US Tax Treatment of French social taxes – CSG and CRDS

LB&I and SBSE Joint Directive on Creditability of French Social Taxes


This Joint Directive provides instructions to Large Business & International and SBSE examiners on the creditability of two French social taxes, the “contribution sociale généralisée” (CSG) and the “contribution pour le remboursement de la dette sociale” (CRDS), for U.S. federal income tax purposes.


Under 42 U.S.C. § 433, the President is authorized to enter into Social Security Totalization Agreements. From the United States’ perspective, these agreements generally allow U.S. nationals to work in a foreign country without experiencing a lapse in U.S. Social Security coverage that could affect their future entitlement to social benefits. Additionally, they help to ensure that workers are not inappropriately subject to double social security taxation by assigning taxing rights to one of the contracting states.

For U.S. income tax purposes, taxes paid to a foreign country, even if they are otherwise eligible for a credit under I.R.C. § 901, are not creditable to the extent they are “paid… with respect to any period of employment… which is covered under the social security system of such foreign country in accordance with the terms of a [totalization agreement].” § 317(b)(4), P.L. No. 92-516 (the “1977 Social Security Act”). The Agreement on Social Security between the United States of America and the French Republic, signed March 2, 1987, (the “Totalization Agreement”) applies to the French laws listed in Article 2(1)(b) and, under Article 2(3), any legislation which “amends or supplements” those French laws.

The CSG and CRDS are French taxes imposed on income and, to the extent imposed on income from employment, they are withheld by the employer in a similar manner to other social levies and appear on the employee’s pay stub as a social contribution.

Historically, the IRS has denied foreign tax credits for CSG and CRDS imposed on employment income pursuant to § 317(b)(4) of the 1977 Social Security Act. While the CSG and CRDS are not listed in Article 2(1)(b) of the Totalization Agreement, the IRS’s position was that, under Article 2(3), the CSG and CRDS “amend[] or supplement[]” the laws in Article 2(1)(b) of the Totalization Agreement.

In Eshel v. Commissioner, 142 T.C. 197 (2014), the U.S. Tax Court upheld the IRS’s position ruling that the Totalization Agreement applied to the CSG and CRDS and that the taxpayers were thus not eligible for a U.S. foreign tax credit. On appeal, the D.C. Circuit Court ruled that the lower court erred in not sufficiently analyzing evidence of the shared expectations of the signatory countries in its interpretation of the Totalization Agreement. Eshel v. Commissioner, 831 F.3d 512 (D.C. Cir. 2016). Consequently, the D.C. Circuit remanded the case back to the Tax Court for further proceedings

In a letter dated May 30, 2019, the United States Department of State confirmed to the IRS that the United States and France have a shared understanding that the CSG and CRDS do not “amend[] or supplement[]” within the meaning of Article 2(3) of the Totalization Agreement the laws set forth in Article 2(1)(b) of the Totalization Agreement. The letter further indicated that this shared understanding had been memorialized in diplomatic communications this year. Accordingly, the IRS no longer maintains that the CSG and CRDS are ineligible for a foreign tax credit under I.R.C. § 901.


Effective upon issuance of this Joint Directive, examiners will no longer challenge foreign tax credit claims, including claims for refund, for CSG and CRDS payments on the basis that the Totalization Agreement applies to these taxes nor will examiners assert that the CSG and CRDS are not creditable income taxes.



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