ARTICLE 30
Limitation on Benefits of the Convention
1. A resident of a Contracting State that derives income from the other Contracting State shall
be entitled in that other State to all of the benefits of this Convention only if such resident is one
of the following:
(a) an individual;
(b) a Contracting State, a political subdivision (in the case of the United States) or
local authority thereof, or an agency or instrumentality of that State, subdivision, or
authority;
(c) a company meeting one of the following conditions:
(i) the principal class of its shares is listed on a recognized securities
exchange located in either Contracting State and is substantially and regularly
traded on one or more recognized securities exchanges;
(ii) more than 50 percent of the aggregate vote and value of its shares is
owned, directly or indirectly, by any combination of companies that are resident in
either Contracting State, the principal classes of the shares of which are listed and
traded as described in subparagraph (c) (i), persons referred to in subparagraph
(b), and companies of which more than 50 percent of the aggregate vote and value
of their shares is owned by persons referred to in subparagraph (b);
(iii) (aa) at least 30 percent of the aggregate vote and value of its shares
is owned, directly or indirectly, by any combination of companies that are
resident in the first-mentioned Contracting State, the principal classes of
the shares of which are listed and traded as described in subparagraph (c)
(i), persons referred to in subparagraph (b), and companies of which more
than 50 percent of the aggregate vote and value of their shares is owed by
persons referred to in subparagraph (b); and
(bb) at least 70 percent of the aggregate vote and value of its shares
is owned, directly or indirectly, by any combination of companies that are
residents of either Contracting State or of one or more member states of
the European Union, the principal classes of shares of which are listed and
substantially and regularly traded on one or more recognized stock
exchanges, persons referred to in subparagraph (b), companies of which
more than 50 percent of the aggregate vote and value of their shares is
owned by persons referred to in subparagraph (b), one or more member
states of the European Union, political subdivisions or local authorities
thereof, or agencies or instrumentalities of those member states,
subdivisions, or authorities, and companies of which more than 50 percent
of the aggregate vote and value of their shares is owned by such member
states, subdivisions, authorities, or agencies or instrumentalities;
(d) a person, if 50 percent or more of the beneficial interest in such person (or, in
the case of a company, 50 percent or more of the vote and value of the company’s shares)
is not owned, directly or indirectly, by persons that are not qualified persons, and:
(i) less than 50 percent of the gross income of such person is used, directly
or indirectly, to make deductible payments to persons that are not qualified
persons; or
(ii) less than 70 percent of such gross income is used, directly or indirectly,
to make deductible payments to persons that are not qualified persons and less
then 30 percent of such gross income is used, directly or indirectly, to make
deductible payments to persons that are neither qualified persons nor residents of
member states of the European Union;
(e) a pension trust or an organization referred to in subparagraph (b) (ii) of
paragraph 2 of Article 4 (Resident), provided that more than half of its beneficiaries,
members, or participants, if any, are qualified persons; or
(f) an investment entity referred to in subparagraph (b) (iii) of paragraph 2 of
Article 4 (Residence) provided that more than half of the shares, rights, or interests in
such entity is owned by qualified parsons.
2. (a) A resident of a Contracting State shall also be entitled to the benefits of the
Convention with respect to income derived from the other Contracting State if:
(i) such resident is engaged in the active conduct of a trade or business in
the first-mentioned State (other than the business of making or managing
investments, unless the activities are banking or insurance activities carried on by
a bank or insurance company);
(ii) the income is connected with or incidental to the trade or business in
the first-mentioned State; and
(iii) the trade or business is substantial in relation to the activity in the
other State that generated the income.
