Text - Treaty Document: Senate Consideration of Treaty Document 110-3All Information (Except Treaty Text)

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[Senate Treaty Document 110-3]
[From the U.S. Government Printing Office]



110th Congress 
 1st Session                     SENATE                     Treaty Doc.
                                                                  110-3
_______________________________________________________________________
 
                      TAX CONVENTION WITH BELGIUM

                               __________

                                MESSAGE

                                  from

                   THE PRESIDENT OF THE UNITED STATES

                              transmitting

 CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND 
 THE GOVERNMENT OF THE KINGDOM OF BELGIUM FOR THE AVOIDANCE OF DOUBLE 
TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON 
   INCOME AND ACCOMPANYING PROTOCOL, SIGNED ON NOVEMBER 27, 2006, AT 
                   BRUSSELS (THE ``PROPOSED TREATY'')

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 June 21, 2007.--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 21, 2007.
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 Kingdom of 
Belgium for the Avoidance of Double Taxation and the Prevention 
of Fiscal Evasion with Respect to Taxes on Income, and 
accompanying Protocol, signed on November 27, 2006, at Brussels 
(the ``proposed Treaty''). The proposed Treaty will replace the 
existing income tax treaty between the two countries that was 
concluded in 1970 and amended by protocol in 1987. 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 eliminates the withholding tax on 
certain cross-border dividend payments, including dividend 
payments to pension funds. The proposed Treaty also provides 
for mandatory arbitration of certain cases brought before the 
competent authorities. This provision is only the second of its 
kind in a proposed U.S. tax treaty. In addition, the proposed 
Treaty includes provisions, consistent with current U.S. tax-
treaty policy, that are designed to prevent so-called treaty 
shopping.
    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

                              ----------                              

                                       Department of State,
                                        Washington, April 29, 2007.
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 Kingdom of 
Belgium for the Avoidance of Double Taxation and the Prevention 
of Fiscal Evasion with Respect to Taxes on Income, and 
accompanying Protocol, signed on November 27, 2006, at Brussels 
(the ``proposed Treaty''). The proposed Treaty will replace the 
existing income tax treaty which was concluded in 1970 and 
amended by protocol in 1987.
    The proposed Treaty eliminates the withholding tax on 
certain cross-border dividend payments, including dividend 
payments to pension funds. The proposed Treaty also provides 
for mandatory arbitration of certain cases before the competent 
authorities. This provision is only the second of its kind in a 
U.S. tax treaty. The proposed Treaty also modernizes the 
provisions, consistent with current U.S. tax-treaty policy, 
that are designed to prevent so-called treaty shopping.
    The proposed Treaty was concluded in recognition of the 
importance of the United States' economic relations with 
Belgium. 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 Proposed Treaty between the 
United States and Belgium.

