[Senate Treaty Document 110-17]
[From the U.S. Government Publishing Office]
110th Congress
2d Session SENATE Treaty Doc.
110-17
_______________________________________________________________________
TAX CONVENTION WITH ICELAND
__________
MESSAGE
from
THEPRESIDENTOFTHEUNITEDSTATES
transmitting
CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND
THE GOVERNMENT OF ICELAND FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE
PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME, AND
ACCOMPANYING PROTOCOL, SIGNED ON OCTOBER 23, 2007, AT WASHINGTON, D.C.
May 6, 2008.--Treaty 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, May 6, 2008.
To the Senate of the United States:
I transmit herewith, for Senate advice and consent to
ratification, the Convention Between the Government of the
United States of America and the Government of Iceland for the
Avoidance of Double Taxation and the Prevention of Fiscal
Evasion with Respect to Taxes on Income, and accompanying
Protocol, signed on October 23, 2007, at Washington, D.C. (the
``proposed Treaty''). The proposed Treaty would replace the
existing income tax Convention with Iceland that was concluded
in 1975 (the ``existing Treaty''). Also transmitted for the
information of the Senate is the report of the Department of
State with respect to the proposed Treaty.
The proposed Treaty contains a comprehensive provision
designed to prevent so-called treaty shopping. The existing
Treaty contains no such protections, resulting in substantial
abuse of the existing Treaty's provisions by third-country
investors. The proposed Treaty also reflects changes to U.S.
and Icelandic law and tax treaty policy since 1975.
I recommend that the Senate give early and favorable
consideration to the proposed Treaty and give its advice and
consent to ratification.
George W. Bush.
LETTER OF SUBMITTAL
----------
The Secretary of State,
Washington, February 29, 2008.
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 Iceland for the
Avoidance of Double Taxation and the Prevention of Fiscal
Evasion with Respect to Taxes on Income, and accompanying
Protocol, signed on October 23, 2007, at Washington (the
``proposed Treaty''). The proposed Treaty will replace the
existing income tax Convention which was concluded in 1975 (the
``existing Treaty'').
The proposed Treaty contains a comprehensive provision
designed to prevent so-called treaty shopping. The existing
Treaty contains no such protections, resulting in substantial
abuse of the existing Treaty's provisions by third-country
investors. As with the existing Treaty, the proposed Treaty
eliminates or significantly reduces withholding taxes on
certain cross-border payments of dividends, interest, and
royalties.
Ratification of the proposed Treaty would recognize the
importance of the United States' economic relations with
Iceland. The Department of the Treasury and the Department of
State cooperated in the negotiation of the proposed Treaty. It
has the full approval of both Departments.
Respectfully submitted.
Condoleezza Rice.
Enclosure: Key Provisions of the U.S.-Iceland Income Tax
Convention and Protocol.
Key Provisions of the U.S.-Iceland Income Tax Convention and Protocol
The attached Convention and accompanying Protocol with
Iceland (the ``proposed Treaty'') would replace the existing
Convention, concluded in 1975 (the ``existing Treaty'').
Although the proposed Treaty would bring our tax treaty
relations with Iceland 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
Treaty, these differences reflect particular aspects of
Icelandic law and treaty policy, the interaction of U.S. and
Icelandic law, and U.S.-Icelandic economic relations.
The most important change from the existing Treaty is the
addition of a comprehensive provision to address ``treaty
shopping,'' which is the inappropriate use of a tax treaty by
third-country residents. The existing Treaty does not contain
treaty shopping protections and, as a result, has been abused
by third-country investors in recent years.
The proposed Treaty generally provides for withholding
rates on investment income that are the same as or lower than
those in the existing Treaty. Like the existing Treaty, the
proposed Treaty provides for reduced source-country taxation of
cross-border dividends. In addition, the proposed Treaty would
eliminate source-country withholding tax on cross-border
dividend payments to pension funds. As with the existing
Treaty, the proposed Treaty generally would eliminate source-
country withholding tax on cross-border interest payments.
While the existing Treaty eliminates source-country withholding
taxes on all cross-border payments of royalties, the proposed
Treaty would allow the country in which certain cross-border
trademark royalties arise to impose a withholding tax of up to
five percent.
The proposed Treaty provides, in addition, for the exchange
between the tax authorities of each country of information
relevant to carrying out the provisions of the Treaty or the
domestic tax laws of either country. The proposed Treaty allows
the United States to obtain information (including information
from financial institutions) from Iceland whether or not
Iceland needs the information for its own tax purposes.
The proposed Treaty also reflects changes to U.S. and
Icelandic law since 1975. For example, the proposed Treaty
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
Treaty also makes various other changes to modernize our treaty
relationship with Iceland and brings it into closer conformity
with current U.S. tax treaty policy.
The Parties shall notify each other in writing, through
diplomatic channels, when their respective applicable
procedures for ratification have been satisfied.
The proposed Treaty will enter into force on the date of
the later of the notifications. It will have effect, with
respect to taxes withheld at source, on income derived on or
after the first day of January of the calendar year next
following entry 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 proposed Treaty
enters into force. The existing Treaty will, with respect to
any tax, cease to have effect as of the date on which this
proposed Treaty has effect with respect to such tax. However,
where any person would be entitled to greater benefits under
the existing Treaty, the existing Treaty, at the election of
the person, shall continue to have effect in its entirety with
respect to such person for a period of twelve months from the
date the provisions of the proposed Treaty are effective.