[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.
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U.S. GOVERNMENT PRINTING OFFICE
69-118 WASHINGTON : 1999
LETTER OF TRANSMITTAL
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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
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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.