[Senate Executive Report 109-10]
[From the U.S. Government Publishing Office]
109th Congress Exec. Rept.
SENATE
2d Session 109-10
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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.
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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.
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\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.
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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).