The Saving Clause and US Citizens
The United States taxes its citizens on worldwide income regardless of where they live. This principle of citizenship-based taxation conflicts directly with the standard treaty structure, under which a person is taxed by the country of residence and the country of source. Without a carve-out, the treaty would allow US citizens to use treaty residency in France to avoid US taxation on French-source income.
The saving clause exists to prevent this outcome. Article 29(2) of the US–France treaty states that the United States may tax its citizens and residents as if the Convention had not come into effect, subject to specified exceptions. France has a parallel right to tax certain entities with effective management in France.
The result is that most treaty benefits that reduce or eliminate income tax are unavailable to US citizens living in France. The treaty determines which country has primary taxing rights as the residence state and which has source-state rights over specific income types, but it does not reduce total US tax exposure for citizens.
Article 29: Text and Exceptions
Paragraph 2: The Core Rule
“Notwithstanding any provision of the Convention except the provisions of paragraph 3, the United States may tax its residents, as determined under Article 4 (Resident), and its citizens as if the Convention had not come into effect.”
This language is broad. It applies to all US citizens, whether resident in France or elsewhere. It covers all income types addressed by the treaty.
Paragraph 3(a): Exceptions Available to All US Citizens and Residents
The following treaty provisions survive the saving clause and are available to US citizens regardless of residence:
| Treaty Article | Benefit |
|---|---|
| Article 9(2) | Corresponding adjustment for associated enterprises |
| Article 13(3)(a) | Mutual recognition of business property gains attributable to a PE |
| Article 18(1) | Pension distributions and social security: exclusive source-state taxation |
| Article 24 | Relief from double taxation: the foreign tax credit |
| Article 25 | Non-discrimination |
| Article 26 | Mutual agreement procedure |
The most practically significant of these exceptions are Article 18(1) and Article 24. The pension provision means US citizens living in France do not owe US tax on French social security payments (confirmed by the 2009 Protocol). The FTC provision means French income taxes paid are creditable against US tax liability, the primary mechanism for preventing double taxation.
Paragraph 3(b): Additional Exceptions for Non-Citizen US Residents
The following provisions are available to US residents who are not US citizens and are not green card holders:
| Treaty Article | Benefit |
|---|---|
| Article 18(2) | Cross-border pension contribution deductibility |
| Article 19 | Government service exemptions |
| Article 20 | Teacher and researcher exemptions |
| Article 21 | Student and trainee exemptions |
| Article 31 | Diplomatic and consular exemptions |
A French national who is a US resident (through the substantial presence test, for example) can benefit from the government service exemption under Article 19 if they receive income from the French government. A US citizen in the same situation cannot, because Article 19 is not listed in paragraph 3(a).
What the Saving Clause Means in Practice
Income Categories Affected
Employment income: A US citizen employed in France pays US tax on French employment income under the saving clause, even though France also taxes that income as the source state. The FTC on Form 1116 mitigates double taxation.
Self-employment income: A US citizen operating as a freelancer or micro-entrepreneur in France owes US self-employment tax on net earnings, notwithstanding the treaty’s allocation of taxing rights to France under Article 14.
Dividends and interest: Treaty withholding reductions under Articles 10 and 11 govern what France withholds at source. The US retains the right to include those amounts in the US citizen’s taxable income. The FTC offsets the French withholding tax.
Capital gains: A US citizen selling French property owes both French capital gains tax (as the situs state under Article 13) and US capital gains tax (under the saving clause). Double taxation is mitigated but may not be fully eliminated because of timing and character differences between the two tax systems.
Rental income: France taxes rental income from French property as the source state. The US taxes the same income under the saving clause. The FTC applies to the extent French taxes are creditable.
The Tiebreaker Is Not an Exit Mechanism
A common misconception is that establishing treaty residence in France eliminates US tax liability. Article 4 can establish France as the treaty residence state, which determines which country provides the foreign tax credit and which country has source-state taxing rights over specific income. However, the tiebreaker does not override the saving clause. A US citizen who establishes treaty residence in France under Article 4 continues to owe US tax on all worldwide income.
The tiebreaker is primarily relevant for French nationals or other non-citizens who are US residents. For those individuals, the tiebreaker can establish France as the residence state and eliminate US taxation that would otherwise arise solely from US residency.
The FTC as the Primary Relief Mechanism
Because the saving clause preserves US taxation and the treaty cannot be used to reduce it, the foreign tax credit is the practical tool for avoiding double taxation. Article 24 of the treaty confirms the FTC in general terms and includes a re-sourcing rule for US citizens: income that would otherwise be US-source but is included in the French tax base is re-sourced as French-source for FTC purposes. This prevents the FTC basket limitations from producing a double-tax burden on the citizenship premium.
