Topics

The U.S. Tax Treaty Network: Past and Present The Model Treaties: Blueprints for Global Tax Coordination Technical Application of Tax Treaties: Taxing Profits Critical Analysis and the Future of Tax Treaties

The U.S. Tax Treaty Network: Past and Present

How U.S. Tax Treaties are Made Historical Development of the U.S. Tax Treaty Network Current Developments

Step 1. Obtain Authority.

Treaties are entered into by the Executive Branch under Article II, Section 2, of the U.S. Constitution.

[The President] shall have Power, by and with the Advice and Consent of the Senate, to make Treaties, provided two thirds of the Senators present concur.

Compare to Article I, Section 7, which gives the House of Representatives the lead role in domestic revenue matters.

All Bills for raising Revenue shall originate in the House of Representatives.

Step 1, continued

Congressional restraint on Executive power to make treaties is exercised by the Senate, traditionally through its Foreign Relations Committee. Most treaties are negotiated on behalf of the United States by the State Department. Tax Treaties are an exception: they are negotiated primarily by the Treasury Department.

However, the State Department is traditionally consulted before a treaty is signed.

Step 2. Initiate Negotiations.

Various sectors of the Treasury Department are involved in negotiating treaties.

Primary responsibility is assigned to the Office of International Tax Counsel, a division of the Office of Tax Policy. Staff assistance is traditionally provided by the Internal Revenue Service.

The decision about what treaties to initiate or update is not made public.

Presumably, there is some form of unstated standard, whether written or unwritten, because U.S. treaty policy has been consistent over several decades.

Step 2, continued

In connection with new treaties with Japan and Sri Lanka, former ITC Barbara Angus hinted at some of this policy:

In establishing our negotiating priorities, our primary objective is the conclusion of tax treaties or protocols that will provide the greatest economic benefit to the United States and to U.S. taxpayers. To that end, We communicate regularly with the U.S. business community, seeking input regarding the areas in which treaty network expansion and improvement efforts should be focused.
[Testimony of Barbara M. Angus, International Tax Counsel, United States Department of the Treasury before the Senate Committee on Foreign Relations on Pending Income Tax Agreements, FEBRUARY 25, 2004]

3. Negotiate.

The ITC negotiates the treaty with his or her foreign counterpart This is done in secret, in the sense that there are no public meetings.

4. Initial.
International Tax Counsel initials the treaty to sign off on the negotiations and move the treaty into ratification phase.

5. Submit to President.

International Tax Counsel presents the initialed treaty to the President or his delegate for signature. The Dept of State and Treasury prepare a report to the President recommending he transmit the treaty to Senate for advice abd consent to ratification

Summary: Delegation of Treaty Negotiation Responsibilities

President
most treaties tax treaties

State Dept

Treasury Dept
Assistant Secy., Tax Policy
Office of International Tax Counsel traditionally consults with

Congress
Senate Foreign Relations Committee Senate Finance Committee House Ways & Means Committee

negotiates with foreign countries initials the treaty presents to President or his delegate for signature

6. Sign.

If the President approves of the treaty, he signs it.

7. Transmit to Senate.

After it is signed by the President, the treaty is forwarded together with the Report to Senate under a letter of transmittal. Senate formally lifts the injunction of secrecy, and the signed treaty become public information.

8. Transmit to Senate Foreign Relations Committee.

While the Senate Finance Committee has jurisdiction over tax legislation, jurisdiction over tax treaties lies with the Senate Foreign Relations Committee After receiving the signed treaty and the Presidents transmittal letter, the Senate Foreign Relations Committee schedules public hearings

A representative of Treasury testifies at the hearing in support of ratification Treasury also generally presents a Technical Explanation of the treaty

9. Obtain Advice and Consent from Senate.

Advice is not defined, and has been construed to mean that Senate can consent to a treaty with reservations with respect to particular provisions Provisions subject to reservation are not enforceable For example, some treaties (e.g. Pakistan) contains a reservation on tax sparing. The Senate must consent to the treaty by a 2/3 vote.

10. Transmit to the President.

11. Prepare and Sign Instruments of Ratification

12. Exchange Instruments of Ratification.

Summary: 12 Steps to a Tax Treaty

1. 2. 3.

4.
5. 6. 7.

8.
9. 10. 11. 12.

Obtain Authority. Initiate Negotiations. Negotiate Initial Submit to the President Sign Transmit to Senate Transmit to Senate Foreign Relations Committee Obtain Advice and Consent from Senate Transmit to the President Prepare and Sign Instruments of Ratification Exchange Instruments of Ratification

Thats a long and complicated process

average 5 years to complete often requires protocols simultaneous with entry into force of main agreement, because laws have changed in the interim

So, with which countries has the U.S. completed this process?

