[Senate Executive Report 109-10]
[From the U.S. Government Publishing Office]



109th Congress                                              Exec. Rept.
                                 SENATE
 2d Session                                                      109-10

======================================================================



 
                     TAX CONVENTION WITH BANGLADESH
                          (TREATY DOC. 109-5)

                                _______
                                

                 March 27, 2006.--Ordered to be printed

                                _______
                                

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

                              R E P O R T

                    [To accompany Treaty Doc. 109-5]

    The Committee on Foreign Relations, to which was referred 
the Convention between the Government of the United States of 
America and the Government of the People's Republic of 
Bangladesh for the Avoidance of Double Taxation and the 
Prevention of Fiscal Evasion with Respect to Taxes on Income, 
together with an Exchange of Notes, signed at Dhaka on 
September 26, 2004, having considered the same, reports 
favorably thereon 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 and Termination.................................3
  V. Committee Action.................................................4
 VI. Committee Comments...............................................4
VII. Budget Impact...................................................12
VIII.Explanation of Proposed Treaty..................................12

 IX. Text of Resolution of Advice and Consent to Ratification........12

                               I. Purpose

    The principal purposes of the proposed income tax treaty 
between the United States and Bangladesh \1\ 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 taxes of the two countries. 
The proposed treaty also is intended to continue to promote 
close economic cooperation between the two countries and to 
eliminate possible barriers to trade and investment caused by 
overlapping taxing jurisdictions of the two countries.
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    \1\  All references to the treaty between the United States and 
Bangladesh are to the Convention between the Government of the United 
States of America and the Government of the People's Republic of 
Bangladesh for the Avoidance of Double Taxation and the Prevention of 
Fiscal Evasion with Respect to Taxes on Income, signed at Dhaka on 
September 26, 2004.
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                             II. Background

    The United States and Bangladesh do not have an income tax 
treaty currently in force. The proposed treaty between the 
United States and Bangladesh was signed at Dhaka on September 
26, 2004. The United States and Bangladesh exchanged notes on 
the same day to provide clarification with respect to the 
application of the proposed treaty. Unless otherwise specified, 
the proposed treaty and the notes are hereinafter referred to 
collectively as the ``proposed treaty.''
    The proposed treaty was sent to the Senate for advice and 
consent to its ratification on October 27, 2005 (see Treaty 
Doc. 109-5). The Committee on Foreign Relations held a public 
hearing on the proposed treaty on February 2, 2006.

                              III. Summary

    The proposed treaty is similar to other recent U.S. income 
tax treaties, the 1996 U.S. model income tax treaty (``U.S. 
model''), the 1992 model income tax treaty of the Organization 
for Economic Cooperation and Development, as updated (``OECD 
model''), and the 1980 United Nations Model Double Taxation 
Convention Between Developed and Developing Countries, as 
amended in 2001 (``U.N. model''). However, the proposed treaty 
contains certain substantive deviations from these treaties and 
models.
    As in other U.S. tax treaties, the purposes of the treaty 
principally are achieved through each country's agreement to 
limit, in certain specified situations, its right to tax income 
derived from its territory by residents of the other country. 
For example, the proposed treaty contains provisions under 
which each country generally agrees not to tax business income 
derived from sources within that country by residents of the 
other country unless the business activities in the taxing 
country are substantial enough to constitute a permanent 
establishment (Article 7). Similarly, the proposed treaty 
contains ``commercial visitor'' exemptions under which 
residents of one country performing personal services in the 
other country will not be required to pay tax in the other 
country unless their contact with the other country exceeds 
specified minimums (Articles 15, 16, and 18). The proposed 
treaty provides that dividends, interest, royalties, and 
certain capital gains derived by a resident of either country 
from sources within the other country generally may be taxed by 
both countries (Articles 10, 11, 12, and 13); however, the rate 
of tax that the source country may impose on a resident of the 
other country on dividends, interest, and royalties may be 
limited or eliminated by the proposed treaty (Articles 10, 11, 
and 12).
    In situations in which the country of source retains the 
right under the proposed treaty to tax income derived by 
residents of the other country, the proposed treaty generally 
provides for relief from the potential double taxation through 
the allowance by the country of residence of a tax credit for 
certain foreign taxes paid to the other country (Article 23).
    The proposed treaty contains the standard provision (the 
``saving clause'') included in U.S. tax treaties pursuant to 
which each country retains the right to tax its residents and 
citizens as if the treaty had not come into effect (Article 1). 
In addition, the proposed treaty contains the standard 
provision providing that the treaty may not be applied to deny 
any taxpayer any benefits the taxpayer would be entitled under 
the domestic law of a country or under any other agreement 
between the two countries (Article 27).
    The proposed treaty also contains a detailed limitation-on-
benefits provision to prevent the inappropriate use of the 
treaty by third-country residents (Article 17).

