IRS Found to Wrongly Deny Foreign Tax Credit to Americans in France

(footnotes added). Drawing a distinction between the wordings of the two treaty provisions upon which they rely, plaintiffs point out that “Article 24(2)(b) neither contains nor refers to the Article 24(2)(a) limitations.”

Defendant argues that neither paragraph 2(a) nor paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, provides a foreign tax credit against the net investment income tax. With respect to paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, defendant argues that “the [1994] Treaty[, as amended,] provides for relief from double taxation in the form of a foreign tax credit, and the extent of a taxpayer’s eligibility for that foreign tax credit is determined in accordance with the Code,” (alterations added), including the restriction of I.R.C. §§27 and 901(a) to applying foreign tax credits only against taxes “imposed by this chapter,” Chapter 1 of the I.R.C. See I.R.C. §§27, 901(a). With respect to paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, defendant argues that “[t]o construe subsection 2(b) to sanction such bold departures from the foreign-tax-credit framework under U.S. law would frustrate the policy foundation on which the framework was built.” (alteration added). This court, therefore, must consider whether, by the terms of the 1994 Treaty, as amended, plaintiffs are entitled to take a foreign tax credit for their French income taxes against the net investment income tax imposed by I.R.C. §1411. Also at issue are which provisions of the 1994 Treaty, as amended, namely paragraphs 2(a) and 2(b) of Article 24, could provide such a foreign tax credit, and whether the language of paragraphs 2(a) and 2(b) of Article 24 of the 1994 Treaty, as amended, potentially conflict with two provisions of the I.R.C., I.R.C. §§27 and 901(a), which allow United States taxpayers to take foreign tax credits on their United States tax returns only against the taxes imposed by Chapter 1 of the I.R.C., given that the net investment income tax is imposed by I.R.C. §1411, located in Chapter 2A of the I.R.C.

Defendant argues that, rather than this court conducting an independent interpretation of the 1994 Treaty, as amended, the court should afford deference to the United States’ interpretation of the 1994 Treaty, as amended. According to defendant, “[t]he Treasury Department has consistently interpreted both article 24(2)(a) of the Treaty, and the model U.S. treaty[²⁶] on which it was based, to provide for foreign tax credits against U.S. income taxes only to the extent that the Internal Revenue Code allows such credits.” (alteration and footnote added). Defendant quotes the United States Supreme Court’s decision in Sumitomo Shoji America, Inc. v. Avagliano, 457 U.S. 176, 184-85 (1982), for the proposition that “'[a]lthough not conclusive, the meaning attributed to treaty provisions by the Government agencies charged with their negotiation and enforcement is entitled to great weight.’” (alteration in original) (citing Kolovrat v. Oregon, 366 U.S. 187, 194 (1961)). Defendant further argues that “when the U.S. and France executed two protocols [the 2004 and 2009 Protocols] amending the original 1994 convention, they left undisturbed the requirement [in paragraph 2(a) of Article 24 of the 1994 Treaty, as amended,] that U.S. foreign tax credits be given ‘in accordance with the provisions of U.S. law,’ demonstrating an acquiescence by France in the Treasury Department’s prior explanation of the function of article 24(2)(a).” (alterations added) (citing Adams Challenge (UK) Ltd. v. Comm’r, 156 T.C. 16, 53-54 (2021)). Defendant relies upon the United States Treasury Department’s Technical Explanation of the 1994 Treaty to demonstrate the United States’ interpretation, and defendant argues that “[w]hile courts sometimes decline to follow treaty interpretations reflected in technical explanations prepared by Treasury, they generally do so only when there is reason to doubt whether the documents reflect official U.S. policy.” (alteration added) (citing Snap-On Tools, Inc. v. United States, 26 Cl. Ct. 1045, 1070 (1992), aff’d, 26 F.3d 137 (Fed. Cir. 1994)). In addition, defendant cites the Federal Circuit’s opinion in Xerox Corp. v. United States to argue that the Federal Circuit “disregarded ‘a position taken by Treasury’ in the technical explanation, where the Senate executive report had criticized it,” (alteration added), however, according to defendant, “the Federal Circuit recognized that ‘extrinsic material is often helpful in understanding the treaty and its purposes.’” (quoting Xerox Corp. v. United States, 41 F.3d 647, 652 (Fed. Cir. 1994)).

Plaintiffs, however, argue that the court should not defer to the United States’ interpretation of the 1994 Treaty, as amended. Plaintiffs argue that courts do not afford deference “when the Executive Branch’s interpretation is not supported by negotiating history, diplomatic communications or the method by which the other sovereign has interpreted the treaty.” (citing Nat’l Westminster Bank, PLC v. United States, 512 F.3d 1347 (Fed. Cir.), reh’g en banc denied (Fed. Cir. 2008); Eshel v. Comm’r, 831 F.3d 512, 521 (D.C. Cir. 2016); Iceland S.S. Co., Ltd.-Eimskip v. United States Dep’t of Army, 201 F.3d 451 (D.C. Cir. 2000); North West Life Assur. Co. of Canada v. Comm’r, 107 T.C. 363, 379 (1996)). Plaintiffs additionally argue that “’where a provision of a treaty fairly admits of two constructions, one restricting, the other enlarging, rights that may be claimed under it, the more liberal interpretation is to be preferred.’” (quoting United States v. Stuart, 489 U.S. 353, 368 (1989) (internal quotations omitted), and citing Jordan v. Tashiro, 278 U.S. 123, 128 (1928)). Therefore, plaintiffs argue, because the 1994 Treaty, as amended, “has as one of its principal purposes to avoid” double taxation of citizens of one signatory country residing in the other, “the French Treaty should be read in a way to avoid that evil, not to perpetuate it.”

The Supreme Court has held that “[a]lthough not conclusive, the meaning attributed to treaty provisions by the Government agencies charged with their negotiation and enforcement is entitled to great weight.” Sumitomo Shoji Am., Inc. v. Avagliano, 457 U.S. at 184-85 (alteration added). The Supreme Court guidance, however, did not indicate that absolute deference is required to the position taken by the United States, but rather that appropriate deference should be considered on a case-by-case basis, including in the current case. According to the Supreme Court:

“It is our ‘responsibility to read the treaty in a manner “consistent with the shared expectations of the contracting parties.”’ . . . Even if a background principle is relevant to the interpretation of federal statutes, it has no proper role in the interpretation of treaties unless that principle is shared by the parties to ‘an agreement among sovereign powers[.]’”

Lozano v. Montoya Alvarez, 572 U.S. 1, 12 (2014) (emphasis in original; alteration and ellipsis added) (quoting Olympic Airways v. Husain, 540 U.S. 644, 650 (2004) (quoting Air France v. Saks, 470 U.S. 392, 399 (1985)); Zicherman v. Korean Air Lines Co., Ltd., 516 U.S. 217, 226 (1996)); see also Sumitomo Shoji Am., Inc. v. Avagliano, 457 U.S. at 185 (“When the parties to a treaty both agree as to the meaning of a treaty provision, and that interpretation follows from the clear treaty language, we must, absent extraordinarily strong contrary evidence, defer to that interpretation.”). Therefore, “an agency’s position merits less deference ‘where an agency and another country disagree on the meaning of a treaty.’” See Nat’l Westminster Bank, PLC v. United States, 512 F.3d at 1358 (quoting Iceland S.S. Co., Ltd.-Eimskip v. United States Dep’t of Army, 201 F.3d at 458). The United States Court of Appeals for the Federal Circuit also has explained that “effect must be given to the intent of both signatories” to a treaty. See id. at 1353 (citing Xerox Corp. v. United States, 41 F.3d at 656).

In the above captioned case, defendant has tried to rely on interpretations issued by the United States Treasury Department of the 1994 Treaty, as amended, as indicating that the 1994 Treaty, as amended, does not provide a foreign tax credit against the net investment income tax. Defendant has not, however, presented evidence regarding the interpretation held by the Government of the French Republic with respect to this issue regarding a foreign tax credit against the net investment income tax. Moreover, the parties agree that no evidence has been produced regarding the Government of the French Republic’s interpretation of the 1994 Treaty, as amended, in relation to the foreign tax credit issue presented by plaintiffs’ claims.

Without evidence as to the Government of the French Republic’s interpretation of the 1994 Treaty, as amended, with respect to the foreign tax credit issue currently before the court, this court cannot afford total deference to the United States’ interpretation, because the United States cannot demonstrate that defendant’s interpretation is shared by the Government of the French Republic. As the Federal Circuit explained in National Westminster Bank, “when the language of a treaty provision ‘only imperfectly manifests its purpose,’” the court is “required to give effect to its underlying purpose,” and “[t]o this end,” the court “must ‘examine not only the language, but the entire context of agreement.’” Nat’l Westminster Bank, PLC v. United States, 512 F.3d at 1353 (quoting Great-West Life Assur. Co. v. United States, 230 Ct. Cl. 477, 481, 678 F.2d 180, 183 (1982) (citing In re Ross, 140 U.S. 453, 475 (1891))). The United States Supreme Court has addressed what may be considered within “the entire context of agreement,” see Great West Life Assur. Co. v. United States, 230 Ct. Cl. at 481, including the public acts of signatory governments. See United States v. Reynes, 50 U.S. (9 How.) 127, 147-148 (1850) (considering “the public acts and proclamations of the Spanish and French governments, and those of their publicly recognized agents, in carrying into effect those treaties” to which Spain and France were signatories). The Supreme Court also has held that negotiations and diplomatic correspondence, both prior to and after, a treaty or international agreement was executed, may be considered. See Sumitomo Shoji Am., Inc. v. Avagliano, 457 U.S. at 183-84 and n.9 (considering a diplomatic cable “relaying the position of the Ministry of Foreign Affairs of Japan” and a later communication in which “'[t]he Government of Japan reconfirms its view’” (alteration added)); Factor v. Laubenheimer, 290 U.S. 276, 294-95 (1933) (“In ascertaining the meaning of a treaty we may look beyond its written words to the negotiations and diplomatic correspondence of the contracting parties relating to the subject-matter, and to their own practical construction of it.” (citing Nielsen v. Johnson, 279 U.S. 47, 52 (1929); Terrace v. Thompson, 263 U.S. 197, 223 (1923); United States v. Texas, 162 U.S. 1, 23 (1896); Kinkead v. United States, 150 U.S. 483, 486 (1893); In re Ross, 140 U.S. at 467)); Cook v. United States, 288 U.S. 102, 109, 112-15 nn.6-7, nn. 10-15 (1933) (explaining that “[i]n construing the Treaty its history should be consulted” including “note[s]” between diplomatic officials, “repl[ies] to “question[s],” “statement[s] of the American position,” and “letter[s]” and other communications from the British Government (alterations added)); Todok v. Union State Bank of Harvard, Neb., 281 U.S. 449, 454 (1930) (considering “a note addressed by the Swedish Minister at Washington to the Department of State” in which “the Swedish Minister stated his understanding that the authorities in Sweden had always held that the words ‘goods and effects’ in article 6 of the treaty of 1783 include real estate”); Nielsen v. Johnson, 279 U.S. at 52 (“When their [treaties’] meaning is uncertain, recourse may be had to the negotiations and diplomatic correspondence of the contracting parties relating to the subject-matter and to their own practical construction of it.” (alteration added) (citing Terrace v. Thompson, 263 U.S. at 223; United States v. Texas, 162 U.S. at 23; Kinkead v. United States, 150 U.S. at 486; In re Ross, 140 U.S. at 467)); Terrace v. Thompson, 263 U.S. at 223 (“But if the language left the meaning of its provisions doubtful or obscure, the circumstances of the making of the treaty . . . would resolve all doubts against the appellants’ contention.” (ellipsis added)); United States v. Texas, 162 U.S. at 23 (“Before examining those articles [of the treaty], it will be useful to refer to the diplomatic correspondence that preceded the making of the treaty.” (alteration added)).

Reliance by a court on evidence of the shared expectations of the signatory governments to a treaty or international agreement is exemplified by the Coplin cases and the decisions of the United States Claims Court, United States Court of Appeals for the Federal Circuit, and United States Supreme Court. See Coplin v. United States, 6 Cl. Ct. 115 (1984), rev’d, 761 F.2d 688 (Fed. Cir. 1985), aff’d on other grounds sub nom., O’Connor v. United States, 479 U.S. 27 (1986). In Coplin, the United States Claims Court, a predecessor court to this court, addressed the interpretation of an “Implementation Agreement” to the Panama Canal Treaty and negotiated in parallel with the Panama Canal Treaty between the United States and the Republic of Panama. See Coplin v. United States, 6 Cl. Ct. at 119. At issue in Coplin, similar to the above captioned case, was taxation of United States citizens in a foreign country pursuant to an international agreement or treaty which addressed such taxation. See id. at 120 (considering the language in the Implementation Agreement to the Panama Canal Treaty which read: “United States citizen employees and dependents shall be exempt from any taxes, fees, or other charges on income received as a result of their work for the Commission” (emphasis in original)). While the United States Claims Court in Coplin explained that a court should not “give literal effect to treaty language if it is persuaded that such language does not reflect the intention of the high contracting parties,” the court noted that “[w]here the language is reasonably clear, the party proffering a contrary interpretation must persuade the court that its construction comports with the view of both parties” to the treaty. See id. at 128 (emphasis in original; alteration added) (citing Sumitomo Shoji Am., Inc. v. Avagliano, 457 U.S. at 180; United States v. Texas, 162 U.S. at 36). The United States Claims Court in Coplin emphasized that “there is no evidence whatsoever as to the interpretation given this language by Panama” and that “[w]hile the record provides valuable insights as to the interests and motivations of the parties, the court is left largely to surmise and conjecture as to how they resolved their differences and what might have motivated each side to agree to the language finally adopted.” Id. at 128-29 (emphasis in original; alteration added). The Claims Court in Coplin did not afford deference to the United States’ interpretation, stating that “nothing presented by defendant supports the finding that Panama and the United States ‘intended to agree on something different from that appearing on the face of’ Article XV of the Implementation Agreement” and that “'[w]ithout such a finding the agreement must be interpreted according to its unambiguous language.’” Id. at 145 (alteration added) (quoting Choctaw Nation of Indians v. United States, 318 U.S. 423, 432 (1943)).