(b) For purposes of subparagraph (a), whether the trade or business of the resident
in the first-mentioned State is substantial in relation to the activity in the other State will
be determined based on all of the facts and circumstances. In any case, however, the trade
or business will be deemed substantial if, for the first preceding taxable period or for the
average of the three preceding taxable periods, each of the following ratios equals at least
7.5 percent and the average of the ratios exceeds 10 percent:
(i) the ratio of the value of assets used or held for use in the conduct of the
trade or business of the resident in the first-mentioned State to the value of assets
used or held for use in the conduct of the activity in the other State;
(ii) the ratio of the gross income derived from the conduct of the trade or
business of the resident in the first-mentioned State to the gross income derived
from the conduct of the activity in the other States;
(iii) the ratio of the payroll expense of the trade or business of the resident
in the first-mentioned State for services performed in that State to the payroll
expense of the activity in the other State for services performed in that other State.
In determining the above ratios, assets, income, and payroll expense shall be taken into account
only to the extent of the resident’s direct or indirect ownership interest in the activity in the other
State. If neither the resident nor any of its associated enterprises has an ownership interest in the
activity in the other State, the resident’s trade or business in the first-mentioned State shall be
considered substantial in relation to such activity.
3. A resident of a Contracting State shall also be entitled to the benefits of this Convention if
that resident functions as a headquarter company for a multinational corporate group.
4. A company resident in a Contracting State shall also be entitled to the benefits of the
Convention in respect of income referred to in Articles 10 (Dividends), 11 (Interest), or 12
(Royalties) if:
(a) more than 30 percent of the aggregate vote and value of all of its shares is
owned, directly or indirectly, by qualified persons resident in that State;
(b) more than 70 percent of all such shares is owned, directly or indirectly, by any
combination of one or more qualified persons and persons that are residents of member
states of the European Union; and
(c) such company meets the base reduction test described in subparagraphs (d) (i)
and (ii) of paragraph 1.
5. Notwithstanding the provisions of paragraphs 1 through 4, where an enterprise of a
Contracting State that is exempt from tax in that State on the profits of its permanent
establishments which are not situated in that State derives income from the other Contracting
State, and that income is attributable to a permanent establishment which that enterprise has in a
third jurisdiction, the tax benefits that would otherwise apply under the other provisions of the
Convention will not apply to any item of income on which the combined tax in the first-
mentioned State and in the third jurisdiction is less than 60 percent of the tax that would be
imposed in the first-mentioned State if the income were earned in that State by the enterprise and
were not attributable to the permanent establishment in the third jurisdiction. Any dividends,
interest, or royalties to which the provisions of this paragraph apply shall be subject to tax in the
other State at a rate not exceeding 15 percent of the gross amount thereof. Any other income to
which the provisions of this paragraph apply shall be subject to tax under the provisions of the
domestic law of the other Contracting State, notwithstanding any other provision of the
Convention. The provisions of this paragraph shall not apply if:
(a) the income derived from the other Contracting State is in connection with or
incidental to the active conduct of a trade or business carried on by the permanent
establishment in the third jurisdiction (other than the business of making or managing
investments unless these activities are banking or insurance activities carried on by a bank
or insurance company); or
(b) when France is the first-mentioned State, France taxes the profits of such
permanent establishment according to the provisions of its domestic law referred to in
subparagraph (e) (iii) of paragraph 2 of Article 24 (Relief from Double Taxation) or the
United States taxes such profits according to the provisions of subpart F of part II of sub-
chapter N of chapter 1 of subtitle A of the Internal Revenue Code, as it may be amended
from time to time without changing the general principle thereof.
6. The following definitions shall apply for purposes of this Article:
(a) The reference in subparagraphs (c) (ii) and (c) (iii) of paragraph 1 to shares
that are owned "directly or indirectly" shall mean that all companies in the chain of
ownership must be residents of a Contracting State or of a member state of the European
Union, as defined in subparagraph (d) of paragraph 6.
(b) The term "gross income," as used in subparagraph (d) of paragraph 1, means
gross income for the first taxable period preceding the current taxable period, provided
that the amount of gross income for the first taxable period preceding the current taxable
period shall be deemed to be no less than the average of the annual amounts of gross
income for the four taxable periods preceding the current taxable period.
