Text - Treaty Document: Senate Consideration of Treaty Document 111-3All Information (Except Treaty Text)

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[Senate Treaty Document 111-3]
[From the U.S. Government Printing Office]


111th Congress                                              Treaty Doc.
SENATE
1st Session                                                111-3
_______________________________________________________________________

                                     

 
           PROTOCOL AMENDING TAX CONVENTION WITH NEW ZEALAND

                               __________

                                MESSAGE

                                  from

                  THE PRESIDENT OF THE UNITED STATES

                              transmitting

 PROTOCOL AMENDING THE CONVENTION BETWEEN THE UNITED STATES OF AMERICA 
AND NEW ZEALAND FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION 
 OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME, SIGNED ON DECEMBER 
                         1, 2008, AT WASHINGTON




 June 16, 2009.--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 16, 2009
To the Senate of the United States:
    I transmit herewith, for the advice and consent of the 
Senate to its ratification, the Protocol Amending the 
Convention between the United States of America and New Zealand 
for the Avoidance of Double Taxation and the Prevention of 
Fiscal Evasion With Respect to Taxes on Income, signed on 
December 1, 2008, at Washington (the ``proposed Protocol''). I 
also transmit for the information of the Senate the report of 
the Department of State, which includes an Overview of the 
proposed Protocol.
    This proposed Protocol provides for the elimination of 
withholding taxes on certain cross-border direct dividend 
payments and on cross-border interest payments to certain 
financial enterprises. The proposed Protocol reduces the 
existing Convention's 10-percent limit on withholding taxes on 
cross-border payments of royalties to 5 percent.
    The proposed Protocol contains a comprehensive provision 
designed to prevent ``treaty shopping,'' which is the 
inappropriate use of a tax treaty by third-country residents. 
The proposed Protocol also provides for the exchange of 
information between tax authorities of the two countries to 
facilitate the administration of each country's tax laws.
    I recommend that the Senate give early and favorable 
consideration to the proposed Protocol and give its advice and 
consent to ratification.

                                                      Barack Obama.
                          LETTER OF SUBMITTAL

                              ----------                              

                                       Department of State,
                                          Washington, May 21, 2009.
The President,
The White House.
    The President: I have the honor to submit to you the 
Protocol Amending the Convention between the United States of 
America and New Zealand for the Avoidance of Double Taxation 
and the Prevention of Fiscal Evasion with Respect to Taxes on 
Income, signed on December 1, 2008, at Washington (the 
``proposed Protocol''). The proposed Protocol was negotiated to 
bring the existing income tax Convention with New Zealand (the 
``existing Convention'') into closer conformity with current 
U.S. tax treaty policy, and in recognition of the importance of 
the United States' economic relations with New Zealand. I 
recommend that the proposed Protocol be transmitted to the 
Senate for its advice and consent to ratification.
    The proposed Protocol provides for the elimination of 
withholding taxes on certain cross-border direct dividend 
payments and on cross-border interest payments to certain 
financial enterprises. It reduces the existing Convention's 10-
percent limit on withholding taxes on cross-border payments of 
royalties to 5 percent.
    The proposed Protocol contains a comprehensive provision 
designed to prevent ``treaty shopping,'' which is the 
inappropriate use of a tax treaty by third-country residents. 
It also provides for the exchange of information between tax 
authorities in the two countries to facilitate the 
administration of each country's tax laws. An overview of key 
provisions of the proposed Protocol is enclosed with this 
report.
    The proposed Protocol is self-executing. The Department of 
the Treasury and the Department of State cooperated in the 
negotiation of the proposed Protocol, and the Department of the 
Treasury joins the Department of State in recommending that the 
proposed Protocol be transmitted to the Senate as soon as 
possible for its advice and consent to ratification.
    Respectfully submitted.
                                            Hillary Rodham Clinton.
    Enclosures: as stated.

                                Overview

    The Protocol amending the income tax Convention with New 
Zealand (proposed Protocol) was negotiated to bring the 
existing Convention, concluded in 1982 (existing 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 Protocol, these 
differences reflect particular aspects of New Zealand law and 
treaty policy, the interaction of U.S. and New Zealand law, and 
U.S.-New Zealand economic relations.