A panel of five judges of the United States Court of Appeals for the Federal Circuit reversed the Claims Court’s decision in Coplin on narrow grounds. See Coplin v. United States, 761 F.2d 688, 691-92 (Fed. Cir. 1985), aff’d on other grounds sub nom., O’Connor v. United States, 479 U.S. 27 (1986). The Federal Circuit explained that, immediately prior to hearing oral argument in the appeal to the Federal Circuit of Coplin, the United States provided the Federal Circuit with a diplomatic note from the Panamanian Foreign Minister, containing “letters from the Panamanian team that negotiated the Implementation Agreement,” which “confirmed” that Panama shared the United States’ interpretation of the Implementation Agreement provisions at issue. See id. at 691. The Panamanian Foreign Minister’s diplomatic note was dated after the United States Claims Court’s earlier decision in Coplin had been issued, and, therefore, the diplomatic note was not available to the Claims Court at the time of the Claims Court’s decision. See id. The Federal Circuit cited to the Supreme Court’s decisions in United States v. Reynes, 50 U.S. (9 How.) at 147-48, Jones v. United States, 137 U.S. 202, 214-16 (1890), Factor v. Laubenheimer, 290 U.S. at 295, and Sumitomo Shoji America, Inc. v. Avagliano, 457 U.S. at 184 n.9, considering diplomatic correspondences and public acts of signatory governments to international agreements and treaties, and held that the Panamanian diplomatic note should be considered. See Coplin v. United States, 761 F.2d at 691. Relying on the Panamanian Foreign Minister’s diplomatic note’s expression of the Panamanian Government’s interpretation of the Implementation Agreement, the Federal Circuit held that “the record now reveals the intent of each government,” and because the governments’ interpretations of the Implementation Agreement were aligned, the judgment of the Claims Court was reversed. See id. at 692.

The United States Supreme Court affirmed the United States Court of Appeals for the Federal Circuit’s Coplin decision on other grounds in O’Connor v. United States, 479 U.S. 27 (1986). As the Supreme Court explained, while “[t]here is some purely textual evidence, albeit subtle” in support of the United States’ interpretation of the Implementation Agreement, “[m]ore persuasive than the textual evidence, and in our view overwhelmingly convincing, is the contextual case” for the United States’ interpretation. See id. at 31 (alterations added). The Supreme Court further held that the United States’ interpretation was

in accord with the consistent application of the Agreement by the Executive Branch — a factor which alone is entitled to great weight, see Sumitomo Shoji America, Inc. v. Avagliano, 457 U.S. 176, 184-85, 102 S. Ct. 2374, 2379, 72 L. Ed. 2d 765 (1982) — but that application has gone unchallenged by Panama.

O’Connor v. United States, 479 U.S. at 33. According to the Supreme Court, Panama “did not object” to the United States’ interpretation. See id. The Supreme Court in O’Connor explained that “[t]he course of conduct of parties to an international agreement, like the course of conduct of parties to any contract, is evidence of its meaning.” Id. (alteration added) (citing Trans World Airlines, Inc. v. Franklin Mint Corp., 466 U.S. 243, 259-60 (1984); Pigeon River Imp., Slide & Boom Co. v. Charles W. Cox, Ltd., 291 U.S. 138, 158-61 (1934)). In a footnote to its decision in O’Connor, the Supreme Court addressed the Panamanian Foreign Minister’s diplomatic note and described the parties’ views of the note, but the Supreme Court concluded, “[s]ince we would sustain the Government’s position without reference to the note, we need not resolve these disputes.” See id. at 33 n.2 (alteration added).

The various precedential cases of the United States Supreme Court and the United States Court of Appeals for the Federal Circuit direct that, in the above captioned case, for the United States’ interpretation of the 1994 Treaty, as amended, to be afforded deference by this court, the United States’ interpretation should be a shared interpretation by the French Government, because the court must give effect to the “shared expectations” of the signatory governments. As discussed by several cases above, including Air France v. Saks, “it is our responsibility to give the specific words of the treaty a meaning consistent with the shared expectations of the contracting parties.” Air France v. Saks, 470 U.S. at 399 (citing Reed v. Wiser, 555 F.2d 1079, 1090 (2d Cir. 1977); Day v. Trans World Airlines, Inc., 528 F.2d 31 (2d Cir. 1975)). As described above, neither party has produced any materials from the Government of the French Republic offering France’s interpretation of the terms of the 1994 Treaty, as amended, with respect to the application of foreign tax credits against the United States net investment income tax. Moreover, there is no evidence before the court which indicates that the United States and France have engaged in diplomatic consultation with respect to the taxation issues presented by plaintiffs’ claim for a foreign tax credit against the net investment income tax imposed by I.R.C. §1411, or that France was notified of the post-1994 Treaty, as amended, enactment of the net investment income tax at I.R.C. §1411.²⁷

While defendant argues that the Government of the French Republic has acquiesced to the United States’ interpretation that foreign tax credits are exempted from the foreign tax credits allowed by the 1994 Treaty, as amended, no such inference can be drawn from the lack of evidence in the current case before the court. See O’Connor v. United States, 479 U.S. at 33. The Supreme Court in O’Connor observed that the Panamanian Government had not objected to the United States subjecting Panamanian citizens to United States income tax, which failure to object the Supreme Court understood as evidence of the Implementation Agreement’s “meaning” consistent with the United States’ interpretation. See id. In O’Connor, there was an opportunity for Panama to object, if Panama disagreed with the United States’ interpretation. See id. In the above captioned case, however, there is no such certainty that France had an opportunity to object, or did object, to the United States’ interpretation of the 1994 Treaty, as amended, with respect to the net investment income tax question at issue in the case before this court. This is, in part, because, as noted above, there is no evidence in the record before this court that the United States “notified” the Government of the French Republic of the enactment of the net investment income tax, as contemplated by the 1994 Treaty, as amended, and, as indicated above, I.R.C. §1411 was enacted after the 1994 Treaty, as amended, was agreed to by the respective governments. Therefore, the court should not infer from the absence of an indication of the Government of the French Republic’s interpretation that France agrees with the interpretation offered by the United States of the 1994 Treaty, as amended. The court does not assume that the interpretation of the 1994 Treaty, as amended, by the United States represents “the shared expectations of the contracting parties,” see Air France v. Saks, 470 U.S. at 399, and the court does not give deference to the United States’ interpretation that the 1994 Treaty, as amended, should exclude the net investment income taxes from the foreign tax credits available. The court does not afford deference to the United States’ interpretation based on the non-binding interpretative documents which defendant cites to this court, namely the United States Treasury Department Technical Explanations of the 1994 Treaty, 2004 Protocol, and 2009 Protocol, and the United States Treasury Department’s model treaties and accompanying technical explanations, because the technical explanations and model treaties represent only the United States’ interpretation, and not the interpretation of the French Government.

The Parties’ Arguments With Respect to Treaty Interpretation Standards

The court ordered specific briefing from the parties in this case on the issue of determining whether a potential conflict might exist between the relevant treaty provisions and United States statutory sections, and if so, how the court should resolve that potential conflict. Plaintiffs state that they are “not aware of any case law that provides a comprehensive definition of when such a conflict exists, but there are clear standards as to when such a conflict does not exist,” namely that “[a] conflict may arise only when it is not possible to harmonize inconsistent statutory and treaty provisions.” (alteration added). Plaintiffs argue that “[w]hen provisions of a treaty and of a statute appear inconsistent, the Supreme Court has repeatedly held that, if possible, the two provisions should be harmonized to the maximum extent possible to avoid an actual conflict.” (alteration added) (citing Weinberger v. Rossi, 456 U.S. 25, 32 (1982); Moser v. United States, 341 U.S. 41, 45 (1951); United States v. Lee Yen Tai, 185 U.S. 213, 221-22 (1902); Murray v. Schooner Charming Betsy, 6 U.S. (2 Cranch) 64, 118 (1804)). Moreover, plaintiffs quote from the United States Claims Court’s decision in Snap-On Tools, Inc. v. United States, 26 Cl. Ct. 1045, to state that “’when the two [the treaty and the statute] are inconsistent, or irreconcilable, the last in time should take precedence.’” (alteration added) (quoting Snap-On Tools, Inc. v. United States, 26 Cl. Ct. at 1067). Plaintiffs argue that “there is no language in either the NIIT statutory provisions or any legislative history suggesting that the enactment of the NIIT was intended to modify any United States’ treaty obligations.” According to plaintiffs, “when a treaty obligation applies, reciprocal rights that can be harmonized with the Code are created” under which “the United States must allow a foreign tax credit to offset the NIIT based upon which country has primary taxing rights under the French Treaty on the income giving rise to the NIIT.” Plaintiffs further argue that “[a]llowing for a foreign tax credit under the French Treaty gives full effect to both the Code (because no statutory-based credit is given) and the treaty (because a treaty-based credit is given).” (alteration added).

In response, defendant cites to Breard v. Greene, 523 U.S. 371, 376 (1998), and Kappus v. Commissioner of Internal Revenue, 337 F.3d 1053, 1058-60 (D.C. Cir. 2003), and quotes the Supreme Court’s decision in Whitney v. Robertson, 124 U.S. 190, 194-95 (1888), to argue that “the Supreme Court established a last-in-date rule to resolve conflicts between statutes and treaties,” such that “'[t]he duty of the courts is to construe and give effect to the latest expression of the sovereign will.’” (emphasis in original; alteration added). Defendant argues, however, that “the last-in-date rule applies only when a statute and a treaty conflict — i.e., when courts are not able to ‘construe them to give effect to both’ without ‘violating the language of either.’” (quoting Whitney v. Robertson, 124 U.S. at 194). Defendant quotes the decision of the United States Tax Court in Adams Challenge (UK) Ltd. v. Commissioner to argue that “'[t]o carry out the process of harmonization, courts construe earlier and later provisions in a way that is consistent with the intent of each and that results in an absence of conflict between the two.’” (alteration added) (quoting Adams Challenge (UK) Ltd. v. Comm’r, 156 T.C. at 45 (internal quotations omitted)). Moreover, defendant argues that “plaintiffs’ contention that the Internal Revenue Code cannot override a tax treaty absent an express statement of Congressional intent to do so has already been rejected by Congress,” and defendant quotes I.R.C. §7852, “Other applicable rules,” which states at paragraph (d), “Treaty obligations” (emphasis in original), in relevant part, “'[f]or purposes of determining the provision of a treaty and any law of the United States affecting revenue, neither the treaty nor the law shall have preferential status by reason of its being a treaty or law.’” (alteration in original) (quoting I.R.C. §7852(d)(1)). Defendant contends that “[w]hen Congress enacts a statute whose terms are inconsistent with a prior treaty, the text of the statute is sufficient to demonstrate the intent of Congress to override the treaty.” (alteration added). According to defendant, “[h]armonization does not put a thumb on the scale in favor of the Treaty [in this case the 1994 Treaty, as amended,] or the Code, or in favor of the more lenient or the more restrictive,” but rather, harmonization “examines the language and the intent of the statute and the treaty and considers whether they may be fairly construed in a way that results in an ‘absence of conflict.’” (alterations added) (quoting Adams Challenge (UK) Ltd. v. Comm’r, 156 T.C. at 45). Defendant argues, based on the supposed principle that tax credits “’are a matter of legislative grace,’” (quoting Phila. Energy Sols. Refin. & Mktg., LLC v. United States, 159 Fed. Cl. 230, 236, appeal filed, No. 2022-1834 (Fed. Cir. May 27, 2022)), that “if it ever became necessary for the Court to apply a tie breaker to decide between two equally plausible interpretations of the Treaty — one allowing a tax credit and the other disallowing a credit — the tax credit should be denied consistent with domestic-law tax-credit principles.” Defendant argues that, in the above captioned case, “the Treaty and the Code work in harmony” and that interpreting the 1994 Treaty, as amended, to allow a foreign tax credit against the net investment income tax “would conflict directly with [I.R.C.] §§27 and 901(a), which explicitly provide that foreign tax credits may reduce only taxes imposed ‘by this chapter,’” i.e., Chapter 1 of the I.R.C. (emphasis in original; alteration added).

In their briefs and at oral argument on the cross-motions for partial summary judgment, the parties have made numerous further arguments concerning the potential conflict and overlap of the terms of the 1994 Treaty, as amended, and the statutory provisions at issue in this case, I.R.C. §§27 and 901(a), which restrict foreign tax credits to apply only against “the tax imposed by this chapter,” Chapter 1 of the I.R.C., see I.R.C. §§ 27, 901(a), and whether foreign tax credits may be claimed against the net investment income tax imposed by I.R.C. §1411, which is in Chapter 2A of the I.R.C.

Regarding the statute at I.R.C. §1411, at issue in the current case, the United States Department of the Treasury issued Treasury Decision 9644, interpreting I.R.C. §1411 on December 2, 2013. See T.D. 9644, 2013-51 I.R.B. 676.²⁸ Treasury Decision 9644 addresses whether the net investment income tax imposed by I.R.C. §1411 is subject to foreign tax credits, including based on tax treaties between the United States and other governments. Treasury Decision 9644 states, in relevant part:

The Treasury Department and the IRS received comments asking whether foreign income, war profits, and excess profits taxes (“foreign income taxes”) are allowed under sections 27(a) and 901 as a credit against the section 1411 tax. Under the express language of sections 27(a) and 901(a), foreign income taxes are not creditable against United States taxes other than those imposed by chapter 1 of the Code. Section 1.1411–1(e) of the final regulations clarifies that amounts that are allowed as credits only against the tax imposed by chapter 1 of the Code, including credits for foreign income taxes, may not be credited against the section 1411 tax, which is imposed by chapter 2A of the Code. This limitation is similar to the limitation applicable to a number of other credits that are allowed only against the tax imposed by chapter 1 of the Code. See, for example, section 38. The Treasury Department and the IRS also received comments asking whether United States income tax treaties may provide an independent basis to credit foreign income taxes against the section 1411 tax. The Treasury Department and the IRS do not believe that these regulations are an appropriate vehicle for guidance with respect to specific treaties. An analysis of each United States income tax treaty would be required to determine whether the United States would have an obligation under that treaty to provide a credit against the section 1411 tax for foreign income taxes paid to the other country. If, however, a United States income tax treaty contains language similar to that in paragraph 2 of Article 23 (Relief from Double Taxation) of the 2006 United States Model Income Tax Convention, which refers to the limitations of United States law (which include sections 27(a) and 901), then such treaty would not provide an independent basis for a credit against the section 1411 tax.

