    [Senate Treaty Document 111-3]
    [From the U.S. Government Publishing Office]

    111th Congress                                              Treaty Doc.
    SENATE
    1st Session                                                111-3
    _______________________________________________________________________

               PROTOCOL AMENDING TAX CONVENTION WITH NEW ZEALAND

                                   __________

                                    MESSAGE

                                      from

                      THE PRESIDENT OF THE UNITED STATES

                                  transmitting

     PROTOCOL AMENDING THE CONVENTION BETWEEN THE UNITED STATES OF AMERICA
    AND NEW ZEALAND FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION
     OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME, SIGNED ON DECEMBER
                             1, 2008, AT WASHINGTON

     June 16, 2009.--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, June 16, 2009
    To the Senate of the United States:
        I transmit herewith, for the advice and consent of the
    Senate to its ratification, the Protocol Amending the
    Convention between the United States of America and New Zealand
    for the Avoidance of Double Taxation and the Prevention of
    Fiscal Evasion With Respect to Taxes on Income, signed on
    December 1, 2008, at Washington (the ``proposed Protocol''). I
    also transmit for the information of the Senate the report of
    the Department of State, which includes an Overview of the
    proposed Protocol.
        This proposed Protocol provides for the elimination of
    withholding taxes on certain cross-border direct dividend
    payments and on cross-border interest payments to certain
    financial enterprises. The proposed Protocol reduces the
    existing Convention's 10-percent limit on withholding taxes on
    cross-border payments of royalties to 5 percent.
        The proposed Protocol contains a comprehensive provision
    designed to prevent ``treaty shopping,'' which is the
    inappropriate use of a tax treaty by third-country residents.
    The proposed Protocol also provides for the exchange of
    information between tax authorities of the two countries to
    facilitate the administration of each country's tax laws.
        I recommend that the Senate give early and favorable
    consideration to the proposed Protocol and give its advice and
    consent to ratification.

                                                          Barack Obama.
                              LETTER OF SUBMITTAL

                                  ----------

                                           Department of State,
                                              Washington, May 21, 2009.
    The President,
    The White House.
        The President: I have the honor to submit to you the
    Protocol Amending the Convention between the United States of
    America and New Zealand for the Avoidance of Double Taxation
    and the Prevention of Fiscal Evasion with Respect to Taxes on
    Income, signed on December 1, 2008, at Washington (the
    ``proposed Protocol''). The proposed Protocol was negotiated to
    bring the existing income tax Convention with New Zealand (the
    ``existing Convention'') into closer conformity with current
    U.S. tax treaty policy, and in recognition of the importance of
    the United States' economic relations with New Zealand. I
    recommend that the proposed Protocol be transmitted to the
    Senate for its advice and consent to ratification.
        The proposed Protocol provides for the elimination of
    withholding taxes on certain cross-border direct dividend
    payments and on cross-border interest payments to certain
    financial enterprises. It reduces the existing Convention's 10-
    percent limit on withholding taxes on cross-border payments of
    royalties to 5 percent.
        The proposed Protocol contains a comprehensive provision
    designed to prevent ``treaty shopping,'' which is the
    inappropriate use of a tax treaty by third-country residents.
    It also provides for the exchange of information between tax
    authorities in the two countries to facilitate the
    administration of each country's tax laws. An overview of key
    provisions of the proposed Protocol is enclosed with this
    report.
        The proposed Protocol is self-executing. The Department of
    the Treasury and the Department of State cooperated in the
    negotiation of the proposed Protocol, and the Department of the
    Treasury joins the Department of State in recommending that the
    proposed Protocol be transmitted to the Senate as soon as
    possible for its advice and consent to ratification.
        Respectfully submitted.
                                                Hillary Rodham Clinton.
        Enclosures: as stated.

                                    Overview

        The Protocol amending the income tax Convention with New
    Zealand (proposed Protocol) was negotiated to bring the
    existing Convention, concluded in 1982 (existing Convention),
    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 New Zealand law and
    treaty policy, the interaction of U.S. and New Zealand law, and
    U.S.-New Zealand economic relations.

