[Senate Treaty Document 109-5]
[From the U.S. Government Publishing Office]
109th Congress
1st Session SENATE Treaty Doc.
109-5
_______________________________________________________________________
TAX CONVENTION WITH BANGLADESH
__________
MESSAGE
from
THE PRESIDENT OF THE UNITED STATES
transmitting
CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND
THE GOVERNMENT OF BANGLADESH FOR THE AVOIDANCE OF DOUBLE TAXATION AND
THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME SIGNED
AT DHAKA ON SEPTEMBER 26, 2004 (THE ``CONVENTION''); WITH AN EXCHANGE
OF NOTES ENCLOSED
October 27, 2005.--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
49-112 WASHINGTON: 2005
LETTER OF TRANSMITTAL
----------
The White House, October 27, 2005.
To the Senate of the United States:
I transmit herewith for the advice and consent of the
Senate to ratification a Convention Between the Government of
the United States of America and the Government of Bangladesh
for the Avoidance of Double Taxation and the Prevention of
Fiscal Evasion with Respect to Taxes on Income signed at Dhaka
on September 26, 2004 (the ``Convention''). An exchange of
notes is enclosed, and the report of the Department of State
with respect to the Convention is transmitted for the
information of the Senate.
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 the resolution of disputes and sets forth
rules making its benefits unavailable to those who are engaged
in treaty forum 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.
George W. Bush.
LETTER OF SUBMITTAL
----------
Department of State,
Washington, DC, September 23, 2005.
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 People's
Republic of Bangladesh for the Avoidance of Double Taxation and
the Prevention of Fiscal Evasion with Respect to Taxes on
Income, signed in Dhaka, on September 26, 2004 (``the
Convention''). An exchange of notes is also enclosed for the
information of the Senate.
The Convention generally follows the pattern of the 1996
U.S. Model Tax Convention (``the U.S. Model'') 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. The Convention also contains rules making its
benefits unavailable to persons who are engaged in treaty
shopping.
The Department of the Treasury and the Department of State
cooperated in the negotiation of the Convention and the
exchange of notes. Both Departments have given their full
approval.
Respectfully submitted.
Condoleezza Rice.
Enclosures:
1. Key Provisions of the U.S.-Bangladesh Income Tax
Convention.
2. Proposed message to the Senate.
Key Provisions of the U.S.-Bangladesh Income Tax Convention
The proposed Income Tax Convention with Bangladesh
generally follows the pattern of the U.S. Model treaty.
Although there are certain deviations from the Model, similar
to those found in many recent U.S. tax treaties with developing
countries, the Convention overall tends to provide for less
source-country taxation than in many U.S. tax treaties with
developing countries.
With respect to income from business activities, Article 7
of the 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. tax 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 Convention, income from the
operation of ships and aircraft in international traffic, and
from the rental or maintenance 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 rental or maintenance of containers used in
international traffic is likewise exempt from source-country
taxation under the Convention.
With respect to withholding rates on investment income, the
proposed rates are generally lower than those in some recent
U.S. tax treaties with non-OECD countries. Article 10 of the
Convention provides that dividends from direct investments are
subject to tax by the source country at a maximum rate of ten
percent. The ownership threshold for direct investment is ten
percent, in order to facilitate direct investment. Other
dividends are generally taxable at a maximum rate of 15
percent. Under Article 12, royalties may be taxed by the source
country at a maximum rate of ten percent.
Under Article 11 of the Convention, most interest may be
taxed by the source country at a maximum rate of ten percent.
However, interest income received by a financial institution
(including an insurance company), and interest paid with
respect to the sale on credit of industrial, commercial or
scientific equipment or other merchandise, may be taxed at a
maximum rate of five percent. Interest derived by a Contracting
State, and interest on obligations guaranteed or ensured by a
Contracting State, shall be exempt from taxation by the source
country.
The reduced withholding rates described 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.
Article 13 of the Convention provides for the taxation of
capital gains and 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.
Articles 15, 16 and 18 of the Convention address the
taxation of income from the performance of personal services,
which is essentially the same as thatunder recent U.S. tax
treaties with other developing countries, although these provisions
grant taxing rights to the host country with respect to such income
that is broader than in the U.S. Model.
Article 17 of the Convention contains significant anti-
treaty shopping rules, making its benefits unavailable to
persons engaged in treaty shopping.
Articles 25 and 26 contain rules necessary for
administering the treaty and domestic tax laws, including rules
for the resolution of disputes under the Convention.and for the
exchange of information.
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.
The Convention is subject to ratification. In accordance
with the provisions of Article 28, it will enter into force
upon the exchange of instruments of ratification. With respect
to taxes withheld at source, it will take effect for amounts
paid or credited on or after the first day of the second month
following the date on which the Convention comes into force;
with respect to other taxes, the Convention will take effect
for taxable periods (in the case of the United States) or for
income years (in the case of Bangladesh) beginning on or after
the first day of January next following the date on which the
Convention enters into force.
Pursuant to Article 29, the Convention will remain in force
until terminated by one of the Contracting States. Article 29
also provides that either State may terminate the Convention at
any time after five years from the date it enters into force,
by giving 6 months prior notice through diplomatic channels.
This Convention will be the first such Convention between
the United States of America and the People's Republic of
Bangladesh. In 1981, the Senate gave its advice and consent to
a convention between the two countries that was signed in 1980,
subject to understandings relating to income from the operation
of ships in international traffic and to the operation of the
provision relating to exchange of information for tax purposes.
The 1980 convention never entered into force because of
intervening changes in U.S. domestic tax law. The concerns
expressed by the Senate in the understandings to the 1980
convention have been addressed in the current Convention.