Text - Treaty Document: Senate Consideration of Treaty Document 109-19All Information (Except Treaty Text)

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[Senate Treaty Document 109-19]
[From the U.S. Government Printing Office]



109th Congress 
 2d Session                      SENATE                     Treaty Doc.
                                                                 109-19
_______________________________________________________________________

                                     

 
             PROTOCOL AMENDING TAX CONVENTION WITH DENMARK

                               __________

                                MESSAGE

                                  from

                   THE PRESIDENT OF THE UNITED STATES

                              transmitting

 PROTOCOL AMENDING 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 COPENHAGEN MAY 2, 2006 (THE 
            ``PROTOCOL''), WITH A RELATED EXCHANGE OF NOTES

 


  September 29, 2006.--Protocol was read the first time, and together 
  with the accompanying papers, referred to the Committee on Foreign 
      Relations and order to be printed for the use of the Senate
                         LETTER OF TRANSMITTAL

                              ----------                              

                               The White House, September 29, 2006.
To the Senate of the United States:
    I transmit herewith, for Senate advice and consent to 
ratification, a Protocol Amending 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 Copenhagen May 2, 2006 (the ``Protocol''). A 
related exchange of notes is enclosed for the information of 
the Senate. Also transmitted for the information of the Senate 
is the report of the Department of State with respect to the 
Protocol.
    The Protocol eliminates the withholding tax on certain 
cross-border dividend payments. Like a number of recent U.S. 
tax agreements, the proposed Protocol provides for the 
elimination of the withholding tax on dividends arising from 
certain direct investments and cross-border dividend payments 
to pension funds. In addition, the Protocol modernizes the 
Convention to bring it into closer conformity with current U.S. 
tax-treaty policy, including strengthening the treaty's 
provisions preventing so-called treaty shopping.
    I recommend that the Senate give early and favorable 
consideration to the Protocol and give its advice and consent 
to ratification.

                                                    George W. Bush.
                          LETTER OF SUBMITTAL

                              ----------                              

                                    The Secretary of State,
                                        Washington, August 1, 2006.
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, a Protocol Amending 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 Copenhagen May 2, 2006 (the ``Protocol''). A 
related exchange of notes is also enclosed.
    The Protocol eliminates the withholding tax on certain 
cross-border dividend payments. Like a number of recent U.S. 
tax agreements, the Protocol provides for the elimination of 
the withholding tax on dividends arising from certain direct 
investments and cross-border dividend payments to pension 
funds. In addition, the Protocol also modernizes the Convention 
to bring it into closer conformity with current U.S. tax-treaty 
policy, including strengthening the treaty's provisions 
preventing so-called treaty shopping.
    The Protocol was concluded in recognition of the importance 
of the United States' economic relations with Denmark. The 
Department of the Treasury and the Department of State 
cooperated in the negotiation of the Protocol. It has the full 
approval of both Departments.
    Respectfully submitted.
                                                  Condoleezza Rice.
    Enclosures.

         Key Provisions of the U.S.-Denmark Income Tax Protocol

    The proposed Protocol to the income tax Convention with 
Denmark was negotiated to bring the current Convention, 
concluded in 1999, into closer conformity with current U.S. tax 
treaty policy. There are, as with all bilateral tax 
conventions, some variations from these norms. In the Protocol, 
these differences reflect particular aspects of Danish law and 
treaty policy, the interaction of U.S. and Danish law, and 
U.S.-Danish economic relations.
    The most important aspect of the Protocol relates to the 
taxation of cross-border dividend payments. Under the Protocol, 
most dividends paid by a subsidiary in one country to its 
parent in the other country will be exempt from withholding tax 
in the subsidiary's home country, rather than being subject to 
the current treaty's maximum withholding tax rate for direct 
dividends of five percent. The Protocol also provides for a 
withholding rate of zero on cross-border dividend payments to 
pension funds. Eliminating withholding taxes on cross-border 
direct dividends and cross-border dividend payments to pension 
funds is consistent with an overall view that investment income 
should be taxed by the country of residence, not the country of 
source.
    The Protocol also strengthens the treaty's provisions 
preventing so-called treaty shopping, which is the 
inappropriate use of a tax treaty by third-country residents.
    The Protocol also updates the current treaty to reflect 
U.S. and Danish legislative changes since 1999. For example, 
the Protocol updates the ``saving clause'' to provide that 
former citizens or long-term residents of the United States 
may, for the period of ten years following the loss of such 
status, be taxed in accordance with the laws of the United 
States.
    The proposed Protocol will enter into force upon the 
receipt of the later of the notifications to be exchanged 
between the United States and Denmark stating that their 
respective requirements for entry into force of this Protocol 
have been complied with by each of the two countries. It will 
have effect, with respect to taxes withheld at source, for 
amounts derived on or after the first day of the second month 
next following the date on which the Protocol enters into force 
and, with respect to other taxes, for taxable periods beginning 
on or after the first day of January next following the date 
upon which the Protocol enters into force.

                           Executive Summary


 MAJOR FEATURES OF THE PROPOSED PROTOCOL TO THE INCOME TAX CONVENTION 
                 BETWEEN THE UNITED STATES AND DENMARK

    The proposed Protocol to the income tax Convention with 
Denmark was negotiated to bring the current convention, 
concluded in 1999, into closer conformity with current U.S. tax 
treaty policy. There are, as with all bilateral tax 
conventions, some variations from these norms. In the proposed 
Protocol, these differences reflect particular aspects of 
Danish law and treaty policy, the interaction of U.S. and 
Danish law, and U.S.-Danish economic relations.

                     Taxation of Investment Income

    The withholding rates on investment income in the proposed 
Protocol are the same or lower than those in the existing 
Convention. Whereas the existing Convention allows for taxation 
at source of five percent on direct dividends (i.e., where a 10 
percent ownership threshold is met) and 15 percent on all other 
dividends, the proposed Protocol provides for a withholding 
rate of zero on dividends from certain 80 percent-owned 
corporate subsidiaries. Consistent with the U.S. Model 
convention, the withholding rates for direct dividends that do 
not qualify for the zero rate and for portfolio dividends 
remain unchanged.

Anti-Abuse Provisions

    The Protocol also strengthens the treaty's ``Limitation on 
Benefits'' Article and brings it into closer conformity with 
current U.S. treaty policy. This updated provision is designed 
to deny ``treaty-shoppers'' the benefits of the Convention.
    The current treaty preserves the U.S. right to tax former 
citizens whose loss of citizenship had, as one of its principal 
purposes, the avoidance of tax. The proposed Protocol updates 
this provision to reflect legislative changes since 1999. The 
Protocol provides that a former citizen or long-term resident 
of the United States may, for the period of ten years following 
the loss of such status, be taxed in accordance with the laws 
of the United States.

Entry into Force

    The proposed Protocol will enter into force upon the 
receipt of the later of the notifications stating the 
requirements of ratification have been complied with by each of 
the two countries. It will have effect, with respect to taxes 
withheld at source, for amounts derived on or after the first 
day of the second month next following the date on which the 
Protocol enters into force and, with respect to other taxes, 
for taxable periods beginning on or after the first day of 
January next following the date upon which the Protocol enters 
into force.