6.   Tax Treaty Benefits

Topics - This chapter discusses:

  • Some common tax treaty benefits,

  • How to get help in certain situations, and

  • How to get copies of tax treaties.

Useful Items - You may want to see:

Publication

  • 597 Information on the United States—Canada Income Tax Treaty

  • 901 U.S. Tax Treaties

See chapter 7 for information about getting these publications.

Purpose of Tax Treaties

The United States has tax treaties or conventions with many countries. See Table 6-1 at the end of this chapter for a list of these countries.

Under these treaties and conventions, citizens and residents of the United States who are subject to taxes imposed by the foreign countries are entitled to certain credits, deductions, exemptions, and reductions in the rate of taxes of those foreign countries. If a foreign country with which the United States has a treaty imposes a tax on you, you may be entitled to benefits under the treaty.

Treaty benefits generally are available to residents of the United States. They generally are not available to U.S. citizens who do not reside in the United States. However, certain treaty benefits and safeguards, such as the nondiscrimination provisions, are available to U.S. citizens residing in the treaty countries. U.S. citizens residing in a foreign country also may be entitled to benefits under that country's tax treaties with third countries.

Certification of U.S. residency.   Use Form 8802, Application for United States Residency Certification, to request certification of U.S. residency for purposes of claiming benefits under a tax treaty. Certification can be requested for the current and any prior calendar years.

You should examine the specific treaty articles to find if you are entitled to a tax credit, tax exemption, reduced rate of tax, or other treaty benefit or safeguard.

Common Benefits

Some common tax treaty benefits are explained below. The credits, deductions, exemptions, reductions in rate, and other benefits provided by tax treaties are subject to conditions and various restrictions. Benefits provided by certain treaties are not provided by others.

Personal service income. If you are a U.S. resident who is in a treaty country for a limited number of days in the tax year and you meet certain other requirements, the payment you receive for personal services performed in that country may be exempt from that country's income tax.

Professors and teachers. If you are a U.S. resident, the payment you receive for the first 2 or 3 years that you are teaching or doing research in a treaty country may be exempt from that country's income tax.

Students, trainees, and apprentices. If you are a U.S. resident, amounts you receive from the United States for study, research, or business, professional and technical training may be exempt from a treaty country's income tax.

Some treaties exempt grants, allowances, and awards received from governmental and certain nonprofit organizations. Also, under certain circumstances, a limited amount of pay received by students, trainees, and apprentices may be exempt from the income tax of many treaty countries.

Pensions and annuities. If you are a U.S. resident, nongovernment pensions and annuities you receive may be exempt from the income tax of treaty countries.

Most treaties contain separate provisions for exempting government pensions and annuities from treaty country income tax, and some treaties provide exemption from the treaty country's income tax for social security payments.

Investment income. If you are a U.S. resident, investment income, such as interest and dividends, that you receive from sources in a treaty country may be exempt from that country's income tax or taxed at a reduced rate.

Several treaties provide exemption for capital gains (other than from sales of real property in most cases) if specified requirements are met.

Tax credit provisions. If you are a U.S. resident who receives income from or owns capital in a foreign country, you may be taxed on that income or capital by both the United States and the treaty country.

Most treaties allow you to take a credit against or deduction from the treaty country's taxes based on the U.S. tax on the income.

Nondiscrimination provisions. Most U.S. tax treaties provide that the treaty country cannot discriminate by imposing more burdensome taxes on U.S. citizens who are residents of the treaty country than it imposes on its own citizens in the same circumstances.

Saving clauses. U.S. treaties contain saving clauses that provide that the treaties do not affect the U.S. taxation of its own citizens and residents. As a result, U.S. citizens and residents generally cannot use the treaty to reduce their U.S. tax liability.

However, most treaties provide exceptions to saving clauses that allow certain provisions of the treaty to be claimed by U.S. citizens or residents. It is important that you examine the applicable saving clause to determine if an exception applies.

More information on treaties.   Publication 901 contains an explanation of treaty provisions that apply to amounts received by teachers, students, workers, and government employees and pensioners who are alien nonresidents or residents of the United States. Since treaty provisions generally are reciprocal, you usually can substitute “United States” for the name of the treaty country whenever it appears, and vice versa when “U.S.” appears in the treaty exemption discussions in Publication 901.

  Publication 597 contains an explanation of a number of frequently-used provisions of the United States–Canada income tax treaty.

Competent Authority Assistance

If you are a U.S. citizen or resident alien, you can request assistance from the U.S. competent authority if you think that the actions of the United States, a treaty country, or both, cause or will cause a tax situation not intended by the treaty between the two countries. You should read any treaty articles, including the mutual agreement procedure article, that apply in your situation.

