[00:00:01] Speaker 03:
Case number 14-1215, Orey Eschel at L, Appellants versus Commissioner of Internal Government Service.

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Mr. Horwich for the Appellants, Ms.

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Aveda for the Appellate.

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Good morning.

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Good morning.

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My name is Stuart Horwich.

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I represent the taxpayers in this space, Ori and Linda Esch.

[00:00:43] Speaker 01:
Could you speak a little more directly into the microphone?

[00:00:45] Speaker 00:
Thank you.

[00:00:46] Speaker 00:
Sorry.

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I'm normally not accused of being too tall.

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This is a case of first impression.

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This is a case affecting thousands of Americans who either work or have investments in France.

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It's a summary judgment case.

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And the case turns on whether two French taxes, called CSG and CRDS, are creditable taxes under the Internal Revenue Code as modified by a section of the Social Security Act.

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If we were unclear as to the views of the French government on whether these two taxes amended or supplemented their laws enumerated, the eight laws enumerated in the agreement

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Is that a fact question or a law question?

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Under the court's rules, this is a law question.

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What is French law, what is foreign law, is a legal question, not a factual question.

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There cannot be a material dispute as to a fact when the parties disagree as to foreign law.

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So what would we do if we thought there was actually a dispute or confusion or lack of resolution on that legal question?

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As to the views of the French government, but we actually have no capacity.

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I at least don't read French, so I have no capacity to figure this out and wouldn't presume to speak for the French government on this issue.

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Indeed, and unfortunately, even if it were the English government, we would also lack the ability to call them as witnesses any more than they would be able to call us.

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law or the federal rules presuppose that we do the best we can, and we try to gather whatever evidence we can, whether that be by expert report, by hearing, by testimony of whoever we might be able to get.

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What we did in the case is we gathered seven or eight different French statements, which we translated into English,

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which demonstrated unequivocally what the French government's position here.

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And when you say not clear, one of these was the French government saying, we think this is a credible tax under the United States rules.

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We have French testimony saying, or French states.

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You say a credible tax, you mean for purposes of the income tax treaty?

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Yes.

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So how do I know that something can't be both in the income tax treaty and in the totalization agreement?

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You assert that as given.

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I'm just trying to figure out how I know that.

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You know that for a couple of different reasons.

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First of all, in simplest form, the Treasury technical explanation tells you.

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The Treasury technical explanation tells you that these are income taxes or totalization taxes.

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Second, you have a... Well, not necessarily.

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Didn't the tax court judge find

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that they're creditable unless and until they are amending or supplementing the listed laws in the globalization agreement, in which case they're not.

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So they sort of are, and then they're taken out of that category.

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He didn't find that to be a conflict.

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No, I think we need to go back half a step.

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The starting point is that under the four corners of the Internal Revenue Code, these are creditable taxes.

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Nobody disagrees.

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these are creditable taxes.

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If we only were looking at the Internal Revenue Code, we would all agree that these are creditable taxes.

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The next step is that there is an override in Section 317B4 of the Social Security Act.

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If Section 317B4 applies, then they are no longer because this simply says, notwithstanding any rule of law, which would include the Internal Revenue Code.

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That would then take you to the French totalization agreement itself, which says, is this a law?

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Is this one of the enumerated laws?

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And indeed, it's not.

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But that's hardly surprising, since it post-dated one of the enumerated laws, which then takes you to the question of, does this amend or supplement one of the enumerated laws?

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And that's where the battleground is.

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So the battleground is, was this something that amended or supplemented the laws?

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In order to make a determination about whether something amends or supplements these laws, this gets to standard interpretation of treaties.

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And when we're talking about interpretation of treaties, the Supreme Court has told us how to do this.

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And we don't say, quote, what's the plain language?

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We say, what's the intention of the parties?

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And that's very important.

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what's the intention of the parties.

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And when you look at the intention of the parties, another thing the Supreme Court will tell you is that the intention of the parties, you can look at what the French have decided post-ratification.

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In fact, not only can you look... What do we make of the fact that the French put the CSG, codified it, in the Social Security Code?

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What am I to make of that?

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You're to make of that that when you look at the totalization agreement itself, it does not say, with respect to the enumerated laws, the French Social Security Code.

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It lists eight different laws.

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Some of them are in the Social Security Code.

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Some of them are not.

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Things that are in the Social Security Code are outside the scope of the totalization agreement.

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Things that are outside the Social Security Code are within the totalization agreement.

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That's, the problem is there's not an overlap.

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And given that, given that it's not a kind of a gross, the likes of Social Security, it's part of the totalization agreement, I'm reading the tax court very able opinion and nonetheless finding I'm not entirely confident

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that the court made the precise determination that is needed, do we know, for example, and I think the most detail here is on page JA 146, the CSG law initially went to National Family Allowances Fund, and that's one of the eight, right?

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But then it was amended, and a portion of it goes to two other funds,

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compulsory health schemes, old age solidarity, and then a variable but small part to national solidarity fund, and a piece to retirement of debt.

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Do we know anything about

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Well, on those four, is it clear which of those are among the eight and which aren't?

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Yes.

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Yes, in fact, our expert report, in fact, goes to say that, for instance, the old age solidarity fund is outside the scope of those.

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The retirement of the unemployment benefits, which is also funded, is outside the scope of that.

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Is it two in, two out?

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Is that right?

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When you say two in, two out, I suppose the answer is yes.

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Two in, two out.

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Of those four things.

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Just because I want to track this.

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So we have compulsory health schemes.

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Yes, that's Molladine.

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Old age solidarity fund.

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Out.

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National Solidary Fund for Autonomy.

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Out.

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Some.

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Well, I mean, but this is the problem.

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We're trying to read this like a uniform commercial code, which is what I'm trying to do.

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But it answers your question, Judge Griffith.

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The fact that it's in the French Social Security Code is frightfully interesting, but doesn't track the agreement.

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OK.

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I mean, I'm going to ask the government.

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And retirement of debt?

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Retirement of debt is the CRDS, which is a completely separate outside.

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And part of the CSG.

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And that's completely outside the Social Security.

[00:08:26] Speaker 01:
That is the retirement debt.

[00:08:29] Speaker 01:
My notes show that one of the enumerated laws in the totalization agreement is, quote, laws establishing the social insurance system.

[00:08:40] Speaker 01:
That's very broad.

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but it doesn't levy a tax, and you don't get a period of coverage when there's no tax associated with that.

[00:08:49] Speaker 01:
Well, I mean, that's your conclusion.

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No, but there is no tax associated.

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There is no law.

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Why isn't the CSG a tax associated with that?

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I mean, the argument would be that it's supplementing that law because it's raising money for the purpose of that, establishing the social insurance system.

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If you took that same argument, you would say that the French conventional income tax, which even at the time it was created and this agreement was passed, 20% of French income tax was used to fund these same programs.

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So the problem with trying to do that is that the French don't do it that way.

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There is not a specific funding

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What you have to then look at is, what is the purpose of these agreements?

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And back to if we're going to- What is your definition, or your definition on behalf of the French government, to the extent you can, of supplement?

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So you don't like the definition the tax court adopted here, right?

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Too broad.

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What is your understanding of what supplement is meant to mean?

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That's, I think, the harder word of the two.

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I would look at the eight different categories.

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see which ones impose a tax, and see whether this broadened that tax base with respect to this, whether that increased it, whether that created a new class of beneficiaries.

[00:10:19] Speaker 00:
Something that I could hang... Wouldn't that be an amendment?

[00:10:21] Speaker 02:
I mean, Supplement's going to have to be different from amendment.

[00:10:23] Speaker 00:
Yes, but supplement could also be worded in the Article 2.3.

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You have amend or supplement, and then there's a description in terms of a new class of beneficiary supplement.

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As an example, is your answer to my questions about the four places where the CSG money goes the same

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If I push back a little bit on your position and assume, just for purposes of questioning, that for something to be a tax under the totalization agreement, it needn't create an additional benefit to your clients.

