[Senate Treaty Document 109-8]
[From the U.S. Government Publishing Office]
109th Congress Treaty Doc.
1st Session SENATE
109-8
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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
----------
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.