Text - Treaty Document: Senate Consideration of Treaty Document 110-18All Information (Except Treaty Text)

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[Senate Treaty Document 110-18]
[From the U.S. Government Printing Office]



110th Congress 
 2d Session                      SENATE                     Treaty Doc.
                                                                 110-18
_______________________________________________________________________

                                     

 
    TAX CONVENTION WITH BULGARIA WITH PROPOSED PROTOCOL OF AMENDMENT

                               __________

                                MESSAGE

                                  from

                     THEPRESIDENTOFTHEUNITEDSTATES

                              transmitting

 CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND 
THE GOVERNMENT OF THE REPUBLIC OF BULGARIA FOR THE AVOIDANCE OF DOUBLE 
TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON 
 INCOME, WITH ACCOMPANYING PROTOCOL, SIGNED AT WASHINGTON ON FEBRUARY 
 23, 2007 (THE ``PROPOSED TREATY''), AS WELL AS THE PROTOCOL AMENDING 
 THE CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA 
  AND THE GOVERNMENT OF THE REPUBLIC OF BULGARIA FOR THE AVOIDANCE OF 
 DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO 
         TAXES ON INCOME, SIGNED AT SOFIA ON FEBRUARY 26, 2008




 June 4, 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, June 4, 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 the Republic of 
Bulgaria for the Avoidance of Double Taxation and the 
Prevention of Fiscal Evasion With Respect to Taxes on Income, 
with accompanying Protocol, signed at Washington on February 
23, 2007 (the ``Proposed Treaty''), as well as the Protocol 
Amending the Convention Between the Government of the United 
States of America and the Government of the Republic of 
Bulgaria for the Avoidance of Double Taxation and the 
Prevention of Fiscal Evasion With Respect to Taxes on Income, 
signed at Sofia on February 26, 2008 (the ``Proposed Protocol 
of Amendment''). The Proposed Treaty and Proposed Protocol of 
Amendment are consistent with U.S. tax treaty policy. Also 
transmitted for the information of the Senate is the report of 
the Department of State with respect to the Proposed Treaty and 
Proposed Protocol of Amendment.
    The Proposed Treaty generally reduces the withholding tax 
on cross-border dividend, interest, and royalty payments. 
Importantly, the Proposed Treaty generally eliminates 
withholding tax on cross-border dividend payments to pension 
funds and cross-border interest payments made to financial 
institutions. The Proposed Treaty also contains provisions, 
consistent with current U.S. tax treaty policy, that are 
designed to prevent so-called treaty shopping. The Proposed 
Protocol of Amendment further strengthens these treaty shopping 
provisions.
    I recommend that the Senate give early and favorable 
consideration to the Proposed Treaty and give its advice and 
consent to ratification to both the Proposed Treaty and the 
Proposed Protocol of Amendment.

                                                    George W. Bush.
                          LETTER OF SUBMITTAL

                              ----------                              

                                       Department of State,
                                           Washington, May 7, 2008.
The President,
The White House.
    The President: I have the honor to submit to you, with a 
view to their 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 
Bulgaria for the Avoidance of Double Taxation and the 
Prevention of Fiscal Evasion with Respect to Taxes on Income, 
with accompanying Protocol, signed at Washington on February 
23, 2007 (the ``Proposed Treaty''), and the Protocol Amending 
the Convention Between the Government of the United States of 
America and the Government of the Republic of Bulgaria for the 
Avoidance of Double Taxation and the Prevention of Fiscal 
Evasion with Respect to Taxes on Income, signed at Sofia on 
February 26, 2008 (the ``Proposed Protocol of Amendment''). The 
Proposed Treaty is the first income tax treaty between our two 
countries.
    The Proposed Treaty generally reduces the rate of 
withholding tax on cross-border dividends, interest, and 
royalties. Importantly, however, the Proposed Treaty generally 
eliminates withholding tax on cross-border dividend payments to 
pension funds and cross-border interest payments made to 
financial institutions. The Proposed Treaty also contains 
provisions, consistent with current U.S. tax-treaty policy, 
that are designed to prevent so-called treaty shopping. The 
Proposed Protocol of Amendment further strengthens these treaty 
shopping provisions.
    The Proposed Treaty and Proposed Protocol of Amendment were 
concluded in recognition of the importance of the United 
States' economic relations with Bulgaria. The Department of the 
Treasury and the Department of State cooperated in the 
negotiation of the Proposed Treaty and Proposed Protocol of 
Amendment. They have the full approval of both Departments.
    Respectfully submitted,
                                                  Condoleezza Rice.
    Enclosure: Key Features of Proposed Treaty and Proposed 
Protocol of Amendment Between the United States and Bulgaria.