T.D. 9644, 2013-51 I.R.B. at 679.

Defendant relies on Treasury Decision 9644 to interpret the statute at I.R.C. §1411 as excluding the net investment income tax from foreign tax credits. Defendant argues that Treasury Decision 9644 “determined that such [foreign] tax credits were not available, because the NIIT ‘is imposed by Chapter 2A of the Code.’” (alteration added) (quoting Net Investment Income Tax, 78 Fed. Reg. at 72,396). Defendant further argues that Treasury Decision 9644 addressed “’whether United States income tax treaties may provide an independent basis to credit foreign income taxes against the section 1411 tax,’” and that, with respect to treaties containing the language found in the 1994 Treaty, as amended, “’such treaty would not provide an independent basis for a credit against the section 1411 tax.’” (quoting Net Investment Income Tax, 78 Fed. Reg. at 72,396).

In its cross-motion for partial summary judgment, defendant argues that “the enactment of the NIIT [at I.R.C. §1411 by the Health Care and Education Reconciliation Act of 2010] after the Treaty was signed in a new Chapter 2A of the Code confirms the intent of Congress to exempt the NIIT from the allowance of a foreign tax credit, and would override any potentially inconsistent relief under the Treaty.” (emphasis in original; alteration added). Defendant further argues, citing Whitney v. Robertson, 124 U.S. at 194-95, that “harmonization is self-evident here, as [I.R.C.] §1411 and the [1994] Treaty[, as amended,] are fully consistent with each another,” (alterations added), because the I.R.C. “does not allow a foreign tax credit against the NIIT because it is not a Chapter 1 tax,” a reference to the restriction of I.R.C. §§27 and 901(a) to apply foreign tax credits only against “the tax imposed by this chapter,” Chapter 1 of the I.R.C. See I.R.C. §§27, 901(a).

Plaintiffs dispute the United States Treasury Department’s analysis in Treasury Decision 9644 as applicable to the case currently before the court, arguing that the Treasury Department’s

interpretation [in Treasury Decision 9644] ignores the purpose of the French Treaty to eliminate double taxation, renders a series of inter-related treaty provisions moot, fails to harmonize the treaty with the Code provisions, and ignores the general principle established by Congress that treaty foreign tax credit entitlement is wider than that contained in the Code, unless subject to a specifically legislated treaty override.

(alteration added). Plaintiffs argue that “[t]he ‘shared expectations’ of the sovereigns govern the interpretation of the treaty as evidenced by the text used in the agreement, unless the result does not accord with the literal language used.” (alteration added) (quoting Great-West Life Assur. Co. v. United States, 230 Ct. Cl. at 481).²⁹

Plaintiffs quote from the 1994 Treaty Treasury Department Technical Explanation, described above, to support their interpretation:

The Technical Explanation provides the rationale of the language used by Article 24(2)(a): “[t]he credits provided under the Convention are allowed in accordance with the provisions and subject to the limitations of U.S. law, as that law may be amended over time, so long as the general principle of this Article, i.e., the allowance of a credit, is retained.” (Emphasis added.) This Technical Explanation then provides that “the terms of the credit are determined by the provisions of the U.S. statutory credit at the time the credit is given. The limitation of law generally limits the credit against U.S. tax to the amount of U.S. tax due with respect to net foreign source income within the relevant foreign tax credit limitation category (see Code Section 904(a)).”

(emphasis and alteration in original; footnote omitted). Moreover, plaintiffs argue: “Enactment of the NIIT in 2010 is precisely the type of amendment contemplated by the provisions of Article 2(2) [of the 1994 Treaty, as amended,³⁰] and the essential and meaningful parenthetical text of Article 24(2)(a) ensures that the general principle — that a credit is allowed for a subsequently enacted U.S. income tax — is guaranteed.”³¹ (footnote added).

Plaintiffs also try to rely on paragraphs 2(a) and 2(b) of Article 24 of the 1994 Treaty, as amended, to contest defendant’s interpretation of the net investment income tax, set forth in Treasury Decision 9644, as ineligible for foreign tax credits. As noted above, plaintiffs argue that the reference to “the provisions and . . . the limitations of the law of the United States” in paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, “refers to [I.R.C.] Section 904 principles regarding the amount of the foreign tax credit and not something broader.” (alteration and ellipsis added). Plaintiffs contend that the limitations on foreign tax credits imposed by I.R.C. §904, described above, are the only “limitations” contemplated by paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, and that the other restrictions on foreign tax credit availability, namely the restriction in I.R.C. §§27 and 901(a) to apply foreign tax credits only against “the tax imposed by this chapter,” Chapter 1 of the I.R.C., see I.R.C. §§27, 901(a), are not incorporated into the language of paragraph 2(a) of Article 24 of the 1994 Treaty, as amended. As noted above, the limitations set forth in I.R.C. §904 are not relevant to the above captioned case.

As described above, paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, includes a parenthetical reference to “the law of the United States (as it may be amended from time to time without changing the general principle hereof). . . .” (ellipsis added). Plaintiffs argue that “[t]he ‘general principle’ referred to in Article 24(2)(a) [of the 1994 Treaty, as amended,] is that a credit is allowed for French income taxes against U.S. income taxes.” (alterations added). Plaintiffs claim that “[t]he passage into law of a new ‘United States income tax’ [after the 1994 Treaty, as amended,] cannot be said to have any bearing under the treaty on whether an amount of French tax paid is a foreign income tax that is creditable per se,” because “Plaintiffs’ French income taxes equal to $140,398 remain eligible for a foreign tax credit against their substantive U.S. tax liability.” (alterations added). Plaintiffs also claim, “[n]or does a new ‘United States income tax’ alter the amount of the Code Section 904 limitation — Plaintiffs did not, and could not, argue that French income taxes are creditable against, for example, U.S. source income.” (alteration added). Plaintiffs further argue that if the court did not adopt plaintiffs’ interpretation, that “would result in it [paragraph 2(a) of Article 24 of the 1994 Treaty, as amended,] having no independent purpose if its language is limited by the Code, rendering the position superfluous.” (alteration added). According to plaintiff, “[f]or Article 24(2)(a) [of the 1994 Treaty, as amended,] to have any purpose and effect, it must be that it ensures that a foreign tax credit will be allowed against any subsequently enacted United States income tax that is covered by the French Treaty, which would include the NIIT.” (alterations added).

According to plaintiffs, “the [Internal Revenue] Code need not expressly provide for a foreign tax credit if the foreign levy in question falls within the treaty definition of a creditable tax” because “what constitutes a United States income tax for purposes of the application of a treaty derives from the treaty’s definition and not from domestic law.”³²(emphasis in original; alteration added). Plaintiffs argue that “[d]omestic law therefore does not constitute an absolute limitation on the rights and entitlements that may be granted to treaty beneficiaries under the terms of a U.S. tax treaty.” (alteration added). Plaintiffs state that “[t]he parties agree that the NIIT constitutes a United States income tax as defined in Article 2(1) and 2(2) of the French Treaty,” and, therefore, “that when a treaty provides a definition of a covered tax, it is that definition, and not the more limited definition under United States or foreign law, that is applied.” (alteration added).

In addition to paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, plaintiffs also argue that paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, “allows a foreign tax credit for the NIIT.” Plaintiffs contrast paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, with the above-discussed paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, stating that “Article 24(2)(b) neither contains nor refers to the Article 24(2)(a) limitations.” Plaintiffs disagree with defendant’s claim that paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, in plaintiffs’ language, “incorporates” the limitations language of paragraph 2(a) of the same article, arguing that “Defendant confuses the question of what French taxes are creditable with the question of what United States income taxes can be offset by creditable French taxes, which, not surprisingly, gives an illogical outcome.” Plaintiffs further argue, because paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, “allows as a credit against U.S. income tax, which by definition includes the NIIT, any French income taxes ‘after the credit referred to in subparagraph (a)(iii) of paragraph 1 [of Article 24 of the 1994 Treaty, as amended],’”³³ that “the Article 24(1)(a)(iii) [of the 1994 Treaty, as amended,] credit is zero as Plaintiffs did not incur French tax on any U.S. source income,” and, therefore, “the language of Article 24(2)(b) [of the 1994 Treaty, as amended,] provides that a foreign tax credit is allowed.” (alterations added).

As explained above, plaintiffs agree with defendant’s characterization that paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, implements the second bite of the three-bite rule.³⁴ Plaintiffs, in a passage which also is quoted above setting forth plaintiffs’ understanding of the three bite rule, indicate that “the United States retains the right to levy a 15 percent tax on the French resident U.S. citizen,” which is the first bite, while France may “levy tax on any amount in excess of 15 percent,” which French income tax is the second bite. As a result of the second bite French tax, according to plaintiffs, “any such French tax shall be allowed as a credit against U.S. tax” in excess of the 15 percent United States income tax assessed in the first bite. It is this allowance of a credit for French taxes against United States taxes that plaintiffs argue, in agreement with defendant, is implemented by paragraph 2(b) of Article 24 of the 1994 Treaty, as amended. Plaintiffs also state that “Article 24(2)(b)(ii) further provides that U.S. source income is considered French source ‘to the extent necessary to give effect to the provisions of subparagraph (b)(i),’” which “ensures that a foreign tax credit is allowed for U.S. source income to avoid the French taxing that income (the second bite) and the U.S. taxing that same amount (the third bite).”³⁵

In response to plaintiffs’ argument that paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, incorporates only the limitations set forth in I.R.C. §904, defendant argues that the restrictions of I.R.C. §§27 and 901(a) to apply foreign tax credits only against “the tax imposed by this chapter,” Chapter 1 of the I.R.C., see I.R.C. §§27, 901(a), applies because the “provisions” and “limitations” language of paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, “expressly defers to the provisions of the statute in determining when foreign tax credits may be allowed.” (alteration added). According to defendant, “there are numerous provisions of the [Internal Revenue] Code and regulations that regulate the boundaries of the foreign-tax-credit framework under U.S. law,” and that “[i]f the two countries had intended for [I.R.C.] §904 to be the only relevant limitation, the [1994] Treaty[, as amended,] would have said so explicitly.” (alterations added). According to defendant, “Congress intentionally placed the NIIT [in I.R.C. §1411, in Chapter 2A] outside of Chapter 1 [of the I.R.C.], demonstrating unequivocally the intent of Congress that the new levy be ineligible for foreign tax credits under [I.R.C.] §§27 and 901(a).” (alterations added).

In its briefs, defendant acknowledges that there are no documents in the record which indicate the interpretation of the 1994 Treaty, as amended, held by the Government of the French Republic regarding the tax issues relevant to plaintiffs’ complaint in this court. Defendant nevertheless argues that in this case there is “no evidence that either the United States or France had any expectation that the United States would automatically apply foreign-tax credits against any and all income taxes subsequently enacted under the Code.” With respect to France’s understanding, defendant argues that “there is no evidence of French expectations regarding that provision [paragraph 2 of Article 24 of the 1994 Treaty, as amended] (other than the inference noted below), and nothing to suggest any disagreement by France with the interpretation of article 24(2) [of the 1994 Treaty, as amended,] expressed in the U.S. executive materials,” by which defendant appears to mean the United States Treasury Department Technical Explanations of the 1994 Treaty, the 2004 Protocol, and the 2009 Protocol, as well as the model treaties and accompanying technical explanations, all prepared by the United States Treasury Department. (alterations added). Defendant urges a possible inference, however, without evidence, in the above quoted language, because “when the United States and France executed protocols amending the original 1994 convention, they left undisturbed the requirement that U.S. foreign tax credits be given ‘in accordance with the provisions of U.S. law,’” which, according to defendant, demonstrated “an acquiescence by France in the Treasury Department’s prior explanation of the function of article 24(2)(a).” (citing Adams Challenge (UK) Ltd. v. Comm’r, 156 T.C. at 53-54).

Defendant also argues that because paragraph 2 of Article 3 of the 1994 Treaty, as amended, provides that the United States “may apply to the Treaty’s undefined terms ‘the meaning . . . under [its own] taxation laws,’” (alteration and ellipsis in original), that “[w]hen U.S. taxation is at issue, the expectations of the United States have primacy, even if those expectations may not be ‘shared’ by the treaty partner.” (alteration added) (citing Baturin v. Comm’r, 31 F.4th 170, 174 (4th Cir. 2022);³⁶ Adams Challenge (UK) Ltd. v. Comm’r, 154 T.C. at 37, 58 (2020)).

Defendant further claims that plaintiffs “misinterpret the parenthetical,” referring to “(as it may be amended from time to time without changing the general principle hereof)” in paragraph 2(a) of Article 24 of the 1994 Treaty, as amended. Defendant argues that “[t]he parenthetical does not, as plaintiffs claim, ‘guarantee[ ]’ a ‘general principle allowing a credit of French income taxes against U.S. income taxes’ for any possible levy that could conceivably be made by the United States.” (first alteration added; internal reference omitted). Quoting the 1994 Treaty Treasury Department Technical Explanation, defendant argues that the parenthetical language of paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, “merely recognizes a general principle that, ‘although the Convention provides for a foreign tax credit, the terms of the credit are determined by the provisions of the U.S. statutory credit at the time a credit is given.’” Defendant further argues: “Thus, while the United States may not outright repeal the foreign-tax-credit framework from its domestic law, it has wide leeway to decide the extent to which to allow the credit and any conditions to attach to it.” Defendant’s caution that “the United States may not outright repeal the foreign-tax-credit framework” appears to be the only caution to defendant’s otherwise broad conception of the United States’ “leeway to decide the extent to which to allow the credit and any conditions to attach to it.”