The U.S. competent authority cannot consider requests involving countries with which the United States does not have a tax treaty.

Effect of request for assistance.   If your request provides a basis for competent authority assistance, the U.S. competent authority generally will consult with the treaty country competent authority on how to resolve the situation.

How to make your request.   It is important that you make your request for competent authority consideration as soon as either of the following occurs.
  • You are denied treaty benefits.

  • Actions taken by both the United States and the foreign country result in double taxation or will result in taxation not intended by the treaty.

  In addition to making a request for assistance, you should take steps so that any agreement reached by the competent authorities is not barred by administrative, legal, or procedural barriers. Some of the steps you should consider taking include the following.
  • Filing a protective claim for credit or refund of U.S. taxes.

  • Delaying the expiration of any period of limitations on the making of a refund or other tax adjustment.

  • Avoiding the lapse or termination of your right to appeal any tax determination.

  • Complying with all applicable procedures for invoking competent authority consideration.

  • Contesting an adjustment or seeking an appropriate correlative adjustment with respect to the U.S. or treaty country tax.

Taxpayers can consult with the U.S. competent authority to determine whether they need to take protective steps and when any required steps need to be taken.

  The request should contain all essential items of information, including the following items.
  • A reference to the treaty and the treaty provisions on which the request is based.

  • The years and amounts involved in both U.S. dollars and foreign currency.

  • A brief description of the issues for which competent authority assistance is requested.

  A complete listing of the information that must be included with the request can be found in Revenue Procedure 2006-54, or its successor. Revenue Procedure 2006-54 is available at www.irs.gov/irb/2006-49_IRB/ar13.html.

  Also, see Notice 2013-78, which provides proposed updates to the procedures for requesting U.S. competent authority assistance under tax treaties. As noted, Revenue Procedure 2006-54 will be superseded by a revenue procedure to be published in the future.

  
Your request for competent authority consideration should be addressed to:  

Deputy Commissioner (International) 
Large Business and International Division 
Internal Revenue Service 
1111 Constitution Avenue, NW 
Routing M4-365 
Washington, DC 20224 
Attn: TAIT

Additional filing.   In the case of U.S.- initiated adjustments, you also must file a copy of the request with the IRS office where your case is pending. If the request is filed after the matter has been designated for litigation or while a suit contesting your relevant tax liability is pending in a United States court, a copy of the request, with a separate statement attached identifying the court where the suit is pending and the docket number of the action, also must be filed with the:

Office of Associate Chief Counsel (International) 
Internal Revenue Service 
1111 Constitution Avenue, NW 
Washington, DC 20224

Additional details on the procedures for requesting competent authority assistance are included in Revenue Procedure 2006-54, or its successor.

Obtaining Copies of Tax Treaties

Table 6-1 lists those countries with which the United States has income tax treaties. This table is updated through October 31, 2013.

You can get complete information about treaty provisions from the taxing authority in the country from which you receive income or from the treaty itself. You can obtain the text of most U.S. treaties at IRS.gov. You also can request the text of treaties from the Department of Treasury at the following address.

Department of Treasury 
Office of Business and Public Liaison 
Rm. 3411 
1500 Pennsylvania Avenue, NW  
Washington, DC 20220

If you have questions about a treaty and you are in the United States, Puerto Rico, or the U.S. Virgin Islands, you can call the IRS at 1-800-829-1040.

Table 6–1.List of Tax Treaties (Updated through October 31, 2013)

