Assurance-vie and US tax: France's default savings product, and its least settled US question

In France the assurance-vie is not really life insurance. It is the ordinary way people save: a wrapper you feed for decades, holding either a guaranteed-return fund or a menu of investment funds, with French tax advantages that improve the longer you hold it. Your bank will have offered you one in your first month in the country. For a US citizen it is one of the harder things on a French balance sheet to get right.

Start by separating the wrapper from the contents

Almost every confused conversation about this product collapses two questions into one. They have to be answered separately.

Fonds en euros and unités de compte are not the same product

A fonds en euros is the capital-guaranteed component: the insurer credits an annual return, the capital does not fall, and the economics resemble a guaranteed-return account more than a fund. Unités de compte are the opposite — the value follows the underlying funds, which are usually French SICAVs and FCPs or Luxembourg vehicles. Most modern contracts are multi-support: they hold both.

That distinction drives the PFIC question. A portfolio of unités de compte is, in substance, a portfolio of non-US pooled funds, and those commonly meet the §1297 income or asset test. A pure fonds en euros contract does not present the same fund-by-fund analysis, though it still produces income the US return has to reckon with.

The classification question, stated honestly

You will find confident answers in every direction — that an assurance-vie is a foreign trust requiring Form 3520, that it is insurance and therefore fine, that it is simply a brokerage account in a costume. The truthful position is narrower than any of them: the classification depends on the specific contract's terms, and contracts differ considerably between insurers and vintages.

What can be said without hedging is that the French treatment does not transfer. The deferral French law grants while the contract is in force, and the reduced rates it grants after eight years, are French rules about French tax. The saving clause in the 1994 convention preserves the United States' right to tax its citizens as though the treaty had not been signed, so none of that carries across on its own.

Reporting, which applies either way

• FBAR. An assurance-vie is a foreign financial account with a cash or surrender value. It counts toward the $10,000 aggregate, measured across every non-US account you hold anywhere.
• Form 8938. The contract's value counts toward the specified-foreign-financial-asset thresholds ($300,000 for a single filer abroad at any point in the year).
• Form 8621. Generally one per PFIC per year for the unités de compte held inside.

The arbitrage inside the contract

French advisers routinely recommend switching between supports inside the contract — the arbitrage — because in France it is not a taxable event. For US purposes a switch between unités de compte is a disposition of one investment and an acquisition of another, and under the default PFIC regime a disposition is what triggers the excess-distribution computation. A contract that has been actively managed for a decade can carry a long history of these.

Working out where you stand

1. Ask the insurer for the relevé de situation showing every support held and the arbitrage history.
2. Separate the fonds en euros component from the unités de compte — they are different analyses.
3. List each unité de compte with its ISIN, and note whether it is a SICAV, an FCP, or a Luxembourg vehicle.
4. Record the contract's surrender value at each year end, and its maximum during each year, for the reporting forms.
5. Reconstruct the arbitrages, because each is a disposition for US purposes even though France treated none of them as one.
6. Get the contract classification reviewed against the actual policy document before assuming a Form 3520 obligation either way.