSG and CRDS against U.S. detached workers.
(This was the subject of the U.S. Embassy’s protest letter.
See supra pp. 220–221). If CSG and CRDS were covered by
the Totalization Agreement, France should not have sub-
jected detached workers to these taxes. The French Govern-
ment changed its position in 2000, after the ECJ issued its
opinions holding that CSG and CRDS are social charges. See
supra pp. 213–215. France that year amended its social secu-
rity code to limit the application of CSG and CRDS to
individuals who are covered by the compulsory French sick-
ness insurance scheme, i.e., to French residents who are not
detached workers.
Respondent bases his argument on two letters, one from
ACOSS and one from URSSAF. According to respondent,
these letters evidence the French Government’s under-
standing that CSG and CRDS are covered by the Totalization
Agreement. Petitioners draw a different inference from these
letters—namely, that detached workers are exempt from
CSG and CRDS, not by virtue of the Totalization Agreement,
but by virtue of the 2000 domestic law change. On balance,
we do not find these letters to be helpful in discerning the
French Government’s position one way or the other.
Petitioners cite several French judicial decisions that have
characterized CSG and CRDS as income taxes—‘‘taxes of any
kind’’—as opposed to social security contributions, for pur-
poses of French domestic law. See Conseil consitutionnel
(Constitutional Court), 2000–442 DC (December 2000);
Conseil consitutionnel, 90–285 DC (December 1990). In
VerDate Mar 15 2010 08:48 Jun 02, 2015 Jkt 000000 PO 00000 Frm 00026 Fmt 3857 Sfmt 3857 V:\FILES\BOUNDV~1.WIT\BV864A~1.142\ESHEL JAMIE
(197) ESHEL v. COMMISSIONER 223
France, the legislative procedures for enacting income taxes
and social security contributions differ. In these cases, the
French courts were asked to decide whether CSG and CRDS
were income taxes or social charges for the purpose of deter-
mining whether the Government had followed proper proce-
dures when enacting the laws.
The courts concluded that CSG and CRDS are income
taxes because neither gives rise to any social benefit, and
hence that CSG and CRDS were properly enacted under the
legislative procedure applicable to ‘‘taxes of any kind.’’ This
holding as to domestic French law does not control our deter-
mination whether CSG and CRDS ‘‘amend or supplement’’
the French laws specified in the Totalization Agreement.
Indeed, the ECJ in 2000 held that CSG and CRDS are ‘‘social
charges’’ under EU law notwithstanding their characteriza-
tion as ‘‘taxes’’ for French domestic purposes. See Case C–34/
98, 2000 E.C.R. at I–1041 (‘‘The fact that a levy is cat-
egorized as a tax under national legislation does not mean
that, as regards Regulation No. 1408/71, that same levy
cannot be regarded as * * * [a social charge] within the
scope of that regulation[.]’’).
Finally, petitioners cite France’s position concerning the
status of CSG and CRDS under the U.S.-France income tax
treaty. The French Government has issued several State-
ments of Practice informing French taxpayers that CSG and
CRDS are covered by the income tax treaty and hence are
creditable taxes. That being so, petitioners contend that CSG
and CRDS cannot simultaneously be covered by the Total-
ization Agreement.
We reject this argument. France’s view that CSG and
CRDS are creditable taxes reflects its position that these
levies are ‘‘income taxes’’ under domestic French law. As
noted above, that position does not control our determination
whether CSG and CRDS ‘‘amend or supplement’’ the speci-
fied French laws within the meaning of the Totalization
Agreement.
In any event, even if CSG and CRDS are within the scope
of the income tax treaty, they can simultaneously be covered
by the Totalization Agreement. As noted earlier, it is
common ground that CSG and CRDS meet the general cri-
teria for creditability under section 901. But petitioners may
claim a credit under the treaty only ‘‘[i]n accordance with the
VerDate Mar 15 2010 08:48 Jun 02, 2015 Jkt 000000 PO 00000 Frm 00027 Fmt 3857 Sfmt 3857 V:\FILES\BOUNDV~1.WIT\BV864A~1.142\ESHEL JAMIE
224 142 UNITED STATES TAX COURT REPORTS (197)
provisions and subject to the limitations of the law of the
United States.’’ Convention for the Avoidance of Double Tax-
ation and the Prevention of Fiscal Evasion With Respect to
Taxes on Income and Capital, U.S.-Fr., art. 24(1)(a), Aug. 31,
1994 (Income Tax Treaty), Tax Treaties (CCH) para. 3001.25
at 75,029. Petitioners are not allowed a credit, either under
section 901 or under the Income Tax Treaty, if SSA section
317(b)(4) precludes such a credit. The question is not
whether CSG and CRDS are covered by the Income Tax
Treaty, but whether SSA section 317(b)(4) bars a credit ‘‘not-
withstanding any other provision of law.’’ 12
In sum, we find that the postratification understanding of
the French Government, to the extent discernible, provides
no meaningful support for petitioners’ position. Where, as
here, the signatories take opposite stances on a question of
treaty interpretation, the foreign partner’s view does not
have controlling force. A.L. Burbank & Co., 525 F.2d at 15.
