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[Senate Treaty Document 105-2]
[From the U.S. Government Printing Office]



105th Congress                                             Treaty Doc.
                               SENATE

 1st Session                                                      105-2
_______________________________________________________________________


 
                   TAXATION CONVENTION WITH THAILAND

                               __________

                                MESSAGE

                                  from

                   THE PRESIDENT OF THE UNITED STATES

                              transmitting

 THE CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA 
  AND THE GOVERNMENT OF THE KINGDOM OF THAILAND FOR THE AVOIDANCE OF 
 DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO 
         TAXES ON INCOME, SIGNED AT BANGKOK, NOVEMBER 26, 1996




  January 28, 1997.--Convention was read the first time and, together 
  with the accompanying papers, referred to the Committee on Foreign 
     Relations and ordered to be printed for the use of the Senate


                         LETTER OF TRANSMITTAL

                              ----------                              

                                 The White House, January 28, 1997.
To the Senate of the United States:
    I transmit herewith for Senate advice and consent to 
ratification the Convention Between the Government of the 
United States of America and the Government of the Kingdom of 
Thailand for the Avoidance of Double Taxation and the 
Prevention of Fiscal Evasion with Respect to Taxes on Income, 
signed at Bangkok, November 26, 1996. An enclosed exchange of 
notes, transmitted for the information of the Senate, provides 
clarification with respect to the application of the Convention 
in specified cases. Also transmitted is the report of the 
Department of State concerning the Convention.
    This Convention, which is similar to other tax treaties 
between the United States and developing nations, provides 
maximum rates of tax to be applied to various types of income 
and protection from double taxation of income. The Convention 
also provides for the exchange of information to prevent fiscal 
evasion and sets forth standard rules to limit the benefits of 
the Convention to persons that are not engaged in treaty 
shopping.
    I recommend that the Senate give early and favorable 
consideration to this Convention and give its advice and 
consent to ratification.

                                                William J. Clinton.