Defendant further argues, although the purpose of the 1994 Treaty, as amended, is “to reduce, or even eliminate where appropriate, double taxation of citizens and residents of the United States and France,” that “nothing suggests that the two countries expected or even intended to tailor the reduction or elimination of double taxation to any individual case.” Additionally, defendant contends that

to the extent that double-taxation relief is targeted through article 24 of the Treaty (rather than through the allocation of taxing rights), the Treaty is explicit that double-taxation relief has meaningful limits. The Treaty, like any other, must be applied according to its terms; if a treaty’s operative provisions provide no specific relief for a particular instance of double taxation, courts may not override the treaty to effect a more absolute conception of that goal than the treaty negotiators themselves intended and drafted.

As explained above, like plaintiffs, defendant makes the argument that paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, interacts with the saving clause of Article 29 of the same treaty to implement the three-bite rule:

Article 29(3), which plaintiffs refer to as the “carve out to the savings clause,” ensures that the saving clause does not undo the portions of article 24 that implement the three-bite rule (and alter U.S. law to do so). Article 24(2)(b)(ii) modifies U.S. tax law by allowing U.S. taxpayers to treat the portion of U.S.-source income on which France may impose a residency-based tax under the Treaty as foreign-source income. By modifying the source rules in the [Internal Revenue] Code, article 24(2)(b)(ii) increases the [I.R.C.] §904 limitation that would otherwise cap the taxpayers’ foreign tax credits at the pre-credit U.S. tax on their foreign source income. Together, Articles 24 and 29 of the Treaty implement the three-bite rule for U.S. citizens residing in France. They do not expand U.S. law to provide a foreign tax credit against the NIIT that the Code does not allow.

(alterations added; footnote and internal reference omitted). Defendant argues that, because paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, implements the second bite of the three-bite rule,³⁷

[i]f the Court were to credit plaintiffs’ claim that subsection (2)(b) authorizes a separate foreign tax credit for U.S. citizens residing in France that is not subject to limitations in the Internal Revenue Code, it would render meaningless the resourcing rule in subsection (2)(b)(ii), which is premised on the application of the foreign-tax-credit limitation in [I.R.C.] §904.

(alterations added).

Defendant also argues that a ruling for plaintiffs in the current case “would frustrate the policy foundation” of the foreign tax credit system and “would provide U.S. citizens residing in France with a far more generous foreign tax credit than would be available to U.S. citizens residing in the United States.” Defendant argues that, if the court were to accept plaintiffs’ interpretation of paragraph 2(b) of Article 24 of the 1994 Treaty, as amended,

then such taxpayers theoretically could, among other things:

• Claim foreign tax credits against U.S. tax on U.S.-sourced income, despite the policy behind the foreign-tax-credit limitation under [I.R.C.] §904;
• Evade the [I.R.C.] §904 limitation by cross-crediting foreign tax on general basket income against U.S. tax on passive basket income; or,
• Obtain a double benefit by claiming credits for foreign taxes paid on income excluded from U.S. tax by the foreign-earned income exclusion, contrary to [I.R.C.] §911(d)(6).

(alterations added). None of the scenarios which defendant poses directly above, however, appear to be before this court based on the facts presented to this court by plaintiffs’ case. Moreover, defendant appears to acknowledge by its reference to the “policy foundation” of foreign tax credits, that defendant is relying in large part on policy-based arguments against interpreting paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, to provide a foreign tax credit against the net investment income tax imposed by I.R.C. §1411, and does not cite to any statute or regulation that prevent plaintiffs from entitlement to a foreign tax credit under paragraph 2(b) of Article 24 of the 1994 Treaty, as amended.

Treaty Interpretation Standards and Principles for Resolving Potential Conflict Between Treaties and Domestic Statutes

The United States Supreme Court and the United States Court of Appeals for the Federal Circuit have established precedential standards by which interpretation of treaties and international agreements should occur. The United States Supreme Court stated in Medellin v. Texas that “[t]he interpretation of a treaty, like the interpretation of a statute, begins with its text,” Medellin v. Texas, 552 U.S. 491, 506-07 (2008) (alteration added) (citing Air France v. Saks, 470 U.S. at 396–97), but that “[b]ecause a treaty ratified by the United States is ‘an agreement among sovereign powers,’ we have also considered as ‘aids to its interpretation’ the negotiation and drafting history of the treaty as well as ‘the postratification understanding’ of signatory nations.” Id. (alteration added) (quoting Zicherman v. Korean Air Lines Co., Ltd., 516 U.S. at 226, and citing United States v. Stuart, 489 U.S. at 365–66; Choctaw Nation of Indians v. United States, 318 U.S. at 431–32); see also BG Grp., PLC v. Republic of Argentina, 572 U.S. 25, 37 (2014) (“As a general matter, a treaty is a contract, though between nations. Its interpretation normally is, like a contract’s interpretation, a matter of determining the parties’ intent.” (citing Air France v. Saks, 470 U.S. at 399; Sullivan v. Kidd, 254 U.S. 433, 439 (1921); Wright v. Henkel, 190 U.S. 40, 57 (1903)); Lozano v. Montoya Alvarez, 572 U.S. at 11 (citing Medellin v. Texas, 552 U.S. at 505; United States v. Choctaw Nation, 179 U.S. 494, 535 (1900)); United States v. Alvarez-Machain, 504 U.S. 655, 663 (1992) (“In construing a treaty, as in construing a statute, we first look to its terms to determine its meaning.” (citing Air France v. Saks, 470 U.S. at 397; Valentine v. United States ex rel. Neidecker, 299 U.S. 5, 11 (1936))). In the case of Air France v. Saks, the United States Supreme Court stated that interpretation of an international agreement “must begin, however, with the text of the treaty and the context in which the written words are used.” Air France v. Saks, 470 U.S. at 397 (citing Maximov v. United States, 373 U.S. 49, 53–54 (1963)). Moreover, the Supreme Court explained that “[i]t is a familiar rule that the obligations of treaties should be liberally construed so as to give effect to the apparent intention of the parties.” Valentine v. United States ex rel. Neidecker, 299 U.S. at 10 (alteration added) (citing Factor v. Laubenheimer, 290 U.S. at 293; Jordan v. Tashiro, 278 U.S. at 127; Tucker v. Alexandroff, 183 U.S. 424, 437 (1902)); see also Factor v. Laubenheimer, 290 U.S. at 294-95 (“In ascertaining the meaning of a treaty we may look beyond its written words to the negotiations and diplomatic correspondence of the contracting parties relating to the subject-matter, and to their own practical construction of it.”); Cook v. United States, 288 U.S. at 112 (“In construing the Treaty its history should be consulted.”); Jordan v. Tashiro, 278 U.S. at 127; Tucker v. Alexandroff, 183 U.S. at 437; In re Ross, 140 U.S. at 475 (“It is a canon of interpretation to so construe a law or treaty as to give effect to the object designed, and for that purpose all of its provisions must be examined in the light of attendant and surrounding circumstances.”).

Similarly, the Supreme Court in Eastern Airlines, Inc. v. Floyd stated that “'[w]hen interpreting a treaty, we “begin ‘with the text of the treaty and the context in which the written words are used,’”’” E. Airlines, Inc. v. Floyd, 499 U.S. 530, 534 (1991) (alteration added) (quoting Volkswagenwerk Aktiengesellschaft v. Schlunk, 486 U.S. 694, 699 (1988) (quoting Société Nationale Industrielle Aérospatiale v. United States Dist. Ct. for the S. Dist. of Iowa, 482 U.S. 522, 534 (1987) (quoting Air France v. Saks, 470 U.S. at 397))), but also that “'[o]ther general rules of construction may be brought to bear on difficult or ambiguous passages.’” Id. at 535 (alteration added) (quoting Volkswagenwerk Aktiengesellschaft v. Schlunk, 486 U.S. at 700); see also Water Splash, Inc. v. Menon, 581 U.S. 271, 276 (2017) (quoting Volkswagenwerk Aktiengesellschaft v. Schlunk, 486 U.S. at 699); Chan v. Korean Air Lines, Ltd., 490 U.S. 122, 133-35 (1989) (explaining that “[w]e must thus be governed by the text,” although “intricate drafting history” might “be consulted to elucidate a text that is ambiguous” (citing Air France v. Saks, 470 U.S. 392)); Sumitomo Shoji Am., Inc. v. Avagliano, 457 U.S. at 180 (“The clear import of treaty language controls unless ‘application of the words of the treaty according to their obvious meaning effects a result inconsistent with the intent or expectations of its signatories.’” (quoting Maximov v. United States, 373 U.S. at 54)); Nat’l Westminster Bank, PLC v. United States, 512 F.3d at 1353 (“When construing a treaty, ‘[t]he clear import of treaty language controls unless “application of the words of the treaty according to their obvious meaning effects a result inconsistent with the intent or expectations of its signatories,”’” (alteration in original) (quoting Sumitomo Shoji Am., Inc. v. Avagliano, 457 U.S. at 180 (quoting Maximov v. United States, 373 U.S. at 54)), and also holding that “effect must be given to the intent of both signatories” (citing Xerox Corp. v. United States, 41 F.3d at 656 (citing Valentine v. United States ex rel. Neidecker, 299 U.S. at 11)), but “when the language of a treaty provision ‘only imperfectly manifests its purpose,’ we are required to give effect to its underlying purpose,” and “[t]o this end, we must ‘examine not only the language, but the entire context of agreement.’” (alteration added) (quoting Great-West Life Assur. Co. v. United States, 230 Ct. Cl. at 481 (internal quotations omitted)))); United Techs. Corp. v. United States, 315 F.3d 1320, 1322 (Fed. Cir. 2003) (“The terms of a treaty are to be given their ordinary meaning in the context of the treaty, and are to be interpreted to best fulfill the purpose of the treaty.” (citing Xerox Corp. v. United States, 41 F.3d at 652)); Great-West Life Assur. Co. v. United States, 230 Ct. Cl. at 481 (citing Factor v. Laubenheimer, 290 U.S. at 294-95, and In re Ross, 140 U.S. at 475, as “requir[ing] that the underlying purpose [of the treaty] be given effect” (alterations added)). In particular, “[t]he course of conduct of parties to an international agreement, like the course of conduct of parties to any contract, is evidence of its meaning.” O’Connor v. United States, 479 U.S. at 33 (alteration added) (citing Trans World Airlines, Inc. v. Franklin Mint Corp., 466 U.S. at 259-60; Pigeon River Imp., Slide & Boom Co. v. Charles W. Cox, Ltd., 291 U.S. at 158-61). Moreover, the Supreme Court has emphasized that “[i]t is our ‘responsibility to read the treaty in a manner consistent with the shared expectations of the contracting parties.’” Lozano v. Montoya Alvarez, 572 U.S. at 12 (emphasis in original; alteration added) (quoting Olympic Airways v. Husain, 540 U.S. at 650 (internal quotations omitted)).

The United States Court of Appeals for the Federal Circuit succinctly summarized the Supreme Court’s approach to treaty interpretation in Xerox Corp. v. United States:

In construing a treaty, the terms thereof are given their ordinary meaning in the context of the treaty and are interpreted, in accordance with that meaning, in the way that best fulfills the purposes of the treaty. See United States v. Stuart, 489 U.S. 353, 365–66, 109 S. Ct. 1183, 1190–91, 103 L. Ed. 2d 388 (1989) (interpreting a treaty to carry out the intent or expectations of the signatories); Kolovrat v. Oregon, 366 U.S. 187, 193–94, 81 S. Ct. 922, 925–26, 6 L. Ed. 2d 218 (1961) (a treaty should be interpreted to carry out its purpose). As discussed in Sumitomo Shoji America, Inc. v. Avagliano, 457 U.S. 176, 185, 102 S. Ct. 2374, 2379, 72 L. Ed. 2d 765 (1982), the court’s role is “limited to giving effect to the intent of the Treaty parties.” See generally Restatement (Third) of Foreign Relations Law of the United States, Part III, Introductory Note at 144–145 (1987). The judicial obligation is to satisfy the intention of both of the signatory parties, in construing the terms of a treaty. Valentine v. United States, 299 U.S. 5, 11, 57 S. Ct. 100, 103, 81 L. Ed. 5 (1936) (“it is our duty to interpret [the treaty] according to its terms. These must be fairly construed, but we cannot add or detract from them.”)

Unless the treaty terms are unclear on their face, or unclear as applied to the situation that has arisen, it should rarely be necessary to rely on extrinsic evidence in order to construe a treaty, for it is rarely possible to reconstruct all of the considerations and compromises that led the signatories to the final document. However, extrinsic material is often helpful in understanding the treaty and its purposes, thus providing an enlightened framework for reviewing its terms. See Air France v. Saks, 470 U.S. 392, 400, 105 S. Ct. 1338, 1343, 84 L. Ed. 2d 289 (1985) (“In interpreting a treaty it is proper, of course, to refer to the records of its drafting and negotiation.”) However, “the ultimate question remains what was intended when the language actually employed . . . was chosen, imperfect as that language may be.” Great–West Life Assurance Co. v. United States, 678 F.2d 180, 188, 230 Ct. Cl. 477 (1982).

Xerox Corp. v. United States, 41 F.3d at 652 (alteration and ellipsis in original).

