[Senate Treaty Document 109-19]
[From the U.S. Government Publishing Office]
109th Congress
2d Session SENATE Treaty Doc.
109-19
_______________________________________________________________________
PROTOCOL AMENDING TAX CONVENTION WITH DENMARK
__________
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 KINGDOM OF DENMARK FOR THE
AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH
RESPECT TO TAXES ON INCOME SIGNED AT COPENHAGEN MAY 2, 2006 (THE
``PROTOCOL''), WITH A RELATED EXCHANGE OF NOTES
September 29, 2006.--Protocol was read the first time, and together
with the accompanying papers, referred to the Committee on Foreign
Relations and order 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 Kingdom of Denmark for the Avoidance of Double Taxation
and the Prevention of Fiscal Evasion with Respect to Taxes on
Income signed at Copenhagen May 2, 2006 (the ``Protocol''). A
related exchange of notes is enclosed for the information of
the Senate. 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. 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
----------
The Secretary 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 Kingdom of Denmark for the Avoidance of Double Taxation
and the Prevention of Fiscal Evasion with Respect to Taxes on
Income, signed at Copenhagen May 2, 2006 (the ``Protocol''). A
related exchange of notes is also enclosed.
The Protocol eliminates the withholding tax on certain
cross-border dividend payments. Like a number of recent U.S.
tax agreements, the Protocol provides for the elimination of
the withholding tax on dividends arising from certain direct
investments and cross-border dividend payments to pension
funds. 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 Denmark. 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.-Denmark Income Tax Protocol
The proposed Protocol to the income tax Convention with
Denmark was negotiated to bring the current Convention,
concluded in 1999, 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 Danish law and
treaty policy, the interaction of U.S. and Danish law, and
U.S.-Danish 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 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 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 Danish legislative changes since 1999. 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
receipt of the later of the notifications to be exchanged
between the United States and Denmark stating that their
respective requirements for entry into force of this Protocol
have been complied with by each of the two countries. It will
have effect, with respect to taxes withheld at source, for
amounts derived on or after the first day of the second month
next following the date on which the Protocol enters into force
and, with respect to other taxes, for taxable periods beginning
on or after the first day of January next following the date
upon which the Protocol enters into force.
Executive Summary
MAJOR FEATURES OF THE PROPOSED PROTOCOL TO THE INCOME TAX CONVENTION
BETWEEN THE UNITED STATES AND DENMARK
The proposed Protocol to the income tax Convention with
Denmark was negotiated to bring the current convention,
concluded in 1999, 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 proposed
Protocol, these differences reflect particular aspects of
Danish law and treaty policy, the interaction of U.S. and
Danish law, and U.S.-Danish economic relations.
Taxation of Investment Income
The withholding rates on investment income in the proposed
Protocol are the same or lower than those in the existing
Convention. Whereas the existing Convention allows for taxation
at source of five percent on direct dividends (i.e., where a 10
percent ownership threshold is met) and 15 percent on all other
dividends, the proposed Protocol provides for a withholding
rate of zero on dividends from certain 80 percent-owned
corporate subsidiaries. Consistent with the U.S. Model
convention, the withholding rates for direct dividends that do
not qualify for the zero rate and for portfolio dividends
remain unchanged.
Anti-Abuse Provisions
The Protocol also strengthens the treaty's ``Limitation on
Benefits'' Article and brings it into closer conformity with
current U.S. treaty policy. This updated provision is designed
to deny ``treaty-shoppers'' the benefits of the Convention.
The current treaty preserves the U.S. right to tax former
citizens whose loss of citizenship had, as one of its principal
purposes, the avoidance of tax. The proposed Protocol updates
this provision to reflect legislative changes since 1999. The
Protocol provides that a former citizen or long-term resident
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.
Entry into Force
The proposed Protocol will enter into force upon the
receipt of the later of the notifications stating the
requirements of ratification have been complied with by each of
the two countries. It will have effect, with respect to taxes
withheld at source, for amounts derived on or after the first
day of the second month next following the date on which the
Protocol enters into force and, with respect to other taxes,
for taxable periods beginning on or after the first day of
January next following the date upon which the Protocol enters
into force.