Tax treaty developments.

Author:Dichter, Arthur J.
 
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There were many tax treaty developments in 1995.

Treaties and Protocols That Became Effective During 1995

* Israel First ever treaty signed Nov. 20, 1975; first Protocol signed May 30, 1980; second Protocol signed jan. 26, 1993; approved by the Senate Sept. 23,1994; instruments of ratification exchanged Nov. 30, 1994; entered into force Dec. 30, 1994. Reduced withholding rates effective for payments on or after Feb. 1, 1995; otherwise effective for tax years beginning on or after Jan. 1, 1995.

Treaties and Protocols Ratified During 1995

* Canada Protocol to 1980 treaty signed Mar. 17, 1995 and approved by the Senate Aug. 11, 1995; entered into force Nov. 9, 1995; generally effective Jan. 1, 1996.

* France New treaty replacing 1967 treaty signed Aug. 31, 1994 and approved by the Senate Aug. 11, 1995; entered in force Dec. 30, 1995. Reduced with holding rates effective for payments on or after Feb. 1, 1996 (existing treaty continues to apply to payments made prior to that date); otherwise effective for tax years beginning on or after Jan. 1, 1996 (existing treaty continues to apply for tax years beginning before that date).

* Mexico Protocol to 1992 treaty signed Sept. 8, 1994 and approved by the Senate Aug. 11, 1995; entered into force and became effective Oct. 26, 1995.

* Portugal First ever treaty and protocol signed Sept. 15, 1994 and approved by the Senate Aug. 11, 1995; entered into force Dec. 18, 1995, and effective Jan. 1, 1996.

* Sweden New treaty replacing 1939 agreement signed Sept. 1, 1994 and approved by the Senate Aug. 11, 1995; entered into force Oct. 26, 1995; effective Jan. 1, 1996 (for the Swedish capital tax, the effective date is Jan. 1, 1997).

Treaties Approved by the Senate in 1995, But Not Yet in Force

* Ukraine First ever treaty and protocol signed Mar. 4,1994 and approved by the Senate Aug. 11, 1995. Bank secrecy problems are delaying entry into force; according to Treasury officials this agreement is on hold.

Treaties and Protocols Signed, But Not Yet Considered by the Senate

* Kazakhstan First ever treaty and protocol signed Oct. 24, 1993, but not considered by the Senate Foreign Relations Committee at its hearing on June 13, 1995. Bank secrecy and translation problems continue to delay the ratification process.

* Netherlands Protocol to 1948 treaty as applicable to the Netherlands Antilles signed Oct. 10, 1995, and awaiting Senate consideration.

Agreements Initialed in 1995, But Not Yet Signed

* Austria A new treaty to replace the 1956 agreement was initialed June 26, 1995.

* Luxembourg A new treaty to replace the 1962 agreement was initialed Sept. 21, 1995.

* Turkey First ever treaty was initialed May 11, 1995.

Agreements Terminated or Notice of Termination During 1995

* Aruba U.S. notified the Netherlands on Sept. 15, 1995 of its intent to terminate the 1948 treaty as extended to Aruba effective Jan. 1, 1997.

* Azerbaijan According to Treasury officials, notice has been provided to the Department of State that the treaties entered into by the U.S.S.R. have not been approved by the Azerbaijan Republic and therefore are not effective.

* Kazakhstan Announced in December 1994 that it would no longer recognize treaties entered into by the U.S.S.R. effective jan. 1, 1995. However, the Department of State was never notified of termination. Treasury officials decided to honor the U.S.-U.S.S.R. treaty for 1995, until the new U.S.-Kazakhstan treaty enters into force. At this time, it is not clear what will happen in 1996.

* Malta U.S. notified Malta on Nov. 16,1995 of its intent to terminate the 1980 treaty, effective Jan. 1, 1997.

Treaty Descriptions

* Canada

Withholding rates:

[] Dividends Reduced from 10% to 5% on dividends paid to a corporation owning at least 10% or more of the voting stock of the payer, unless the payer is a Canadian nonresident-owned investment corporation, a regulated investment company (RIC) or a real estate investment trust (REIT). Also applies for branch profits tax. New reduced rate phased in: for payments in 1996, the rate is 6%, and for payments in 1997 and thereafter, the rate is 5%. Rate remains 15% in other cases (including dividends paid by a RIC or a REIT).

When a REIT pays dividends to an individual who beneficially owns 10% or more, the dividends are taxed at the nontreaty rate.

[] Interest: Rate is reduced from 15% to 10%. Expands existing exemption for interest received by a seller of equipment, merchandise or services on credit, to include a person who buys the receivable from the seller and receives interest thereon, provided that both the seller and the buyer of the receivable are residents of the same country.

[] Royalties: Rate remains 10%; however, classes of royalties that qualify for exemption have been greatly expanded and include royalties paid for using any patent, any information concerning industrial, commercial or scientific experience (except rental or franchise agreement information), any broadcasting (to the extent provided in a future exchange of notes) and any right to use computer software, even if the license does not...

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