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It can be something that is supporting the benefit programs that benefit your clients.

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So it can be architectural and maintenance and not creating a new period of benefits.

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Could then, is your answer still the same that the ones that you say are unrelated are still unrelated or are they?

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If, let me give your hypothetical back to make sure I understand the question.

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If they passed a tax that said, we will take exactly the same characteristics that created a tax for these enumerated laws, and we will create a new one.

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And the new one is said, the taxing base on the new one is these other seven.

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or four, and we would use the funds to pay into those other four, then I would agree that that would supplement.

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Taxing base?

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In other words, the problem with CSG is it does not apply

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only to the same things that Maladi, VS, and all of these other ones, but it creates a new tax with a new base, including things that have nothing to do with conventional... When you say base, I think I'm misunderstanding.

[00:12:23] Speaker 03:
I think you mean, who are we taxing?

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Yes, what income, what is the nature of the income that we are taxing?

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And I'm not sure that's relevant in the totalization agreement as I read it.

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And I'm the first to admit that I'm an amateur reader of this.

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But it seems the question is less, who are we taxing, than what are we doing with the money we collect?

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And part of the tax court's opinion I'm looking at on JA 146 is saying,

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portion of these revenues goes to funds directly linked to social security system and into these other funds and so the inquiry of the tax court anyway is not who are we getting the money from but where are we putting it and is that and then my question is saying

[00:13:12] Speaker 03:
Even if we know that's not giving people like your clients additional periods of benefits, it may be, nonetheless, supporting the system to still exist to give them those benefits.

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And so that's what I'm asking.

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Are all of these laws related in that way to the benefits, the social

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your client would be eligible for.

[00:13:34] Speaker 00:
And I guess then we come back to the ones, the welfare, the old, but we also, we have to push that example here because on your same example, we have Code Section 1411 in the Internal Revenue Code, which is politely and colloquially referred to as the Obamacare.

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Here we have another tax which is clearly strengthening the U.S.

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Social Security system.

[00:14:00] Speaker 03:
But that's outside.

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I mean, under a US law, that's not one of the mentioned laws.

[00:14:05] Speaker 03:
And everybody agrees it's not an initialization agreement.

[00:14:07] Speaker 00:
Well, we do agree.

[00:14:08] Speaker 00:
But when you say that it's outside, it certainly supplements the US social security system.

[00:14:16] Speaker 00:
Indeed, if it were within, then it would supplement.

[00:14:18] Speaker 03:
But it doesn't supplement one of the enumerated laws, except in a very broad sense.

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I mean, in that sense, the whole society supplements.

[00:14:25] Speaker 03:
It's an additional thing.

[00:14:27] Speaker 00:
Well, the laws defined in the totalization agreement with respect to the United States are all of the US social security laws.

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It specifically references the US social security laws in terms of which sections of the Internal Revenue Code.

[00:14:45] Speaker 03:
But not the health care laws.

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But not the Medicare laws.

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Right.

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So, okay, but putting that aside, I guess that's what I'm,

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seeking help from both sides about, on a slightly more granular level, what are the arguments about where this money is going, and are these descriptions, we have some descriptions, and it's just hard to tell how those relate to the aid enumerated programs.

[00:15:18] Speaker 01:
And can I add one point, and not just where they're going, but what proportion of them is going there?

[00:15:24] Speaker 01:
I think that becomes important.

[00:15:27] Speaker 00:
Or not.

[00:15:29] Speaker 00:
The problem here though is back to interpretation of an agreement.

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The French interpretation of this agreement is that CSG and CRDS are outside of this agreement and you are going to create inconsistent situations.

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You cannot have a treaty

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which would levy a tax on one side.

[00:15:48] Speaker 01:
I'm sorry, maybe I misunderstood your prior answer to Judge Pillard's question.

[00:15:52] Speaker 01:
I thought you had identified several instances in which CSG was funding an enumerated tax.

[00:16:01] Speaker 00:
Sometimes it funds an enumerated law, sometimes it does not.

[00:16:06] Speaker 01:
And I'm curious, in those instances in which it does, at what level does it fund it?

[00:16:11] Speaker 01:
What's the proportion of the CSG that's going?

[00:16:15] Speaker 00:
It's a variable amount.

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It changes by whatever the government decides in a given year.

[00:16:21] Speaker 02:
This year is?

[00:16:23] Speaker 00:
I believe it's sort of in the 70% to 90% range this year that are in within.

[00:16:29] Speaker 02:
Do we have to know for the relevant tax years here?

[00:16:32] Speaker 00:
No, I did not notice that off the record.

[00:16:36] Speaker 01:
When you said within, you meant within an enumerated taxpayer?

[00:16:39] Speaker 00:
Within an enumerated taxpayer.

[00:16:40] Speaker 00:
But again, we're sitting with a position that even on your example, we still have situations which just don't work.

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So we have the situation.

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The one that we discuss at length, and it's a small, but the point is it's unequivocal.

[00:17:01] Speaker 00:
You cannot have a totalization agreement covering the same tax as an income tax treaty if they give you different answers.

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These treaties are designed to prevent double taxation.

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A person living in the United States who sells French property

[00:17:21] Speaker 00:
gets taxed in France, even though the totalization agreement says you cannot do that.

[00:17:26] Speaker 00:
The French position is clear about this.

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The French position as to what the law is, is entitled to a great deal of deference.

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It's not dispositive, but it is entitled to a great deal of deference.

[00:17:40] Speaker 02:
The concept of why we have...

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Center for Social Security of Migrant Workers, the National Independent Social Security Fund, which are, I think, the entities in France that really administer this program.

[00:17:53] Speaker 02:
Do we have anything that says what their view is on these taxes?

[00:17:56] Speaker 00:
The government put in two letters which just described what detached workers, but these... Do you have anything?

[00:18:04] Speaker 02:
You have your view, you say the view of the French government is clear.

[00:18:07] Speaker 00:
No, I'm sorry, yes, in that the ministerial statements that we had,

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which come to the opposite conclusion are by those people's oversight.

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The Department of Finance oversees these people.

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And so with an inconsistent positions, which we will be creating, and then we have to look also

[00:18:30] Speaker 03:
I know you spelled it out, but I missed what was inconsistent.

[00:18:34] Speaker 03:
It doesn't seem necessarily inconsistent to me.

[00:18:37] Speaker 03:
It's a burden, but not necessarily in the terms of the treaty and the totalization agreement to say you might be in a position as someone working in France to have to pay to support French periods of benefits and to support a little bit the system that gives you those benefits.

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and when you go to the U.S.

[00:19:01] Speaker 03:
and not be able to get a credit on the latter against your U.S.

[00:19:04] Speaker 03:
taxes?

[00:19:05] Speaker 00:
Well, a very basic example.

[00:19:08] Speaker 00:
If you were to own a French property and you were to sell it,

[00:19:14] Speaker 00:
as a self-employed person were to sell it.

[00:19:19] Speaker 00:
Self-employed American residents were to sell it.

[00:19:22] Speaker 00:
Under the income tax treaty, France has taxing rights.

[00:19:26] Speaker 00:
Under the totalization agreement, France does not have taxing rights.

[00:19:31] Speaker 00:
It can't be both.

[00:19:33] Speaker 00:
And this situation creates both.

[00:19:36] Speaker 03:
Well, but under that scenario, then,

[00:19:39] Speaker 03:
It's under the totalization agreement, right?

[00:19:43] Speaker 03:
I thought we talked about that was a carve out, no?

[00:19:45] Speaker 00:
No.

[00:19:46] Speaker 00:
It's more basic than this.

[00:19:48] Speaker 00:
France, I can't tell you if I were a French lawyer what the answer would be.

[00:19:53] Speaker 00:
Because if I followed the treaty, income tax treaty, I would say, of course you can tax it.

[00:19:58] Speaker 00:
If I would follow the totalization agreement, I would say, of course, France, you can't tax it.