While both parties have provided the court with their view as to the “harmonization” of treaties and statutes in the event of a potential conflict, as is presented in this case, the precedents of the United States Supreme Court and the United States Court of Appeals for the Federal Circuit provide more complicated analyses for the court to use to resolve such potential conflict than the parties have indicated. The Constitution of the United States provides that “[t]his Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land.” U.S. CONST. art. VI. (alteration added). In Weinberger v. Rossi, 456 U.S. 25, the Supreme Court explained, with respect to potential conflict between statutes and treaties of the United States:

It has been a maxim of statutory construction since the decision in Murray v. The [Schooner] Charming Betsy, [6 U.S.] 2 Cranch 64, 118, 2 L. Ed. 208 (1804), that “an act of congress ought never to be construed to violate the law of nations, if any other possible construction remains. . . .” In McCulloch v. Sociedad Nacional de Marineros de Honduras, 372 U.S. 10, 20–21, 83 S. Ct. 671, 677–678, 9 L. Ed. 2d 547 (1963), this principle was applied to avoid construing the National Labor Relations Act in a manner contrary to State Department regulations, for such a construction would have had foreign policy implications. The McCulloch Court also relied on the fact that the proposed construction would have been contrary to a “well-established rule of international law.” Id., at 21, 83 S. Ct., at 677–678.

Weinberger v. Rossi, 456 U.S. at 32 (ellipsis in original; alterations added). In the case of Murray v. Schooner Charming Betsy, 6 U.S. (2 Cranch) 64, which was cited in Weinberger as quoted above, the Supreme Court stated:

It has also been observed that an act of Congress ought never to be construed to violate the law of nations if any other possible construction remains, and consequently can never be construed to violate neutral rights, or to affect neutral commerce, further than is warranted by the law of nations as understood in this country.

Murray v. Schooner Charming Betsy, 6 U.S. (2 Cranch) at 118. In Whitney v. Robertson, 124 U.S. 190, cited above, the Supreme Court further explained:

By the constitution, a treaty is placed on the same footing, and made of like obligation, with an act of legislation. Both are declared by that instrument to be the supreme law of the land, and no superior efficacy is given to either over the other. When the two relate to the same subject, the courts will always endeavor to construe them so as to give effect to both, if that can be done without violating the language of either; but, if the two are inconsistent, the one last in date will control the other: provided, always, the stipulation of the treaty on the subject is self-executing.

Id. at 194; see also MacLeod v. United States, 229 U.S. 416, 434 (1913) (“[I]t should not be assumed that Congress proposed to violate the obligations of this country to other nations, which it was the manifest purpose of the President to scrupulously observe, and which were founded upon the principles of international law.” (alteration added)). The Supreme Court also has stated that “[a] treaty will not be deemed to have been abrogated or modified by a later statute, unless such purpose on the part of Congress has been clearly expressed.” Cook v. United States, 288 U.S. at 120 (alteration added) (citing United States v. Payne, 264 U.S. 446, 448 (1924); Chew Heong v. United States, 112 U.S. 536 (1884)); see also Trans World Airlines, Inc. v. Franklin Mint Corp., 466 U.S. at 252 (“There is, first, a firm and obviously sound canon of construction against finding implicit repeal of a treaty in ambiguous congressional action. ‘A treaty will not be deemed to have been abrogated or modified by a later statute unless such purpose on the part of Congress has been clearly expressed.’” (quoting Cook v. United States, 288 U.S. at 120)); Clark v. Allen, 331 U.S. 503, 507, 512 (1947) (“We will not readily assume that when Congress enacted §5(b) [of the Trading with the Enemy Act] and authorized the vesting of property, it had a purpose to abrogate all such treaty clauses” as the provisions of a treaty with Germany “governing the testamentary disposition of realty and personalty” (alteration added) (citing Cook v. United States, 288 U.S. at 120)); United States v. Lee Yen Tai, 185 U.S. at 221 (“[T]he purpose by statute to abrogate a treaty or any designated part of a treaty, or the purpose by treaty to supersede the whole or a part of an act of Congress, must not be lightly assumed, but must appear clearly and distinctly from the words used in the statute or in the treaty.” (alteration added)).

In 2013, in the case of In re City of Houston, the United States Court of Appeals for the Federal Circuit restated the longstanding principle from the Supreme Court’s decision in Charming Betsy as “that ‘an act of Congress ought never to be construed to violate the law of nations, if any other possible construction remains.’” In re City of Houston, 731 F.3d 1326, 1334 (Fed. Cir. 2013) (quoting Murray v. Schooner Charming Betsy, 6 U.S. (2 Cranch) at 118); see also In re Rath, 402 F.3d 1207, 1211 (Fed. Cir. 2005) (“In cases of ambiguity, we interpret a statute such as section 44(e) of the Lanham Act as being consistent with international obligations.” (citing Murray v. Schooner Charming Betsy, 6 U.S. (2 Cranch) at 118; Allegheny Ludlum Corp. v. United States, 367 F.3d 1339, 1348 (Fed. Cir. 2004); Luigi Bormioli Corp., Inc. v. United States, 304 F.3d 1362, 1368 (Fed. Cir. 2002))); Corus Staal BV v. Dep’t of Commerce, 395 F.3d 1343, 1347 (Fed. Cir. 2005) (referring to “the Charming Betsy doctrine of claim construction, which states that courts should interpret U.S. law, whenever possible, in a manner consistent with international obligations” (citing Murray v. Schooner Charming Betsy, 6 U.S. (2 Cranch) 64)); Allegheny Ludlum Corp. v. United States, 367 F.3d at 1345 (“[T]his court’s interpretation of [19 U.S.C.] §1677(5) avoids unnecessary conflict between domestic law and the international obligations of this country.” (alterations added)); Timken Co. v. United States, 354 F.3d 1334, 1343-44 (Fed. Cir. 2004) (“The crux of its argument hinges on the Charming Betsy canon of claim construction, according to which courts should interpret U.S. law, whenever possible, in a manner consistent with U.S. international obligations.” (citing Murray v. Schooner Charming Betsy, 6 U.S. (2 Cranch) at 118; Luigi Bormioli Corp., Inc. v. United States, 304 F.3d at 1368; Fed.-Mogul Corp. v. United States, 63 F.3d 1572, 1581 (Fed. Cir. 1995))). The Federal Circuit has recognized the Supreme Court’s rule set forth in Charming Betsy as a “two-century-old canon of construction” that a statute “’must be interpreted to be consistent with [international] obligations, absent contrary indications in the statutory language or its legislative history.’” Allegheny Ludlum Corp. v. United States, 367 F.3d at 1348 (alteration in original) (quoting Luigi Bormioli Corp., Inc. v. United States, 304 F.3d at 1368, and citing Fed.-Mogul Corp. v. United States, 63 F.3d at 1581); see also Fed.-Mogul Corp. v. United States, 63 F.3d at 1581 (“GATT [General Agreement on Tariffs and Trade] agreements are international obligations, and absent express Congressional language to the contrary, statutes should not be interpreted to conflict with international obligations.” (alteration added)); Abbott Lab’ys v. United States, 84 Fed. Cl. 96, 107 and n.17 (2008) (describing a “canon of construction — that statutes and regulations should be construed consistently with international treaty obligations” (citing Sale v. Haitian Ctrs. Council, Inc., 509 U.S. 155, 178-79 n. 35 (1993); MacLeod v. United States, 229 U.S. at 434; Murray v. Schooner Charming Betsy, 6 U.S. (2 Cranch) at 118; Cannon v. United States Dep’t of Justice, United States Parole Comm’n, 973 F.2d 1190, 1193 (5th Cir. 1992))). The Federal Circuit, moreover, explained in Xerox Corp.:

A treaty, when ratified, supersedes prior domestic law to the contrary, United States v. Lee Yen Tai, 185 U.S. 213, 220–22, 22 S. Ct. 629, 632–33, 46 L. Ed. 878 (1902), and is equivalent to an act of Congress. However, tacit abrogation of prior law will not be presumed and, unless it is impossible to do so, treaty and law must stand together in harmony.

Xerox Corp. v. United States, 41 F.3d at 658.

In addition to the principle articulated by the Supreme Court in the Charming Betsy case, other rules announced by the United States Supreme Court in the context of treaty interpretation bear on this court’s interpretation of the 1994 Treaty, as amended. Particularly relevant to the above captioned case, the Supreme Court has instructed courts to afford a liberal interpretation to treaties, including treaties concerning the taxing power. In the case of United States v. Stuart, 489 U.S. 353, the Supreme Court explained

that a treaty should generally be “construe[d] . . . liberally to give effect to the purpose which animates it” and that “[e]ven where a provision of a treaty fairly admits of two constructions, one restricting, the other enlarging, rights which may be claimed under it, the more liberal interpretation is to be preferred[.]”

Id. at 368 (alterations and ellipsis in original) (quoting Bacardi Corp. of Am. v. Domenech, 311 U.S. 150, 163 (1940) (internal citations omitted)). In United States v. Stuart, the Supreme Court ruled against an attempt to restrict the sending of information from the United States to Canada under the Convention between the United States and Canada Respecting Double Taxation. See id.

The Supreme Court in Bacardi Corp. of America v. Domenech, which was cited in Stuart, addressed a conflict between a statute of the United States territory of Puerto Rico and a multilateral treaty, “the General Inter-American Convention for Trade Mark and Commercial Protection signed at Washington on February 20, 1929.” See Bacardi Corp. of Am. v. Domenech, 311 U.S. at 157. The Supreme Court in Bacardi explained “the accepted canon” that “we should construe the treaty liberally to give effect to the purpose which animates it. Even where a provision of a treaty fairly admits of two constructions, one restricting, the other enlarging rights which may be claimed under it, the more liberal interpretation is to be preferred.” Id. at 163 (citing Factor v. Laubenheimer, 290 U.S. at 293-94; Nielsen v. Johnson, 279 U.S. at 52; Jordan v. Tashiro, 278 U.S. at 127). In the United States Supreme Court’s decision in Kolovrat v. Oregon, 366 U.S. 187, the Supreme Court cited the Bacardi decision to consider a conflict between the succession laws of Oregon, which limited the ability of aliens to take under testate or intestate succession, and “an 1881 Treaty between the United States and Serbia, which country is now [in 1961] a part of Yugoslavia.” See Kolovrat v. Oregon, 366 U.S. at 190 (alteration added). In Kolovrat, the United States Supreme Court rejected the “more restrictive interpretation” of the 1881 Treaty favored by the Supreme Court of Oregon, explaining that “[t]his Court has many times set its face against treaty interpretations that unduly restrict rights a treaty is adopted to protect.” See id. at 193 and n.7 (alteration added) (citing Bacardi Corp. of Am. v. Domenech, 311 U.S. at 163; Jordan v. Tashiro, 278 U.S. at 128-29). The United States Supreme Court also addressed the rule that treaties should be afforded a “liberal interpretation” in Jordan v. Tashiro, 278 U.S. 123, a case cited by the United States Supreme Court in both Bacardi and Kolovrat. In Jordan, the Supreme Court explained:

The principles which should control the diplomatic relations of nations, and the good faith of treaties as well, require that their obligations should be liberally construed so as to effect the apparent intention of the parties to secure equality and reciprocity between them. See [De] Geofroy v. Riggs, [133 U.S. 258, 267 (1890)³⁸]; Tucker v. Alexandroff, 183 U.S. 424, 437, 22 S. Ct. 195, 46 L. Ed. 264; Wright v. Henkel, 190 U.S. 40, 57, 23 S. Ct. 781, 47 L. Ed. 948; In re Ross, 140 U.S. 453, 475, 11 S. Ct. 897, 35 L. Ed. 581. Upon like ground, where a treaty fairly admits of two constructions, one restricting the rights that may be claimed under it and the other enlarging them, the more liberal construction is to be preferred. Asakura v. Seattle, 265 U.S. 332, 44 S. Ct. 515, 68 L. Ed. 1041 [(1924)]; Tucker v. Alexandroff, supra; [De] Geofroy v. Riggs, supra.

Jordan v. Tashiro, 278 U.S. at 127 (alterations and footnote added).

In addition to these precedential cases of the United States Supreme Court, decisions issued by the United States Court of Appeals for the Federal Circuit and by the United States Court of Federal Claims have applied the rule that treaties should be liberally interpreted when interpreting tax treaties. See, e.g., Xerox Corp. v. United States, 41 F.3d at 652 (citing United States v. Stuart, 489 U.S. at 365-66, in the context of a treaty with the purpose of “the elimination of double taxation” between the United States and the United Kingdom); McManus v. United States, 130 Fed. Cl. at 616, 620 (citing United States v. Stuart, 489 U.S. at 365-66, in the context of a treaty for “the avoidance of double taxation” between the United States and Ireland); Nat’l Westminster Bank, PLC v. United States, 58 Fed. Cl. 491, 497 (2003) (citing United States v. Stuart, 489 U.S. at 368, in the context of a treaty for the avoidance of double taxation between the United States and the United Kingdom), aff’d, 512 F.3d 1347 (Fed. Cir.), reh’g en banc denied (Fed. Cir. 2008).

In addition to the precedents of the United States Supreme Court and the United States Court of Appeals for the Federal Circuit which establish the rules of treaty interpretation, including the cases in which the terms of a treaty and a statute potentially conflict, initially the parties and the court in the above captioned case also identified a non-precedential decision issued by the United States Tax Court, Toulouse v. Commissioner, 157 T.C. 49 (2021), which addressed, in part, the 1994 Treaty, as amended, between the United States and France. The Toulouse decision addressed whether the 1994 Treaty, as amended, with France provides for a foreign tax credit against the net investment income tax imposed by I.R.C. §1411, in Chapter 2A of the I.R.C. The Toulouse case concerned “whether petitioner is entitled to a credit against the net investment income tax (foreign tax credit) on the basis of certain provisions of the United States’ income tax treaties with France and Italy.” Toulouse v. Comm’r, 157 T.C. at 50. The petitioner in the Toulouse case relied on paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, between the United States and France, as well as

article 23(2)(a) of U.S. income tax treaty with Italy, the Convention for the Avoidance of Double Taxation With Respect to Taxes on Income and the Prevention of Fraud or Fiscal Evasion, Aug. 25, 1999, It.-U.S., Aug. 25, 1999, T.I.A.S. No. 09-1216, as supplemented by Protocol dated Aug. 25, 1999 (U.S.-Italy Treaty)

to argue that the two treaties “permit a foreign tax credit against the net investment income tax.” Toulouse v. Comm’r, 157 T.C. at 52. As described by the Tax Court, the petitioner in Toulouse made a similar argument to the argument made by the current plaintiffs in this court with respect to paragraph 2(a) of Article 24 of the 1994 Treaty, as amended. The United States Tax Court in Toulouse explained:

Petitioner concedes that the [Internal Revenue] Code does not provide a foreign tax credit against the net investment income tax. Instead, she argues that article 24(2)(a) of the U.S.-France Treaty[³⁹] and article 23(2)(a) of the U.S.-Italy Treaty provide a foreign tax credit independent of the [Internal Revenue] Code. Under the Constitution, treaties are given the same force and effect as legislation enacted by Congress. U.S. Const. art. VI, cl. 2; see [I.R.C.] sec. 7852(d)(1) (“For purposes of determining the relationship between a provision of a treaty and any law of the United States affecting revenue, neither the treaty nor the law shall have preferential status[.]”).

