[Senate Treaty Document 109-18]
[From the U.S. Government Publishing Office]
109th Congress
2d Session SENATE Treaty Doc.
109-18
_______________________________________________________________________
PROTOCOL AMENDING TAX CONVENTION WITH FINLAND
__________
MESSAGE
from
THE PRESIDENT OF THE UNITED STATES
transmitting
PROTOCOL AMENDING THE CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED
STATES OF AMERICA AND THE GOVERNMENT OF THE REPUBLIC OF FINLAND FOR THE
AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH
RESPECT TO TAXES ON INCOME AND ON CAPITAL, SIGNED AT HELSINKI MAY 31,
2006 (THE ``PROTOCOL'')
September 29, 2006.--Protocol 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
LETTER OF TRANSMITTAL
----------
The White House, September 29, 2006.
To the Senate of the United States:
I transmit herewith, for Senate advice and consent to
ratification, a Protocol Amending the Convention Between the
Government of the United States of America and the Government
of the Republic of Finland for the Avoidance of Double Taxation
and the Prevention of Fiscal Evasion with Respect to Taxes on
Income and on Capital, signed at Helsinki May 31, 2006 (the
``Protocol''). Also transmitted for the information of the
Senate is the report of the Department of State with respect to
the Protocol.
The Protocol eliminates the withholding tax on certain
cross-border dividend payments. Like a number of recent U.S.
tax agreements, the proposed Protocol provides for the
elimination of the withholding tax on dividends arising from
certain direct investments and cross-border dividend payments
to pension funds. The Protocol also eliminates the withholding
tax on cross-border royalty payments. In addition, the Protocol
modernizes the Convention to bring it into closer conformity
with current U.S. tax-treaty policy, including strengthening
the treaty's provisions preventing so-called treaty shopping.
I recommend that the Senate give early and favorable
consideration to the Protocol and give its advice and consent
to ratification.
George W. Bush.
LETTER OF SUBMITTAL
----------
Department of State,
Washington, August 1, 2006.
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, a Protocol Amending the Convention Between the
Government of the United States of America and the Government
of the Republic of Finland for the Avoidance of Double Taxation
and the Prevention of Fiscal Evasion with Respect to Taxes on
Income and on Capital signed at Helsinki May 31, 2006 (the
``Protocol'').
The Protocol eliminates the withholding tax on certain
cross-border dividend payments. Like a number of recent U.S.
tax agreements, the proposed Protocol provides for the
elimination of the withholding tax on dividends arising from
certain direct investments and cross-border dividend payments
to pension funds. The Protocol also eliminates the withholding
tax on cross-border royalty payments. In addition, the Protocol
also modernizes the Convention to bring it into closer
conformity with current U.S. tax-treaty policy, including
strengthening the treaty's provisions preventing so-called
treaty shopping.
The Protocol was concluded in recognition of the importance
of the United States' economic relations with Finland. The
Department of the Treasury and the Department of State
cooperated in the negotiation of the Protocol. It has the full
approval of both Departments.
Respectfully submitted.
Condoleezza Rice.
Enclosures.
Key Provisions of the U.S.-Finland Income Tax Protocol
The Protocol to the income tax Convention with Finland was
negotiated to bring the current Convention, concluded in 1989,
into closer conformity with current U.S. tax treaty policy.
There are, as with all bilateral tax conventions, some
variations from these norms. In the Protocol, these differences
reflect particular aspects of Finnish law and treaty policy,
the interaction of U.S. and Finnish law, and U.S.-Finnish
economic relations.
The most important aspect of the Protocol relates to the
taxation of cross-border dividend payments. Under the Protocol,
most dividends paid by a subsidiary in one country to its
parent in the other country will be exempt from withholding tax
in the subsidiary's home country, rather than being subject to
the current treaty's maximum withholding tax rate for direct
dividends of five percent. The proposed Protocol also provides
for a withholding rate of zero on cross-border dividend
payments to pension funds. Eliminating withholding taxes on
cross-border direct dividends and cross-border dividend
payments to pension funds is consistent with an overall view
that investment income should be taxed by the country of
residence, not the country of source.
The Protocol also eliminates the withholding tax on cross-
border royalty payments. The existing treaty's maximum
withholding tax rate for cross-border royalty payments is five
percent.
In addition, the Protocol strengthens the treaty's
provisions preventing so-called treaty shopping, which is the
inappropriate use of a tax treaty by third-country residents.
The Protocol also updates the current treaty to reflect
U.S. and Finnish legislative changes since 1989. For example,
the Protocol updates the ``saving clause'' to provide that
former citizens or long-term residents of the United States
may, for the period of ten years following the loss of such
status, be taxed in accordance with the laws of the United
States.
The proposed Protocol will enter into force upon the
exchange of instruments of ratification. It will generally have
effect, with respect to taxes withheld at source, for amounts
paid or credited on or after the first day of the second month
next following the date upon which the Protocol enters into
force and, with respect to other taxes, for taxable years
beginning on or after the first day of January next following
the date upon which the Protocol enters into force. However,
the proposed Protocol will have effect with respect to taxes
withheld at source on direct dividends and dividends paid to
pension funds for income derived on or after the first day of
January 2007, provided that this Protocol enters into force
before December 31, 2007.