1935: First Tax Treaty Concluded

France

Pre-WW II: Addition of Canada (1937) and Sweden (1939)

Sweden Canada France

1946 to 1951: After the War, Northern Europe and New Zealand, including Cook Islands
Sweden Norway Denmark Ireland U.K. Netherlands Canada Belgium France Switzerland

Cook Islands (NZ ext.)

New Zealand

1952 to 1957: Random Patterns?

Finland Germany Austria Sweden Norway Denmark Ireland U.K. Canada Netherlands Belgium France Switzerland Italy Greece Aruba (NE ext.) Netherlands Antilles (NE ext.)

Japan

Honduras

Pakistan

Cook Islands (NZ ext.)

South Africa

Australia New Zealand

1958-1959: Afro-Caribbean Extensions

Germany Austria Sweden Norway Denmark Ireland U.K. Canada Netherlands Belgium France Switzerland Italy Finland

Japan

Belize (UK ext.) Honduras

All by UK ext.: Cyprus (UK ext) Greece Cayman Islands BVI Jamaica Anguilla Aruba St. Kitts & Nevis (NE ext.) Antigua & Barbuda Netherlands Antilles (NE ext.) Gambia Montserrat Dominica Nigeria (UK ext.) St. Lucia Sierra Leone Barbados (UK ext.) St. Vincent & the Grenadines Grenada Trinidad & Tobago Congo (Belg ext.) Zambia (UK ext.)

Pakistan Yemen (UK ext) Rwanda (Belg ext.) Burundi Malawi (UK ext.) Seychelles (UK ext.)

Cook Islands (NZ ext.)

Zimbabwe (UK ext.) South Africa

Australia New Zealand

Falkland Islands

1960 to 1974: 14 Quiet Years: Only Luxembourg is added in 1964

Germany Austria Sweden Norway Denmark Ireland U.K. Canada Netherlands Belgium Luxembourg France Switzerland Italy Finland Japan

Belize (UK ext.) Honduras

Cyprus (UK ext) All by UK ext.: Greece BVI Cayman Islands Jamaica Anguilla Aruba St. Kitts & Nevis (NE ext.) Antigua & Barbuda Netherlands Antilles (NE ext.) Gambia Montserrat Dominica Nigeria (UK ext.) St. Lucia Sierra Leone Barbados (UK ext.) St. Vincent & the Grenadines Grenada Trinidad & Tobago Congo (Belg ext.)

Pakistan Yemen (UK ext) Rwanda (Belg ext.) Burundi Malawi (UK ext.) Seychelles (UK ext.)

Cook Islands (NZ ext.)

Zambia (UK ext.)

Zimbabwe (UK ext.) South Africa

Australia New Zealand

Falkland Islands

but terminations begin in 1966.

Germany Austria Sweden Norway Denmark Ireland U.K. Canada Netherlands Belgium Luxembourg France Switzerland Italy All by UK ext.: Greece BVI Jamaica Anguilla Aruba St. Kitts & Nevis (NE ext.) Antigua & Barbuda Netherlands Antilles (NE ext.) Gambia Montserrat Dominica Nigeria (UK ext.) St. Lucia Sierra Leone Barbados (UK ext.) St. Vincent & the Grenadines Grenada Trinidad & Tobago Congo (Belg ext.) Finland

Japan

Belize (UK ext.)

Pakistan Yemen (UK ext) Rwanda (Belg ext.) Burundi Malawi (UK ext.) Seychelles (UK ext.)

Cook Islands (NZ ext.)

Zambia (UK ext.) South Africa Australia New Zealand

Honduras terminates in 1966.

Falkland Islands

Termination of UK extensions to Cyprus (1968), Cayman Islands (1969), and Zimbabwe (1974).

1976: Five Additions

Germany Austria Sweden Iceland Norway Denmark Ireland U.K. Canada Netherlands Belgium Luxembourg France Switzerland Italy All by UK ext.: Greece BVI Jamaica Anguilla Aruba St. Kitts & Nevis (NE ext.) Antigua & Barbuda Netherlands Antilles (NE ext.) Gambia Montserrat Dominica Nigeria (UK ext.) St. Lucia Sierra Leone Barbados (UK ext.) St. Vincent & the Grenadines Grenada Trinidad & Tobago Congo (new treaty) (Belg ext.) Zambia (UK ext.) South Africa Australia New Zealand Falkland Islands Poland Romania Finland U.S.S.R.

Japan

Belize (UK ext.)

Pakistan Yemen (UK ext) Rwanda (Belg ext.) Burundi Malawi (UK ext.) Seychelles (UK ext.)

Cook Islands (NZ ext.)

1979: Hungary and Korea added; Nigeria terminates.

