    [Senate Treaty Document 106-3]
    [From the U.S. Government Publishing Office]

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    106th Congress                                              Treaty Doc.
     1st Session                     SENATE                        106-3

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                         TAX CONVENTION WITH VENEZUELA

                                   __________

                                    MESSAGE

                                      from

                       THE PRESIDENT OF THE UNITED STATES

                                  transmitting

     THE CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA
     AND THE GOVERNMENT OF THE REPUBLIC OF VENEZUELA FOR THE AVOIDANCE OF
     DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO
       TAXES ON INCOME AND CAPITAL, SIGNED AT CARACAS ON JANUARY 25, 1999

     June 29, 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
    69-118                     WASHINGTON : 1999

                             LETTER OF TRANSMITTAL

                                  ----------

                                        The White House, June 29, 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 Republic of
    Venezuela for the Avoidance of Double Taxation and the
    Prevention of Fiscal Evasion with Respect to Taxes on Income
    and Capital, together with a Protocol, signed at Caracas on
    January 25, 1999. 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 other developing 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 an 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, DC.
    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
    Venezuela for the Avoidance of Double Taxation and the
    Prevention of Fiscal Evasion with Respect to Taxes on Income
    and Capital, together with a Protocol, signed at Caracas on
    January 25, 1999 (``the Convention'').
        This Convention will be the first such Convention between
    the United States of America and the Republic of Venezuela.
    This Convention generally follows the pattern of the 1996 U.S.
    Model Tax Convention while incorporating some provisions found
    in recent tax treaties between the United States and developing
    nations. It provides for maximum rates of tax to be applied to
    various types of income, protection from double taxation of
    income, and exchange of information, and it contains rules
    making its benefits unavailable to persons who 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 other U.S. treaties with developing countries and
    other Venezuela tax treaties. Also, the withholding rates
    reflect Venezuela's territorial system of taxation and the
    objective of establishing an adequate single level of tax on
    cross-border investment income. 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).
        Pursuant to Article 10, dividends from direct investments
    are subject to tax by the source country at a maximum rate of
    five percent. The ownership threshold for direct investment is
    ten percent, consistent with other modern U.S. tax 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 tax at a maximum rate of five percent 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, most 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
    income received by a financial institution (including an
    insurance company) is subject to tax at a maximum rate of 4.95
    percent, and interest earned on government debt and 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 and the income is attributable to a permanent
    establishment or fixed base situated 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 a payment for
    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 follows the format of the U.S. Model. Gains and
    income derived from the sale of real property and from real
    property interests may be taxed by the State in which the
    property is located. Likewise, gains or income from the sale of
    personal property, if attributable to a fixed base or permanent
    establishment situated in a Contracting State, may be taxed in
    that State. All other gains, including gains from the sale of
    ships, aircraft and containers, and gains from the sale of
    stock in a corporation, are taxable only in the State of
    residence of the seller.
        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 source 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.
        Under Article 8 of the proposed Convention, income from the
    operation of ships and aircraft in international traffic and
    from the use, maintenance or rental of containers used in
    international traffic is taxed in a manner consistent with the
    U.S. Model. Article 8 permits only the country of residence to
    tax profits from the international operation of ships or
    aircraft, including profits from the rental of ships and
    aircraft when the ship or aircraft is operated by the lessee in
    international traffic, or when the rental activity is
    incidental to the operation of ships or aircraft by the lessor.
    All income from the use, maintenance or rental of containers
    used in international traffic is likewise exempt from source-
    country taxation under the proposed Convention.
        The taxation of income from the performance of personal
    services under Articles 14 through 16 of the New Convention is
    essentially the same as that under recent U.S. treaties with
    some developing countries but grants a taxing right to the host
    country with respect to such income that is broader than in the
    OECD or U.S. Model treaties.
        Article 17 of the proposed Convention contains significant
    anti-treaty-shopping rules making its benefits unavailable to
    persons engaged in treaty-shopping.
        Rules necessary for administration, including rules for the
    resolution of disputes under the Convention and for exchange of
    information, are contained in Articles 26 and 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. It will have effect for payments made or
    credit 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 will remain in force indefinitely
    unless terminated by one of the Contracting States, pursuant to
    Article 30. At any time after five years from the date on which
    the Convention enters into force, either Contracting State may
    terminate the Convention as of the end of a calendar year by
    giving notice of the termination through diplomatic channels at
    least six months prior to the end of that calendar year.
        A Protocol accompanies and forms an integral part of the
    Convention.
        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,
                                                     Madeline Albright.