Article 18(2) of the Treaty applies when

determining the taxable income of an individual who renders personal services and who is a resident of a Contracting State, but not a national of that State. Contributions paid by, or on behalf of, such individual to a pension or other retirement arrangement that is established, maintained, and recognized for tax purposes in the other Contracting State shall be treated in the same way

for tax purposes in the first-mentioned State as a contribution paid to a pension or other retirement arrangement that is established, maintained, and recognized for tax purposes in that first-mentioned State. However, the competent authority of the first-mentioned State must agree that the pension or other retirement arrangement generally corresponds to a pension or other retirement arrangement recognized for tax purposes by that State.

Questions have arisen concerning the treatment of contributions to, and distributions from, the French social security regime (Basic Plan and Complementary Plans) by, and to, individuals residing in the United States.

The United States and France have agreed that until the applicable language in the Treaty is amended or terminated, the Treaty will be applied as follows.

TREATMENT OF CONTRIBUTIONS

For purposes of Article 18(2), the French social security regime does not generally correspond to a pension or other retirement arrangement that is recognized for tax purposes by the United States. Accordingly, both mandatory and voluntary contributions to the French social security regime (Basic Plan and Complementary Plans) by individuals who are resident in the United States are not deductible or excludible for purposes of determining the individuals’ taxable income in the United States.

TREATMENT OF DISTRIBUTIONS

Under Article 18(1)(b), distributions from the French social security regime (Basic Plan and Complementary Plans) to individuals who are residents of the United States are taxable only by France and not by the United States, regardless of whether contributions to the Plans were made on a voluntary or mandatory basis.

WAIVER OF DISCLOSURE REQUIREMENT

Section 6114(a) of the Internal Revenue Code requires that taxpayers taking the position that a U.S. treaty overrules a general U.S. tax principle of law must disclose such position on a return of tax or, if no return of tax is required to be filed, as the Internal Revenue Service may prescribe. However, pursuant to Treas. Reg.

July 2, 2001 2 2001–27 I.R.B.