Question

3-1. Stock appreciation tax

France imposes a 10 percent tax on the aggregate net appreciation in the value of stocks held by French residents at the end of a calendar year. In addition, all French residents are subject to an income tax within the meaning of reg sec 1.901-2(a). Nancy, a US citizen, lives in Paris. She buys IBM stock on 07/01/2016 for €1,000. On 12/31/2016, the stock is worth €1,100, and she pays the stock appreciation tax of €10. On 12/31/2017 the stock is worth €1,300, and she pays a stock appreciation tax of €20 (10% x 1,300 - 1,100) for 2016. She sells the stock on 1/2/2018 for €1,350 and has a gain of €350 for purposes of the French income tax. Is the stock appreciation tax a creditable tax for US tax purposes? Explain.

Answer 1

Yes, As per sec 1.901-2(a), Stock appreciation tax paid can be utilized as an creditable tax for US tax purposes.

In this case Nancy has paid stock appreciation tax amounting 30 due to increase of stock value. On 7/1/2016 Nancy purchased the stock at a value of 1000 and sold the stock on 1/2/2018 for 1350 which results in a gain of 350.

Tax amount has to be computed as per the tax rates applicable in the country and can utilise the stock appreciation tax of 30 as a creditable tax by deducting it from the Income tax payable.