Text - Treaty Document: Senate Consideration of Treaty Document 110-17All Information (Except Treaty Text)

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[Senate Treaty Document 110-17]
[From the U.S. Government Printing Office]



110th Congress 
 2d Session                      SENATE                     Treaty Doc.
                                                                 110-17
_______________________________________________________________________

                                     

 
                      TAX CONVENTION WITH ICELAND

                               __________

                                MESSAGE

                                  from

                     THEPRESIDENTOFTHEUNITEDSTATES

                              transmitting

 CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND 
THE GOVERNMENT OF ICELAND FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE 
   PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME, AND 
 ACCOMPANYING PROTOCOL, SIGNED ON OCTOBER 23, 2007, AT WASHINGTON, D.C.




  May 6, 2008.--Treaty 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, May 6, 2008.
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 Iceland for the 
Avoidance of Double Taxation and the Prevention of Fiscal 
Evasion with Respect to Taxes on Income, and accompanying 
Protocol, signed on October 23, 2007, at Washington, D.C. (the 
``proposed Treaty''). The proposed Treaty would replace the 
existing income tax Convention with Iceland that was concluded 
in 1975 (the ``existing Treaty''). Also transmitted for the 
information of the Senate is the report of the Department of 
State with respect to the proposed Treaty.
    The proposed Treaty contains a comprehensive provision 
designed to prevent so-called treaty shopping. The existing 
Treaty contains no such protections, resulting in substantial 
abuse of the existing Treaty's provisions by third-country 
investors. The proposed Treaty also reflects changes to U.S. 
and Icelandic law and tax treaty policy since 1975.
    I recommend that the Senate give early and favorable 
consideration to the proposed Treaty and give its advice and 
consent to ratification.
                                                    George W. Bush.
                          LETTER OF SUBMITTAL

                              ----------                              

                                    The Secretary of State,
                                     Washington, February 29, 2008.
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 Iceland for the 
Avoidance of Double Taxation and the Prevention of Fiscal 
Evasion with Respect to Taxes on Income, and accompanying 
Protocol, signed on October 23, 2007, at Washington (the 
``proposed Treaty''). The proposed Treaty will replace the 
existing income tax Convention which was concluded in 1975 (the 
``existing Treaty'').
    The proposed Treaty contains a comprehensive provision 
designed to prevent so-called treaty shopping. The existing 
Treaty contains no such protections, resulting in substantial 
abuse of the existing Treaty's provisions by third-country 
investors. As with the existing Treaty, the proposed Treaty 
eliminates or significantly reduces withholding taxes on 
certain cross-border payments of dividends, interest, and 
royalties.
    Ratification of the proposed Treaty would recognize the 
importance of the United States' economic relations with 
Iceland. The Department of the Treasury and the Department of 
State cooperated in the negotiation of the proposed Treaty. It 
has the full approval of both Departments.
    Respectfully submitted.
                                                  Condoleezza Rice.
    Enclosure: Key Provisions of the U.S.-Iceland Income Tax 
Convention and Protocol.

 Key Provisions of the U.S.-Iceland Income Tax Convention and Protocol

    The attached Convention and accompanying Protocol with 
Iceland (the ``proposed Treaty'') would replace the existing 
Convention, concluded in 1975 (the ``existing Treaty''). 
Although the proposed Treaty would bring our tax treaty 
relations with Iceland 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 
Treaty, these differences reflect particular aspects of 
Icelandic law and treaty policy, the interaction of U.S. and 
Icelandic law, and U.S.-Icelandic economic relations.
    The most important change from the existing Treaty is the 
addition of a comprehensive provision to address ``treaty 
shopping,'' which is the inappropriate use of a tax treaty by 
third-country residents. The existing Treaty does not contain 
treaty shopping protections and, as a result, has been abused 
by third-country investors in recent years.
    The proposed Treaty generally provides for withholding 
rates on investment income that are the same as or lower than 
those in the existing Treaty. Like the existing Treaty, the 
proposed Treaty provides for reduced source-country taxation of 
cross-border dividends. In addition, the proposed Treaty would 
eliminate source-country withholding tax on cross-border 
dividend payments to pension funds. As with the existing 
Treaty, the proposed Treaty generally would eliminate source-
country withholding tax on cross-border interest payments. 
While the existing Treaty eliminates source-country withholding 
taxes on all cross-border payments of royalties, the proposed 
Treaty would allow the country in which certain cross-border 
trademark royalties arise to impose a withholding tax of up to 
five percent.
    The proposed Treaty provides, in addition, for the exchange 
between the tax authorities of each country of information 
relevant to carrying out the provisions of the Treaty or the 
domestic tax laws of either country. The proposed Treaty allows 
the United States to obtain information (including information 
from financial institutions) from Iceland whether or not 
Iceland needs the information for its own tax purposes.
    The proposed Treaty also reflects changes to U.S. and 
Icelandic law since 1975. For example, the proposed Treaty 
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 
Treaty also makes various other changes to modernize our treaty 
relationship with Iceland and brings it into closer conformity 
with current U.S. tax treaty policy.
    The Parties shall notify each other in writing, through 
diplomatic channels, when their respective applicable 
procedures for ratification have been satisfied.
    The proposed Treaty will enter into force on the date of 
the later of the notifications. It will have effect, with 
respect to taxes withheld at source, on income derived on or 
after the first day of January of the calendar year next 
following entry 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 proposed Treaty 
enters into force. The existing Treaty will, with respect to 
any tax, cease to have effect as of the date on which this 
proposed Treaty has effect with respect to such tax. However, 
where any person would be entitled to greater benefits under 
the existing Treaty, the existing Treaty, at the election of 
the person, shall continue to have effect in its entirety with 
respect to such person for a period of twelve months from the 
date the provisions of the proposed Treaty are effective.