[00:20:02] Speaker 00:
We have the same

[00:20:05] Speaker 00:
income event, the sale of French property.

[00:20:08] Speaker 00:
The treaty says France can tax the sale of French property owned by a U.S.

[00:20:14] Speaker 00:
resident.

[00:20:15] Speaker 00:
The totalization agreement says that France cannot tax it.

[00:20:19] Speaker 00:
You can't have it covered by both.

[00:20:21] Speaker 00:
It makes no sense.

[00:20:23] Speaker 03:
Is that something we have to resolve to resolve this case?

[00:20:26] Speaker 00:
I think that in order to create a coherent whole,

[00:20:30] Speaker 00:
You have to be able to create a situation.

[00:20:33] Speaker 00:
Treaties and tax is designed to stop.

[00:20:37] Speaker 00:
And if you have an inconsistency in an interpretation with the French having a clear view,

[00:20:45] Speaker 00:
that's quite an important uh... if not i have to resolve that you have to reconcile the french position here which is that this falls outside and again you have to harken back falls outside of the totalization agreement and you have to harken back to why do we have a totalization agreement in the first place we have a totalization agreement to

[00:21:11] Speaker 00:
totalized benefits.

[00:21:12] Speaker 00:
That is the purpose of these agreements.

[00:21:13] Speaker 01:
You're dismissive of Mr. Teal's statement simply because there's no reasoning in it, but it is entitled to some deference, right?

[00:21:21] Speaker 01:
We have

[00:21:23] Speaker 01:
Somebody from the United States involved with Social Security who says, no, this is part of the totality.

[00:21:29] Speaker 00:
Well, certainly he's entitled to mead-type deference, and mead-type deference is how much does it convince you, but a statement saying that to the best of my knowledge and belief this is the way that it works is not exactly what the Supreme Court, when discussing mead-type deference, thinks of as a very

[00:21:50] Speaker 00:
convincing argument, whereas we have legislation and we have ministerial statements by the French explaining their position, which goes the other way.

[00:21:58] Speaker 03:
Not entirely on this point, on related points, but not entirely on this.

[00:22:04] Speaker 03:
And I'm not sure that, I think that we give it more than need deference.

[00:22:08] Speaker 03:
I think this is a different, this is not a Chevron type situation, this is a Trudy interpretation situation.

[00:22:12] Speaker 03:
I think there's more definitive executive authority to interpret

[00:22:17] Speaker 00:
But in light of let's say the national Westminster case and the Iceland case and things like that where the French government has been steadfastly

[00:22:31] Speaker 00:
viewed in its way that this is outside the scope of the totalization agreement.

[00:22:37] Speaker 00:
Whatever deference is entitled, the government is entitled, the way the courts phrase it, they say simply, it erodes it a fair amount.

[00:22:45] Speaker 03:
So I think- Let me just ask you before you sit down.

[00:22:47] Speaker 03:
You had mentioned that there was 20 percent of the

[00:22:50] Speaker 00:
In the tax, it won't be in the appendix, but in the tax court brief, the commissioner's brief, and the opening brief.

[00:23:09] Speaker 00:
about midway through the description of this.

[00:23:14] Speaker 00:
And I believe I actually cited in my brief, from Memories, page 30 of their opening brief, where they point out that 20% of the income taxes, in fact, is going there.

[00:23:29] Speaker 00:
So yes, I think it is in the record.

[00:23:33] Speaker 00:
Thank you very much.

[00:23:43] Speaker 05:
I would first like to make clear that the totalization agreement does not prevent France from taxing anything.

[00:23:53] Speaker 02:
Before you do that, I would like to clear up one thing.

[00:23:57] Speaker 02:
The only names on your brief are the tax division of the Justice Department.

[00:24:01] Speaker 02:
That is correct, Your Honor.

[00:24:02] Speaker 02:
Was this brief shared with the Social Security Administration?

[00:24:05] Speaker 05:
It was not, Your Honor.

[00:24:06] Speaker 05:
It was shared with the Internal Revenue Service.

[00:24:07] Speaker 02:
It was not, or the State Department?

[00:24:08] Speaker 02:
Are you speaking on behalf of the official views of the United States government in this brief, or just of the tax division of the Justice Department, the IRS?

[00:24:15] Speaker 05:
We are representing the position of the Commissioner of Internal Revenue vis-a-vis the tax at issue here.

[00:24:21] Speaker 02:
Right.

[00:24:21] Speaker 05:
This is – nothing I say here is a pronouncement on the position of the United States in any matters related to foreign relations.

[00:24:27] Speaker 02:
Don't we need the official views of the United States government on what their agreement means?

[00:24:36] Speaker 05:
not to resolve the dispute before the court today, Your Honor.

[00:24:40] Speaker 02:
Why not?

[00:24:40] Speaker 02:
It's an agreement between two governments.

[00:24:42] Speaker 02:
It's not an agreement between the Commissioner of Internal Revenue and somebody else, and it's an agreement between the United States of America.

[00:24:48] Speaker 02:
That's what it says on page one of the totalization agreement and the government of France.

[00:24:53] Speaker 02:
And so I'm not aware of cases in which we

[00:24:57] Speaker 02:
in interpreting the meaning of international agreements, let a single agency of the United States government, particularly one that has no interpretive authority under here, dictate what the outcome is, what the meaning is, let alone tell me what the views of the French government are.

[00:25:13] Speaker 05:
That is not what the Commissioner and the Council before you today purport to do or purport to argue at all.

[00:25:20] Speaker 02:
But isn't that the legal issue?

[00:25:22] Speaker 02:
How can we interpret an agreement

[00:25:25] Speaker 02:
without knowing what the views of the parties were on what this means.

[00:25:30] Speaker 02:
And particularly, given Article 110, I think it is, we need to know what the French government, the meaning to the French government of amend or supplement and whether that was satisfied here.

[00:25:41] Speaker 05:
Well, one key point in response to that is that

[00:25:45] Speaker 05:
with very few exceptions, few, if any, of whom are likely to appear at this podium, an individual cannot represent that position.

[00:25:54] Speaker 05:
What you need to look at overall is the consensus among jurisprudence, among official statements, among interpretations.

[00:26:01] Speaker 02:
No, I don't understand what you mean by individual can't represent it.

[00:26:04] Speaker 02:
It's not at all uncommon to have

[00:26:07] Speaker 02:
the Justice Department, obtain the views of the experts within the government, and then convey those to courts.

[00:26:13] Speaker 02:
That happens all the time, and that certainly can be represented.

[00:26:16] Speaker 05:
And that has been done below.

[00:26:17] Speaker 05:
I'm sorry?

[00:26:18] Speaker 05:
That has been done below in this case.

[00:26:20] Speaker 05:
There is a declaration from a representative of the Social Security Administration.

[00:26:23] Speaker 01:
That's Mr. Thiel's declaration.

[00:26:24] Speaker 05:
That is Mr. Thiel.

[00:26:25] Speaker 05:
But he speaks to the best of his knowledge.

[00:26:27] Speaker 05:
He is not establishing an official state position of the United States of America.

[00:26:31] Speaker 02:
So we don't have the U.S.

[00:26:32] Speaker 02:
view, and I can't imagine

[00:26:35] Speaker 02:
First of all, that only tells us what the SSA considers.

[00:26:38] Speaker 02:
It doesn't purport to tell us what the views of the United States government are or what the views of the French government are.

[00:26:44] Speaker 02:
And the Supreme Court president tells us that we need to know what those views are in interpreting an agreement.

[00:26:50] Speaker 05:
If you reach the point where you need to interpret that intent, then yes, that information is required.

[00:26:56] Speaker 05:
But the court need not proceed that far.

[00:26:57] Speaker 01:
But what do you mean if we reach the point that we, I missed your point.

[00:27:01] Speaker 01:
If we reach the point where we need to understand what the totalization agreement means?

