[Senate Treaty Document 106-11]
[From the U.S. Government Publishing Office]
106th Congress
1st Session SENATE Treaty Doc.
106-11
_______________________________________________________________________
TAX CONVENTION WITH ITALY
__________
MESSAGE
FROM
THE PRESIDENT OF THE UNITED STATES
transmitting
CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND
THE GOVERNMENT OF THE ITALIAN REPUBLIC FOR THE AVOIDANCE OF DOUBLE
TAXATION WITH RESPECT TO TAXES ON INCOME AND THE PREVENTION OF FRAUD OR
FISCAL EVASION, SIGNED AT WASHINGTON ON AUGUST 25, 1999, TOGETHER WITH
A PROTOCOL
September 21, 1999.--Convention 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
______
U.S. GOVERNMENT PRINTING OFFICE
69-112 WASHINGTON : 1999
LETTER OF TRANSMITTAL
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The White House, September 21, 1999.
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 Italian
Republic for the Avoidance of Double Taxation with Respect to
Taxes on Income and the Prevention of Fraud or Fiscal Evasion,
signed at Washington on August 25, 1999, together with a
Protocol. Also transmitted are an exchange of notes with a
Memorandum of Understanding and the report of the Department of
State concerning the Convention.
This Convention, which is similar to tax treaties between
the United States and other developed 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 or certain abusive transactions.
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, DC, September 7, 1999.
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 Italian
Republic for the Avoidance of Double Taxation with Respect to
Taxes on Income and the Prevention of Fraud or Fiscal Evasion,
signed at Washington, DC, on August 25, 1999 (``the
Convention''), together with a Protocol. Also enclosed for the
information of the Senate is an exchange of notes with an
attached Memorandum of Understanding.
This Convention would replace the current convention
between the United States of America and the Government of the
Republic of Italy signed at Rome on April 17, 1984. This
proposed Convention generally follows the pattern of the U.S.
Model Tax Treaty while incorporating some features of the OECD
Model Tax Treaty. The proposed Convention provides for maximum
rates of tax to be applied to various types of income,
protection from double taxation of income, and exchange of
information. It also contains rules making its benefits
unavailable to persons that are engaged in treaty shopping and
new provisions denying benefits in the case of certain abusive
transactions. 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).
The withholding rates on investment income under the
proposed Convention are generally lower than those in the
present Convention. Pursuant to Article 10, dividends from
direct investments are subject to withholding tax by the source
country at a rate of five percent. The threshold criterion for
direct investment is 25 percent. Other dividends are generally
taxable at 15 percent. Under Article 12, royalties arising in
one Contracting State and owned by a resident of the other
Contracting State are generally subject to tax in both
countries, except that royalties for copyrights of literary,
artistic or scientific work are exempt from a source-country
taxation. The rate of tax by the source country on royalties
arising in that State and paid to a resident of the other State
may not exceed five percent in the case of royalties for the
use of, or the right to use, computer software or industrial,
commercial, or scientific equipment; and eight percent in all
other cases.
Under Article 11 of the proposed Convention, interest
arising in one Contracting State and earned by a resident of
the other Contracting State may generally be taxed in both
countries. The rate of tax by the source country on interest
owned by a resident of the other State is generally limited to
10 percent, although certain classes of interest are exempt
from source-country taxation.
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, in the case
of business profits, the income is attributable to a permanent
establishment or, in the case of independent personal services,
a fixed base in that other State. 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 proposed Convention, follows the format of the existing
treaty. Gains derived from the sale of real property (immovable
property) and from real property interests may be taxed in the
State in which the property is located. Likewise, gains from
the sale of personal property pertaining to a fixed base or
forming part of a permanent establishment situated in a
Contracting State may be taxed in that State. As in the
existing treaty, but unlike the U.S. Model Treaty, gains from
the alienation of ships and aircraft rented on a bareboat basis
and attributable to a permanent establishment situated in
aContracting State may be taxed in that State if the rental profits
were not incidental to other profits from the international operation
of ships or aircraft. All other gains, including gains from the
alienation of containers, gains from the alienation of ships and
aircraft rented on a full basis, gains from the alienation of ships and
aircraft rented on a bareboat basis if the rental profits were
incidental to other profits from the international operation of ships
or aircraft, and gains from the sale of stock in a corporation, are
taxable only in the State of residence of the seller. These rules serve
to minimize possible double taxation that could otherwise arise.
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. 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 the U.S. Model, Article 8 of the proposed
Convention permits only the country of residence to tax profits
from the international operation of ships or aircraft and, as
explained in the Protocol, income from the use, maintenance or
rental of containers used in international traffic. As further
explained in the Protocol, this reciprocal exemption extends to
income from the rental on a full basis of ships and aircraft
and, if the rental income is incidental to income from the
operation of ships and aircraft in international traffic, to
income from the rental on a bareboat basis of ships and
aircraft. As under the existing treaty, but unlike the U.S.
Model Treaty, income from the rental of ships and aircraft on a
bareboat basis that is not incidental to the operation of ships
or aircraft by the lessor and that is attributable to a
permanent establishment situated in a Contracting State may be
taxed in that State.
The taxation of income from the performance of personal
services under Articles 14 through 17 of the new Convention
generally follows U.S. standard treaty policy.
The proposed Convention also contains rules necessary for
its administration, including rules for the resolution of
disputes under the Convention (Article 25) and for exchange of
information (Article 26). Article 25 of the proposed Convention
includes a provision authorizing the use of arbitration to
settle disputes in certain cases, but such provision will not
be effective until the Contracting States exchange diplomatic
notes providing for such procedures.
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.
Comprehensive anti-treaty-shopping rules making the
Convention's benefits unavailable to persons engaged in treaty-
shopping are contained in Article 2 of the Protocol to the
proposed Convention. These provisions are similar to those
found in the U.S. Model Treaty and all recent U.S. tax treaties
and are more comprehensive than those found in the existing
treaty with Italy. In addition, the proposed Convention
contains new provisions in Articles 10-12 and 22 aimed at
preventing abuse with respect to specific transactions. Under
these new provisions, a person otherwise entitled to treaty
benefits will be denied those benefit if the main purpose, or
one of the main purposes, of the creation or assignment of the
rights giving rise to the income was to take advantage of the
treaty.
This Conventionis subject to ratification. In accordance
with the provisions of Article 28, it will enter into force
upon the exchange of instruments of ratification. The proposed
Convention will have effect, with respect to taxes withheld at
the source, for amounts paid or credited on or after the first
day of the second month following the date on which the
Convention comes into force; with respect to other taxes, the
Convention will take effect for taxable periods beginning on or
after the first day of January next following the date on which
the Convention enters into force.
The proposed Convention will remain in force indefinitely
unless terminated by one of the Contracting States, pursuant to
Article 29. That Article provides that, at any time after five
years after the date on which the proposed Convention enters
into force, either State may terminate the Convention by giving
at least six months' prior notice through diplomatic channels.
The Protocol is an integral part of the proposed
Convention. In addition to containing the limitation on
benefits provisons described above, the Protocol clarifies and
suppluments the proposed Convention.
In addition to the proposed Convention with its Protocol,
an exchange of notes, with an attached Memorandum of
Understanding, relates to Article 25 (Mutual Agreement
Procedure) and concerns the future implementation of
arbitration procedures to resolve tax disputes. These notes
with the attached memorandum are submitted for the information
of the Senate.
A technical memoradum explaining in detail the provisions
of the Convention will be prepared by the Department of the
Treasury and will be submitted separately to the Senate
Committee on Foreign Relations.
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,
Strobe Talbott.