                  IV. Entry Into Force and Termination


                          A. ENTRY INTO FORCE

    The proposed treaty will enter into force upon the exchange 
of instruments of ratification. With respect to each country, 
the proposed treaty will be effective with respect to taxes 
withheld at source for amounts paid or credited on or after the 
first day of the second month following the date on which the 
proposed treaty enters into force. With respect to other taxes, 
the proposed treaty will be effective for taxable periods in 
the United States and income years in Bangladesh beginning on 
or after the first day of January of the year in which the 
proposed treaty enters into force.
    The Technical Explanation states that, as described in the 
explanations of Article 25 (Mutual Agreement Procedure) and 
Article 26 (Exchange of Information and Administrative 
Assistance), the powers given to competent authority under 
those articles apply retroactively to taxable years preceding 
entry into force.

                             B. TERMINATION

    The proposed treaty will remain in force until terminated 
by either country. Either country may terminate the proposed 
treaty, after the expiration of a period of five years from the 
date of its entry into force, by giving six months prior 
written notice of termination to the other country through 
diplomatic channels. In such case, with respect to each 
country, a termination is effective with respect to taxes 
withheld at source for amounts paid or credited on or after the 
first day of January next following the expiration of the six-
month notice period. With respect to other taxes, a termination 
is effective for taxable periods beginning in the United States 
and income years in Bangladesh on or after the first day of 
January next following the expiration of the six-month notice 
period.
    The Technical Explanation states that if the proposed 
treaty is terminated, the competent authorities of the treaty 
countries are not permitted on or after termination to exchange 
confidential taxpayer information, regardless of whether the 
treaty was in force for the year to which the information 
relates. Similarly, on or after termination the competent 
authorities are not permitted to reach mutual agreement 
departing from internal law, regardless of the taxable year to 
which the agreement relates.
    The Technical Explanation notes that customary 
international law as reflected in the Vienna Convention on 
Treaties permits termination by one treaty country at any time 
in the event of a ``material breach'' by the other treaty 
country.

                          V. Committee Action

    The Committee on Foreign Relations held a public hearing on 
the proposed treaty with Bangladesh (Treaty Doc. 109-5) on 
February 2, 2006. The hearing was chaired by Senator Lugar.\2\ 
The committee considered the proposed treaty at its business 
meeting on March 14, 2006, and ordered the proposed treaty with 
Bangladesh favorably reported by voice vote, with a quorum 
present and without objection.
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    \2\ The transcript of this hearing (``Tax Treaties,'' February 2, 
2006, S. Hrg. 109-308) has been printed and is available at http://
www.gpoaccess.gov/congress/senate/foreignrelations/index.html.
---------------------------------------------------------------------------

                         VI. Committee Comments

    On balance, the Committee on Foreign Relations believes 
that the proposed treaty with Bangladesh is in the interest of 
the United States and urges that the Senate act promptly to 
give advice and consent to ratification. The committee has 
taken note of certain issues raised by the proposed treaty and 
believes that the following comments may be useful to the 
Treasury Department officials in providing guidance on these 
matters should they arise in the course of future treaty 
negotiations.

                   A. DEVELOPING-COUNTRY CONCESSIONS

    The proposed treaty contains a number of developing country 
concessions, some of which are found in other U.S. income tax 
treaties with developing countries. The most significant of 
these concessions are listed below.