[00:27:06] Speaker 05:
The totalization agreement only applies where

[00:27:13] Speaker 05:
you are in a circumstance governed by Section 317B4 of the 1977 Social Security Amendments.

[00:27:20] Speaker 05:
In other words, there must be taxes paid by any individual to any foreign country with respect to any period of employment or self-employment which is covered under the Social Security system of that foreign country.

[00:27:30] Speaker 05:
Only in those circumstances is there even a question of the scope of the totalization agreement.

[00:27:36] Speaker 05:
and a number of the straw men that have been raised here to try and skew the meaning of the totalization agreement don't fall within those circumstances at all.

[00:27:47] Speaker 05:
Here, on the other hand, there is a taxpayer who is, by agreement, within the scope of the totalization agreement for the periods at issue, but is not

[00:27:58] Speaker 03:
invoking any of these exceptions that would create a question of what the governing intent was.

[00:28:19] Speaker 03:
is with this person who, to some extent, is within the scope of the totalization movement, are certain additional taxes that these taxpayers are challenging as shouldn't they be able to get it to deduct them?

[00:28:33] Speaker 03:
Are they, do they supplement or amend those aid?

[00:28:37] Speaker 03:
And that's really, and you heard the questioning of your opponent, and so I guess what we

[00:28:42] Speaker 03:
One of the things we need to hear about is whether you think we need to have this more granular understanding of the relationship between the CSG and the CRDS and the aid enumerated.

[00:28:58] Speaker 03:
Do we need that?

[00:28:59] Speaker 03:
And if so, where do we have it?

[00:29:00] Speaker 03:
And if we don't need it, why not?

[00:29:02] Speaker 05:
It is our position that you do not, because amend or supplement is not an ambiguous term of art that is either defined in the agreement or susceptible to vast disparities of interpretation from one sovereign to another.

[00:29:15] Speaker 02:
Is the United States ready to agree that a French dictionary could be used to decide whether some law we pass here amends or supplements are two enumerated laws?

[00:29:26] Speaker 05:
If the French court or French authority that is interpreting the scope of the American law needs to contextualize it within the French system, it is reasonable for that court to use local, commonly understood vernacular when conducting a plain-meaning analysis.

[00:29:41] Speaker 02:
Let's say Congress passes fund attacks.

[00:29:47] Speaker 02:
That's just part of some, a rider on some other bill.

[00:29:53] Speaker 02:
So it's not clear whether it's amended.

[00:29:55] Speaker 02:
But some of the money, 60%, is going to Social Security.

[00:30:02] Speaker 02:
Can a French court pick up a French dictionary and decide whether that law amended or supplemented the Social Security Act?

[00:30:11] Speaker 05:
The constraints on the interpretation of US law in the totalization agreement here are much stronger than the constraints on the interpretation of French law.

[00:30:21] Speaker 05:
We've explained in our brief that Section 1411 of the Internal Revenue Code, by its terms, falls outside of Chapter 2 and Chapter 21 of the Internal Revenue Code.

[00:30:31] Speaker 05:
It's in a new subchapter, Chapter 2A, which was created as a part of the... Sorry, is that answering the question that I asked?

[00:30:40] Speaker 02:
You're not, in other words, in the context of American...

[00:30:45] Speaker 02:
Right, they need to figure out whether what that was doing was supplementing Title II of the Social Security Act or the designated provisions of the Internal Revenue Code.

[00:30:53] Speaker 02:
And Congress unhelpfully did not label this provision, this Rider and some other bill, about highway funding.

[00:31:01] Speaker 02:
And because it is not in Title II of the Social Security Act or Chapter II and Chapter XXI... Oh, but they're going to say it supplements it because 60% of its funds go to the Social Security.

[00:31:13] Speaker 05:
But because the United States... Title II of the Social Security Act.

[00:31:15] Speaker 05:
Because the United States aspect of the treaty is drawn according to chapter and verse and not according to

[00:31:21] Speaker 05:
groupings of law by their philosophical underpinnings, amend and supplement has a much narrower reading in the context of an American law.

[00:31:28] Speaker 02:
That's what you tell us, but we have no idea whether actually the United States government agrees that amend or supplement means one thing for the U.S.

[00:31:34] Speaker 02:
government, a different thing for the French government?

[00:31:36] Speaker 05:
I think that from the face of the agreement, you can surmise that the American government has taken an extremely precise chapter-inverse reading of the laws that are governed by this agreement and

[00:31:46] Speaker 05:
if they intended a law to be included within the scope of the agreement, they could place it within the terms that they defined.

[00:31:52] Speaker 02:
If Congress amends, it'll say amends.

[00:31:54] Speaker 02:
But supplements, I don't know how your chapter and verse tells me whether another law supplements.

[00:32:02] Speaker 02:
It doesn't have to be entitled to supplement it, as long as it generally provides for the funding of the Social Security system.

[00:32:10] Speaker 05:
Not in the context of American law, Your Honor.

[00:32:13] Speaker 02:
Why does supplement mean something different?

[00:32:15] Speaker 05:
But in the sense where you are looking at a framework with explicit boundaries.

[00:32:22] Speaker 02:
No, supplement does not mean you have to amend those laws.

[00:32:25] Speaker 02:
If the definition of supplement here was that it provides additional support for... It does not, Your Honor.

[00:32:29] Speaker 05:
It means you have to add to that.

[00:32:30] Speaker 05:
And you can supplement Chapter 2 or Chapter 21 of the Internal Revenue Code by adding additional provisions to it.

[00:32:37] Speaker 05:
You do not need to amend an existing provision.

[00:32:40] Speaker 02:
That would be amending.

[00:32:41] Speaker 05:
that would be amending and supplementing.

[00:32:43] Speaker 05:
If what you were creating was a new provision, if Section 1411, in other words, were codified within Chapter 2, it would be a more difficult analysis.

[00:32:51] Speaker 05:
It was explicitly excluded from that chapter, and therefore explicitly excluded from the scope of this agreement.

[00:32:56] Speaker 03:
Let me ask you, Ms.

[00:32:57] Speaker 03:
Aveda.

[00:32:58] Speaker 03:
You said that we interpret the French law as groupings of law prior to their philosophical underpinnings.

[00:33:04] Speaker 03:
I wasn't sure what you were referring to.

[00:33:06] Speaker 03:
I mean, the common question, and the question we have to resolve is,

[00:33:10] Speaker 03:
do that to taxes taxpayers that non-deductibility of which the taxpayers amenders supplement i don't even know if you want it categories of laws they're not given in terms of where they are codified or what

[00:33:32] Speaker 05:
general legislative framework they're situated in.

[00:33:36] Speaker 05:
They are drawn very broadly from the treaty – laws establishing the administrative organization of Social Security programs, laws establishing social insurance systems, laws on prevention and compensation of occupational accidents.

[00:33:49] Speaker 05:
All of these are a very specific beast under American law, but in French law,

[00:33:53] Speaker 05:
they seem to be much more amorphous.

[00:33:56] Speaker 03:
Can you give your view on the very question that I asked opposing counsel in the joint appendix in the tax court's opinion?

[00:34:04] Speaker 03:
The tax court concludes that the CSG directs a portion of its revenues into compulsory health schemes.

[00:34:16] Speaker 03:
In your readings, that part of the totalization agreement or not?

[00:34:20] Speaker 03:
Compulsory health schemes.

[00:34:22] Speaker 05:
Yes, Your Honor.

[00:34:25] Speaker 05:
The CSG is imposed on all participants in the French mandatory sickness insurance scheme.

[00:34:32] Speaker 05:
That is the universe of taxpayers who are obligated to pay this tax.

[00:34:36] Speaker 05:
Those are in general French residents or those who are earning income in France or otherwise subject to income tax in France.

[00:34:43] Speaker 05:
The provision of that social safety net for them is akin to what the court has heard in terms of

[00:34:51] Speaker 05:
periods of coverage.

[00:34:52] Speaker 05:
If you're in that system, you are earning periods of coverage.

