TLDR: The effective rate makes it possible, when the applicable tax treaty provides for it, to take assets located abroad into account when determining the rate applicable to assets taxable in France. French tax remains due only on the portion taxable in France. Crediting tax paid abroad is a separate mechanism, applicable when the same asset is taxable in both states.
How the effective rate works
Certain international tax treaties allow assets located abroad to be taken into account when determining the rate applicable to assets located in France that remain taxable in France, even when the foreign assets cannot be taxed there under the treaty.
Tax is calculated on the basis of all assets taken into account to determine the rate, and is then due only in proportion to the portion corresponding to the assets actually taxable in France. The effective rate thus makes it possible to preserve the progressivity of French tax despite the treaty-based exemption of certain assets.
This mechanism depends on the applicable tax treaty. Some treaties may notably limit its application to inheritances involving non-residents.
What is the difference from tax paid abroad?
The effective rate and the crediting of foreign tax serve two different purposes:
- the effective rate is used to determine the French rate by taking into account assets that are not taxable in France;
- the crediting mechanism concerns tax paid abroad when the same asset is taxable in both states.
In this second case, tax paid abroad may be credited against the tax due in France in accordance with the procedures provided for by the applicable tax treaty.