                     TAXATION OF INVESTMENT INCOME


    The withholding tax rates on investment income in the 
proposed Protocol are generally the same as or lower than those 
in the existing Convention. The proposed Protocol reduces or 
eliminates source-country taxation of dividends distributed by 
a company resident in one Contracting State to a resident in 
the other Contracting State. More specifically, the proposed 
Protocol provides for the elimination of source-country 
taxation of certain direct dividends (i.e., where an 80 percent 
ownership threshold is met). The proposed Protocol also 
generally allows for taxation at source of 5 percent on 
dividends when a 10 percent ownership threshold is met, and 15 
percent on all other dividends.
    The proposed Protocol updates the treatment of dividends 
paid by U.S. Regulated Investment Companies and Real Estate 
Investment Trusts to prevent the inappropriate use of those 
structures to avoid U.S. withholding taxes on outbound 
dividends.
    The proposed Protocol eliminates source-country taxation of 
interest paid to banks and certain other financial enterprises 
when the payer of the interest is not a related party. 
Consistent with current U.S. tax treaty policy, source-country 
tax maybe imposed on certain contingent interest and payments 
from a U.S. Real Estate Mortgage Investment Conduit.
    The proposed Protocol reduces the existing Convention's 10 
percent limit on source-country withholding tax on cross-border 
payments of royalties to 5 percent.


                      TAXATION OF BUSINESS INCOME


    The proposed Protocol preserves the U.S. right to impose 
its branch profits tax on U.S. branches of New Zealand 
corporations. The proposed Protocol also accommodates a 
provision of existing U.S. domestic law that attributes to a 
permanent establishment income that is earned during the life 
of the permanent establishment but is not received until after 
the permanent establishment no longer exists.


                  TAXATION OF PERSONAL SERVICES INCOME


    The proposed Protocol replaces the existing Convention's 
rules regarding the taxation of independent personal services 
by individuals. Under the proposed Protocol, an individual 
performing services in the other country will become taxable in 
the other country only if the individual has a fixed place of 
business in that country.


                         ANTI-ABUSE PROVISIONS


    The proposed Protocol replaces the existing Convention's 
``Limitation on Benefits'' article with a comprehensive and 
modernized provision that is consistent with current U.S. tax 
treaty practice. The updated provision is designed to address 
``treaty shopping,'' which is the inappropriate use of a tax 
treaty by third-country residents.
    The proposed Protocol incorporates updated rules that 
provide that a former citizen or long-term resident 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 Protocol also coordinates the 
U.S. and New Zealand tax rules to address the new U.S. ``mark-
to-market'' provisions that apply to individuals who relinquish 
U.S. citizenship or terminate long-term residency.


                        EXCHANGE OF INFORMATION


    The proposed Protocol replaces the existing Convention's 
tax information exchange provisions with updated rules that are 
consistent with current U.S. tax treaty practice. The proposed 
Protocol allows the tax authorities of each country to exchange 
information relevant to carrying out the provisions of the 
Convention or the domestic tax laws of either country. The 
proposed Protocol allows the United States to obtain 
information (including from financial institutions) from New 
Zealand whether or not New Zealand needs the information for 
its own tax purposes.


                            ENTRY INTO FORCE


    The proposed Protocol will enter into force on the date of 
the later note in an exchange of diplomatic notes in which the 
Parties notify each other that their respective applicable 
procedures for ratification 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 the second month 
next following the date on which the proposed Protocol enters 
into force. With respect to other taxes, the proposed Protocol 
will have effect in the United States for taxable years 
beginning on or after the first day of January next following 
the date upon which the proposed Protocol enters into force, 
and in New Zealand for taxable years beginning on or after the 
first day of April next following the date on which the 
proposed Protocol enters into force. The provisions of the 
proposed Protocol on exchange of information, however, will 
have effect from the date of entry into force of the proposed 
Protocol.