[00:34:55] Speaker 05:
You're paying CSG on top of that.

[00:34:57] Speaker 05:
That is not entitling you to any different separate or independent period of coverage, but it's akin to an increase in the tax rate in what you're paying towards the benefits you're already getting.

[00:35:08] Speaker 03:
What the tax court was focusing on was not, and again, your opposing counsel seemed to agree with you that the base was

[00:35:17] Speaker 03:
who you're taxing is somehow relevant.

[00:35:19] Speaker 03:
But I thought that the tax court was saying not so much that who it's coming from is relevant, but where it's going, where the revenue is going.

[00:35:25] Speaker 03:
And you're telling me, well, actually, under French law, it is relevant who it's coming from, because that indicates that you're someone who's going to benefit from that at the back end.

[00:35:35] Speaker 03:
And that all of those people are potential beneficiaries.

[00:35:39] Speaker 03:
And therefore, the compulsory health schemes

[00:35:41] Speaker 05:
They are, but it's – you reach that conclusion at a much broader level, because if you are in a period of employment such that you're subject to the totalization agreement in the first place, that's where that inquiry matters.

[00:35:55] Speaker 05:
Once you're inside the scope of a totalization agreement, because you have periods of employment within the meaning of 317b for

[00:36:03] Speaker 05:
then you're in the system.

[00:36:05] Speaker 05:
You're governed by the totalization agreement.

[00:36:07] Speaker 05:
You're paying French social security taxes and covered by the French social security system.

[00:36:11] Speaker 05:
You are not paying United States social security taxes.

[00:36:14] Speaker 05:
You are not covered by the United States social security system.

[00:36:16] Speaker 03:
And money that is paid into compulsory health schemes is money that's paying into a scheme that is set up to benefit you under which of the aid enumerated.

[00:36:29] Speaker 05:
I believe that is a social insurance system for non-agricultural employees or agricultural employees.

[00:36:36] Speaker 05:
I believe it could be a special social security system, depending on your profession.

[00:36:41] Speaker 05:
It could also include laws involving occupational accidents, if there's a compensation or remedy element included in those.

[00:36:49] Speaker 05:
There are a number of laws that could be touched upon, a number of these categories within the treaty that can be meaningfully affected by participation in that system.

[00:36:58] Speaker 03:
And so if you do the same thing with respect to Old Age Solidarity Fund, that would be helpful.

[00:37:05] Speaker 05:
Category 8, laws concerning old age allowances and old age insurance for non-agricultural self-employed workers.

[00:37:12] Speaker 05:
These are the fundamental types of benefit that on both sides of the pond are totalized.

[00:37:20] Speaker 03:
And how about National Solidarity Fund for Autonomy?

[00:37:24] Speaker 05:
I cannot speak from personal knowledge on what that actually funds, Your Honor, and I'm not sure that it is clear on the record.

[00:37:34] Speaker 05:
To the extent that it diverges from the categories that are included in the brief, we submit that that's immaterial, because to the extent to which it's already documented and is clear on the record that these taxes do supplement categories of benefits, categories of laws that are included in the treaty, the

[00:37:53] Speaker 05:
The fact that some portion of the revenue is directed elsewhere does not mitigate that conclusion.

[00:37:59] Speaker 03:
Where do we draw the line?

[00:38:00] Speaker 03:
Because there are some sort of taxes that we would loosely think of as sort of part of the social safety net that are French that are not under the totalization agreement.

[00:38:11] Speaker 03:
And so how do we discern whether these are bad?

[00:38:13] Speaker 05:
Well, I assume that Your Honor is speaking to the SAD.

[00:38:16] Speaker 05:
Yes, that is an unemployment tax.

[00:38:19] Speaker 05:
And unemployment taxes are not included in the categories of laws that are totalized on the French side.

[00:38:25] Speaker 05:
They are not included in the chapter and verse citations of law that are totalized on the American side.

[00:38:30] Speaker 05:
And indeed, they are, in some circumstances, treated under a completely separate treaty.

[00:38:35] Speaker 05:
We have an unemployment tax agreement with Canada, separate from the totalization agreement.

[00:38:40] Speaker 05:
We do not have one with France, but we do not treat that tax as a payment into the French security system

[00:38:49] Speaker 05:
that is excluded from creditability under US law.

[00:38:54] Speaker 02:
Can something be covered under two treaties?

[00:38:55] Speaker 02:
Could something be covered under both treaties?

[00:38:58] Speaker 02:
Could it be covered by the income tax treaty and also the totalization agreement?

[00:39:02] Speaker 05:
Well, the CSG itself.

[00:39:04] Speaker 05:
I'll give you an example.

[00:39:05] Speaker 02:
But you just said you wouldn't do that in this Canadian example.

[00:39:08] Speaker 02:
You weren't going to do that.

[00:39:08] Speaker 02:
I thought you said there was a separate treaty that applied to unemployment.

[00:39:12] Speaker 05:
There's a separate treaty which treats unemployment taxes specifically, because those are not addressed by the totalization agreement.

[00:39:20] Speaker 05:
And those are not intended by any sovereign to be within the scope of a totalization agreement.

[00:39:24] Speaker 05:
They are explicitly excluded from the categories that are at issue here.

[00:39:28] Speaker 05:
And even if some of the benefits are concentric with benefits you would receive under the laws that are included,

[00:39:34] Speaker 05:
by their nature, and this is where I say philosophical underpinning, an unemployment tax and an unemployment benefit is distinct from a disability benefit or an old age benefit or a family benefit of that nature.

[00:39:45] Speaker 03:
Can I just press you further on that?

[00:39:47] Speaker 03:
So the last category that's described by the tax court is the fund dedicated to retirement of debt.

[00:39:53] Speaker 03:
That's part of the CSG and then also part of the CRDS.

[00:39:57] Speaker 03:
It's funded by both.

[00:39:58] Speaker 03:
Right.

[00:39:59] Speaker 03:
And what's your argument that

[00:40:02] Speaker 03:
We know that that is related to or amends or supplements of the eight listed categories.

[00:40:11] Speaker 05:
In the initial enactment of the CSG, that fund was not funded.

[00:40:18] Speaker 05:
Originally, all of the CSG went to the National Family Alliances Fund.

[00:40:21] Speaker 05:
When they amended it, some of it

[00:40:23] Speaker 05:
some residue after the first four enumerated funds had their pick was directed to the Social Debt Redemption Fund, and then the CRDS separately funded that completely.

[00:40:33] Speaker 05:
That fund is directed to the defeasance of debt that was incurred by the organization that is responsible for enforcing and effectuating the laws and the benefits that are included within the agreement.

[00:40:51] Speaker 05:
I think that it may be somewhat of a black box in terms of what proportion of the revenues, which euros are applied to which debt, and which benefit originally gave rise to that debt.

[00:41:02] Speaker 05:
But it's fairly clear that the funds go into this reserve.

[00:41:09] Speaker 05:
And out of that reserve, the debt incurred by these programs is paid.

[00:41:13] Speaker 03:
And that is a sufficient- These programs, how do we know which program's debt is paid by this?

[00:41:21] Speaker 05:
If some of it may be, and I don't think the record is clear on how much of these dollars or euros are directed to any particular fund, and I think as counsel for the taxpayers is made clear, that is itself a variable that will not be the same from one year to the next.

[00:41:39] Speaker 05:
But that should not be material to the inquiry of the court into whether the tax amends or supplements laws when it is clear

[00:41:46] Speaker 05:
that the funds from the tax are funding the laws and the benefits that are included.

[00:41:52] Speaker 03:
To some extent.

[00:41:52] Speaker 03:
Now, what if it was 1% and all the rest went to the Assadique?

[00:41:55] Speaker 03:
I assume the position might be different or not.

[00:41:58] Speaker 03:
If it amends or supplements, it amends or supplements.

[00:42:00] Speaker 03:
Even if only 1% of it were a supplement.

