Text - Treaty Document: Senate Consideration of Treaty Document 106-12All Information (Except Treaty Text)

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[Senate Treaty Document 106-12]
[From the U.S. Government Printing Office]



106th Congress                                              Treaty Doc.
                                SENATE                                 
 1st Session                                                  106-12
_______________________________________________________________________

                                     



 
                      TAX CONVENTION WITH DENMARK

                               __________

                                MESSAGE

                                  FROM

                   THE PRESIDENT OF THE UNITED STATES

                              Transmitting

 CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND 
 THE GOVERNMENT OF THE KINGDOM OF DENMARK FOR THE AVOIDANCE OF DOUBLE 
TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON 
   INCOME, SIGNED AT WASHINGTON ON AUGUST 19, 1999, TOGETHER WITH A 
                                PROTOCOL




 September 21, 1999.--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

                               __________

                    U.S. GOVERNMENT PRINTING OFFICE
69-112                     WASHINGTON : 1999



                         LETTER OF TRANSMITTAL

                              ----------                              

                               The White House, September 21, 1999.
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 
Denmark for the Avoidance of Double Taxation and the Prevention 
of Fiscal Evasion with Respect to Taxes of Income, signed at 
Washington on August 19, 1999, together with a Protocol. Also 
transmitted for the information of the Senate is the report of 
the Department of State concerning the Convention.
    It is my desire that the Convention and Protocol 
transmitted herewith be considered in place of the Convention 
for the Avoidance of Double Taxation, signed at Washington on 
June 17, 1980, and the Protocol Amending the Convention, signed 
at Washington on August 23, 1983, which were transmitted to the 
Senate with messages dated September 4, 1980 (S. Ex. Q, 96th 
Cong., 2d Sess.) and November 16, 1983 (T. Doc. No. 98-12, 98th 
Cong., 1st Sess.), and which are pending in the Committee on 
Foreign Relations. I desire, therefore, to withdraw from the 
Senate the Convention and Protocol signed in 1980 and 1983.
    This Convention, which is similar to tax treaties between 
the United States and other developed 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 resolution of disputes and sets forth rules making 
its benefits unavailable to residents that are engaged in 
treaty-shopping.
    I recommend that the Senate give early and favorable 
consideration to this Convention and that the Senate give its 
advice and consent to ratification.

