    [Senate Treaty Document 105-56]
    [From the U.S. Government Publishing Office]

    105th Congress                                              Treaty Doc.
                                    SENATE

     2d Session                                                      105-56
    _______________________________________________________________________

                         TAX CONVENTION WITH LITHUANIA

                                   __________

                                    MESSAGE

                                      FROM

                       THE PRESIDENT OF THE UNITED STATES

                                  transmitting

     CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND
    THE GOVERNMENT OF THE REPUBLIC OF LITHUANIA FOR THE AVOIDANCE OF DOUBLE
    TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON
                INCOME, SIGNED AT WASHINGTON ON JANUARY 15, 1998

     June 26, 1998.--Convention was read the first time, and together with
    the accompanying papers, referred to the Committee on Foreign Relations
               and order to be printed for the use of the Senate

                             LETTER OF TRANSMITTAL

                                  ----------

                                        The White House, June 26, 1998.
    To the Senate of the United States:
        I transmit herewith for Senate advice and consent to
    ratification the Convention Between the United States of
    America and the Government of the Republic of Lithuania for the
    Avoidance of Double Taxation and the Prevention of Fiscal
    Evasion with Respect to Taxes on Income, signed at Washington
    on January 15, 1998. Also transmitted is the report of the
    Department of State concerning the Convention.
        This Convention, which is similar to tax treaties between
    the United States and OECD nations, provides maximum rates of
    tax to be applied to various types of income and protection
    from double taxation of income. The Convention also provides
    for resolution of disputes and sets forth rules making its
    benefits unavailable to residents that are engaged in treaty
    shopping.
        I recommend that the Senate give early and favorable
    consideration to this Convention and that the Senate give its
    advice and consent to ratification.

                                                    William J. Clinton.

                              LETTER OF SUBMITTAL

                                  ----------

                                           Department of State,
                                              Washington, May 15, 1998.
    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 Republic of
    Lithuania for the Avoidance of Double Taxation and the
    Prevention of Fiscal Evasion with Respect to Taxes on Income,
    signed at Washington on January 15, 1998 (``the Convention'').
        This Convention will be the first such Convention between
    the United States of America and the Republic of Lithuania.
    This Convention is similar to the tax treaties between the
    United States and OECD nations. It provides for maximum rates
    of tax to be applied to various types of income, protection
    from double taxation of income, exchange of information, and
    contains rules making its benefits unavailable to persons that
    are engaged in treaty shopping. The proposed withholding rates,
    while in some respects higher than those in the U.S. model, are
    the same as those in many other Lithuanian tax treaties. Like
    other U.S. tax conventions, this Convention provides rules
    specifying when income that arises in one of the countries and
    is attributable to residents of the other country may be taxed
    by the country in which the income arises (the ``source''
    country).
        In many respects, the rates under the new Convention are
    the same as those in many recent U.S. tax treaties, including
    some with OECD countries. Pursuant to Article 10, dividends
    from direct investments are subject to tax by the source
    country at a rate of five percent. The threshold criterion for
    direct investment is ten percent, consistent with other modern
    U.S. treaties, in order to facilitate direct investment. Other
    dividends are generally taxable at 15 percent. Under Article
    12, royalties for the use of industrial, commercial, or
    scientific equipment derived and beneficially owned by a
    resident of a Contracting State are subject to a five-percent
    tax by the source country; all other royalties are subject to
    tax at a maximum rate of ten percent.
        Under Article 11 of the proposed Convention, interest
    arising in one Contracting State and owned by a resident of the
    other Contracting State is subject to taxation by the source
    country at a maximum rate of ten percent. However, interest
    earned on trade credits and on government debt, including debt
    guaranteed by government agencies, is exempt from taxation by
    the source country.
        The reduced withholding rates described above do not apply
    if the beneficial owner of the income is a resident of one
    Contracting State who carries on business in the other
    Contracting State in which the income arises and the income is
    attributable to a permanent establishment or fixed base. If the
    income is attributable to a permanent establishment, it will be
    taxed as business profits, and, if the income is attributable
    to a fixed base, it will be taxed as independent personal
    services.
        The maximum rates of withholding tax described in the
    preceding paragraphs are subject to the standard anti-abuse
    rules for certain classes of investment income found in other
    U.S. tax treaties and agreements.
        The taxation of capital gains, described in Article 13 of
    the Convention, generally follows the rule of recent U.S. tax
    treaties, the U.S. model and the OECD model. Gains on real
    property are taxable in the country in which the property is
    located, and gains from the sale of personal property are taxed
    only in the State of residence of the seller, unless
    attributable to a permanent establishment or fixed base in the
    other State.
        Article 7 of the proposed Convention generally follows the
    standard rules for taxation by one country of the business
    profits of a resident of the other. The non-residence 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 source country may, however, tax
    sales or activities as though they were performed by a
    permanent establishment if it is ascertained that such
    activities were structured with the intent to avoid taxation in
    the State in which the permanent establishment is situated. As
    do all recent U.S. treaties, this Convention preserves the
    right of the United States to impose its branch taxes in
    addition to the basic corporate tax on a branch's business.
        Consistent with U.S. treaty policy, Article 8 of the
    proposed Convention permits only the country of residence to
    tax profits from international carriage by ships or aircraft
    and income from the use, maintenance, or rental of containers
    used in international traffic. This reciprocal exemption also
    extends to income from the rental of ships and aircraft if the
    rental income is incidental to income from the operation of
    ships and aircraft in international traffic. However, income
    from the international rental of ships and aircraft that is
    non-incidental to operation of ships and aircraft is taxed at
    the rate of five percent as a royalty paid for the use of the
    equipment.
        Like several U.S. treaties, the proposed Convention with
    Lithuania (at Article 21) provides that income derived from the
    offshore exploration for and exploitation of the seabed and
    subsoil is taxable by the source State if the activities are
    carried on for more than 30 days in any 12 month period.
        The taxation of income from the performance of personal
    services under Articles 14 through 17 of the new Convention is
    essentially the same as that under recent U.S. treaties with
    OECD countries.
        Article 23 of the proposed Convention contains significant
    anti-treaty-shopping rules making its benefits unavailable to
    persons engaged in treaty-shopping.
        The proposed Convention also contains rules necessary for
    its administration, including rules for the resolution of
    disputes under the Convention and for exchange of information
    (Article 27).
        The Convention would permit 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.
        This Convention is subject to ratification. In accordance
    with the provisions of Article 29, it will enter into force
    when the Governments notify each other through diplomatic
    channels that their constitutional requirements for entry into
    force have been met. They will have effect for payments made or
    credited on or after the first day of January following entry
    into force with respect to taxes withheld by the source
    country; with respect to other taxes, the Convention will take
    effect for taxable periods beginning on or after the first day
    of January following the date on which the Convention enters
    into force.
        The proposed Convention (like those with Estonina and
    Latvia) provides at Article 29 that the appropriate authorities
    of the two Contracting States will meet within five years to
    discuss the application of the proposed Convention to income
    derived from new technologies.
        The proposed Convention will remain in force indefinitely
    unless terminated by one of the Contracting States, pursuant to
    Article 30. That Article provides that either State may
    terminate the Convention by giving prior notice through
    diplomatic channels at least six months before the end of any
    calendar year.
        The Department of the Treasury and the Department of State
    cooperated in the negotiation of the Convention. It has the
    full approval of both Departments.
        Respectfully submitted.
                                                    Madeleine Albright.