Toulouse v. Comm’r, 157 T.C. at 57 (fourth alteration in original). The Tax Court decision briefly articulated the basic standards of treaty interpretation, including that “[w]here a treaty and a statute relate to the same subject, courts attempt to construe them to give effect to both.” Id. at 58 (alteration added) (citing Whitney v. Robertson, 124 U.S. at 194). The Tax Court in Toulouse explained that “[t]he U.S.-France and U.S.-Italy Treaties are intended to limit the effects of double taxation between the treaty partners and contain specific provisions that provide each country’s obligations to grant a foreign tax credit as part of the treaties’ general goal of reducing the amount of double taxation.” Id. (alteration added). The Tax Court in Toulouse reasoned that “[u]nder the express terms of the articles of the Treaties that petitioner relies on, any allowable foreign tax credit must be determined in accordance with the [Internal Revenue] Code and is limited by the Code’s provision of a credit.” Id. (alterations added). In a footnote, the Tax Court further stated: “Petitioner does not argue that she is entitled to relief under any other treaty provisions. Accordingly, we express no view on the potential application of other provisions.” Id. at 58 n.4. The Tax Court in Toulouse considered the petitioner’s arguments “that the Treaties do not conflict with the [Internal Revenue] Code because the Code is silent as to whether there is a foreign tax credit against the net investment income tax,” and “that there is no explanation in the legislative history for Congress’ decision to impose the net investment income tax under chapter 2A [of the I.R.C.] or any indication that Congress considered whether to provide a foreign tax credit against the net investment income tax.” Toulouse v. Comm’r, 157 T.C. at 59 (alterations added).

With respect to the net investment income tax imposed by I.R.C. §1411, the Tax Court explained that “[t]he fact that section 1411 was enacted after the execution of the Treaties is not determinative,” because the 1994 Treaty, as amended, “covers all ‘Federal income taxes imposed by the Internal Revenue Code’ and further states that its terms are subject to identical or substantially similar tax imposed after the effective date of the Treaty.” Toulouse v. Comm’r, 157 T.C. at 59. The Tax Court reasoned that “[t]he placement of section 1411 in a newly created chapter was not happenstance. An enumerated chapter of the [Internal Revenue] Code to impose a distinct and separate tax is part of the Code’s fundamental structure.” Toulouse v. Comm’r, 157 T.C. at 59 (alterations added). The Tax Court also stated that “[t]here is no provision for any credits against the section 1411 tax. The enactment of a 3.8% net investment income tax as part of chapter 2A [of the I.R.C.] is a clear expression of congressional intent that credits against section 1 not apply against the section 1411 tax.” Toulouse v. Comm’r, 157 T.C. at 60 (alterations added).

The Tax Court further considered the petitioner’s argument “that the enactment of the net investment income tax in chapter 2A is not a ‘limitation’ as that term is used in the Treaties,” and that such limitation “should not be imposed on the basis of Congress’ silence on the issue.” Toulouse v. Comm’r, 157 T.C. at 59-60. The Tax Court in Toulouse rejected the petitioner’s argument, stating:

It is immaterial that the [Internal Revenue] Code does not affirmatively state that a foreign tax credit against the net investment income tax is disallowed. Section 1411(c)(1)(B) expressly provides for deductions allowed by subtitle A in the computation of net investment income. There is no provision for any credits against the section 1411 tax. The enactment of a 3.8% net investment income tax as part of chapter 2A [of the I.R.C.] is a clear expression of congressional intent that credits against section 1 not apply against the section 1411 tax.

Toulouse v. Comm’r, 157 T.C. at 60 (alterations added). The Tax Court reasoned that “[t]here is nothing in either article 24(2)(a) of the U.S.-France Treaty or article 23(2)(a) of the U.S.-Italy Treaty that entitles U.S. taxpayers to an elimination of all double taxation” and, with respect to the 1994 Treaty, as amended, between the United States and France, that the Tax Court’s interpretation was “confirmed by the contemporary explanation provided by the Treasury Department, the Government agency charged with the Treaty’s negotiation and enforcement.” Toulouse v. Comm’r, 157 T.C. at 61 (alteration added). The Tax Court concluded that “petitioner is not entitled to a foreign tax credit against her net investment income tax” because “Congress has allowed a foreign tax credit only against taxes imposed under chapter 1. There is no [Internal Revenue] Code provision for a foreign tax credit against the net investment income tax.” Toulouse v. Comm’r, 157 T.C. at 62 (alteration added). The Tax Court, however, also stated:

Petitioner questions the purpose of the Treaties if there is no independent, treaty-based credit and a credit is allowable only if it is provided in the [Internal Revenue] Code. But we do not so hold. Other provisions of the Treaties may well provide for credits that are unavailable under the Code. Petitioner, however, relies on provisions that by their express terms do not.

Id. at 61-62 (alteration added).

In addition to plaintiffs’ arguments with respect to paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, plaintiffs argue that the Tax Court’s decision in Toulouse support’s plaintiffs’ interpretation of paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, to allow a foreign tax credit against the net investment income tax, because, when denying the Toulouse petitioner’s argument, which had been limited to paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, the Tax Court “referr[ed] to a possible other credit provision that would be available,” which plaintiffs in this court argue “appears to agree that a plain reading of Article 24(2)(b) [of the 1994 Treaty, as amended,] would provide for a foreign tax credit even if the restrictions of Article 24(2)(a) [of the 1994 Treaty, as amended,] would otherwise apply.” (alterations added). Plaintiffs, however, do not provide a citation from the Toulouse decision for their claim that the Toulouse decision “appears to agree” that paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, “would provide for a foreign tax credit” independent of paragraph 2(a) of Article 24 of the 1994 Treaty, as amended. As noted above, the Toulouse court did not address paragraph 2(b) of Article 24 of the 1994 Treaty, as amended. Plaintiffs argue that “without any reference to the ‘[i]n accordance with the provisions and subject to the limitations of the law of the United States’ Article 24(2)(a) language, Article 24(2)(b) [of the 1994 Treaty, as amended] allows a U.S. citizen living in France a credit for French taxes paid against that U.S. citizen’s U.S. income tax liability.” (first alteration in original). The Toulouse decision, however, explicitly did not interpret whether other provisions of the 1994 Treaty, as amended, provide a foreign tax credit against the net investment income tax imposed by I.R.C. §1411, as the Tax Court solely analyzed paragraph 2(a) of Article 24 of the 1994 Treaty, as amended. See Toulouse v. Comm’r, 157 T.C. at 58 n.4. Therefore, the Tax Court in the Toulouse decision left open the issue of whether paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, provides a tax credit against the net investment income tax imposed by I.R.C. §1411. See Toulouse v. Comm’r, 157 T.C. at 61-62 (“Other provisions of the Treaties may well provide for credits that are unavailable under the Code. Petitioner, however, relies on provisions that by their express terms do not.”).

After briefing was complete and oral argument was held on the cross-motions for partial summary judgment in the above captioned case, the United States District Court for the Central District of California issued a decision in Kim v. United States, No. 5:22-cv-00691-SPG-SP, 2023 WL 3213547 (C.D. Cal. Mar. 28, 2023), which considered, but was not limited to, the issue of whether an income tax treaty between the United States and the Republic of Korea provided a foreign tax credit against the net investment income tax imposed by I.R.C. §1411. See Kim v. United States, 2023 WL 3213547, at *10. The Kim decision addressed the inclusion in the United States-South Korea treaty of language which is “identical to the treaty language” of paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, between the United States and France, which also was at issue in Toulouse and is at issue in the above captioned case. See Kim v. United States, 2023 WL 3213547, at *11. The District Court quoted the language of the United States-South Korea treaty as follows:

In accordance with the provisions and subject to the limitations of the law of the United States (as it may be amended from time to time without changing the principles hereof), the United States shall allow a citizen or resident of the United States as a credit against the United States tax the appropriate amount of Korean tax. . . .

Id. at *14 (ellipsis added). The District Court in Kim deferred to the United States’ interpretation of I.R.C. §1411 as set forth in Treasury Regulation § 1.1411-1(e) and agreed with the Tax Court’s decision in Toulouse: “As the Toulouse Tax Court found, and as this Court also finds, this language [in the United States-South Korea treaty] unambiguously mandates that any allowed foreign tax credit must conform to the statutory foreign-tax-credit framework already in place.” See Kim v. United States, 2023 WL 3213547, at *14 (alteration added). While the Kim court analogized the United States-South Korea treaty to the 1994 Treaty, as amended, between the United States and France, the Kim court did so only to consider language which is identical to paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, and, therefore, the Kim decision is not relevant to this court’s interpretation of paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, which was not addressed by the Kim court. Moreover, the Kim court interpreted the text of a treaty between the United States and South Korea, which is not determinative of the intent of the United States and France as to the meaning of the 1994 Treaty, as amended, in the above captioned case before this court.

Plaintiffs further argue that certain other “[f]ederal courts have already had the opportunity to consider the meaning of the Article 24(2)(a) phrase ‘as it may be amended from time to time without changing the general principle thereof [sic]’.” (alteration added). The cases cited by plaintiffs, however, do not concern the 1994 Treaty, as amended, between the United States and France, but rather concern other treaties which use language similar to that used in Article 24 of the 1994 Treaty between the United States and France, as amended. In particular, plaintiffs cite to Eshel v. Commissioner of Internal Revenue Service,⁴⁰ 831 F.3d 512 (concerning a “totalization agreement” with respect to Social Security taxes between the United States and France and the statute at I.R.C. §1401 note),⁴¹ Jamieson v. Commissioner of Internal Revenue Service, 584 F.3d 1074, 1076 (D.C. Cir. 2009) (concerning a treaty for the prevention of double taxation between the United States and Canada and foreign tax credits against the alternative minimum tax at I.R.C. §59), Haver v. Commissioner of Internal Revenue Service, 444 F.3d 656 (D.C. Cir. 2006) (concerning a treaty for the avoidance of double taxation between the United States and Germany and foreign tax credits against the alternative minimum tax at I.R.C. §59), and Kappus v. Commissioner of Internal Revenue Service, 337 F.3d 1053, 1058 (D.C. Cir. 2003) (concerning a treaty for the avoidance of double taxation between the United States and Canada and foreign tax credits against the alternative minimum tax at I.R.C. §59).

Because this court is concerned with interpreting the 1994 Treaty, as amended, between the United States and France, in light of the shared expectations of the signatory governments to that treaty, and because plaintiffs cite to cases interpreting treaties other than the 1994 Treaty, the 2004 Protocol, and the 2009 Protocol, but rather concerned different provisions of the I.R.C. than are at issue in the current case before the court, plaintiffs’ cited cases do not lead to a resolution of plaintiffs’ case. See Lozano v. Montoya Alvarez, 572 U.S. at 12 (quoting Olympic Airways v. Husain, 540 U.S. at 650 (quoting Air France v. Saks, 470 U.S. at 399); Zicherman v. Korean Air Lines Co., Ltd., 516 U.S. at 226).

In response to plaintiffs’ arguments regarding the impact of the Tax Court’s decision in Toulouse on the above captioned case, defendant quotes the Tax Court’s decision argue that “'[u]nder the express terms’ of article 24(2)(a), ‘any allowable foreign tax credit must be determined in accordance with the Code and is limited by the Code’s provision of a credit.’” (alteration added) (quoting Toulouse v. Comm’r, 157 T.C. at 58). Therefore, according to defendant, “the Treaty provides for relief from double taxation in the form of a foreign tax credit, and the extent of a taxpayer’s eligibility for that foreign tax credit is determined in accordance with the Code.” Quoting Toulouse, defendant argues: “The ‘require[ment] [that] any foreign tax credit . . . be “in accordance with the Code”’ necessarily means that, for plaintiff [sic] ‘to prevail,’ the ‘Code must provide the credit if one exists.’” (ellipsis in original; last alteration added) (quoting Toulouse v. Comm’r, 157 T.C. at 60).

As described above, one of the treaty interpretation rules relevant to the court’s analysis in the above captioned case is the rule, announced in United States v. Stuart, that a court should interpret a treaty “liberally.” See United States v. Stuart, 489 U.S. at 369. Defendant, however, challenges the application of the liberal interpretation rule as announced in the United States Supreme Court’s decision in United States v. Stuart, arguing that Stuart is the only case “in the last fifty years in which the Supreme Court suggested that that a tax treaty should generally be interpreted ‘liberally.’” (emphasis in original) (quoting United States v. Stuart, 489 U.S. at 369). Defendant proposes that treaties relating to taxation should be interpreted differently than other treaties. According to defendant:

While some courts have applied a general canon that treaties should be construed liberally to achieve their purpose, e.g., Bacardi Corp. of America v. Domenech, 311 U.S. 150, 163 (1940), commentators have criticized application of the canon “in the tax treaty context.” See [Rebecca M.] Kysar, [Interpreting Tax Treaties,] 101 IOWA L. REV. [1387,] 1441 [(2016)]. “[S]pecialized meanings in the tax context abound, as do express and implicit references to domestic law, thus constraining the interpreters.” Id. “A liberal presumption is also at odds with the notion of sovereignty . . . in the tax context. Given the tie between taxation and the fisc, the relinquishing of taxing jurisdiction is not something that a sovereign would likely do implicitly or lightly.” Id. Finally, because tax credits and exemptions are matters of legislative grace, they are narrowly construed in favor of the government, a factor weighing against a liberal construction of the Treaty here. Schumacher [v. United States], 931 F.2d [650,] 652 [(10th Cir. 1991)]; [United States v.] McFerrin, 570 F.3d [672,] 675 [(5th Cir. 2009)].