Definition of Permanent Establishment

    The proposed treaty departs from the U.S. model treaty by 
providing for relatively broad source-basis taxation. In 
particular, the proposed treaty's permanent establishment 
article permits the country in which business activities are 
performed to tax these activities in a broader range of 
circumstances than would be permitted under the U.S. model.
    For example, under the proposed treaty, a building site, a 
construction or assembly project, or an installation or 
drilling rig or ship used for the exploration of natural 
resources constitutes a permanent establishment if such site, 
project, or installation or rig continues for more than 183 
days. The U.S. model uses a threshold of 12 months.
    The proposed treaty also expands the circumstances in which 
a dependent agent's activities give rise to permanent 
establishment status. Under the U.S. model, a dependent agent's 
activities in a treaty country create a permanent establishment 
in that country for the enterprise on behalf of which the agent 
is acting only if the agent has and habitually exercises in 
that country authority to conclude binding contracts for the 
enterprise. The proposed treaty includes this general rule but 
also provides that if a dependent agent has no authority to 
conclude contracts, the agent's activities nonetheless create a 
permanent establishment in a treaty country if the agent 
habitually maintains in that country a stock of goods or 
merchandise belonging to the enterprise from which the agent 
regularly fills orders or makes deliveries on behalf of the 
enterprise, and additional activities conducted in that country 
on behalf of the enterprise contribute to the conclusion of the 
sale of the goods or merchandise.
    The proposed treaty's conception of a permanent 
establishment is broader than the U.S. model's conception in 
two additional respects. First, under the proposed treaty, the 
maintenance of a fixed place of business solely for any 
combination of certain activities involving the storage, 
display, purchase, or maintenance of goods or merchandise does 
not give rise to a permanent establishment if the overall 
character of the fixed place of business is of a preparatory or 
an auxiliary character. The U.S. model does not include this 
preparatory or auxiliary character requirement for the 
exclusion from permanent establishment status. Second, the 
proposed treaty excludes from permanent establishment status 
the use of facilities or the maintenance of a stock of goods 
for the purpose of occasional delivery of the goods or 
merchandise. The U.S. model's exclusion applies regardless of 
whether delivery is only occasional.

Other Concessions to Source-Basis Taxation

    In several instances, the proposed treaty allows higher 
rates of source-country tax than the U.S. model allows. Like 
the U.S. model, the proposed treaty allows a maximum rate of 
source-country taxation of 15 percent on dividends. When, 
however, the beneficial owner of a dividend is a company that 
owns at least 10 percent of the dividend paying company's 
voting stock, the maximum source-country tax rates under the 
proposed treaty and the U.S. model differ. The proposed 
treaty's maximum source-country rate in this circumstance is 10 
percent, while the U.S. model's maximum rate is 5 percent. The 
proposed treaty's 10-percent rate in this circumstance is, 
however, lower than the 15-percent maximum rate permitted in 
the U.S.-Sri Lanka income tax treaty (as amended by a protocol 
signed in 2002). The proposed treaty also allows source-country 
taxation of interest and royalties at a maximum rate of 10 
percent, whereas the U.S. model generally does not permit 
source-country taxation of interest or royalties. The proposed 
treaty also allows the source country a non-exclusive right to 
tax ``other income'' (that is, income not specifically dealt 
with in other provisions of the treaty), whereas the U.S. model 
provides for exclusive residence-based taxation of that income.
    In addition, the proposed treaty permits source-country 
taxation of income derived by a resident of the other treaty 
country from the performance of independent personal services 
if the resident is present in the source country for a total of 
more than 183 days during any 12-month period, even if such 
income is not attributable to a fixed base or permanent 
establishment, as the U.S. model would require.
    The proposed treaty also includes a lower dollar threshold 
than the U.S. model's threshold for source-country taxation of 
income of entertainers and athletes. Under the proposed treaty, 
the source country may tax the income from activities performed 
in that country by entertainers and athletes if the income 
exceeds $10,000 (or the equivalent amount in Bangladesh taka) 
in a year. The U.S. model's threshold is $20,000. By 
comparison, the threshold in the U.S.-Sri Lanka income tax 
treaty is $6,000.