Moreover, the French Government does not appear to have
engaged in an independent analysis, as a matter of treaty
interpretation, as to whether CSG and CRDS ‘‘amend or
supplement’’—the French text reads ‘‘modifiant ou
comple´tant’’—the laws specified in the Totalization Agree-
ment. Rather, France’s position regarding the Agreement
appears to be a corollary of its position that these taxes were
properly enacted as ‘‘income taxes’’ under French domestic
law.
12 Petitioners
err in relying on the Department of the Treasury’s Tech-
nical Explanation of the Income Tax Treaty, which states that the treaty
‘‘does not apply to social security taxes.’’ Department of the Treasury Tech-
nical Explanation of the Convention for the Avoidance of Double Taxation
With Respect to Taxes on Income, U.S.-Fr., Aug. 31, 1994, Tax Treaties
(CCH) para. 3060, at 75, 253. If CSG and CRDS are covered by the Income
Tax Treaty, petitioners argue, this passage suggests that they cannot be
‘‘social security taxes’’ and hence are not covered by the Totalization Agree-
ment. We reject this argument for two reasons. First, the Department of
the Treasury in this passage identifies the U.S. taxes, not the French
taxes, that are subject to the Income Tax Treaty. In so doing, it simply
tracks treaty language that defines covered U.S. taxes as ‘‘the Federal in-
come taxes imposed by the Internal Revenue Code (but excluding social se-
curity taxes).’’ Income Tax Treaty, art. 2(1)(a)(i). Second, the central ques-
tion in this case is not whether CSG and CRDS are ‘‘social security taxes,’’
but whether they ‘‘amend or supplement’’ the French laws specified in the
Totalization Agreement.
VerDate Mar 15 2010 08:48 Jun 02, 2015 Jkt 000000 PO 00000 Frm 00028 Fmt 3857 Sfmt 3857 V:\FILES\BOUNDV~1.WIT\BV864A~1.142\ESHEL JAMIE
(197) ESHEL v. COMMISSIONER 225
French courts have recently held that CSG can be
characterized as a social charge for purposes of the EU Regu-
lations while simultaneously being characterized as an
income tax for French domestic purposes. See Cour de cassa-
tion (Supreme Court for Judicial Matters), No. 11–10762
(May 31, 2012), Bulletin 2012, V, n° 166 (‘‘[W]hile the CSG
falls within the category of ‘‘taxes of any kind’’ within the
meaning * * * of the Constitution * * *, this contribution
also has the nature of a social security contribution within
the meaning * * * of the EU Regulation [1408/71] by virtue
of its exclusive allocation to the funding of several social
security regimes.’’). The French courts thus see no inconsist-
ency in treating CSG and CRDS as income taxes for domestic
purposes but as social charges for EU purposes. We similarly
see no inconsistency in respecting the character of these
levies as income taxes for French domestic purposes while
holding that they nevertheless ‘‘amend or supplement’’ the
French social security laws within the meaning of the Total-
ization Agreement.
IV. Conclusion
SSA section 317(b)(4) disallows a credit for taxes paid to
France ‘‘in accordance with’’ the U.S.-France Totalization
Agreement. Petitioners paid CSG and CRDS ‘‘in accordance
with’’ that agreement because those taxes ‘‘amend or supple-
ment’’ the French social security laws enumerated in the
agreement. Petitioners’ claimed credits for these taxes are
thus barred. We will therefore grant respondent’s motion for
summary judgment and deny petitioners’ motion.
An appropriate order will be issued, and
decision will be entered under Rule 155.
f
VerDate Mar 15 2010 08:48 Jun 02, 2015 Jkt 000000 PO 00000 Frm 00029 Fmt 3857 Sfmt 3857 V:\FILES\BOUNDV~1.WIT\BV864A~1.142\ESHEL JAMIE