(fifth alteration and ellipsis in original). The cases cited by defendant, however, do not concern treaty interpretation, but rather address the interpretation of the I.R.C. See United States v. McFerrin, 570 F.3d at 675; Schumacher v. United States, 931 F.2d at 652.

Defendant’s sole cited source for the proposition that “commentators have criticized application of the [liberal interpretation] canon ‘in the tax treaty context,’” which is the Interpreting Tax Treaties article by Professor Kysar, appears, however, to take a more nuanced view than defendant represents. (alteration added) (quoting Kysar, 101 IOWA L. REV. at 1441). While Professor Kysar argues that “[l]iberal interpretation is a poor fit in the tax treaty context” and “is also at odds with the notion of sovereignty,” Professor Kysar also states a “recommendation for the presumption against double taxation,” reasoning that “[a] presumption against double taxation is a softer version of the liberal presumption rule and more successfully navigates between the interests of sovereignty and harmonization.” Kysar, 101 IOWA L. REV. at 1442 (alterations added). While a law review article may provoke thinking on difficult and unsettled questions of law, a law review article, even if well-reasoned, is not binding on any court, including the United States Court of Federal Claims. Moreover, as discussed above, the Supreme Court’s decision in Stuart and its articulation of the liberal interpretation rule has been relied on by the Federal Circuit and Judges of the Court of Federal Claims to interpret tax treaties. See, e.g., Xerox Corp. v. United States, 41 F.3d at 652; McManus v. United States, 130 Fed. Cl. at 620. Defendant’s argument that the liberal interpretation rule should not be applied in the context of tax treaties, relying only on a single law review article, is not persuasive. Therefore, without deference to defendant’s interpretation, as determined above, the court applies the liberal interpretation of treaties rule announced in United States v. Stuart, as well as the principle announced in the Charming Betsy case, described above, to inform the court’s determination of the shared expectations of the United States and French Governments with respect to paragraphs 2(a) and 2(b) of Article 24 of the 1994 Treaty, as amended.

Mindful of the principles set forth above, including the Supreme Court’s observation in Charming Betsy “that an act of Congress ought never to be construed to violate the law of nations if any other possible construction remains,” see Murray v. Schooner Charming Betsy, 6 U.S. (2 Cranch) at 118, the court interprets paragraphs 2(a) and 2(b) of Article 24 of the 1994 Treaty, as amended, in light of the restriction of I.R.C. §§27 and 901(a) to apply foreign tax credits only against “the tax imposed by this chapter,” Chapter 1 of the I.R.C. See I.R.C. §§27, 901(a). As discussed above, a potential conflict exists because, if paragraphs 2(a) of Article 24 of the 1994 Treaty, as amended, is interpreted to provide a foreign tax credit without restriction, that would allow a foreign tax credit against the net investment income tax imposed by I.R.C. §1411, which is in Chapter 2A of the I.R.C., not in Chapter 1 of the I.R.C., and prohibited from the application of foreign tax credits by I.R.C. §§27 and 901(a). As quoted above, paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, provides, in relevant part, that the United States shall allow a foreign tax credit against “the United States income tax” for French income tax paid by United States citizens living in France, “[i]n accordance with the provisions and subject to the limitations of the law of the United States (as it may be amended from time to time without changing the general principle hereof). . . .” This “provisions” and “limitations” language is key to this court’s interpretation of paragraph 2(a), just as it had been for the United States Tax Court in the Toulouse decision. The Tax Court in Toulouse, as discussed above, interpreted the “provisions” and “limitations” language of paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, as “subject[ing] the terms of the Treaties, and thus any allowable credit, to the provisions and limitations of the [Internal Revenue] Code.” Toulouse v. Comm’r, 157 T.C. at 58 (alterations added). The Tax Court decision, which although not precedential for this court, states that under paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, “any allowable foreign tax credit must be determined in accordance with the [Internal Revenue] Code and is limited by the Code’s provision of a credit.” Toulouse v. Comm’r, 157 T.C. at 58 (alteration added). The reasoning of the Tax Court in Toulouse is consistent with this court’s view of the ”provisions” and “limitations” language of paragraph 2(a) of Article 24 of the 1994 Treaty, as amended.

As explained above, the parties disagree about the meaning of the “[i]n accordance with the provisions and subject to the limitations of the law of the United States” language, (alteration added), in paragraph 2(a) of Article 24 of the 1994 Treaty, as amended. Plaintiffs argue that the “provisions” and “limitations” language of paragraph 2(a) makes foreign tax credits under that paragraph subject to one statute, the statute at I.R.C. §904, “Limitation on credit.” Defendant argues in response that the “provisions” and “limitations” language in paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, includes the other provisions of the I.R.C. which affect the availability of foreign tax credits, as relevant here, I.R.C. §§27 and 901(a).

As described above, both I.R.C. §§27 and 901(a) restrict foreign tax credits only to apply against taxes imposed by Chapter 1 of the I.R.C. The statute at I.R.C. §27 allows a foreign tax credit “against the tax imposed by this chapter,” Chapter 1 of the I.R.C. See I.R.C. §27. The statute at I.R.C. §901(a) similarly provides that “the tax imposed by this chapter [Chapter 1 of the I.R.C.] shall, subject to the limitation of section 904, be credited” with a foreign tax credit. See I.R.C. §901(a) (alteration added). By their terms, I.R.C. §§27 and 901(a) prohibit foreign tax credits from applying against the net investment income tax imposed by I.R.C. §1411 because I.R.C. §1411 is in Chapter 2A, and not Chapter 1, of the I.R.C. In addition, the statute at I.R.C. §904, as explained above, sets forth a number of limitations on foreign tax credits, which, however, are not relevant to the issues raised by plaintiffs’ complaint in this court. See generally I.R.C. §904.

Moreover, the use of the broad language of “provisions” and “limitations” in paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, is instructive. Paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, does not refer to a specific United States tax statute, but rather states explicitly that it allows a foreign tax credit “[i]n accordance with the provisions and subject to the limitations of the law of the United States. . . .” (alteration and ellipsis added). The only qualification of this language is the clarification in paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, that it refers to United States law “as it may be amended from time to time without changing the general principle” of the 1994 Treaty, as amended.

The plaintiffs have argued, as described above, that this “general principle” language refers to the “general principle” of the 1994 Treaty, as amended, to provide foreign tax credits for citizens of the signatory governments in order to avoid double taxation, and that an amendment to United States tax law denying a foreign tax credit that would otherwise be allowed would “chang[e] the general principle” of the 1994 Treaty, as amended. (alteration added). Such a change, including the enactment of an income tax not statutorily subject to foreign tax credits, as is the case for the net investment income tax imposed by I.R.C. §1411, and one which adds a new type of United States taxation provision not envisioned at the time of the 1994 Treaty or its subsequent amendatory protocols, and, therefore, does not “chang[e] the general principle” of the 1994 Treaty, as amended. (alteration added).

Furthermore, plaintiffs’ claim that the “provisions” and “limitations” of United States tax law incorporated by paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, are exclusively the “limitations” set forth in the statute at I.R.C. §904, is belied first by the fact that paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, does not expressly refer to I.R.C. §904. Nor can a reference only to I.R.C. §904 be inferred from the use of “limitations.” Although I.R.C. §904 is titled “Limitation on credit” and sets forth statutory limitations on foreign tax credits, paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, speaks not only of “limitations,” but also of “provisions.” The use of both “limitations” and “provisions” in paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, is sufficiently broad to indicate that foreign tax credits allowed by paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, are subject not only to the “limitations” of I.R.C. §904, but also to other “provisions” and “limitations” set forth in other provisions of the I.R.C., including I.R.C. §§27 and 901(a). The statutory sections at I.R.C. §§27 and 901(a), which both restrict foreign tax credits to apply against taxes imposed by Chapter 1 of the I.R.C., are both “provisions” of the I.R.C., and, therefore, “of the law of the United States,” in the language of paragraph 2(a) of Article 24 of the 1994 Treaty, as amended. The foreign tax credits allowed by paragraph 2(a), therefore, must be “[i]n accordance with” the restrictions of I.R.C. §§27 and 901(a) to apply foreign tax credits only against taxes imposed by Chapter 1 of the I.R.C. (alteration added). Both I.R.C. §§27 and 901(a) “limit” foreign tax credits to apply only against taxes imposed by Chapter 1 of the I.R.C., and in that sense, I.R.C. §§27 and 901(a) are “limitations” to which foreign tax credits are “subject” under the plain text of paragraph 2(a) of Article 24 of the 1994 Treaty, as amended.

Furthermore, the record before the court, including following supplemental briefing ordered by the court, produced no evidence of congressional intent when placing I.R.C. §1411 in Chapter 2A of the I.R.C. The statute at I.R.C. §1411 is in Chapter 2A of the I.R.C., and the placement of I.R.C. §1411 in Chapter 2A of the I.R.C. is significant. Because paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, incorporates I.R.C. §§27 and 901(a), the net investment income tax is excluded from a foreign tax credit under paragraph 2(a) of Article 24 of the 1994 Treaty, as amended. In this respect, this court finds that paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, provides foreign tax credits against taxes imposed by Chapter 1 of the I.R.C., but does not provide a foreign tax credit against the net investment income tax imposed by I.R.C. §1411, in Chapter 2A of the I.R.C., enacted subsequent to the 1994 Treaty, as amended. This court’s conclusion is consistent with the United States Tax Court’s decision in Toulouse v. Comm’r, 157 T.C. at 58 (“[A]ny allowable foreign tax credit must be determined in accordance with the [Internal Revenue] Code and is limited by the Code’s provision of a credit.” (alterations added)).

Plaintiffs’ reading of the “general principle” language of paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, is overbroad. The enactment of a tax which is excluded from the I.R.C.’s provision of foreign tax credits, as is the case with the net investment income tax imposed by I.R.C. §1411 in Chapter 2A, does not violate the “general principle” of the 1994 Treaty, as amended. Plaintiffs’ argument would require that any new United States income tax be eligible for a foreign tax credit on the same terms and to the same extent as all other income taxes previously enacted in spite of the statutory requirements incorporated by paragraph 2(a) of Article 24 of the 1994 Treaty, as amended. The “provisions” and “limitations” language incorporates I.R.C. statutory restrictions on the availability of foreign tax credits, and the “general principle” language, although modifying this incorporation, does not nullify the immediately preceding incorporation of the “provisions” and “limitations” of United States law.

Plaintiffs acknowledge in their motion for partial summary judgment that the 1994 Treaty Treasury Department Technical Explanation, quoted at length above, describes the “general principle” of Article 24 in particular: “The credits provided under the Convention are allowed in accordance with the provisions and subject to the limitations of U.S. law, as that law may be amended over time, so long as the general principle of this Article [24], i.e., the allowance of a credit, is retained.” (alteration added). The 1994 Treaty Treasury Department Technical Explanation articulates the “general principle” of Article 24 of the 1994 Treaty, as amended, although it is generally self-serving insofar as it represents only the United States’ interpretation, without anything in the record before this court to establish the Government of the French Republic’s understanding of the 1994 Treaty, as amended. The “general principle” of the 1994 Treaty, as amended, even based on its formal title, is to avoid double taxation of each signatory government’s citizens who reside in the other signatory country. As the court has explained, however, paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, conditions the allowance of foreign tax credits in service of that “general principle” upon compliance with the “provisions” and “limitations” of United States tax laws.

For these reasons, the court concludes that paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, subjects its allowance of foreign tax credits to the “provisions” and “limitations” of the I.R.C. relating to foreign tax credits, including the restrictions of I.R.C. §§27 and 901(a) that foreign tax credits apply only against “the tax imposed by this chapter,” Chapter 1 of the I.R.C. See I.R.C. §§27, 901(a). The statute at I.R.C. §§27 and 901(a) foreclose the availability of foreign credits against the net investment income tax, which is imposed by I.R.C. §1411, in Chapter 2A of the I.R.C. under paragraph 2(a) of Article 24 of the 1994 Treaty, as amended. The enactment of the net investment income tax subsequent to the 1994 Treaty, as amended, in I.R.C. §1411, was established subject to the restriction of foreign tax credits to Chapter 1 of the I.R.C. and does not “chang[e] the general principle” of the 1994 Treaty, as amended, (alteration added), which is consistent with the plain text of paragraph 2(a) of Article 24 of the 1994 Treaty, as amended. Accordingly, the court holds that paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, does not provide a foreign tax credit against the net investment income tax imposed by I.R.C. §1411.

As discussed above, plaintiffs also argue that paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, independently provides a foreign tax credit against the net investment income tax. Paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, states that “the United States shall allow as a credit against the United States income tax the French income tax paid,” but, according to plaintiffs, only after calculation of the credit due against French tax on account of income tax due to the United States.⁴² Defendant disagrees and argues that paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, implements the second bite of the three-bite rule, in particular by providing a foreign tax credit against United States income tax corresponding to the amount of the French income tax assessed in the second bite. Defendant indicates, therefore, that paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, does not provide a foreign tax credit against the net investment income tax independent of the I.R.C. Defendant’s explanation is difficult to understand, given defendant’s own description of the three-bite rule and the role that paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, fulfills within the three-bite rule. Defendant indicates that paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, allows a foreign tax credit, and that the foreign tax credit is to be assessed against United States income tax to account for the second bite income tax paid to France, above the 15 percent tax assessed by the United States in the first bite. This foreign tax credit against United States income tax is set forth by the text of paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, and not by a statute, according to defendant’s own description of the three-bite rule. Plaintiffs, according to their argument, agree with respect to the mechanics of the three-bite rule. Therefore, by the plain text of paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, and by defendant’s description, paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, provides for a treaty-based foreign tax credit against United States income tax commensurate with French income tax paid.

