[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.


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