  Key Features of Proposed Treaty and Proposed Protocol of Amendment 
                 Between the United States and Bulgaria

    The Convention Between the Government of the United States 
of America and the Government of the Republic of Bulgaria for 
the Avoidance of Double Taxation and the Prevention of Fiscal 
Evasion with Respect to Taxes on Income, with accompanying 
Protocol, signed at Washington on February 23, 2007 (the 
``Proposed Treaty''), and the Protocol Amending the Convention 
Between the Government of the United States of America and the 
Government of the Republic of Bulgaria for the Avoidance of 
Double Taxation and the Prevention of Fiscal Evasion with 
Respect to Taxes on Income, signed at Sofia on February 26, 
2008 (the ``Proposed Protocol of Amendment''), were negotiated 
to further facilitate the cross-border economic activity 
between our countries. The Proposed Treaty and Proposed 
Protocol of Amendment are consistent with current U.S. tax 
treaty policy. There are, as with all bilateral tax treaties, 
some variations from these norms. In the Proposed Treaty and 
Proposed Protocol of Amendment, these differences reflect 
particular aspects of Bulgarian law and treaty policy, the 
interaction of U.S. and Bulgarian law, and U.S.-Bulgarian 
economic relations.
    The Proposed Treaty provides for a withholding rate of ten 
percent on cross-border portfolio dividend payments, and five 
percent on dividends when the beneficial owner of the dividend 
is a company that directly owns at least ten percent of the 
stock of the company paying the dividend. However, no 
withholding is permitted on dividends paid by a company 
resident in one of the countries to a pension fund that is a 
resident in the other country provided the dividend is not 
derived from the carrying on of a trade or business by such 
pension fund.
    Further, withholding taxes on cross-border interest 
payments may be imposed at a maximum rate of five percent. No 
withholding in the source state on a cross-border interest 
payment is generally permitted, however, when the interest is 
beneficially owned by the government of the other country (or a 
bank operated or controlled by that government), a pension fund 
resident in the other country, or a financial institution 
(including a bank or insurance company) resident in the other 
country.
    Cross-border royalty payments are generally sourced to the 
country of the payer of the royalty and may be subject to a 
maximum withholding tax rate of five percent in that source 
state.
    The Proposed Treaty also provides that the United States 
and Bulgaria will reconsider the permissible positive 
withholding rates with respect to interest and royalties when 
Bulgarian sourced interest and royalty payments made to other 
members of the European Union are required to be exempt from 
source state withholding taxes under certain EU Directives.
    The Proposed Treaty follows the standard rules for taxation 
by the source country of the business profits of a resident of 
the other country. 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. The Proposed Treaty also includes a special rule for 
certain long-term services not otherwise considered to be 
provided through a permanent establishment.
    The Proposed Treaty includes the ``Limitation on Benefits'' 
Article, which is designed to deny ``treaty-shoppers'' the 
benefits of the Convention. The Proposed Protocol of Amendment 
further strengthens the Limitation on Benefits article of the 
Proposed Treaty. The Proposed Treaty also preserves the U.S. 
right to tax a former citizen or long-term resident of the 
United States for the period of ten years following the loss of 
such status, in accordance with the laws of the United States.
    The Proposed Treaty also provides for an exchange of 
information between our countries, which will facilitate the 
enforcement of U.S. domestic tax rules. Specifically, the 
Proposed Treaty allows the United States to obtain information 
(including bank information) from Bulgaria whether or not 
Bulgaria needs the information for its own tax purposes. The 
Proposed Treaty allows 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 and treaties.
    The Proposed Treaty will enter into force on the date of 
receipt of the later of the notifications exchanged between the 
parties indicating that their respective requirements for entry 
into force have been satisfied. It will have effect, with 
respect to taxes withheld at source, for amounts paid or 
credited on or after the first day of January next following 
the year in which the Proposed Treaty enters into force and, 
with respect to other taxes, for taxable years beginning on or 
after the first day of January next following the year in which 
the Proposed Treaty enters into force. The Proposed Protocol of 
Amendment will enter into force on the date of entry into force 
of the Proposed Treaty.