   Key Provisions of the U.S.-Belgium Income Tax Treaty and Protocol

    The attached Convention and accompanying Protocol (proposed 
Treaty) is proposed to replace the income tax treaty between 
the United States and the Kingdom of Belgium, which was 
concluded in 1970, and amended by protocol in 1987 
(Convention). The proposed Treaty was negotiated to bring the 
current Convention 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 Belgian 
law and treaty policy, the interaction of U.S. and Belgian law, 
and U.S.-Belgium economic relations.
    The most important aspect of the proposed Treaty relates to 
the taxation of cross-border dividend payments. Under the 
proposed Treaty, generally no withholding tax is imposed in the 
United States on a dividend paid by a U.S. company to a Belgian 
company that owns directly or indirectly at least 80 percent of 
the stock of the U.S. company, and generally no withholding tax 
is imposed in Belgium on a dividend paid by a Belgian company 
to a U.S. company that owns directly at least 10 percent of the 
stock of the Belgian company. Otherwise, the proposed Treaty 
provides withholding rates of 15 percent in the case of a 
portfolio dividend and 5 percent in the case of a direct 
dividend (a holding of at least 10 percent of the stock of the 
company paying the dividend). The proposed Treaty also provides 
that there shall be no withholding tax on a cross-border 
dividend payment to a pension fund. Eliminating withholding 
taxes on certain cross-border 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. Further, the 
15 percent maximum rate of withholding on a cross-border 
interest payment under the Convention is generally eliminated.
    The proposed Treaty also provides for mandatory arbitration 
in cases in which the competent authorities of the Contracting 
States are unable to reach agreement on how to resolve a 
complaint by a taxpayer; such arbitration is generally 
available no sooner than two years after the matter was first 
presented to the competent authorities. The proposed Treaty 
provides that the determination of an arbitration board 
constitutes a resolution of the matter by mutual agreement of 
the competent authorities and is binding on both countries, 
unless the taxpayer does not accept the determination. This is 
only the second time that a proposed U.S. tax treaty has 
included such a provision and it will be well received by the 
business community.
    In addition, the proposed Treaty also updates the current 
Convention's treatment of pensions. It removes barriers to the 
flow of personal services between the United States and Belgium 
that could otherwise result from discontinuities in the laws of 
the two countries regarding the deductibility of pension 
contributions.
    The proposed Treaty also strengthens the Convention's 
provisions preventing so-called treaty shopping, which is the 
inappropriate use of a tax treaty by third-country residents, 
and applies particularly strong anti-treaty shopping rules in 
the case of a Belgian company claiming exemption of taxation on 
dividends from an 80-percent-owned U.S. corporation. In 
connection with the conclusion of the proposed Treaty, the 
United States and Belgian delegations discussed how the 
derivative benefits test in the proposed Treaty would apply to 
a Belgian company (itself owned by persons of diverse countries 
of residence) owning 80 percent or more of the voting power of 
a U.S. company and claiming the exemption from tax on 
dividends. In general, the derivative benefits test permits a 
company to qualify for benefits under the proposed Treaty if a 
significant portion of its owners would qualify for equivalent 
or better benefits under a treaty between the United States and 
the owners' countries of residence. In their discussions, the 
delegations confirmed their shared understanding that, in 
applying the derivative benefits test, it is necessary to allow 
each owner to assume the same ownership percentage that the 
Belgian company has in the U.S. payer of the dividend. This 
``step in the shoes'' shared understanding with respect to 
ownership is consistent with the application of the derivative 
benefits tests in comparable U.S. tax treaties with other 
countries.
    Moreover, the proposed Treaty updates the current 
Convention to reflect U.S. and Belgian legislative changes 
since 1987. 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 modernizes our treaty relationship 
and brings it into closer conformity with current U.S. tax 
treaty policy by making technical changes to the article 
dealing with the elimination of double taxation and by 
eliminating the article dealing with the taxation of 
independent personal services.
    The proposed Treaty also significantly expands the 
circumstances in which the United States will be able to obtain 
information from Belgium that is necessary to enforce U.S. 
domestic tax rules. In particular, Belgium will provide 
information held by financial institutions, despite its bank 
secrecy rules. Moreover, Belgium agreed to certain other 
provisions that override aspects of its domestic laws that 
currently prevent effective information exchange.
    The proposed Treaty explicitly links the elimination of 
withholding in the United States on certain dividends paid to a 
Belgium resident to Belgium's obligations with respect to 
information exchange, and, in some cases, Belgium's compliance 
with the mutual agreement provisions of the proposed Treaty. 
The proposed Treaty provides that if the so-called zero rate is 
eliminated, then Belgium is no longer required to provide bank 
information.
    The United States and Belgium shall notify each other 
through the diplomatic channel, accompanied by an instrument of 
ratification, when each has completed its required procedures 
for entry into force. The proposed Treaty will enter into force 
on the date on which the later of the notifications is 
received. It will have effect, with respect to taxes withheld 
at source, for amounts paid or credited on or after the first 
day of the second month next following the date upon 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 date upon which the proposed Treaty 
enters into force. However, where any person would be entitled 
to greater benefits under the prior Convention, the prior 
Convention, at the election of the person, shall generally 
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. The election 
described in the preceding sentence, however, does not affect 
the application of the new exchange of information provisions 
discussed above.
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