                          LETTER OF SUBMITTAL

                              ----------                              

                                       Department of State,
                                      Washington, January 10, 1997.
                                                   The White House.
The President,
    The President: I have the honor to submit to you, with a 
view to its transmission to the Senate for advice and consent 
to ratification, the Convention Between the Government of the 
United States of America and the Government of the Kingdom of 
Thailand for the Avoidance of Double Taxation and the 
Prevention of Fiscal Evasion with Respect to Taxes on Income, 
signed at Bangkok on November 26, 1996 (``the Convention''). 
Also provided for the information of the Senate is a related 
exchange of notes.
    This Convention will be the first Convention between the 
United States of America and the Kingdom of Thailand for the 
avoidance of double taxation with respect to taxes on income. 
This Convention follows the pattern of the U.S. model treaty 
with deviations found in many recent U.S. conventions with 
other developing countries. It provides for maximum rates of 
tax to be applied to various types of income, protection from 
double taxation of income, exchange of information to prevent 
fiscal evasion, and standard rules to limit the benefits of the 
Convention to persons that are not engaged in treaty shopping. 
Like other U.S. tax conventions, this Convention provides rules 
specifying when income that arises in one of the contracting 
countries (the ``source country'') and is attributable to 
residents of the other contracting country (the ``country of 
residence'') may be taxed by the source country.
    The Convention establishes maximum rates of tax that may be 
imposed by the source country on specified categories of 
income, including dividends, interest, and royalties, to 
residents of the other country. While the withholding rates on 
dividend and royalty income are generally higher than those in 
the U.S. model treaty and in many recent conventions with OECD 
countries, they are generally lower than those in many recent 
Thai treaties. Pursuant to Article 10, dividends from direct 
investments are subject to tax by the source country at a rate 
of ten percent. The threshold criterion for direct investment 
is ten percent, consistent with other modern U.S. treaties in 
order to facilitate direct investment. Other dividends are 
generally taxable at 15 percent.
    In general, under Article 11, interest derived and 
beneficially owned by a resident of either Contracting State 
may be taxed in both States. However, if the beneficial owner 
of the interest is not a resident of the source country, the 
tax levied by the source country is limited to 15 percent in 
most cases. Interest paid by any financial institution and 
interest earned on trade credits are subject to a ten-percent 
tax by the source country. In addition, interest earned on 
government debt, including government-guaranteed debt, is 
exempt from tax by the source country.
    Under Article 12, royalties derived and beneficially owned 
by a resident of a Contracting State are subject to a five-
percent tax by the source country if they are copyright 
royalties (including software), an eight-percent tax if they 
arise from the right to use equipment, and a 15-percent tax if 
they pertain to patents and trademarks.
    These rates of taxation on royalty and interest income do 
not apply, however, if the beneficial owner of the income is 
not a resident of, but carries on business in the source 
country and the income is attributable to a permanent 
establishment in the source country. In that situation, the 
income is to be considered either business profit or income 
from independent personal services.
    Like other U.S. tax treaties and agreements, this 
Convention provides the standard anti-abuse rules for certain 
classes of investment income at Articles 11 and 12.
    The taxation of capital gains, described in Article 13 of 
the Convention, does not follow the general pattern of recent 
U.S. tax treaties. Under the proposed Convention, as in a few 
other U.S. tax treaties, gains may be taxed by both Contracting 
States under the provisions of their domestic laws. 
Notwithstanding that provision, however, gains from the 
alienation of ships, aircraft, or containers used or operated 
by an enterprise of a Contracting State in international 
traffic or movable property pertaining to the use or operation 
of such ships, aircraft, or containers are taxable only in the 
Contracting State in which the enterprise is located.
    Article 7 of the proposed Convention generally follows the 
standard rules for taxation by one country of the business 
profits of a resident of the other. The non-residence country's 
right to tax such profits is generally limited to cases in 
which the profits are attributable to a permanent establishment 
located in that country. The proposed Convention, however, 
grants rights to tax business profits that generally are 
somewhat broader than those found in the U.S. and OECD model 
treaties.
    As do all recent U.S. treaties, Article 14 of this 
Convention preserves the right of the United States to impose 
its branch profits tax in addition to the basic corporate tax 
on a branch's business. The proposed Convention, at Article 7, 
also accommodates a provision of the 1986 Tax Reform Act that 
attributes to a permanent establishment income that is earned 
during the life of the permanent establishment but is deferred 
and not received until after the permanent establishment no 
longer exists.
    Consistent with U.S. treaty policy, Article 8 of the new 
Convention permits only the country of residence to tax profits 
from international carriage by airplanes. This reciprocal 
exemption also extends to income from the rental of aircraft if 
the rental income is incidental to income from the operation of 
the aircraft in international traffic. However, income from the 
international operation of ships (including rentals that are 
incidental to such operations) is taxed at one-half the tax 
rate otherwise applicable. Income from the use or rental of 
containers that is incidental to the operation of ships or 
aircraft in international traffic is treated the same as the 
income from the operation of the ships or aircraft (i.e., it is 
exempt if it is incidental to aircraft operations and taxed at 
half of the rate otherwise applicable if incidental to the 
operations of ships). This deviation from the preferred U.S. 
position regarding the taxation of shipping profits, which is 
suggested as an option in the U.N. model treaty, was necessary 
to accommodate Thailand's long-standing policy on this issue. 
The United States and Thailand have agreed to exchange notes 
under which, if Thailand grants any other country more-
favorable treatment on income from the operation of ships in 
international traffic, negotiations will be reopened to extend 
such favorable treatment to the United States. Other income 
from the rental of ships or aircraft and from the use or rental 
of containers is treated as business profits.
    The taxation of income from the performance of personal 
services under Article 15 of the proposed Convention is similar 
to that under some U.S. treaties with developing countries but 
grants a taxing right to the source country with respect to 
such income that is broader than that in either the U.S. or 
OECD model treaties.
    Article 18 of the proposed Convention contains significant 
anti-treaty-shopping rules making the Convention's benefits 
unavailable to persons engaged in treaty shopping.
    The proposed Convention also contains the standard rules 
necessary for administering the Convention, including rules for 
the resolution of disputes under the Convention (Article 27). 
The information-exchange provisions of the proposed Convention 
(Article 28) make clear that Thailand is obligated to provide 
U.S. tax officials such information as is necessary to carry 
out the provisions of the Convention. Under this provision, 
Thailand will provide tax information in a manner consistent 
with U.S. policy, including bank information, to the United 
States whenever there is a ``Thai tax interest'' in the case. 
While Thailand may not provide information under this 
Convention where there is no ``Thai tax interest,'' U.S. tax 
authorities will be given access to information in criminal 
cases, including tax fraud, regardless of whether there is a 
``Thai tax interest,'' under the provisions of the existing 
Mutual Legal Assistance Treaty between the United States of 
America and the Kingdom of Thailand. Thus, the United States 
will be able to obtain information in criminal, but not civil, 
cases where there is no ``Thai tax interest.''
    The proposed Convention contains an unusual termination 
provision designed to deal with the ``tax interest'' problem. 
The proposed Convention provides that Thailand generally is 
required to treat a U.S. tax interest as a ``Thai tax 
interest'' in all cases, including both civil and criminal tax 
proceedings. However, this general provision will not be in 
effect until the United States receives from Thailand a 
diplomatic note indicating that Thailand is both prepared and 
able to implement this provision, which will not be possible 
until Thai law is changed. If the United States has not 
received such a diplomatic note by June 30 of the fifth year 
following entry into force of the Convention, the entire 
Convention will terminate on January 1 of the sixth year 
following its entry into force (Article 31, Paragraph 2).
    The Convention would permit the General Accounting Office 
and the tax-writing committees of Congress to obtain access to 
certain tax information exchanged under the Convention for use 
in their oversight of the administration of U.S. tax laws and 
treaties (Article 28).
    This Convention is subject to ratification. In accordance 
with Article 30, it will enter into force upon the exchange of 
instruments of ratification with respect to taxes withheld by 
the source country and will have effect for payments made or 
credited on or after the first day of the sixth month following 
entry into force; with respect to other taxes, it will take 
effect for taxable years beginning on or after the first day of 
January following the date on which the Convention enters into 
force.
    If the proposed Convention does not terminate on January 1 
of the sixth year following its entry into force, it will 
remain in force indefinitely. After five years from the date 
the proposed Convention enters into force, either State may 
terminate the Convention pursuant to Article 31 by giving at 
least six months of prior notice through diplomatic channels.
    Diplomatic notes exchanged between the parties accompany 
the Convention and provide clarification with respect to the 
application of the Convention in specified cases.
    A technical memorandum explaining in detail the provisions 
of the Convention will be prepared by the Department of the 
Treasury and will be submitted separately to the Senate 
Committee on Foreign Relations.
    The Department of the Treasury and the Department of State 
cooperated in the negotiation of the Convention. It has the 
full approval of both Departments.
    Respectfully submitted,
                                                Warren Christopher.
    Enclosures as stated.