                                                William J. Clinton.
                          LETTER OF SUBMITTAL

                              ----------                              

                                       Department of State,
                                     Washington, September 7, 1999.
The President,
The White House.
    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 
Denmark for the Avoidance of Double Taxation and the Prevention 
of Fiscal Evasion with Respect to Taxes on Income, signed at 
Washington on August 19, 1999 (``the Convention''), together 
with a Protocol.
    This Convention replaces the current convention between the 
United States of America and the Government of the Kingdom of 
Denmark signed at Washington on May 6, 1948. This proposed 
Convention generally follows the pattern of the U.S. Model Tax 
Treaty while incorporating some features of the OECD Model Tax 
Treaty and recent U.S. tax treaties with developed countries. 
The proposed Convention provides for maximum rates of tax to be 
applied to various types of income, protection from double 
taxation of income and exchange of information. It also 
contains rules making its benefits unavailable to persons that 
are engaged in treaty shopping. Like other U.S. tax 
conventions, this Convention provides rules specifying when 
income that arises in one of the countries and is attributable 
to residents of the other country may be taxed by the country 
in which the income arises (the ``source'' country).
    The withholding rates on investment income under the 
proposed Convention are the same as those in the U.S. Model 
Treaty. Pursuant to Article 10, dividends from direct 
investments are subject to tax by the source country at a rate 
of five percent. The ownership threshold for direct investment 
is ten percent. Other dividends are generally taxable at 15 
percent.
    Under Article 12, royalties arising in one Contracting 
State and owned by a resident of the other Contracting State 
are generally subject to taxation only by the residence 
country.
    Interest arising in one Contracting State and earned by a 
resident of the other Contracting State is generally subject to 
taxation only by the residence country under Article 11.
    There are exceptions to the above limitations on taxation 
by the source country. The source country may tax dividends, 
interest and royalties, if the beneficial owner of the income 
is a resident of one Contracting State who carries on business 
in the other Contracting State in which the income arises and, 
in the case of business profits, the income it attributable to 
a permanent establishment or, in the case of independent 
personal services, to a fixed base in that other State.
    The limitations on source country taxation of dividends, 
interest and royalties in the preceding paragraphs are also 
subject to the standard anti-abuse rules for certain classes of 
investment income found in recent U.S. tax treaties.
    The taxation of capital gains under the proposed Convention 
generally follows the format of the U.S. Model. Gains derived 
from the sale of real property and from real property interests 
may be taxed by the State in which the property is located. 
Likewise, gains from the sale of personal property pertaining 
to a fixed base or forming part of a permanent establishment 
situated in a Contracting State may be taxed in that State. All 
other gains, including gains from the alienation of ships, 
boats, aircraft and containers used in international traffic 
and gains from the sale of stock in a corporation, are taxable 
only in the State of residence of the seller. As a variation 
from the rules under the U.S. Model, gains of an enterprise of 
a Contracting State from the deemed alienation of an 
installation, drilling rig or ship used in the other State for 
the exploration or exploitation of oil and gas resources may be 
taxed in that other State in accordance with its law, but only 
to the extent of any depreciation taken in that other State. 
The proposed Convention also contains accompanying provisions 
that serve to minimize possible double taxation that could 
otherwise arise by allowing adjustments to the timing of the 
taxation of capital gains.
    Article 7 of the proposed Convention follows the standard 
rules for taxation by the source country of the business 
profits of a resident of the other country. The source 
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. As do all recent U.S. 
treaties, this Convention preserves the right of the United 
States to impose its branch taxes in addition to the basic 
corporate tax on a branch's business profits.
    Consistent with the U.S. Model, Article 8 of the proposed 
Convention permits only the country of residence to tax profits 
from international operation of ships or aircraft and income 
from the use, maintenance or rental of containers used in 
international traffic. This reciprocal exemption extends to 
income from the rental on a full basis of ships and aircraft 
and, if the ships or aircraft are operated in international 
traffic by the lessee or the income is incidental to income 
from the operation of ships and aircraft in international 
traffic, to income from the rental on a bareboat basis of ships 
and aircraft.
    The proposed Protocol clarifies that the Scandinavian 
Airlines System (SAS) is a consortium under Article 8, which 
means that the profits of SAS Danmark A/S from its 
participation in SAS are subject to the terms of Article 8, as 
described above.
    The taxation of income from the performance of personal 
services under Articles 14 through 17 of the new Convention 
generally follows U.S. standard treaty policy.
    The rules for the taxation of pension income under Article 
18 of the proposed Convention vary from the rules found in the 
current treaty and the U.S. Model. The proposed Convention 
provides for taxation of private pensions only in the source 
State, subject to an exception for persons currently receiving 
pensions, who will continue to be taxed only in the country of 
residence.
    Article 22 of the proposed Convention contains 
comprehensive anti-treaty-shopping rules making its benefits 
unavailable to persons engaged in treaty-shopping. These 
provisions are similar to those found in the U.S. Model Treaty 
and all recent U.S. treaties.
    The proposed Convention provides a foreign tax credit for 
certain taxes imposed under the Danish Hydrocarbon Tax Act, 
subject to the same type of limitation that is found in other 
tax treaties with countries on the North Sea (Article 23).
    The proposed Convention also contains rules necessary for 
its administration, including rules for the resolution of 
disputes under the Convention (Article 25), for exchange of 
information (Article 26) and for assistance in the collection 
of taxes (Article 27).
    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 domestic tax laws.
    In accordance with the provisions of Article 29, the 
proposed Convention will enter into force when the Governments 
notify each other that their requirements for entry into force 
have been met. It will have effect, with respect to taxes 
withheld at the source, for amounts paid or credited on or 
after the first day of the second month next following the date 
on which the Convention enters into force; with respect to 
other taxes, the Convention will take effect for taxable 
periods beginning on or after the first day of January next 
following the date on which the Convention enters into force. 
Where the current convention would have provided greater relief 
from tax than the proposed Convention, the current convention 
will continue to have effect for an additional year at the 
election of any person that was entitled to benefits under the 
current convention.
    The proposed Convention will remain in force indefinitely 
unless terminated by one of the Contracting States, pursuant to 
Article 30. That Article provides that either State may 
terminate the Convention by giving prior notice through 
diplomatic channels.
    The proposed Convention is accompanied by a Protocol which 
will be an integral part of the new treaty. The Protocol 
clarifies and supplements the proposed Convention.
    A technical memorandum explaining in detail the provisions 
of the proposed 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.
                                                     Strobe Talbot.