[Senate Executive Report 106-11]
[From the U.S. Government Publishing Office]



106th Congress                                               Exec. Rpt.
                                 SENATE
 1st Session                                                  106-11

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                    AMENDING CONVENTION WITH IRELAND

                                _______
                                

                November 3, 1999.--Ordered to be printed

                                _______


          Mr. Helms, from the Committee on Foreign Relations,
                        submitted the following

                              R E P O R T

                   [To accompany Treaty Doc. 106-15]

    The Committee on Foreign Relations, to which was referred 
the Convention Amending the Convention between the Government 
of the United States of America and the Government of Ireland 
for the Avoidance of Double Taxation and the Prevention of 
Fiscal Evasion with Respect to Taxes on Income and Capital 
Gains, signed at Dublin on July 28, 1997 (the Amending 
Convention was signed at Washington on September 24, 1999), 
having considered the same, reports favorably thereon, with one 
declaration and one proviso, and recommends that the Senate 
give its advice and consent to ratification thereof, as set 
forth in this report and the accompanying resolution of 
ratification.

                                CONTENTS

                                                                   Page

  I. Purpose..........................................................1
 II. Background.......................................................2
III. Summary..........................................................2
 IV. Entry Into Force.................................................3
  V. Committee Action.................................................3
 VI. Budget Impact....................................................3
VII. Explanation of Proposed Protocol.................................3
VIII.Text of the Resolution of Ratification...........................4


                               I. Purpose

    The principal purposes of the existing treaty between the 
United States and Ireland are to reduce or eliminate double 
taxation of income earned by residents of either country from 
sources within the other country and to prevent avoidance or 
evasion of the income taxes of the two countries. The principal 
purpose of the proposed Amending Convention is to modify 
provisions of the existing treaty regarding the application of 
reduced withholding tax rates to dividends from U.S. Real 
Estate Investment Trusts (``REITs'').

                             II. Background

    The proposed Amending Convention was signed on September 
24, 1999. The proposed Amending Convention would amend the tax 
treaty between the United States and Ireland that was signed on 
July 28, 1997 (the ``existing treaty''). The Senate granted 
advice and consent to the ratification of the existing treaty 
on October 31, 1997. The existing treaty entered into force on 
December 17, 1997.
    In 1997, the Treasury Department modified its policy with 
respect to the exclusion of REIT dividends from the reduced 
withholding tax rates applicable to other dividends under the 
existing treaty. The new policy was a result of significant 
cooperation among the Treasury Department, the staff of the 
Committee on Foreign Relations, the staff of the Joint 
Committee on Taxation, and representatives of the REIT 
industry. Under this policy, REIT dividends paid to a resident 
of a treaty country will be eligible for the reduced rate of 
withholding tax applicable to portfolio dividends (typically, 
15 percent) in certain cases. In 1997, the Senate included a 
declaration to the existing treaty, which stated that the 
United States will use its best efforts to negotiate a protocol 
with Ireland to amend the treaty to incorporate this new 
policy. \1\ The proposed Amending Convention incorporates this 
new policy with respect to the treaty treatment of REIT 
dividends.
---------------------------------------------------------------------------
    \1\ The Senate included similar declarations to the 1997 treaties 
with Austria and Ireland, and a reservation to the 1997 treaty with 
Luxembourg incorporating the new REIT dividend policy.
---------------------------------------------------------------------------
    The proposed Amending Convention was transmitted to the 
Senate for advice and consent to its ratification on October 
29, 1999 (see Treaty Doc. 106-15).

                              III. Summary

    The proposed Amending Convention makes one modification to 
the existing treaty regarding the tax treatment of dividends 
received from REITs. In this regard, the proposed Amending 
Convention modifies the dividends article of the existing 
treaty to incorporate the new policy with respect to REIT 
dividends. Under this new policy, REIT dividends paid to a 
resident of Ireland will be eligible for the reduced rate of 
withholding tax applicable to portfolio dividends (i.e., 15 
percent) in two cases. First, the reduced withholding tax will 
apply to REIT dividends if the Irish resident beneficially 
holds an interest of 5 percent or less in each class of the 
REIT's stock and such dividends are paid with respect to a 
class of the REIT's stock that is publicly traded. Second, the 
reduced withholding tax rate will apply to REIT dividends if 
the Irish resident beneficially holds an interest of 10 percent 
or less in the REIT and the REIT is diversified, regardless of 
whether the REIT's stock is publicly traded. In addition, the 
existing treaty provision with respect to the application of 
the reduced withholding tax rate to REIT dividends paid to 
individuals holding less than a specified interest in the REIT 
will remain substantially unchanged.