[00:42:03] Speaker 03:
So you could have a law that is completely non-deductible by the US taxpayer, almost 99% of which was going to the Assadique, which I gather

[00:42:15] Speaker 03:
the position that that is not covered by the totalization agreement.

[00:42:19] Speaker 05:
So the American tax credit pair would get a tax credit for payment of the SED.

[00:42:24] Speaker 03:
The SED is a levy, not a fund.

[00:42:26] Speaker 03:
But my question is, so there are some sort of social security laws that are not in the totalization agreement and a lot of them that are.

[00:42:34] Speaker 03:
And one is the example that you identified as one that's not, which is the SED, right?

[00:42:39] Speaker 03:
Even though it's kind of so

[00:42:43] Speaker 03:
And we don't actually know whether this last category that covers all of the CRDS and that some of the CSG is going to, where the CSG is concerned, well both of them, let's say most of the debt was debt accumulated by the unemployment, by the SEDs.

[00:43:02] Speaker 03:
and only a teeny bit is going to those categories that are covered by the totalization agreement.

[00:43:09] Speaker 03:
I guess my question is, do you have a legal standard that says, nonetheless, none of that is deductible, because it's amends or supplements?

[00:43:18] Speaker 05:
When you're paying a tax, a levy, into a fund that is dispersed at the discretion of a sovereign government, we, as a different sovereign government, can't take a position on

[00:43:30] Speaker 05:
how that sovereign needs to direct its funding before the United States tax code will be administered fully and fairly to every taxpayer obligated to pay that tax.

[00:43:41] Speaker 03:
A giant loophole, no?

[00:43:44] Speaker 05:
A loophole for whom, Your Honor?

[00:43:45] Speaker 03:
Well, maybe for the Commission, because it's a benefit to us to have less deducted.

[00:43:51] Speaker 05:
If it turns out that there is a tax that is disingenuously being levied on taxpayers who are then effectively subject to double taxation,

[00:44:00] Speaker 05:
then that is an issue that's not before this Court, and that is something we would seek to resolve.

[00:44:04] Speaker 03:
Do they have to prove disingenuousness?

[00:44:05] Speaker 03:
I thought that's their case.

[00:44:06] Speaker 03:
They're saying we're effectively subject to double taxation.

[00:44:08] Speaker 05:
No, they are effectively seeking a windfall, Your Honor.

[00:44:12] Speaker 05:
If you're paying United States Social Security tax, you're getting United States Social Security benefits.

[00:44:17] Speaker 05:
If you're paying French Social Security tax, you're getting French Social Security benefits.

[00:44:21] Speaker 03:
But they're saying – let's say they're paying not for French Social Security taxes, but they're paying for the SAD.

[00:44:27] Speaker 05:
Well, the assadee on its face as a levy is creditable for those exact reasons.

[00:44:33] Speaker 02:
They say this is an income tax, then you all say it's a Social Security tax.

[00:44:38] Speaker 05:
And we do that based on the publicly available information about how the tax is collected.

[00:44:45] Speaker 05:
the types of taxes that are meant to be included within this agreement by its face, and that's a plain language reading.

[00:44:51] Speaker 05:
That's not trying to unpack the sovereign intent.

[00:44:53] Speaker 02:
And just to be crystal clear on your plain language reading, so the tax court said that supplement means making up for deficiency or strengthening the designated laws, right?

[00:45:03] Speaker 05:
That is a generous definition of the word, and this court doesn't need to extend it that far.

[00:45:08] Speaker 02:
No, no, no, I'm quoting, okay, so maybe you're not defending the tax court judgment.

[00:45:10] Speaker 02:
The tax court said, quote,

[00:45:12] Speaker 02:
making up for deficiency, end quote, or, quote, strengthening, end quote, the designated laws.

[00:45:19] Speaker 02:
Yes.

[00:45:19] Speaker 02:
Do you defend that or not?

[00:45:20] Speaker 05:
We do.

[00:45:21] Speaker 02:
Yeah, so that's what supplement means.

[00:45:23] Speaker 02:
That's the plain language meaning of supplement.

[00:45:25] Speaker 05:
Yes.

[00:45:25] Speaker 02:
That applies to the French government, but not to the U.S.

[00:45:29] Speaker 02:
government.

[00:45:29] Speaker 05:
That applies to the base of the agreement.

[00:45:33] Speaker 02:
Does it apply – does that definition of supplement apply to the U.S.

[00:45:36] Speaker 02:
government?

[00:45:38] Speaker 05:
In what context?

[00:45:39] Speaker 02:
Does it apply if a law is passed and it's determined that it makes up for a deficiency in one of our designated laws or strengthens one of our designated laws?

[00:45:50] Speaker 02:
Does that meaning of supplement apply or not?

[00:45:52] Speaker 05:
Not if it is outside the terms that are explicitly set forth on the face of the agreement.

[00:45:59] Speaker 02:
It's not outside it because it's supplementing.

[00:46:02] Speaker 02:
It is strengthening.

[00:46:04] Speaker 02:
It is strengthening Title II of the Social Security Code.

[00:46:07] Speaker 02:
Is that supplement or not?

[00:46:10] Speaker 02:
It strengthens Title II.

[00:46:12] Speaker 05:
If Your Honor's hypo is that there is a tax that is universally strengthening, like the

[00:46:18] Speaker 05:
the entire social security regime in the United States.

[00:46:21] Speaker 02:
No, that is not my hypothetical.

[00:46:22] Speaker 02:
My hypothetical is that it is strengthening Title II as described in the totalization agreement.

[00:46:28] Speaker 02:
It strengthens it.

[00:46:30] Speaker 02:
That's the determination.

[00:46:31] Speaker 02:
Is that a supplement?

[00:46:36] Speaker 02:
It's plain language.

[00:46:36] Speaker 02:
You just told me it's plain language.

[00:46:38] Speaker 02:
It is.

[00:46:39] Speaker 05:
It is plain language.

[00:46:40] Speaker 05:
However,

[00:46:42] Speaker 05:
Chapter 2 and Chapter 21 of the Internal Revenue Code of 1986 and regulations pertaining to those chapters are not strengthened by additional funding.

[00:46:52] Speaker 05:
They are strengthened by changing their terms.

[00:46:54] Speaker 05:
They are defined in terms of their absolute statutory framework.

[00:46:59] Speaker 05:
They are not defined in terms of what

[00:47:02] Speaker 05:
goals they are accomplishing.

[00:47:03] Speaker 02:
Do you also have a position with the change in 2012, so where the CSG and CRDS, or whatever it's called, still now tax property sales?

[00:47:17] Speaker 02:
Is your position the same?

[00:47:18] Speaker 02:
I know you say those aren't the years at issue here.

[00:47:20] Speaker 02:
I just want to know the position of the Commissioner of Internal Revenue.

[00:47:23] Speaker 02:
Did that change your view on the nature of these taxes?

[00:47:26] Speaker 05:
It does not.

[00:47:26] Speaker 05:
And this goes back to an answer I sought to give earlier to Judge Pillard.

[00:47:32] Speaker 05:
because the creation of a capital gain as a tax base for these levies shows up in relief why you need to look at Section 317 before when you're construing the agreement.

[00:47:47] Speaker 05:
It's not about who can tax whom.

[00:47:49] Speaker 05:
It's not about who can tax what.

[00:47:51] Speaker 05:
It's about

[00:47:52] Speaker 05:
is a tax being paid by an individual to a foreign country with respect to any period of employment which is covered under the Social Security system of that country.

[00:48:01] Speaker 05:
If you are in America and you are paying American Social Security taxes into the American Social Security system and you sell your house in the south of France,

[00:48:11] Speaker 05:
you realize a capital gain on that.

[00:48:13] Speaker 05:
That is subject to the CSG in France, but that is a creditable tax to you in the United States because you are not covered by the French social security system.

[00:48:22] Speaker 05:
You are not in a period of employment where you are paying into the French social security system.

[00:48:29] Speaker 05:
You are only paying into one system at a time.