Issues

    One purpose of the proposed treaty is to reduce tax 
barriers to direct investment by U.S. firms in Bangladesh. The 
practical effect of the developing-country concessions could be 
greater Bangladesh taxation (or less U.S. taxation) of 
activities of U.S. firms in Bangladesh than would be the case 
under the rules of the U.S. model treaty.
    There is a risk that the inclusion of these developing 
country concessions in the proposed treaty could result in 
additional pressure on the United States to include them in 
future treaties negotiated with developing countries. However, 
a number of existing U.S. income tax treaties with developing 
countries already include similar concessions, and such 
concessions arguably are necessary in order to obtain treaties 
with developing countries. Tax treaties with developing 
countries can be in the interest of the United States because 
they provide developing country tax relief for U.S. investors 
and a clearer framework within which the taxation of U.S. 
investors will take place. Treaties also provide dispute-
resolution and nondiscrimination rules that benefit U.S. 
investors, as well as information-exchange procedures that aid 
in the administration and enforcement of the tax laws.

Committee Conclusions

    The committee believes that the developing country 
concessions contained in this treaty should not be viewed as 
the starting point for negotiations with future treaty 
partners. Several of the rules in the proposed treaty represent 
significant concessions by the United States, and therefore 
must be met with substantial concessions from prospective 
treaty partners. For example, the definition of ``permanent 
establishment'' provided in this treaty is not the preferred 
U.S. position, and such a definition should be adopted only in 
the context of an overall agreement that strikes an appropriate 
balance of benefits in the allocation of taxing rights. The 
committee considers that the proposed agreement with Bangladesh 
strikes such a balance.

          B. EXPATRIATION TO AVOID TAX BY FORMER U.S. CITIZENS
                        AND LONG-TERM RESIDENTS

    There is a potential conflict between the special 
expatriation tax regime of U.S. internal law and the proposed 
treaty. Under U.S. law, former U.S. citizens or long-term 
residents who relinquish U.S. citizenship or terminate U.S. 
residency may be subject to a special set of income, estate, 
and gift tax rules for the 10-year period following such loss 
of status. These rules mainly have the effect of expanding the 
scope of income and wealth transfers that are subject to 
taxation by the United States, such that the individual is 
subject to U.S. tax on a somewhat broader basis than other 
nonresident aliens, but still on a narrower basis than a 
current U.S. citizen or resident.
    The saving clause of the proposed treaty applies to former 
U.S. citizens and long-term residents whose loss of citizenship 
or termination of residency status had as one of its principal 
purposes the avoidance of U.S. tax. The saving clause states 
that the determination is made according to the laws of the 
country of which the person was a citizen or long-term 
resident.
    Under U.S. law, the subjective ``principal purposes of tax 
avoidance'' formulation in determining whether the special tax 
regime may apply to individuals who expatriate was made 
obsolete by the American Jobs Creation Act of 2004 (AJCA) 
(Section 804 of P.L. 108-357). AJCA replaced the subjective 
determinations of tax-avoidance purpose with objective rules 
for determining the applicability of the special tax regime.
    Prior to AJCA, for purposes of determining the 
applicability of the regime, an individual who relinquished 
citizenship or terminated residency was generally treated as 
having done so with a principal purpose of tax avoidance if the 
individual's average Federal income tax liability or net worth 
exceeded certain monetary thresholds. However, the law allowed 
for subjective determinations of tax-avoidance purpose based on 
the relevant facts and circumstances. Certain categories of 
individuals, including a very limited class of dual residents 
or citizens, could avoid being deemed to have a tax avoidance 
purpose for relinquishing citizenship or terminating residency 
by submitting a ruling request to the IRS for a determination 
as to whether the relinquishment of citizenship or termination 
of residency had as one of its principal purposes the avoidance 
of U.S. income, estate or gift taxes.
    AJCA eliminated these subjective determinations of tax-
avoidance purpose and replaced them with objective rules. Under 
the regime as amended by AJCA, a former citizen or former long-
term resident is subject to the special income, estate, and 
gift tax rules for expatriates unless the individual: (1) 
establishes that his or her average annual net income tax 
liability for the five preceding years does not exceed $124,000 
(adjusted for inflation after 2004) and his or her net worth is 
less than $2 million, or alternatively satisfies limited, 
objective exceptions for dual citizens and minors who have had 
no substantial contact with the United States; and (2) 
certifies under penalties of perjury that he or she has 
complied with all Federal tax obligations for the preceding 
five years and provides such evidence of compliance as the 
Treasury Secretary may require. Thus, as a result of AJCA, the 
application of the expatriation tax regime no longer turns on 
determinations of whether a person had a principal purpose of 
tax avoidance, as it often did prior to AJCA.
    The Treasury Department's Technical Explanation notes that 
under the proposed treaty, the determination of whether there 
was a principal purpose of tax avoidance with respect to former 
citizens or long-term residents of the United States is made 
under the laws of the United States. The Technical Explanation 
further states that the new objective tests ``represent the 
administrative means by which the United States determines 
whether a taxpayer has a tax avoidance purpose.'' Thus, 
although the proposed treaty employs the now-obsolete concept 
of a tax-avoidance purpose, the Technical Explanation maintains 
that this language should be understood as fully preserving 
U.S. taxing jurisdiction under the expatriation tax rules in 
their current form.

