Ory Eshel & Linda Coryell Eshel v. Commissioner

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

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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.

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(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).

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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.

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(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.

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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

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(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).

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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).

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(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

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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.

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(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.

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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’’

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(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.

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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-

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(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.’’

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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

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(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.

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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

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(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.

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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

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(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

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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.

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(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.’’).

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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).

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(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

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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

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(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

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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.

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(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

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