                          IV. Entry Into Force

    The proposed Amending Convention will enter into force upon 
the exchange of instruments of ratification and will take 
effect with respect to dividends paid on or after the first day 
of the second month next following the date on which the 
proposed Amending Convention enters into force.

                          V. Committee Action

    The Committee considered the proposed Amending Convention 
with Ireland on November 3, 1999, along with other proposed 
treaties and protocols, and ordered the proposed Amending 
Convention with Ireland favorably reported by a voice vote, 
with the recommendation that the Senate give its advice and 
consent to ratification of the proposed protocol, subject to a 
declaration and a proviso.

                           VI. Budget Impact

    The Committee has been informed by the staff of the Joint 
Committee on Taxation that the proposed Amending Convention is 
estimated to cause a negligible change in fiscal year Federal 
budget receipts during the 1999-2008 period.

                 VII. Explanation of Proposed Protocol

    A detailed article-by-article explanation of the proposed 
Amending Convention to the income tax treaty between the United 
States and Ireland is set forth below.

Article 1

    The proposed Amending Convention amends paragraph 4 of 
Article 10 (Dividends) of the existing treaty. Under the 
existing treaty, dividends paid by a U.S. regulated investment 
company (``RIC'') or a U.S. REIT are not eligible for the 
reduced 5-percent source-country tax. Dividends paid by U.S. 
RICs are eligible for the 15-percent rate. In addition, 
dividends paid by a U.S. REIT are eligible for the 15-percent 
rate only if the dividend is owned by an individual who holds 
less than a 10-percent interest in the U.S. REIT. Otherwise, 
dividends paid by a U.S. REIT are subject to U.S. taxation at 
the full 30-percent statutory rate.
    Like the existing treaty, the proposed Amending Convention 
provides that RIC dividends are eligible only for the 15-
percent rate. In addition, REIT dividends are eligible for the 
15-percent rate only if: (1) the beneficial owner of the 
dividends is an individual owning not more than a 10-percent 
interest in the REIT, (2) the dividends are paid with respect 
to a class of stock that is publicly traded and the beneficial 
owner of the dividends is a person owning not more than 5 
percent of any class of the REIT's stock, or (3) the beneficial 
owner of the dividends owns not more than a 10-percent interest 
in the REIT and the REIT is diversified. Otherwise, dividends 
paid by a U.S. REIT are subject to U.S. taxation at the full 
statutory rate of 30 percent.

Article 2

    The proposed Amending Convention is subject to ratification 
in accordance with the applicable procedures in the United 
States and Ireland, and instruments of ratification will be 
exchanged as soon as possible. The proposed Amending Convention 
will enter into force upon the exchange of instruments of 
ratification and will take effect with respect to dividends 
paid on or after the first day of the second month next 
following the date on which the proposed Amending Convention 
enters into force.

              VIII. Text of the Resolution of Ratification

    Resolved, (two-thirds of the Senators present concurring 
therein), That the Senate advise and consent to the 
ratification of the Convention Amending the Convention between 
the Government of the United States of America and the 
Government of Ireland for the Avoidance of Double Taxation and 
the Prevention of Fiscal Evasion with Respect to Taxes on 
Income and Capital Gains, signed at Dublin on July 28, 1997 
(the Protocol was signed at Washington on September 24, 1999) 
(Treaty Doc. 106-15), subject to the declaration of subsection 
(a) and the proviso of subsection (b).
    (a) Declaration.--The Senate's advice and consent is 
subject to the following declaration, which shall be binding on 
the President:
          (1) Treaty Interpretation.--The Senate affirms the 
        applicability to all treaties of the constitutionally 
        based principles of treaty interpretation set forth in 
        Condition (1) of the resolution of ratification of the 
        INF Treaty, approved by the Senate on May 27, 1988, and 
        Condition (8) of the resolution of ratification of the 
        Document Agreed Among the States Parties to the Treaty 
        on Conventional Armed Forces in Europe, approved by the 
        Senate on May 14, 1997.
    (b) Proviso.--The resolution of ratification is subject to 
the following proviso, which shall be binding on the President:
          (1) Supremacy of Constitution.--Nothing in the 
        Protocol requires or authorizes legislation or other 
        action by the United States of America that is 
        prohibited by the Constitution of the United States as 
        interpreted by the United States.

                                  
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