Committee Conclusions

    The committee is concerned that the proposed treaty 
contains outdated language with respect to determination of 
whether individuals who relinquished U.S. citizenship or 
terminated U.S. residency did so with a ``principal purpose of 
tax avoidance.'' The committee believes that bilateral tax 
treaties should reflect current U.S. domestic tax law.
    The committee recognizes that the proposed treaty was 
signed before AJCA was enacted, and therefore that 
incorporation of the AJCA's objective tests into the protocol 
would have required significant renegotiation. Further, the 
committee understands that, as noted in the Technical 
Explanation, since the ``principal purpose of tax avoidance'' 
determination is made under U.S. law, such determination will 
be made according to the objective criteria contained in the 
AJCA.
    Under these circumstances, the committee is satisfied that, 
under the proposed treaty, the ``principal purpose of tax 
avoidance'' determination in the saving clause will be made by 
applying the objective criteria enacted in the AJCA. However, 
the committee expects that future treaties and protocols will 
remove the ``principal purpose of tax avoidance'' language, and 
simply provide that former citizens or long-term residents of 
the United States will be taxed in accordance with the laws of 
the United States.

                       C. EDUCATION AND TRAINING

    Under Article 21 of the proposed treaty, U.S. taxpayers who 
are visiting Bangladesh and individuals who immediately prior 
to visiting the United States were resident in Bangladesh will 
be exempt from income tax in the host country on certain 
payments received if the purpose of their visit is to teach or 
engage in research at university, college or other educational 
institution, to engage in full-time education, to engage in 
full-time training, or to undertake public interest research as 
a grant recipient. In the case of individuals engaged in 
teaching or research at a college, university, or other 
educational institution, the exemption covers any remuneration 
for such teaching or research. In the case of individuals other 
than teachers, the exempt payments are limited to those 
payments the individual may receive for his or her maintenance, 
education or training as long as such payments are from sources 
outside the host country, the amount of grant or award, and up 
to $8,000 (or the equivalent in Bangladesh taka) in personal 
services income. In the case of an individual engaged in 
teaching or research at a university, college, or other 
educational institution, and in the case of a business trainee, 
the exemption from income tax in the host country applies for a 
period of two years.

