Text - Treaty Document: Senate Consideration of Treaty Document 106-3All Information (Except Treaty Text)

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[Senate Treaty Document 106-3]
[From the U.S. Government Publishing Office]





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106th Congress                                              Treaty Doc.
 1st Session                     SENATE                        106-3   

_______________________________________________________________________



 
                     TAX CONVENTION WITH VENEZUELA

                               __________

                                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 REPUBLIC OF VENEZUELA FOR THE AVOIDANCE OF 
 DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO 
   TAXES ON INCOME AND CAPITAL, SIGNED AT CARACAS ON JANUARY 25, 1999




 June 29, 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
69-118                     WASHINGTON : 1999       





                         LETTER OF TRANSMITTAL

                              ----------                              

                                    The White House, June 29, 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 Republic of 
Venezuela for the Avoidance of Double Taxation and the 
Prevention of Fiscal Evasion with Respect to Taxes on Income 
and Capital, together with a Protocol, signed at Caracas on 
January 25, 1999. Also transmitted is the report of the 
Department of State concerning the Convention.
    This Convention, which is similar to tax treaties between 
the United States and other 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 resolution of disputes an 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, DC.
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 Republic of 
Venezuela for the Avoidance of Double Taxation and the 
Prevention of Fiscal Evasion with Respect to Taxes on Income 
and Capital, together with a Protocol, signed at Caracas on 
January 25, 1999 (``the Convention'').
    This Convention will be the first such Convention between 
the United States of America and the Republic of Venezuela. 
This Convention generally follows the pattern of the 1996 U.S. 
Model Tax Convention while incorporating some provisions found 
in recent tax treaties between the United States and developing 
nations. It provides for maximum rates of tax to be applied to 
various types of income, protection from double taxation of 
income, and exchange of information, and it contains rules 
making its benefits unavailable to persons who are engaged in 
treaty shopping. The proposed withholding rates, while in some 
respects higher than those in the U.S. Model, are the same as 
those in other U.S. treaties with developing countries and 
other Venezuela tax treaties. Also, the withholding rates 
reflect Venezuela's territorial system of taxation and the 
objective of establishing an adequate single level of tax on 
cross-border investment income. 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).
    Pursuant to Article 10, dividends from direct investments 
are subject to tax by the source country at a maximum rate of 
five percent. The ownership threshold for direct investment is 
ten percent, consistent with other modern U.S. tax treaties, in 
order to facilitate direct investment. Other dividends are 
generally taxable at 15 percent. Under Article 12, royalties 
for the use of industrial, commercial, or scientific equipment 
derived and beneficially owned by a resident of a Contracting 
State are subject to tax at a maximum rate of five percent by 
the source country; all other royalties are subject to tax at a 
maximum rate of ten percent.
    Under Article 11 of the proposed Convention, most interest 
arising in one Contracting State and owned by a resident of the 
other Contracting State is subject to taxation by the source 
country at a maximum rate of ten percent. However, interest 
income received by a financial institution (including an 
insurance company) is subject to tax at a maximum rate of 4.95 
percent, and interest earned on government debt and debt 
guaranteed by government agencies is exempt from taxation by 
the source country.
    The reduced withholding rates described above do not apply 
if the beneficial owner of the income is a resident of one 
Contracting State who carries on business in the other 
Contracting State and the income is attributable to a permanent 
establishment or fixed base situated in that other State. If 
the income is attributable to a permanent establishment, it 
will be taxed as business profits, and, if the income is 
attributable to a fixed base, it will be taxed as a payment for 
independent personal services.
    The maximum rates of withholding tax described in the 
preceding paragraphs are subject to the standard anti-abuse 
rules for certain classes of investment income found in other 
U.S. tax treaties and agreements.
    The taxation of capital gains described in Article 13 of 
the Convention follows the format of the U.S. Model. Gains and 
income 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 or income from the sale of 
personal property, if attributable to a fixed base or permanent 
establishment situated in a Contracting State, may be taxed in 
that State. All other gains, including gains from the sale of 
ships, aircraft and containers, and gains from the sale of 
stock in a corporation, are taxable only in the State of 
residence of the seller.
    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 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.
    Under Article 8 of the proposed Convention, income from the 
operation of ships and aircraft in international traffic and 
from the use, maintenance or rental of containers used in 
international traffic is taxed in a manner consistent with the 
U.S. Model. Article 8 permits only the country of residence to 
tax profits from the international operation of ships or 
aircraft, including profits from the rental of ships and 
aircraft when the ship or aircraft is operated by the lessee in 
international traffic, or when the rental activity is 
incidental to the operation of ships or aircraft by the lessor. 
All income from the use, maintenance or rental of containers 
used in international traffic is likewise exempt from source-
country taxation under the proposed Convention.
    The taxation of income from the performance of personal 
services under Articles 14 through 16 of the New Convention is 
essentially the same as that under recent U.S. treaties with 
some developing countries but grants a taxing right to the host 
country with respect to such income that is broader than in the 
OECD or U.S. Model treaties.
    Article 17 of the proposed Convention contains significant 
anti-treaty-shopping rules making its benefits unavailable to 
persons engaged in treaty-shopping.
    Rules necessary for administration, including rules for the 
resolution of disputes under the Convention and for exchange of 
information, are contained in Articles 26 and 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 U.S. tax laws.
    This Convention is subject to ratification. In accordance 
with the provisions of Article 29, it will enter into force 
when the Governments notify each other through diplomatic 
channels that their constitutional requirements for entry into 
force have been met. It will have effect for payments made or 
credit on or after the first day of January following entry 
into force with respect to taxes withheld by the source 
country; with respect to other taxes, the Convention will take 
effect for taxable periods beginning on or after the first day 
of January following the date on which the Convention enters 
into force.
    The proposed convention will remain in force indefinitely 
unless terminated by one of the Contracting States, pursuant to 
Article 30. At any time after five years from the date on which 
the Convention enters into force, either Contracting State may 
terminate the Convention as of the end of a calendar year by 
giving notice of the termination through diplomatic channels at 
least six months prior to the end of that calendar year.
    A Protocol accompanies and forms an integral part of the 
Convention.
    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,
                                                 Madeline Albright.