[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
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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
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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.