Issues

            Full-time students and persons engaged in full-time 
                    training
    The proposed treaty generally has the effect of exempting 
payments received for the maintenance, education, and training 
of full-time students and persons engaged in full-time training 
as a visitor from the United States to Bangladesh or as a 
visitor from Bangladesh to the United States from the income 
tax of both the United States and Bangladesh. This conforms to 
the U.S. model with respect to students and generally conforms 
to the OECD model provisions with respect to students and 
trainees. In addition, under the proposed treaty such 
individuals may earn up to $8,000 per year in personal services 
income free of tax. The allowance of an exemption for personal 
service income earned in the host country departs from both the 
U.S. and OECD models.
    The proposed treaty applies a more stringent standard when 
the visiting individual is an employee of a person in his or 
her home country undertaking training in the host country. For 
such an individual the exemption for payments received for the 
maintenance, education, and training and up to $8,000 in 
personal service income is limited to two years. In this regard 
the proposed treaty departs from both the U.S. model and the 
OECD model. The U.S. model limits exemptions for payments of 
maintenance, education, and training for one year in the case 
of business trainees but does not provide any exemption related 
to personal services income. The OECD model does not limit the 
duration of exemption for payments for maintenance, education, 
and training for business trainees and does not provide any 
exemption related to personal services income.
    This provision generally would have the effect of reducing 
the cost of such education and training received by visitors. 
This may encourage individuals in both countries to consider 
study abroad in the other country. Such cross-border visits by 
students and trainees may foster the advancement of knowledge 
and redound to the benefit of residents of both countries.
    It could be argued that the training or education of an 
employee relates primarily to specific job skills of value to 
the individual or the individual's employer rather than 
enhancing general knowledge and cross-border understanding, as 
may be the case in the education or training of a non-employee 
visitor. This could provide a rationale for providing more 
open-ended treaty benefits in the case of non-employee students 
and trainees as opposed to employees. However, if employment 
provides the underlying rationale for disparate treaty 
benefits, a question might arise as to why training requiring 
two years or less is preferred to training that requires a 
longer visit to the host country. As such, the proposed treaty 
would favor certain types of training arrangements over others. 
On the other hand, there may be few training programs that 
exceed two years duration.

Teachers and Professors

    The proposed treaty diverges from the U.S. model in which 
no such exemption would be provided for the remuneration of 
visiting teachers, professors, or academic researchers. While 
this is the position of the U.S. model, an exemption for 
visiting teachers and professors has been included in many 
bilateral tax treaties. Of the more than 50 bilateral income 
tax treaties in force, 31 include provisions exempting from 
host country taxation the income of a visiting individual 
engaged in teaching or research at an educational institution, 
and an additional 11 treaties provide a more limited exemption 
from taxation in the host county for a visiting individual 
engaged in research. Four of the most recently ratified income 
tax treaties contain such a provision.\3\
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    \3\ The treaties with Slovenia and Venezuela, both considered in 
1999, the treaty with the United Kingdom considered in 2003, and the 
treaty with Japan considered in 2004, contain provisions exempting the 
remuneration of visiting teachers and professors from host country 
income taxation. The treaties with Denmark, Estonia, Latvia, and 
Lithuania, also considered in 1999, did not contain such an exemption, 
but did contain a more limited exemption for visiting researchers. The 
treaty with Sri Lanka considered in 2004 contained no exemption for 
visiting teachers, professors, or researchers.
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    The effect of such exemptions for the remuneration of 
visiting teachers, professors, and academic researchers 
generally is to make such cross-border visits more attractive 
financially. Increasing the financial reward may serve to 
encourage cross-border visits by academics. Such cross-border 
visits by academics for teaching and research may foster the 
advancement of knowledge and redound to the benefit of 
residents of both countries. On the other hand, such an 
exemption from income tax may be seen as unfair when compared 
to persons engaged in other occupations whose occupation or 
employment may cause them to relocate temporarily abroad. Such 
exemptions for remuneration of teachers, professors, and 
academic researchers could be said to violate the principle of 
horizontal equity by treating otherwise similarly economically 
situated taxpayers differently.

Committee Conclusions

    The committee notes that the special rules for certain 
students and trainees differ from the U.S. and OECD model 
treaties. The committee also notes that while the provision 
regarding the taxation of visiting teachers and professors is 
inconsistent with the U.S. model, it is consistent with the 
majority of the bilateral income tax treaties in force. The 
committee encourages the Treasury Department to develop 
criteria for determining under what circumstances the inclusion 
of these provisions is appropriate and to consult with the 
committee regarding these criteria.

                  D. U.S. MODEL TAX TREATY DIVERGENCE

    It has been longstanding practice for the Treasury 
Department to maintain, and update as necessary, a model income 
tax treaty that reflects the current policies of the United 
States pertaining to income tax treaties. The U.S. policies on 
income tax treaties are contained in the U.S. model. Some of 
the purposes of the U.S. model are explained by the Treasury 
Department in its Technical Explanation of the U.S. model:

          [T]he Model is not intended to represent an ideal 
        United States income tax treaty. Rather, a principal 
        function of the Model is to facilitate negotiations by 
        helping the negotiators identify differences between 
        income tax policies in the two countries. In this 
        regard, the Model can be especially valuable with 
        respect to the many countries that are conversant with 
        the OECD Model. (Another purpose of the Model and the 
        Technical Explanation is to provide a basic explanation 
        of U.S. treaty policy for all interested parties, 
        regardless of whether they are prospective treaty 
        partners.\4\
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    \4\ Treasury Department, Technical Explanation of the United States 
Model Income Tax Convention, at 3 (September 20, 1996).

