Protocol Amending Tax Convention with New ZealandSenate Consideration of Treaty Document 111-3
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[Senate Treaty Document 111-3]
[From the U.S. Government Publishing 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.