Text - Treaty Document: Senate Consideration of Treaty Document 109-5All Information (Except Treaty Text)

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[Senate Treaty Document 109-5]
[From the U.S. Government Printing Office]



109th Congress 
 1st Session                     SENATE                     Treaty Doc.
                                                                  109-5
_______________________________________________________________________
 
                     TAX CONVENTION WITH BANGLADESH

                               __________

                                MESSAGE

                                  from

                   THE PRESIDENT OF THE UNITED STATES

                              transmitting

 CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND 
 THE GOVERNMENT OF BANGLADESH FOR THE AVOIDANCE OF DOUBLE TAXATION AND 
THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME SIGNED 
 AT DHAKA ON SEPTEMBER 26, 2004 (THE ``CONVENTION''); WITH AN EXCHANGE 
                           OF NOTES ENCLOSED




  October 27, 2005.--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

49-112                         WASHINGTON: 2005
















                         LETTER OF TRANSMITTAL

                              ----------                              

                                 The White House, October 27, 2005.
To the Senate of the United States:
    I transmit herewith for the advice and consent of the 
Senate to ratification a Convention Between the Government of 
the United States of America and the Government of Bangladesh 
for the Avoidance of Double Taxation and the Prevention of 
Fiscal Evasion with Respect to Taxes on Income signed at Dhaka 
on September 26, 2004 (the ``Convention''). An exchange of 
notes is enclosed, and the report of the Department of State 
with respect to the Convention is transmitted for the 
information of the Senate.
    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 the resolution of disputes and sets forth 
rules making its benefits unavailable to those who are engaged 
in treaty forum 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.

                                                    George W. Bush.



















                          LETTER OF SUBMITTAL

                              ----------                              

                                       Department of State,
                                Washington, DC, September 23, 2005.
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 People's 
Republic of Bangladesh for the Avoidance of Double Taxation and 
the Prevention of Fiscal Evasion with Respect to Taxes on 
Income, signed in Dhaka, on September 26, 2004 (``the 
Convention''). An exchange of notes is also enclosed for the 
information of the Senate.
    The Convention generally follows the pattern of the 1996 
U.S. Model Tax Convention (``the U.S. Model'') 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. The Convention also contains rules making its 
benefits unavailable to persons who are engaged in treaty 
shopping.
    The Department of the Treasury and the Department of State 
cooperated in the negotiation of the Convention and the 
exchange of notes. Both Departments have given their full 
approval.
    Respectfully submitted.
                                                  Condoleezza Rice.
    Enclosures:
    1. Key Provisions of the U.S.-Bangladesh Income Tax 
Convention.
    2. Proposed message to the Senate.

      Key Provisions of the U.S.-Bangladesh Income Tax Convention

    The proposed Income Tax Convention with Bangladesh 
generally follows the pattern of the U.S. Model treaty. 
Although there are certain deviations from the Model, similar 
to those found in many recent U.S. tax treaties with developing 
countries, the Convention overall tends to provide for less 
source-country taxation than in many U.S. tax treaties with 
developing countries.
    With respect to income from business activities, Article 7 
of the 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. tax 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 Convention, income from the 
operation of ships and aircraft in international traffic, and 
from the rental or maintenance 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 rental or maintenance of containers used in 
international traffic is likewise exempt from source-country 
taxation under the Convention.
    With respect to withholding rates on investment income, the 
proposed rates are generally lower than those in some recent 
U.S. tax treaties with non-OECD countries. Article 10 of the 
Convention provides that dividends from direct investments are 
subject to tax by the source country at a maximum rate of ten 
percent. The ownership threshold for direct investment is ten 
percent, in order to facilitate direct investment. Other 
dividends are generally taxable at a maximum rate of 15 
percent. Under Article 12, royalties may be taxed by the source 
country at a maximum rate of ten percent.
    Under Article 11 of the Convention, most interest may be 
taxed by the source country at a maximum rate of ten percent. 
However, interest income received by a financial institution 
(including an insurance company), and interest paid with 
respect to the sale on credit of industrial, commercial or 
scientific equipment or other merchandise, may be taxed at a 
maximum rate of five percent. Interest derived by a Contracting 
State, and interest on obligations guaranteed or ensured by a 
Contracting State, shall be exempt from taxation by the source 
country.
    The reduced withholding rates described 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.
    Article 13 of the Convention provides for the taxation of 
capital gains and 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.
    Articles 15, 16 and 18 of the Convention address the 
taxation of income from the performance of personal services, 
which is essentially the same as thatunder recent U.S. tax 
treaties with other developing countries, although these provisions 
grant taxing rights to the host country with respect to such income 
that is broader than in the U.S. Model.
     Article 17 of the Convention contains significant anti-
treaty shopping rules, making its benefits unavailable to 
persons engaged in treaty shopping.
     Articles 25 and 26 contain rules necessary for 
administering the treaty and domestic tax laws, including rules 
for the resolution of disputes under the Convention.and for the 
exchange of information.
     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.
    The Convention is subject to ratification. In accordance 
with the provisions of Article 28, it will enter into force 
upon the exchange of instruments of ratification. With respect 
to taxes withheld at source, it will take effect for amounts 
paid or credited on or after the first day of the second month 
following the date on which the Convention comes into force; 
with respect to other taxes, the Convention will take effect 
for taxable periods (in the case of the United States) or for 
income years (in the case of Bangladesh) beginning on or after 
the first day of January next following the date on which the 
Convention enters into force.
    Pursuant to Article 29, the Convention will remain in force 
until terminated by one of the Contracting States. Article 29 
also provides that either State may terminate the Convention at 
any time after five years from the date it enters into force, 
by giving 6 months prior notice through diplomatic channels.
    This Convention will be the first such Convention between 
the United States of America and the People's Republic of 
Bangladesh. In 1981, the Senate gave its advice and consent to 
a convention between the two countries that was signed in 1980, 
subject to understandings relating to income from the operation 
of ships in international traffic and to the operation of the 
provision relating to exchange of information for tax purposes. 
The 1980 convention never entered into force because of 
intervening changes in U.S. domestic tax law. The concerns 
expressed by the Senate in the understandings to the 1980 
convention have been addressed in the current Convention.