Country Official Text  
Symbol1
General  
Effective Date
Citation Applicable Treasury Explanations  
or Treasury Decision (T.D.)
Australia TIAS 10773 Dec. 1, 1983 1986-2 C.B. 220 1986-2 C.B. 246
Protocol TIAS Jan. 1, 2004    
Austria TIAS Jan. 1, 1999    
Bangladesh TIAS Jan. 1, 2007    
Barbados TIAS 11090 Jan. 1, 1984 1991-2 C.B. 436 1991-2 C.B. 466
Protocol TIAS Jan. 1, 2005    
Belgium TIAS Jan. 1, 2008    
Bulgaria TIAS Jan. 1, 2009    
Canada2 TIAS 11087 Jan. 1, 1985 1986-2 C.B. 258 1987-2 C.B. 298
Protocol TIAS Jan. 1, 2009    
China, People's Republic of TIAS 12065 Jan. 1, 1987 1988-1 C.B. 414 1988-1 C.B. 447
Commonwealth of Independent States3 TIAS 8225 Jan. 1, 1976 1976-2 C.B. 463 1976-2 C.B. 475
Cyprus TIAS 10965 Jan. 1, 1986 1989-2 C.B. 280 1989-2 C.B. 314
Czech Republic TIAS Jan. 1, 1993    
Denmark TIAS Jan. 1, 2001    
Protocol TIAS Jan. 1, 2008    
Egypt TIAS 10149 Jan. 1, 1982 1982-1 C.B. 219 1982-1 C.B. 243
Estonia TIAS Jan. 1, 2000    
Finland TIAS 12101 Jan. 1, 1991    
Protocol TIAS Jan. 1, 2008    
France TIAS Jan. 1, 1996    
Protocol TIAS Jan. 1, 2009    
Germany TIAS Jan. 1, 1990    
Protocol TIAS Jan. 1, 2008    
Greece TIAS 2902 Jan. 1, 1953 1958-2 C.B. 1054 T.D. 6109, 1954-2 C.B. 638
Hungary TIAS 9560 Jan. 1, 1980 1980-1 C.B. 333 1980-1 C.B. 354
Iceland TIAS 8151 Jan. 1, 2009    
India TIAS Jan. 1, 1991    
Indonesia TIAS 11593 Jan. 1, 1990    
Ireland TIAS Jan. 1, 1998    
Israel TIAS Jan. 1, 1995    
Italy TIAS Jan. 1, 2010    
Jamaica TIAS 10207 Jan. 1, 1982 1982-1 C.B. 257 1982-1 C.B. 291
Japan TIAS Jan. 1, 2005    
Kazakhstan TIAS Jan. 1, 1996    
Korea, South TIAS 9506 Jan. 1, 1980 1979-2 C.B. 435 1979-2 C.B. 458
Latvia TIAS Jan. 1, 2000    
Lithuania TIAS Jan. 1, 2000    
Luxembourg TIAS Jan. 1, 2001    
Malta TIAS Jan. 1, 2011    
Mexico TIAS Jan. 1,1994    
Protocol TIAS Jan. 1, 2004    
         

Table 6–1 (continued).

Country Official Text  
Symbol1
General  
Effective Date
Citation Applicable Treasury Explanations  
or Treasury Decision (T.D.)
Morocco TIAS 10195 Jan. 1, 1981 1982-2 C.B. 405 1982-2 C.B. 427
Netherlands TIAS Jan. 1, 1994    
Protocol TIAS Jan. 1, 2005    
New Zealand TIAS 10772 Nov. 2, 1983 1990-2 C.B. 274 1990-2 C.B. 303
Protocol TIAS Jan. 1, 2011    
Norway TIAS 7474 Jan. 1, 1971 1973-1 C.B. 669 1973-1 C.B. 693
Protocol TIAS 10205 Jan. 1, 1982 1982-2 C.B. 440 1982-2 C.B. 454
Pakistan TIAS 4232 Jan. 1, 1959 1960-2 C.B. 646 T.D. 6431, 1960-1 C.B. 755
Philippines TIAS 10417 Jan. 1, 1983 1984-2 C.B. 384 1984-2 C.B. 412
Poland TIAS 8486 Jan. 1, 1974 1977-1 C.B. 416 1977-1 C.B. 427
Portugal TIAS Jan. 1, 1996    
Romania TIAS 8228 Jan. 1, 1974 1976-2 C.B. 492 1976-2 C.B. 504
Russia TIAS Jan. 1, 1994    
Slovak Republic TIAS Jan. 1, 1993    
Slovenia TIAS Jan. 1, 2002    
South Africa TIAS Jan. 1, 1998    
Spain TIAS Jan. 1, 1991    
Sri Lanka TIAS Jan. 1, 2004    
Sweden TIAS Jan. 1, 1996    
Protocol TIAS Jan. 1, 2007    
Switzerland TIAS Jan. 1, 1998    
Thailand TIAS Jan. 1, 1998    
Trinidad and Tobago TIAS 7047 Jan. 1, 1970 1971-2 C.B. 479  
Tunisia TIAS Jan. 1, 1990    
Turkey TIAS Jan. 1, 1998    
Ukraine TIAS Jan. 1, 2001    
United Kingdom TIAS Jan. 1, 2004    
Venezuela TIAS Jan. 1, 2000    

 1(TIAS) — Treaties and Other International Act Series.
 2Information on the treaty can be found in Publication 597, Information on the United States—Canada Income Tax Treaty.
3The U.S.-U.S.S.R. income tax treaty applies to the countries of Armenia, Azerbaijan, Belarus, Georgia, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, and Uzbekistan.


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