[Senate Treaty Document 109-8]
[From the U.S. Government Publishing Office]



109th Congress                                              Treaty Doc.
 1st Session                     SENATE                     
                                                                  109-8
_______________________________________________________________________

                                     

 
    PROTOCOL AMENDING THE CONVENTION WITH SWEDEN ON TAXES ON INCOME

                               __________

                                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 SWEDEN FOR THE AVOIDANCE OF 
 DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO 
       TAXES ON INCOME SIGNED AT WASHINGTON ON SEPTEMBER 30, 2005




November 10, 2005.--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, November 10, 2005.
To the Senate of the United States:
    I transmit herewith for the advice and consent of the 
Senate to ratification, a Protocol Amending the Convention 
Between the Government of the United States of America and the 
Government of Sweden for the Avoidance of Double Taxation and 
the Prevention of Fiscal Evasion with Respect to Taxes on 
Income signed at Washington on September 30, 2005 (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. The proposed Protocol is one of 
a few recent U.S. tax agreements to provide for the elimination 
of the withholding tax on dividends arising from certain direct 
investments. 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.
    I recommend that the Senate give early and favorable 
consideration to this Protocol and that the Senate give its 
advice and consent to ratification.

                                                    George W. Bush.
                          LETTER OF SUBMITTAL

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                                       Department of State,
                                      Washington, October 26, 2005.
The President,
The White House.
    Dear Mr. 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 Sweden for the Avoidance of Double Taxation and the 
Prevention of Fiscal Evasion with Respect to Taxes on Income 
signed at Washington on September 30, 2005 (the ``Protocol'') 
and a related exchange of notes.
    The Protocol eliminates the withholding tax on certain 
cross-border dividend payments. The Protocol is one of a few 
recent U.S. tax agreements to provide for the elimination of 
the withholding tax on dividends arising from certain direct 
investments. 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 
also resolves a long-standing problem regarding the taxation of 
local employees of the United States Embassy in Stockholm and 
U.S. Consulate in Gothenburg, which had resulted in reduced 
pensions for such employees.
    The Protocol is especially significant in light of the 
importance of economic relations between the United States and 
Sweden. 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.
    Enclosure: Key Provisions of the U.S.-Sweden Income Tax 
Protocol.
         Key Provisions of the U.S.-Sweden Income Tax Protocol

    The Protocol to the Income Tax Convention with Sweden was 
negotiated to bring the current convention, concluded in 1994, 
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 Swedish law and treaty policy, 
the interaction of U.S. and Swedish law, and U.S.-Sweden 
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. Eliminating withholding taxes on 
cross-border direct dividends 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 resolves a long-standing problem regarding the 
taxation of local employees of the United States Embassy in 
Stockholm and the U.S. Consulate in Gothenburg. The U.S. 
Government had reduced the salaries paid to such individuals to 
take account of the fact that they were exempt from Swedish 
income tax. As a result, their pensions, which were based on 
``high-three,'' were automatically reduced. Under the 1994 
treaty, Sweden can and does tax those pensions, thereby 
significantly reducing the expected benefits to those former 
employees. The Protocol provides relief to the affected persons 
by providing that Sweden may not tax a pension under the U.S. 
Civil Service Retirement Pension Plan paid by the United States 
to employees of the United States Embassy or Consulate in 
Sweden if the individual was hired prior to 1978.
    The Protocol also updates the current treaty to reflect 
legislative changes since 1994. For example, the Protocol 
provides 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 United States and Sweden will notify each other through 
the diplomatic channel, accompanied by an instrument of 
ratification, when their respective requirements for entry into 
force have been completed. The Protocol will enter into force 
on the thirtieth day after the later of the notifications. The 
Protocol will have effect, with respect to taxes withheld at 
source, on or after the first day of the second month 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. The Protocol shall have effect with 
respect to taxes on local employees of the United States 
Embassy in Stockholm and the U.S. Consulate in Gothenburg, on 
or after January 1, 1996, the effective date of the Convention.


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