[00:48:33] Speaker 05:
And in that context,

[00:48:34] Speaker 05:
You do get a tax credit for the amount paid on the capital gain because we are not double taxing Social Security.

[00:48:40] Speaker 05:
We're paying American Social Security for American benefits.

[00:48:43] Speaker 05:
We're totalizing the periods of employment.

[00:48:45] Speaker 03:
You may have already answered this by saying that you adopt and defend the standard of the tax court.

[00:48:54] Speaker 03:
But what legal standard would you have us adopt in this case?

[00:49:02] Speaker 05:
I think the tax court took a plain language reading of amend or supplement, and I understand Judge Millett's concern that lifting it out of the American Heritage Dictionary comes with baggage that they may not have intended.

[00:49:13] Speaker 03:
If you could write it right now, what would be the holding that you wanted us to adopt?

[00:49:21] Speaker 05:
A law amends or supplements the categories of law that are included in the agreement

[00:49:30] Speaker 05:
if they are intended to fund those laws and are roughly akin to an increase in the taxes that are already funding those laws, notwithstanding that some of those funds may be directed to other

[00:49:47] Speaker 05:
funds or other benefits that are not within the scope of a totalization agreement.

[00:49:51] Speaker 02:
You mean intended to fund those laws in part, is what you mean?

[00:49:55] Speaker 02:
At all.

[00:49:56] Speaker 05:
If they fund those laws.

[00:49:58] Speaker 01:
To add one euro to those laws.

[00:50:00] Speaker 05:
Well, and if it's a de minimis funding, then that creates a policy issue that we would then need to resolve on those.

[00:50:07] Speaker 05:
Policy, but not interpretive.

[00:50:08] Speaker 05:
We do not have those facts here.

[00:50:09] Speaker 02:
But just to be clear, that would be a policy problem, not an interpretive problem.

[00:50:12] Speaker 02:
Your view of this agreement is that if it were even de minimis, one euro, it would count as supplement.

[00:50:18] Speaker 05:
Based on the way that the French side of the agreement is going?

[00:50:21] Speaker 05:
Yes.

[00:50:26] Speaker 05:
Any other questions?

[00:50:27] Speaker 05:
We'll rest on our brief.

[00:50:28] Speaker 01:
Thank you.

[00:50:28] Speaker 01:
Thank you very much.

[00:50:34] Speaker 00:
Thank you.

[00:50:35] Speaker 00:
Just as a couple of quick points of clarity, in answer to the question of old age solidarity, our expert report on Joint Appendix page 100, paragraph 15, answers the question that old age solidarity, in fact, is not one of the enumerated laws.

[00:50:53] Speaker 00:
Another point that was quite important here that maybe we're getting lost in the shuffle is that there is nothing about the CSG and CRDS which mandates that the French use it in the way they do.

[00:51:07] Speaker 00:
The French constitutional law is quite clear.

[00:51:10] Speaker 00:
It is an income tax.

[00:51:12] Speaker 00:
It does not need to be used or funded in the way that it is used.

[00:51:18] Speaker 00:
It could go into the general coffers and the French could use

[00:51:23] Speaker 00:
general funds to fund its social security program.

[00:51:26] Speaker 00:
Again, that's in the appendix.

[00:51:28] Speaker 00:
The French are very clear about the distinction between what is an income tax and what is a social charge.

[00:51:34] Speaker 00:
There is no doubt that this is on the income tax side of it.

[00:51:41] Speaker 00:
The question of the sale of the French property, again,

[00:51:47] Speaker 00:
is missing the point.

[00:51:49] Speaker 00:
The point is not, do you get a credit for it?

[00:51:52] Speaker 00:
That's a 317b4 question.

[00:51:55] Speaker 00:
We haven't gotten there yet.

[00:51:56] Speaker 00:
We have to start off with, can the French tax it?

[00:52:00] Speaker 00:
If I follow the totalization agreement, they can't tax it.

[00:52:04] Speaker 00:
They don't have taxing rights.

[00:52:05] Speaker 00:
You could say to the French, not, oh, I don't mind paying you because I may or may not get, I'll get a credit in the US that I may or may not be able to use based on my whole situation.

[00:52:16] Speaker 00:
You would say to them, no, we are not going to pay it.

[00:52:20] Speaker 00:
This is treaty protected.

[00:52:21] Speaker 00:
Wave the totalization agreement to them and say, I'm not going to pay that tax.

[00:52:27] Speaker 00:
problem is they'll wave the income tax treaty at you and say, oh yes you will.

[00:52:31] Speaker 00:
Under Article 13 of the income tax treaty, you owe us the money.

[00:52:35] Speaker 00:
The French position can't, it can't be in both.

[00:52:39] Speaker 00:
We have legislative proof as to what the French think the answer is.

[00:52:43] Speaker 00:
We have consistent statement on the French side.

[00:52:46] Speaker 00:
On the U.S.

[00:52:47] Speaker 00:
side, as you pointed out Judge Millett, the government has not produced us anything, but we do have the enabling legislation.

[00:52:55] Speaker 00:
What is this treaty trying to get at?

[00:52:58] Speaker 00:
This treaty is trying to totalize benefits.

[00:53:01] Speaker 00:
This treaty focuses on periods of coverage.

[00:53:04] Speaker 00:
There is no levy you can pay

[00:53:08] Speaker 00:
with any of the enumerated laws that don't give you a period of coverage.

[00:53:13] Speaker 00:
CSG, you can pay it.

[00:53:15] Speaker 00:
You do not get a period of coverage.

[00:53:17] Speaker 00:
There is no inconsistency in terms of the French view.

[00:53:21] Speaker 00:
The French view is entitled to a great deal of deference here.

[00:53:24] Speaker 00:
We have nothing on the other side other than a one-sentence affidavit that says, based on knowledge and belief, without addressing any of the inconsistencies that are going on.

[00:53:35] Speaker 00:
So when we look at this as a taxpayer, you say, why do I have this agreement?

[00:53:40] Speaker 00:
I have this agreement to totalize periods of coverage.

[00:53:43] Speaker 00:
If a tax does not give me a period of coverage, if the French position is unequivocal as to where this falls in that spectrum, including, as I say, an amendment now where you can't argue the point.

[00:53:57] Speaker 00:
It's not arguable.

[00:53:59] Speaker 00:
We know that the French are taxing the sale of real estate.

[00:54:02] Speaker 00:
They've said so.

[00:54:04] Speaker 00:
you can't escape that conclusion.

[00:54:06] Speaker 00:
Admittedly, the tax court said it's a tail wagging a dog.

[00:54:09] Speaker 00:
What it really is is it's clarity of a position.

[00:54:15] Speaker 00:
So from our point of view, from a taxpayer's point of view, treaty interpretation.

[00:54:20] Speaker 00:
We have one side absolutely clear, unequivocal.

[00:54:24] Speaker 00:
The government has not produced a single shred of evidence, and they can't.

[00:54:29] Speaker 00:
that says anything other than what the French view is.

[00:54:32] Speaker 00:
The French view is this is outside the scope of the totalization agreement.

[00:54:36] Speaker 00:
It's an income tax.

[00:54:37] Speaker 00:
The Constitutional Court says it's an income tax.

[00:54:39] Speaker 00:
You can do whatever you want with the money.

[00:54:42] Speaker 00:
Funding as a whole has never been the standard at the outset of the treaty, a funding where the standard all of a sudden 20% of all of your conventional income tax would have been uncredited.

[00:54:55] Speaker 00:
The point of a totalization agreement is specifically it does what it says.

[00:55:00] Speaker 00:
It totalizes benefits.

[00:55:03] Speaker 00:
You pay something, you get a point.

[00:55:06] Speaker 03:
You pointed to your declaration, which I had consulted on, I guess it was old age benefits.

[00:55:12] Speaker 03:
But I don't think it speaks to the question that I was asking, which is, yeah, there are social security schemes.

[00:55:20] Speaker 03:
That's all it says.