(c) The term "deductible payments" as used in subparagraph (d) of paragraph 1
includes payments for interest or royalties, but does not include payments at arm’s length
for the purchase or use of or the right to use tangible property in the ordinary course of
business or remuneration at arm’s length for services performed in the Contracting State
in which the person making such payments is a resident. Types of payments may be
added to, or eliminated from, the exceptions mentioned in the preceding definition of
"deductible payments" by mutual agreement of the competent authorities.
(d) The term "resident of a member state of the European Union," as used in
paragraph 1, means a person that would be entitled to the benefits of a comprehensive
income tax convention in force between any member state of the European Union and the
Contracting State from which the benefits of this Convention are claimed, provided that if
such convention does not contain a comprehensive Limitation on Benefits article
(including provisions similar to those of subparagraphs (c) and (d) of paragraph 1 and
paragraph 2 of this Article), the person would be entitled to the benefits of this
Convention under the principles of paragraph 1 if such person were a resident of one of
the Contracting States under Article 4 (Resident) of this Convention.
(e) The term "recognized securities exchange" as used in paragraph 1 means:
(i) the NASDAQ System owned by the National Association of Securities
Dealers, Inc. and any stock exchange registered with the U.S. Securities and
Exchange Commission as a national securities exchange for purposes of the U.S.
Securities Exchange Act of 1934;
(ii) the French stock exchanges controlled by the "Commission des
opération bourse," and the stock exchanges of Amsterdam, Brussels, Frankfurt,
Hamburg, London, Madrid, Milan, Sydney, Tokyo, and Toronto;
(iii) any other stock exchanges agreed upon by the competent authorities
of both Contracting States.
(f) The term "qualified person" as used in paragraphs 1 and 4 means any person
that is entitled to the benefits of the Convention under paragraph 1 or who is a citizen of
the United States;
(g) the term "engaged in the active conduct of a trade or business" as used in
paragraph 2 applies to a person that is directly so engaged or is a partner in a partnership
that is so engaged, or is so engaged through one or more associated enterprises (wherever
resident);
(h) the term "headquarter company" as used in paragraph 3 means a person
fulfilling the following conditions:
(i) it provides in the Contracting State of which it is a resident a substantial
portion of the overall supervision and administration of a multinational corporate
group, which may include, but cannot be principally, group financing;
(ii) the corporate group consists of companies that are resident in, and
engaged in an active business in, at least five countries, and the business activities
carried on in each of the five countries (or five groupings of countries) generate at
least 10 percent of the gross income of the group;
(iii) the business activities carried on in any one country other than the
Contracting State of which the headquarter company is a resident generate less
then 50 percent of the gross income of the group;
(iv) no more than 25 percent of its gross income is derived from the other
State;
(v) it has, and exercises, independent discretionary authority to carry out
the functions referred to in subparagraph (i);
(vi) it is subject to the same income taxation rules in the Contracting State
of which it is a resident as persons described in paragraph 2; and
(vii) the income derived in the other Contracting State either is derived in
connection with, or is incidental to, the active business referred to in subparagraph
(ii).
If the gross income requirements of subparagraph (ii), (iii), or (iv) of this paragraph are not
fulfilled, they will be deemed to be fulfilled if the required ratios are met when calculated on the
basis of the average gross income of the headquarters company and the average gross income of
the group for the preceding four taxable periods.
7. A resident of a Contracting State that is not entitled to the benefits of the Convention under
the provisions of the preceding paragraphs of this Article shall, nevertheless, be granted the
benefits of the Convention if the competent authority of the other Contracting State determines,
upon such person’s request,
(a) that the establishment, acquisition, or maintenance of such person and the
conduct of its operations did not have as one of its principal purposes the obtaining of
benefits under the Convention, or
(b) that it would not be appropriate, having regard to the purpose of this Article, to
deny the benefits of the Convention to such person.
The competent authority of the other Contracting State shall consult with the competent authority
of the first-mentioned State before denying the benefits of the Convention under this paragraph.
8. The competent authorities of the Contracting States may consult together with a view to
developing a commonly agreed application of the provisions of this Article.