As relevant to the case brought by plaintiffs, the difference between paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, and paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, is that while paragraph 2(a) expressly conditions the availability of a foreign tax credit on the “provisions” and “limitations” of the United States tax laws, paragraph 2(b) does not contain such “provisions” and “limitations” language. As discussed above, the “provisions” and “limitations” language of paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, is the reason that the restrictions of I.R.C. §§27 and 901(a) to apply foreign tax credits only against taxes imposed by Chapter 1 of the I.R.C., prohibits foreign tax credits pursuant to paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, against the net investment income tax imposed by I.R.C. §1411, which is in Chapter 2A of the I.R.C. Because paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, lacks such restraining language incorporating the restriction of I.R.C. §§27 and 901(a) to apply foreign tax credits only against taxes imposed by Chapter 1 of the I.R.C., a potential conflict exists between the text of paragraph 2(b) and the I.R.C., unless the treaty or statutory provisions can be interpreted to avoid or resolve such potential conflict. If paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, and I.R.C. §§27 and 901(a) can be interpreted to allow a foreign tax credit against the net investment income imposed by I.R.C. §1411, plaintiffs would succeed in establishing legal entitlement to a foreign tax credit in the above captioned case.

In light of the potential conflict between paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, and I.R.C. §§27 and 901(a), the court relies on the principles of treaty interpretation, outlined above, concerning when potential conflict occurs between treaty and statutory language. The court recognizes that paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, is a separate paragraph from paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, and the two paragraphs in each iteration of the treaty, the original 1994 Treaty, the 2004 Protocol, and the 2009 Protocol, have existed as independent provisions. Paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, in each iteration of the 1994 Treaty, as amended, has followed paragraph 2(a) of Article 24 of the 1994 Treaty, as amended. As explained above, the record before the court contains no evidence of the interpretation held by the French Government with respect to either paragraph 2(a) or paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, or the intent of either party regarding why the net investment income tax was placed in Chapter 2A of the I.R.C., rather than in Chapter 1 of the I.R.C. Therefore, in order to interpret paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, independently from paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, the court relies on the precedents of the United States Supreme Court and the United States Court of Appeals for the Federal Circuit which concern treaty interpretation, including in instances of potential conflict between treaty and statutory provisions, giving effect to the shared expectations of both signatory governments to the treaty, here, the United States and France. See Lozano v. Montoya Alvarez, 572 U.S. at 12; Sumitomo Shoji Am., Inc. v. Avagliano, 457 U.S. at 185. In so doing, as the United States Supreme Court and the United States Court of Appeals for the Federal Circuit have explained, the court must interpret 1994 Treaty, as amended, and I.R.C. §§27 and 901(a) to avoid conflict between the 1994 Treaty, as amended, and I.R.C. §§27 and 901(a). See, e.g., Weinberger v. Rossi, 456 U.S. at 32; Whitney v. Robertson, 124 U.S. at 194; In re City of Houston, 731 F.3d at 1334; Xerox Corp. v. United States, 41 F.3d at 658. The Supreme Court held in Charming Betsy that “an act of Congress ought never to be construed to violate the law of nations if any other possible construction remains,” Murray v. Schooner Charming Betsy, 6 U.S. (2 Cranch) at 118; see also Weinberger v. Rossi, 456 U.S. at 32, and the Federal Circuit similarly has held that a statute “’must be interpreted to be consistent with [international] obligations, absent contrary indications in the statutory language or its legislative history.’” Allegheny Ludlum Corp. v. United States, 367 F.3d at 1348 (alteration in original) (quoting Luigi Bormioli Corp., Inc. v. United States, 304 F.3d at 1368, and citing Fed.-Mogul Corp. v. United States, 63 F.3d at 1581). Therefore, when determining whether a treaty and a statute “stand together in harmony,” see Xerox Corp. v. United States, 41 F.3d at 658, the statute in question must be construed not to violate the treaty, unless no other interpretation is possible. See, e.g., Allegheny Ludlum Corp. v. United States, 367 F.3d at 1348; Fed.-Mogul Corp. v. United States, 63 F.3d at 1581. Moreover, the court is required to afford a liberal interpretation to the terms of the 1994 Treaty, as amended. See United States v. Stuart, 489 U.S. at 365-66; Xerox Corp. v. United States, 41 F.3d at 652; McManus v. United States, 130 Fed. Cl. at 620. By applying this guidance on treaty interpretation, the court may give effect to the shared expectations of the United States and France with respect to paragraph 2(b) of Article 24 of the 1994 Treaty, as amended.⁴³

Also as discussed above, the statutes at I.R.C. §§27 and 901(a) restrict foreign tax credits to apply only against “the tax imposed by this chapter,” Chapter 1 of the I.R.C. See I.R.C. §§27, 901(a). The text of I.R.C. §§27 and 901(a), however, does not indicate any intent that the restriction on foreign tax credits only against taxes imposed by Chapter 1 of the I.R.C. should be interpreted to conflict with another international treaty obligation of the United States. See Fed.-Mogul Corp. v. United States, 63 F.3d at 1581 (“GATT agreements are international obligations, and absent express Congressional language to the contrary, statutes should not be interpreted to conflict with international obligations.”). The statute at I.R.C. §1411, which imposes the net investment income tax, does not mention foreign tax credits, or tax credits at all, although it does refer to “deductions” when defining the terms “net investment income,” I.R.C. §1411(c)(1)(B), and “modified adjusted gross income.” Id. §1411(d)(2). Moreover, as the parties stated in their briefs, nothing in the legislative history of the enactment of I.R.C. §1411 indicates the congressional intent with respect to abrogating any foreign tax credit provided by the 1994 Treaty, as amended, when Congress enacted the net investment income tax in I.R.C. §1411 in Chapter 2A of the I.R.C., and the record contains no information regarding France’s intent beyond the words of the 1994 Treaty, as amended.

Defendant, as discussed above, asks this court to assume from the words of I.R.C. §1411, and its placement in Chapter 2A of the I.R.C., rather than Chapter 1, that Congress intended to exclude the net investment income tax from all foreign tax credits. Absent additional information, however, the court should not make such assumptions. See MacLeod v. United States, 229 U.S. at 434 (“[I]t should not be assumed that Congress proposed to violate the obligations of this country to other nations, which it was the manifest purpose of the President to scrupulously observe, and which were founded upon the principles of international law.” (alteration added)); see also Clark v. Allen, 331 U.S. at 512. Because the court can point to no “contrary indications in the statutory language or its legislative history,” see Allegheny Ludlum Corp. v. United States, 367 F.3d at 1348 (internal quotations omitted), neither the Chapter 1 restriction of I.R.C. §§27 and 901(a) nor the text of I.R.C. §1411 should be interpreted contrary to the international obligations imposed by paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, to allow foreign tax credits against United States income taxes.

Therefore, the court interprets the terms of paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, which provide that “the United States shall allow as a credit against the United States income tax the French income tax paid,” to allow for foreign tax credits independent of the restrictions of I.R.C. §§27 and 901(a). See Corus Staal BV v. Dep’t of Commerce, 395 F.3d at 1347 (citing Murray v. Schooner Charming Betsy, 6 U.S. (2 Cranch) 64). The statute at I.R.C. §27 provides for “taxes imposed by foreign countries” to “be allowed as a credit against the tax imposed by this chapter to the extent provided in section 901[.]” See I.R.C. §27 (alteration added). The statute at I.R.C. §27, based on its text, may be read to impose a Chapter 1 restriction on foreign tax credits, but only “to the extent provided in section 901,” which is to say, only insofar as I.R.C. §901 imposes the restriction of foreign tax credits to Chapter 1 of the I.R.C. This reading of I.R.C. §27 would contemplate the existence of foreign tax credits not subject to the Chapter 1 restriction, in particular credits not based on the I.R.C. itself, but originating outside the I.R.C. The statute at I.R.C. §904 may be read to support this reading of I.R.C. §27. The statute at I.R.C. §904 refers to “the credit taken under section 901(a),” which can be read to refer only to foreign tax credits under I.R.C. §901(a), rather than to all possible foreign tax credits which a taxpayer could claim. See I.R.C. §904(a). This reading, like the above-described reading of I.R.C. §27, would indicate the existence of foreign tax credits that are not restricted to those taken against taxes imposed by Chapter 1 of the I.R.C., because those credits arise from sources other than the I.R.C. §901(a) provision for foreign tax credits.

Reading I.R.C. §§27 and 904 in this way avoids a potential conflict between the restriction of I.R.C. §§27 and 901(a) to apply foreign tax credits only against taxes imposed by Chapter 1 of the I.R.C., and the unqualified foreign tax credit allowed by paragraph 2(b) of Article 24 of the 1994 Treaty, as amended. This acknowledges the existence of two distinct groups of foreign tax credits under United States law: “statutory” foreign tax credits, which are provided under the statute at I.R.C. §901(a) and which only may be asserted against taxes imposed by Chapter 1 of the I.R.C., and “treaty” foreign tax credits, as in the context of the current case under review, which are provided by treaties concerning taxation, like the 1994 Treaty, as amended, and which are not bound by the restrictions on foreign tax credit availability set forth in the I.R.C. unless the terms of those treaties so provide. Under this reading, a foreign tax credit under paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, is not a credit “taken under section 901(a),” see I.R.C. §904(a), and, therefore, may be asserted against United States income taxes outside of Chapter 1, including the net investment income tax imposed by I.R.C. §1411 in Chapter 2A at issue here.

The distinction between statutory and treaty based foreign tax credits is supported by another provision of the I.R.C., at I.R.C. §6511, which concerns the period of limitations for claims by taxpayers of refunds or credits. Subparagraph (d)(3) of I.R.C. §6511 is titled “Special rules relating to foreign tax credit,” and provides:

If the claim for credit or refund relates to an overpayment attributable to any taxes paid or accrued to any foreign country or to any possession of the United States for which credit is allowed against the tax imposed by subtitle A in accordance with the provisions of section 901 or the provisions of any treaty to which the United States is a party, in lieu of the 3-year period of limitation prescribed in subsection (a), the period shall be 10 years from the date prescribed by law for filing the return for the year in which such taxes were actually paid or accrued.

I.R.C. §6511(d)(3)(A) (2018) (emphasis added). The text of I.R.C. §6511(d)(3)(A) makes an explicit distinction between a foreign tax credit allowed “in accordance with the provisions of section 901,” and a foreign tax credit allowed by “the provisions of any treaty to which the United States is a party. . . .” See I.R.C. §6511(d)(3)(A) (ellipsis added). While the statute applies the same limitation period to both forms of foreign tax credit, the statute uses the disjunctive “or” to differentiate between statutory foreign tax credits under section 901 and treaty foreign tax credits. The distinction between the two indicates that a foreign tax credit may be allowed by the provisions of a treaty without also being provided by the terms of I.R.C. §901.

In adopting this reading of the 1994 Treaty, as amended, and the I.R.C., the court has followed the direction, first set forth by the Supreme Court in Charming Betsy, to interpret I.R.C. §§27 and 901(a) not to conflict with the provision of a foreign tax credit under paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, when doing so is “possible.” See Murray v. Schooner Charming Betsy, 6 U.S. (2 Cranch) at 118; In re City of Houston, 731 F.3d at 1334; Corus Staal BV v. Dep’t of Commerce, 395 F.3d at 1347; Timken Co. v. United States, 354 F.3d at 1343-44. Moreover, this court’s reading is consistent with the Supreme Court’s decision in Stuart to give a “liberal interpretation” to the terms of the 1994 Treaty, as amended. See United States v. Stuart, 489 U.S. at 368. This liberal interpretation would “enlarge” the availability of foreign tax credits “which may be claimed thereunder,” and, as demonstrated above, is applicable to the interpretation of tax treaties, including the 1994 Treaty, as amended. See id.; Xerox Corp. v. United States, 41 F.3d at 652; McManus v. United States, 130 Fed. Cl. at 620. Moreover, this liberal interpretation would be consistent with the general principle in the 1994 Treaty, as amended, to avoid double taxation of each signatory government’s citizens who reside in the other signatory country. Accordingly, the court interprets paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, to allow a foreign tax credit to be taken by a United States citizen residing in France against United States income tax without restricting that foreign tax credit to apply only against taxes imposed by Chapter 1 of the I.R.C. Based on the foregoing analysis, the provision of a foreign tax credit under paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, to United States citizens living in France, which is distinct from the limitation in paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, best gives effect to the apparent shared intent of the United States and France with respect to paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, within the principles of treaty interpretation law and does not conflict with the relevant provisions of the I.R.C. For these reasons, the court concludes that, pursuant to paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, between the United States and France, plaintiffs may assert a foreign tax credit against the net investment income tax imposed by I.R.C. §1411.

CONCLUSION

Having resolved the legal question regarding the availability of foreign tax credits against the net investment income tax under the 1994 Treaty, as amended, there remains an outstanding matter which the parties agree prevents the court from entering judgment in this case at this time. The parties have not agreed on how to resolve the applicability and calculation of the three-bite rule to plaintiffs’ tax refund in this case. Consistent with the foregoing analysis, plaintiffs’ motion for partial summary judgment is GRANTED IN PART AND DENIED IN PART, and defendant’s cross-motion for partial summary judgment is GRANTED IN PART AND DENIED IN PART. For the reasons stated above, the court concludes that paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, does not provide a foreign tax credit against the net investment income tax for the French income taxes paid by plaintiffs. The court also concludes, however, that paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, can provide a foreign tax credit against the net investment income tax imposed by I.R.C. §1411 for the French income taxes paid by plaintiffs. Further proceedings regarding the three-bite rule calculation will be scheduled in a separate Order.

IT IS SO ORDERED.

MARIAN BLANK HORN
Judge