[00:55:20] Speaker 03:
It says there are social security schemes.

[00:55:23] Speaker 03:
It doesn't answer the question about their relationship to the aid in the minority categories, or does it?

[00:55:32] Speaker 00:
Sorry.

[00:55:36] Speaker 00:
I think I'm just reading the paragraph, the first part of 15.

[00:55:42] Speaker 00:
CSG and CRDS are specifically allocated to specific purposes.

[00:55:47] Speaker 00:
Some of these purposes are covered by the laws, family benefits, compulsory health services, and some are not, old age solidarity funds.

[00:55:54] Speaker 00:
I believe that actually we do say there are ones that are clearly outside.

[00:55:59] Speaker 00:
Maybe I've misunderstood the question.

[00:56:04] Speaker 03:
But then they do define it as a social security scheme.

[00:56:08] Speaker 03:
I'm just not sure how we get there.

[00:56:14] Speaker 03:
Can I ask you the same question that I asked the IRS, which is standard that you think this law supports and that we should adopt?

[00:56:25] Speaker 03:
What should be the legal standard?

[00:56:27] Speaker 00:
The legal standard?

[00:56:29] Speaker 03:
Our holding.

[00:56:30] Speaker 00:
Our holding.

[00:56:32] Speaker 00:
that the interpretation of this agreement we should follow.

[00:56:35] Speaker 00:
We have to look at both sides of an international agreement.

[00:56:39] Speaker 00:
The French side is entitled to a great deal of deference.

[00:56:41] Speaker 00:
The French side is clear.

[00:56:43] Speaker 00:
The US side, we have no information, but we do know why they implemented the treaty.

[00:56:48] Speaker 00:
In the first instance, they implemented the treaty to create period, to totalize periods of coverage.

[00:56:55] Speaker 00:
If it doesn't give you a period of coverage,

[00:56:58] Speaker 00:
on the US side and the French side is unequivocal, the better interpretation.

[00:57:04] Speaker 03:
So it's all, if it doesn't give you a period of coverage, it's not an utilization.

[00:57:09] Speaker 03:
That's your legal rule.

[00:57:11] Speaker 03:
Is that right?

[00:57:13] Speaker 00:
In this context, I'm sorry, I'm trying not to be difficult.

[00:57:19] Speaker 00:
I'm trying to interpret an agreement.

[00:57:20] Speaker 03:
And I'm trying to give you a chance to say exactly what you want to say.

[00:57:23] Speaker 03:
Yes.

[00:57:26] Speaker 03:
reasoning coming out of the French, but it would be helpful to me just to know what your bottom line is.

[00:57:33] Speaker 00:
A bottom line position is that I do not believe, absent something I haven't seen, and

[00:57:41] Speaker 00:
There's 24 totalization agreements, and there's a lot of laws in a lot of different countries.

[00:57:46] Speaker 00:
I don't know that it would be possible whether the president would exceed his authority to enter into an agreement covering something that didn't give you a period of coverage.

[00:57:57] Speaker 00:
I wouldn't want to say as a matter of course he couldn't do it.

[00:58:01] Speaker 00:
I don't think he could.

[00:58:04] Speaker 00:
So therefore, if he couldn't do it,

[00:58:07] Speaker 00:
then yes, if it doesn't give you a period of coverage, it's outside the scope of a totalization agreement.

[00:58:13] Speaker 03:
That's interesting, because I would have thought that he clearly could.

[00:58:16] Speaker 03:
And just to take the very narrow example, if I'm a taxpayer, American working in France, and I'm getting periods of coverage, and then there's a crisis in the French social security system, and they're saying, we need to

[00:58:33] Speaker 03:
bolster the system that you're hoping when you retire is going to pay you something and we're going to do this, you know, in as fair a way as we know how and it's going to be progressive and whatever, but you do have to pay this extra bit.

[00:58:45] Speaker 03:
It's going to go only to benefits to which you're entitled, some category of benefits, but it's not going to give you an extra period of benefits.

[00:58:53] Speaker 03:
It's going to make sure that the period of benefits that you think you've already earned are there for you when you retire.

[00:59:00] Speaker 03:
Surely that would be permissible, no?

[00:59:03] Speaker 00:
Yes, and let me give you an example.

[00:59:05] Speaker 00:
So they increased like Belgium did.

[00:59:08] Speaker 00:
They had exactly that problem, and they slapped a 10% income tax on everybody.

[00:59:13] Speaker 00:
A 10% income tax, a crisis tax.

[00:59:16] Speaker 00:
It was going to last three years.

[00:59:18] Speaker 00:
I've been there a long time.

[00:59:20] Speaker 00:
It's still there.

[00:59:21] Speaker 00:
That tax is creditable.

[00:59:24] Speaker 02:
So that tax is treated as an income tax?

[00:59:27] Speaker 00:
Absolutely.

[00:59:28] Speaker 00:
No doubt about it.

[00:59:29] Speaker 02:
And it's not under the federalization agreement.

[00:59:31] Speaker 00:
But if they created a new law, I mean, I'll make the argument.

[00:59:35] Speaker 00:
If they created a new law and they said, we're going to create a new tax, it's going to be called VSB.

[00:59:44] Speaker 00:
VSB, and I'm sorry, VSA is what creates the pension benefits.

[00:59:48] Speaker 00:
We'll create VSB.

[00:59:49] Speaker 00:
We'll call it something different.

[00:59:51] Speaker 00:
And what it is, is it's

[00:59:53] Speaker 00:
measured on exactly the same standard as VSA, and indeed it's going to be 5 percent measured by the same tax base as VSA, I would have a hard time arguing that point.

[01:00:05] Speaker 00:
We are in an uncertain world, and if you're asking for a blanket statement, it's hard in a treaty interpretation case.

[01:00:12] Speaker 00:
We do the best we can.

[01:00:14] Speaker 00:
We have clear point on one side.

[01:00:16] Speaker 00:
We have policy on the other.

[01:00:18] Speaker 00:
They point in the same direction.

[01:00:20] Speaker 00:
And that's the best we can do given the record and what we have.

[01:00:26] Speaker 01:
For your summary, you didn't address the issue of the meaning of supplement at all.

[01:00:31] Speaker 01:
It seems to me that's something you've studiously avoided in your argument.

[01:00:37] Speaker 01:
And it seems to me it cuts against you.

[01:00:39] Speaker 01:
We have to understand what the word supplement means here.

[01:00:42] Speaker 01:
The way I see the case, that's central to it.

[01:00:45] Speaker 01:
How should I be viewing the meaning of the word supplement here?

[01:00:48] Speaker 01:
That's what the agreement says we're supposed

[01:00:52] Speaker 01:
to look at is, does this tax supplement one of the enumerated taxes?

[01:00:58] Speaker 00:
Well, supplement could be viewed as creating a new class of beneficiary.

[01:01:03] Speaker 00:
That certainly is within the context of where the word appears in the agreement itself.

[01:01:09] Speaker 00:
It says amend or supplement.

[01:01:11] Speaker 00:
So you're arguing it could be viewed that when you look to the intent of the parties?

[01:01:15] Speaker 00:
Absolutely.

[01:01:15] Speaker 00:
In my mind, there's no doubt that the intent of the parties controls the interpretation of an agreement.

[01:01:24] Speaker 00:
And supplement here could be viewed as creating a new class of beneficiary.

[01:01:31] Speaker 02:
You mean expand, essentially?

[01:01:32] Speaker 00:
Expand a class of beneficiary.

[01:01:35] Speaker 00:
It could be expand

[01:01:37] Speaker 00:
the scope of, yes, it could be in those contexts, but it can't be creating new law that does not give you a period of coverage that taxes you where sometimes these things don't tax you that could be used to fund a system but doesn't have to be used to fund a system.

[01:02:00] Speaker 00:
Thank you very much.

[01:02:01] Speaker 01:
Thank you.

[01:02:01] Speaker 01:
The case is submitted.