The FTC operates under domestic US law (IRC sections 901–909, Form 1116) and is subject to basket limitations, ordering rules, and carryforward provisions. The treaty does not override those limitations.
Former Citizens and Long-Term Residents
The saving clause also addresses persons who have lost US citizenship or long-term resident status. A former citizen or former long-term resident (a person who held a green card in at least 8 of the preceding 15 taxable years) may be taxed by the US for a period of ten years following the loss of that status on income from US sources.
The 2009 Protocol updated the definition of “long-term resident” in Article 29(2) to align with the revised rules of IRC section 877. This provision interacts with the expatriation rules of IRC section 877A, which impose a mark-to-market exit tax on covered expatriates at the time of expatriation.
Form 8833: Disclosure of Treaty-Based Positions
When a US taxpayer takes a return position based on a treaty provision that overrides or modifies a Code provision, Form 8833 (Treaty-Based Return Position Disclosure) is required under IRC section 6114.
When Form 8833 is required for US citizens:
- Claiming the pension exclusion under Article 18(1) (exclusive French taxation of French social security)
- Claiming the cross-border pension contribution deductibility under Article 18(2) (available only to non-citizen US residents, but required when claimed)
- Claiming government service exemption under Article 19 (available only to non-citizen US residents)
- Claiming reduced taxation under any other treaty provision that modifies an otherwise applicable Code provision
When Form 8833 is not required:
- Claiming the FTC under Article 24, because the FTC is available under domestic law (IRC section 901) without relying on the treaty
- Situations where the de minimis exception applies (treaty position reduces US tax by $10,000 or less for individuals)
The penalty for failing to file Form 8833 when required is $1,000 per undisclosed position under IRC section 6712. The disclosure requirement applies to each taxable year in which the position is taken.
Legal Framework
The saving clause in Article 29(2) of the US–France treaty reflects the standard US treaty position. The United States does not concede citizenship-based taxation in any treaty. The saving clause is not unique to France; it appears, in substantially similar form, in every US income tax treaty.
The exceptions in Article 29(3)(a) and (b) are negotiated carve-outs. The inclusion of Article 18(1) in the paragraph 3(a) exceptions was confirmed and clarified by the 2009 Protocol, which added explicit language stating that French social security payments to US-citizen French residents are taxable only in France. This resolved a prior ambiguity about whether the saving clause could allow US taxation of those payments.
The FTC re-sourcing rule in Article 24(1)(b) is a technical provision that operates only for US citizens who are French residents. It re-characterizes income that the US would otherwise treat as US-source as French-source, to the extent France includes that income in the taxable base. This rule prevents the FTC from being limited by the domestic-source income rules that would otherwise apply.
Treasury Regulation section 301.6114-1 governs the Form 8833 disclosure requirement. The regulation lists categories of treaty positions that require disclosure and provides exceptions for positions that are either de minimis or consistent with both the treaty and the Code.
Frequently Asked Questions
Does the US–France treaty reduce US taxes for American citizens living in France?
Generally no. The saving clause (Article 29) preserves the US right to tax its citizens on worldwide income as if the treaty did not exist. The treaty cannot be used to reduce or eliminate US income tax on most income categories for US citizens. The foreign tax credit under Article 24 is the primary mechanism for avoiding double taxation.
Which treaty benefits remain available to US citizens despite the saving clause?
US citizens can still claim the foreign tax credit (Article 24), non-discrimination protection (Article 25), and access to the mutual agreement procedure (Article 26). The exclusive French taxation of French social security payments to US-citizen French residents (Article 18(1)) also survives the saving clause.
Can a US citizen use the treaty tiebreaker to stop paying US taxes?
No. The tiebreaker (Article 4) can establish France as the treaty residence state, which affects how the treaty allocates taxing rights between the two countries. It does not eliminate US citizenship-based taxation. A US citizen who wins the tiebreaker in favor of France still owes US tax on worldwide income under the saving clause.
Does the saving clause apply to non-US-citizen residents of the United States?
Yes, with important differences. The saving clause applies to US residents as well as citizens, but non-citizen US residents can benefit from additional treaty provisions that US citizens cannot. Articles 18(2), 19, 20, 21, and 31 are available to non-citizen US residents even though they are subject to the saving clause.
Is Form 8833 required when a US citizen claims a treaty benefit?
Yes, when the treaty benefit is taken as a return position that overrides or modifies a Code provision. For example, a US citizen claiming the pension exclusion under Article 18(1) must disclose that position on Form 8833. The FTC itself does not require Form 8833 because it is also available under domestic law.
What happens to former US citizens under the saving clause?
Former US citizens and former long-term residents (persons who held a green card in at least eight of the preceding fifteen taxable years) may be taxed by the US for ten years after losing their status on income from US sources. This provision, codified in Article 29(2), was updated by the 2009 Protocol to align with the revised rules of IRC section 877.