                         TAXATION OF INVESTMENT INCOME

        The withholding tax rates on investment income in the
    proposed Protocol are generally the same as or lower than those
    in the existing Convention. The proposed Protocol reduces or
    eliminates source-country taxation of dividends distributed by
    a company resident in one Contracting State to a resident in
    the other Contracting State. More specifically, the proposed
    Protocol provides for the elimination of source-country
    taxation of certain direct dividends (i.e., where an 80 percent
    ownership threshold is met). The proposed Protocol also
    generally allows for taxation at source of 5 percent on
    dividends when a 10 percent ownership threshold is met, and 15
    percent on all other dividends.
        The proposed Protocol updates the treatment of dividends
    paid by U.S. Regulated Investment Companies and Real Estate
    Investment Trusts to prevent the inappropriate use of those
    structures to avoid U.S. withholding taxes on outbound
    dividends.
        The proposed Protocol eliminates source-country taxation of
    interest paid to banks and certain other financial enterprises
    when the payer of the interest is not a related party.
    Consistent with current U.S. tax treaty policy, source-country
    tax maybe imposed on certain contingent interest and payments
    from a U.S. Real Estate Mortgage Investment Conduit.
        The proposed Protocol reduces the existing Convention's 10
    percent limit on source-country withholding tax on cross-border
    payments of royalties to 5 percent.

                          TAXATION OF BUSINESS INCOME

        The proposed Protocol preserves the U.S. right to impose
    its branch profits tax on U.S. branches of New Zealand
    corporations. The proposed Protocol also accommodates a
    provision of existing U.S. domestic law that attributes to a
    permanent establishment income that is earned during the life
    of the permanent establishment but is not received until after
    the permanent establishment no longer exists.

                      TAXATION OF PERSONAL SERVICES INCOME

        The proposed Protocol replaces the existing Convention's
    rules regarding the taxation of independent personal services
    by individuals. Under the proposed Protocol, an individual
    performing services in the other country will become taxable in
    the other country only if the individual has a fixed place of
    business in that country.

                             ANTI-ABUSE PROVISIONS

        The proposed Protocol replaces the existing Convention's
    ``Limitation on Benefits'' article with a comprehensive and
    modernized provision that is consistent with current U.S. tax
    treaty practice. The updated provision is designed to address
    ``treaty shopping,'' which is the inappropriate use of a tax
    treaty by third-country residents.
        The proposed Protocol incorporates updated rules that
    provide 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. The proposed Protocol also coordinates the
    U.S. and New Zealand tax rules to address the new U.S. ``mark-
    to-market'' provisions that apply to individuals who relinquish
    U.S. citizenship or terminate long-term residency.

                            EXCHANGE OF INFORMATION

        The proposed Protocol replaces the existing Convention's
    tax information exchange provisions with updated rules that are
    consistent with current U.S. tax treaty practice. The proposed
    Protocol allows the tax authorities of each country to exchange
    information relevant to carrying out the provisions of the
    Convention or the domestic tax laws of either country. The
    proposed Protocol allows the United States to obtain
    information (including from financial institutions) from New
    Zealand whether or not New Zealand needs the information for
    its own tax purposes.

                                ENTRY INTO FORCE

        The proposed Protocol will enter into force on the date of
    the later note in an exchange of diplomatic notes in which the
    Parties notify each other that their respective applicable
    procedures for ratification have been satisfied. It will have
    effect, with respect to taxes withheld at source, for amounts
    paid or credited on or after the first day of the second month
    next following the date on which the proposed Protocol enters
    into force. With respect to other taxes, the proposed Protocol
    will have effect in the United States for taxable years
    beginning on or after the first day of January next following
    the date upon which the proposed Protocol enters into force,
    and in New Zealand for taxable years beginning on or after the
    first day of April next following the date on which the
    proposed Protocol enters into force. The provisions of the
    proposed Protocol on exchange of information, however, will
    have effect from the date of entry into force of the proposed
    Protocol.