Germany Austria Sweden Iceland Norway Denmark Ireland U.K. Canada Netherlands Belgium Luxembourg France Switzerland Italy All by UK ext.: Greece BVI Jamaica Anguilla Aruba St. Kitts & Nevis (NE ext.) Antigua & Barbuda Netherlands Antilles (NE ext.) Gambia Montserrat Dominica St. Lucia Sierra Leone Barbados (UK ext.) St. Vincent & the Grenadines Grenada Trinidad & Tobago Congo (Belg ext.) Poland Hungary Romania Finland U.S.S.R. Japan

Korea

Belize (UK ext.)

Pakistan Yemen (UK ext) Rwanda (Belg ext.) Burundi Malawi (UK ext.) Seychelles (UK ext.)

Cook Islands (NZ ext.)

Zambia (UK ext.) South Africa Australia New Zealand Falkland Islands

Nigeria terminates UK extension (1979)

Four Additions from 1981-1982

Germany Austria Sweden Iceland Norway Denmark Ireland U.K. Canada Netherlands Belgium Luxembourg France Switzerland Italy Malta All by UK ext.: Morocco Greece BVI Jamaica Egypt Anguilla (new treaty) Aruba St. Kitts & Nevis (NE ext.) Antigua & Barbuda Netherlands Antilles (NE ext.) Gambia Montserrat Dominica St. Lucia Sierra Leone Barbados (UK ext.) St. Vincent & the Grenadines Grenada Trinidad & Tobago Congo (Belg ext.) Zambia (UK ext.) South Africa Australia New Zealand Falkland Islands Poland Hungary Romania Finland U.S.S.R.

Japan

Korea

Belize (UK ext.)

Pakistan Yemen (UK ext) Rwanda (Belg ext.) Burundi Malawi (UK ext.) Seychelles (UK ext.)

Philippines

Cook Islands (NZ ext.)

1984: Termination of Extensions

Germany Austria Sweden Iceland Norway Denmark Ireland U.K. Canada Netherlands Belgium Luxembourg France Switzerland Italy Malta Morocco Greece Egypt Poland Hungary Romania Finland U.S.S.R.

(1) Termination of UK extensions to Anguilla, Jamaica Antigua & Barbuda, Aruba (NE ext.) Barbados, Belize, Netherlands Antilles British Virgin Islands, (NE ext.) Dominica, Falkland Trinidad & Tobago Islands, Gambia, Grenada, Malawi, Montserrat, Seychelles, Sierra Leone, St. Kitts & (2) Termination Nevis, St. Lucia, St. Vincent & the Grenadines, Yemen, of Belgium and Zambia; also to Trinidad extensions to & Tobago and Jamaica (but Burundi, Congo, they had independent and Rwanda. treaties as of 1970 and 1981, respectively).

Japan

Korea

XX

X XX XX XX XX

X X

X X XX X XX
South Africa

Pakistan

Philippines

X X
(3) Termination of New Zealand extension to Cook Islands.
Australia New Zealand

1986: Barbados, China, Cyprus

Germany Austria Sweden Iceland Norway Denmark Ireland U.K. Canada Netherlands Belgium Luxembourg France Switzerland Italy Malta Cyprus Morocco Greece Egypt Poland Hungary Romania Finland U.S.S.R.

Japan

Jamaica Aruba (NE ext.) Netherlands Antilles (NE ext.)

Korea

China
Pakistan Philippines

Barbados

Trinidad & Tobago

Australia New Zealand

1987: Termination of South Africa

Germany Austria Sweden Iceland Norway Denmark Ireland U.K. Canada Netherlands Belgium Luxembourg France Switzerland Italy Malta Cyprus Morocco Greece Egypt Poland Hungary Romania Finland U.S.S.R.

Japan

Jamaica [Aruba (NE ext.)] [Netherlands Antilles (NE ext.)] Barbados Trinidad & Tobago

Korea China Pakistan Philippines

X
Australia New Zealand

1988: Termination of Netherlands extensions, except as to Art. VIII (interest).

Germany Austria Sweden Iceland Norway Denmark Ireland U.K. Canada Netherlands Belgium Luxembourg France Switzerland Italy Malta Cyprus Morocco Greece Egypt Poland Hungary Romania Finland U.S.S.R.

Japan

Jamaica [Aruba (NE ext.)] [Netherlands Antilles (NE ext.)] Barbados Trinidad & Tobago

Korea China Pakistan Philippines

Australia New Zealand

1990: Four additions

Germany Austria Sweden Iceland Norway Denmark Ireland U.K. Canada Netherlands Belgium Luxembourg France Switzerland Malta Italy Poland Hungary Romania Finland U.S.S.R.

