French Legislature Reduces Foreign Tax Credit

Washington, DC, November 29, 2000 - The French National Assembly recently approved its 2001 budget which reduces the tax credit ("avoir fiscal") for dividends paid by French resident companies to non-individual investors on or after January 1, 2000. Under the US-France Income Tax Treaty, a regulated investment company (RIC) is entitled to claim a refund of avoir fiscal if (1) the RIC owns, directly or indirectly, less than 10 percent of the capital of the French company paying the dividend, and (2) more than 80 percent of the RIC's shareholders are U.S. citizens or residents. The new budget reduces avoir fiscal from 40 percent to 25 percent of dividends paid during 2000 and to 15 percent of dividends paid during 2001. This change appears to affect refunds of avoir fiscal to be claimed by RICs that do not qualify for the French participation exemption regime.