Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 64-92

1964-1 C.B. 599

Sec. 894

IRS Headnote

The exemption from United States income tax provided by Article 10 of the United States-France Income Tax Convention is applicable only where the resident of France (nonresident with respect to the United States) performs services of a noncommercial nature (such as medical, legal, engineering, scientific, teaching, research, and entertaining) on his own account and not as an employee of another person or under a contract of employment.

Revenue Ruling 55-508, C.B. 1955-2, 775, and Revenue Ruling 60-313, C.B. 1960-2, 627, modified.

Full Text

Rev. Rul. 64-92

The Internal Revenue Service has re-examined its position with respect to what constitutes `the exercise of a liberal profession' within the meaning of Article 10 of the United States-France Income Tax Convention in view of the interpretation it has been learned is being given to that term by the French tax authorities.

Article 10 of the United States-France Tax Convention reads:

Income from the exercise of a liberal profession shall be taxable only in the State in which the professional activity is exercised.

There is the exercise of a liberal profession in one of the two contracting States only when the professional activity has a fixed center in that country.

Section 7.420(b)( redesignated 514.111(b)) of Treasury Decision 5499, C.B. 1946-1, 134, at 146, contains the statement that Article 10 of the convention provides a special rule of taxation with respect to professional fees constituting income derived from sources within the United States by a resident of France who is a nonresident alien. Under such rule, such nonresident alien rendering professional services, such as medical, legal, engineering, and scientific services, is not subject to United States tax with respect to such compensation unless he has an office or other fixed place situated in the United States during the taxable year.

Paragraph (4) of Article 1 of the supplementary Protocol between the United States and France signed May 17, 1948, C.B. 1956-1, 845, states that the provisions of Article 10 of the convention signed July 25, 1939, between the United States and France shall be applied on a reciprocal basis. The report of the Department of State accompanying the supplementary Protocol, Senate Executive G, 80th Cong., 2d Sess., states, in part, that paragraph (4) is designed, in view of the fact that in France the expression `liberal profession' is construed liberally in extending benefits to United States citizens, to clarify the intent of Article 10 of the convention of 1939 that its provisions should be applied reciprocally.

Pursuant to the regulations and the Department of State report referred to above indicating that Article 10 is to be construed liberally, the Service has held that compensation for services rendered by a professor or teacher is exempt under Article 10 of the convention. Likewise, in Revenue Ruling 55-508, C.B. 1955-2, 775, it is held that the compensation received by a French citizen, who is in the United States on an exchange visitor's visa to perform professional services as a research assistant at a university in the United States, is exempt under Article 10 of the convention. Revenue Ruling 60-313, C.B. 1960-2, 627, provides that the exemption shall apply to compensation for services rendered in the United States by public entertainers.

It has come to the attention of the Service that the French tax authorities are interpreting the term `the exercise of a liberal profession' as used in Article 10 of the convention as applying to an individual whose profession is not of a commercial nature and who is exercising that profession on his own account and not as an employee of another or under a contract of employment. Recently, the Service was advised that those authorities deem it inexpedient to change that interpretation. Thus, it is the manner in which the individual carries out his activities that determines whether he is exercising a liberal profession within the scope of Article 10 of the convention for purposes of French taxation. On the contrary, the Service has interpreted Article 10 as applying to compensation for services which are of a professional nature, whether performed as an employee or as an independent contractor, provided the nonresident alien individual resident in France does not have at any time during the taxable year an office or other fixed place in the United States incident to the practice of his profession.

To assure reciprocity in the application of Article 10 as required by Article 1(4) of the supplementary Protocol signed May 17, 1948, the Service adopts the position that Article 10 applies only to individuals whose profession is not of a commercial nature and who are exercising that profession on their own account and not as employees of another or under a contract of employment. United States concepts of who is considered as an employee of another, or under a contract of employment, will be used in making this application.

Accordingly, Revenue Ruling 55-508 and Revenue Ruling 60-313 are modified to remove the implication that research assistants and public entertainers who render services in this country as employees are entitled to the benefits of Article 10 of the convention. However, pursuant to the provisions of section 7805(b) of the Internal Revenue Code of 1954, the provisions of those Revenue Rulings as modified will be applied without retroactive effect to those residents of France who are now in the United States rendering services pursuant to a contract entered into prior to March 23, 1964, the date of publication of this ruling.