Japan Cyprus Korea China Pakistan Philippines

Spain

Jamaica [Aruba Tunisia (NE ext.)] [Netherlands Antilles (NE ext.)] Barbados Trinidad & Tobago

Morocco Greece Egypt

India

Indonesia

Australia New Zealand

1993 to 1995: Six additions, final termination of Netherlands extensions

Czech Republic Germany Austria Sweden Iceland Norway Denmark Ireland U.K. Canada Netherlands Belgium Luxembourg France Switzerland Malta Spain Italy Portugal Morocco Greece Egypt Tunisia Mexico Poland Hungary Slovak Republic Romania Finland Japan Cyprus Korea China Israel Pakistan India Armenia Azerbaijan Belarus Estonia Georgia Kazakhstan Latvia Lithuania Moldova Russia Tajikstan Turkmenistan Ukraine Uzbekistan Philippines

Jamaica

XX

Barbados Trinidad & Tobago

Indonesia

Australia New Zealand

Final termination of Netherlands extensions to Aruba and the Netherlands Antilles.

1997: Four additions, termination of Malta

Czech Republic Germany Austria Sweden Iceland Norway Denmark Ireland U.K. Canada Netherlands Belgium Luxembourg France Switzerland Spain Italy Poland Hungary Slovak Republic Romania Finland

Japan Cyprus Korea China Israel Pakistan Turkey India Armenia Azerbaijan Belarus Estonia Georgia Kazakhstan Latvia Lithuania Moldova Russia Tajikstan Turkmenistan Ukraine Uzbekistan Thailand Philippines

Jamaica Mexico

Portugal Morocco Greece Egypt Tunisia Barbados Trinidad & Tobago

Indonesia

South Africa

Australia New Zealand

1999 to 2001: Six Additions

Czech Republic Germany Austria Sweden Iceland Norway Denmark Ireland U.K. Canada Netherlands Belgium Luxembourg France Switzerland Spain Italy Portugal Morocco Greece Egypt Tunisia Poland Hungary Slovak Slovenia Republic Romania Finland

Japan Cyprus Korea China Israel Pakistan Turkey Armenia Azerbaijan Belarus Estonia Georgia Kazakhstan Latvia Lithuania Moldova Russia Tajikstan Turkmenistan Ukraine Uzbekistan India Thailand Philippines

Jamaica Mexico

Venezuela Barbados Trinidad & Tobago

Indonesia

South Africa

Australia New Zealand

2004: Sri Lanka

Czech Republic Germany Austria Sweden Iceland Norway Denmark Ireland U.K. Canada Netherlands Belgium Luxembourg France Switzerland Spain Italy Portugal Morocco Greece Egypt Tunisia Poland Hungary Slovak Slovenia Republic Romania Finland

Japan Cyprus Korea China Israel Pakistan Turkey Armenia Azerbaijan Sri Lanka Belarus Estonia Indonesia Georgia Kazakhstan Latvia Lithuania Moldova Russia Tajikstan Turkmenistan Ukraine Uzbekistan India Thailand Philippines

Jamaica Mexico

Venezuela Barbados Trinidad & Tobago

South Africa

Australia New Zealand

2005: Bangladesh
Czech Republic Germany Austria Sweden Iceland Norway Denmark Ireland U.K. Canada Netherlands Belgium Luxembourg France Switzerland Spain Italy Portugal Morocco Greece Egypt Tunisia Poland Hungary Slovak Slovenia Republic Romania Finland

Japan Cyprus Korea China Israel Pakistan Turkey Armenia Azerbaijan Sri Lanka Bangladesh Belarus Estonia Indonesia Georgia Kazakhstan Latvia Lithuania Moldova Russia Tajikstan Turkmenistan Ukraine Uzbekistan India Thailand Philippines

Jamaica Mexico

Venezuela Barbados Trinidad & Tobago

South Africa

Australia New Zealand

2007 and on: What are our Priorities?

Czech Republic Germany Austria Sweden Iceland Norway Denmark Ireland U.K. Canada Netherlands Belgium Luxembourg France Switzerland Spain Italy Portugal Morocco Greece Egypt Tunisia Poland Hungary Slovak Slovenia Republic Romania Finland

Japan Cyprus Korea China Israel Pakistan Philippines Thailand

Jamaica Mexico

Venezuela Barbados Trinidad & Tobago

Middle East? Turkey

India

Libya? Brazil? Chile? Argentina? Botswana?

South Africa

Armenia Sri Lanka Azerbaijan Bangladesh Belarus Estonia Indonesia Georgia Kazakhstan Latvia Lithuania Moldova Russia Tajikstan Turkmenistan Ukraine Uzbekistan

Malaysia?

Australia New Zealand