Protocol Amending the Convention with Sweden on Taxes on IncomeSenate Consideration of Treaty Document 109-8
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[Senate Treaty Document 109-8] [From the U.S. Government Publishing Office] 109th Congress Treaty Doc. 1st Session SENATE 109-8 _______________________________________________________________________ PROTOCOL AMENDING THE CONVENTION WITH SWEDEN ON TAXES ON INCOME __________ 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 SWEDEN FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME SIGNED AT WASHINGTON ON SEPTEMBER 30, 2005 November 10, 2005.--Protocol 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, November 10, 2005. To the Senate of the United States: I transmit herewith for the advice and consent of the Senate to ratification, a Protocol Amending the Convention Between the Government of the United States of America and the Government of Sweden for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income signed at Washington on September 30, 2005 (the ``Protocol''). 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. The proposed Protocol is one of a few recent U.S. tax agreements to provide for the elimination of the withholding tax on dividends arising from certain direct investments. 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. I recommend that the Senate give early and favorable consideration to this Protocol and that the Senate give its advice and consent to ratification. George W. Bush. LETTER OF SUBMITTAL ---------- Department of State, Washington, October 26, 2005. The President, The White House. Dear Mr. 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 Sweden for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income signed at Washington on September 30, 2005 (the ``Protocol'') and a related exchange of notes. The Protocol eliminates the withholding tax on certain cross-border dividend payments. The Protocol is one of a few recent U.S. tax agreements to provide for the elimination of the withholding tax on dividends arising from certain direct investments. 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 also resolves a long-standing problem regarding the taxation of local employees of the United States Embassy in Stockholm and U.S. Consulate in Gothenburg, which had resulted in reduced pensions for such employees. The Protocol is especially significant in light of the importance of economic relations between the United States and Sweden. 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. Enclosure: Key Provisions of the U.S.-Sweden Income Tax Protocol. Key Provisions of the U.S.-Sweden Income Tax Protocol The Protocol to the Income Tax Convention with Sweden was negotiated to bring the current convention, concluded in 1994, 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 Swedish law and treaty policy, the interaction of U.S. and Swedish law, and U.S.-Sweden 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. Eliminating withholding taxes on cross-border direct dividends 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 resolves a long-standing problem regarding the taxation of local employees of the United States Embassy in Stockholm and the U.S. Consulate in Gothenburg. The U.S. Government had reduced the salaries paid to such individuals to take account of the fact that they were exempt from Swedish income tax. As a result, their pensions, which were based on ``high-three,'' were automatically reduced. Under the 1994 treaty, Sweden can and does tax those pensions, thereby significantly reducing the expected benefits to those former employees. The Protocol provides relief to the affected persons by providing that Sweden may not tax a pension under the U.S. Civil Service Retirement Pension Plan paid by the United States to employees of the United States Embassy or Consulate in Sweden if the individual was hired prior to 1978. The Protocol also updates the current treaty to reflect legislative changes since 1994. For example, the Protocol provides 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 United States and Sweden will notify each other through the diplomatic channel, accompanied by an instrument of ratification, when their respective requirements for entry into force have been completed. The Protocol will enter into force on the thirtieth day after the later of the notifications. The Protocol will have effect, with respect to taxes withheld at source, on or after the first day of the second month following the date upon which the Protocol enters into force and with respect to other taxes, for taxable years beginning on or after the first day of January next following the date upon which the Protocol enters into force. The Protocol shall have effect with respect to taxes on local employees of the United States Embassy in Stockholm and the U.S. Consulate in Gothenburg, on or after January 1, 1996, the effective date of the Convention.