    U.S. model tax treaties provide a framework for U.S. treaty 
policy. These models provide helpful information to taxpayers, 
the Congress, and foreign governments as to U.S. policies on 
often complicated treaty matters. For purposes of clarity and 
transparency in this area, the U.S. model tax treaties should 
reflect the most current positions on U.S. treaty policy. 
Periodically updating the U.S. model tax treaties to reflect 
changes, revisions, developments, and the viewpoints of 
Congress with regard to U.S. treaty policy would ensure that 
the model treaties remain meaningful and relevant.
    With assistance from the staff of the Joint Committee on 
Taxation, the Senate Committee on Foreign Relations reviews tax 
treaties negotiated and signed by the Treasury Department 
before ratification by the full Senate is considered. The U.S. 
model is important as part of this review process because it 
helps the Senate determine the administration's most recent 
treaty policy and understand the reasons for diverging from the 
U.S. model in a particular tax treaty. To the extent that a 
particular tax treaty adheres to the U.S. model, transparency 
of the policies encompassed in the tax treaty is increased and 
the risk of technical flaws and unintended consequences 
resulting from the tax treaty is reduced.

Committee Conclusions

    The committee recognizes that tax treaties often diverge 
from the U.S. model due to, among other things, the unique 
characteristics of the legal and tax systems of treaty 
partners, the outcome of negotiations with treaty partners, and 
recent developments in U.S. treaty policy. However, even 
without taking into account the central features of tax 
treaties that predictably diverge from the U.S. model (e.g., 
withholding rates, limitation on benefits, exchange of 
information), the technical provisions of recent U.S. tax 
treaties have increasingly diverged from the U.S. model. The 
important purposes served by the U.S. model tax treaty are 
undermined if that model does not accurately reflect current 
U.S. positions. The committee notes with approval the intention 
of the Treasury Department to update the U.S. model treaty \5\ 
and strongly encourages the Treasury Department to complete the 
update soon. In the process of revising the U.S. model, the 
committee expects the Treasury Department to consult with the 
committee generally, and specifically regarding the potential 
implications for U.S. trade and revenue of the policies and 
provisions reflected in the new model.
---------------------------------------------------------------------------
    \5\ Testimony of Patricia Brown, Deputy International Tax Counsel, 
United States Department of the Treasury, before the Senate Committee 
on Foreign Relations on Pending Income Tax Agreements, February 2, 
2006.
---------------------------------------------------------------------------

                           VII. Budget Impact

    The committee has been informed by the staff of the Joint 
Committee on Taxation that it has assessed the likely budget 
impact of the proposed income tax treaty between the United 
States and Bangladesh. The Joint Committee staff estimates that 
the withholding tax changes and other provisions of the propose 
treaty will cause a negligible change in Federal budget 
receipts during the fiscal year 2006-2015 period, based solely 
on the amount and type of historical income flows between 
Bangladesh and the United States.

                  VIII. Explanation of Proposed Treaty

    A detailed, article-by-article explanation of the proposed 
income tax treaty between the United States and Bangladesh can 
be found in the pamphlet of the Joint Committee on Taxation 
entitled Explanation of the Proposed Income Tax Treaty Between 
the United States and the People's Republic of Bangladesh (JCX-
4-06), January 26, 2006.

      IX. Text of Resolution of Advice and Consent to Ratification

    Resolved (two-thirds of the Senators present concurring 
therein), That the Senate advise and consent to the 
ratification of the Convention between the Government of the 
United States of America and the Government of the People's 
Republic of Bangladesh for the Avoidance of Double Taxation and 
the Prevention of Fiscal Evasion with Respect to Taxes on 
Income, signed at Dhaka on September 26, 2004 (Treaty Doc. 109-
5).

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