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 the United States or 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, 2014.

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. Enter “Tax treaties” in the search box. Click “United States Income Tax Treaties–A to Z.

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, 2014)

Country General  
Effective Date
  Country General  
Effective Date
Australia Dec. 1, 1983   Kazakhstan Jan. 1, 1996
Protocol Jan. 1, 2004   Korea, South Jan. 1, 1980
Austria Jan. 1, 1999   Latvia Jan. 1, 2000
Bangladesh Jan. 1, 2007   Lithuania Jan. 1, 2000
Barbados Jan. 1, 1984   Luxembourg Jan. 1, 2001
Protocol Jan. 1, 1994   Malta Jan. 1, 2011
Protocol Jan. 1, 2005   Mexico Jan. 1, 1994
Belgium Jan. 1, 2008   Protocol Oct. 26,1995
Bulgaria Jan. 1, 2009   Protocol Jan. 1, 2004
Canada1 Jan. 1, 1985   Morocco Jan. 1, 1981
Protocol Jan. 1, 1996   Netherlands Jan. 1, 1994
Protocol Dec.16, 1997   Protocol Jan. 1, 2005
Protocol Jan. 1, 2009   New Zealand Nov. 2, 1983
China, People's Republic of Jan. 1, 1987   Protocol Jan. 1, 2011
Commonwealth of Independent States2 Jan. 1, 1976   Norway Jan. 1, 1971
Cyprus Jan. 1, 1986   Protocol Jan. 1, 1982
Czech Republic Jan. 1, 1993   Pakistan Jan. 1, 1959
Denmark Jan. 1, 2001   Philippines Jan. 1, 1983
Protocol Jan. 1, 2008   Poland Jan. 1, 1974
Egypt Jan. 1, 1982   Portugal Jan. 1, 1996
Estonia Jan. 1, 2000   Romania Jan. 1, 1974
Finland Jan. 1, 1991   Russia Jan. 1, 1994
Protocol Jan. 1, 2008   Slovak Republic Jan. 1, 1993
France Jan. 1, 1996   Slovenia Jan. 1, 2002
Protocol Jan. 1, 2007   South Africa Jan. 1, 1998
Protocol Jan. 1, 2009   Spain Jan. 1, 1991
Germany Jan. 1, 1990   Sri Lanka Jan. 1, 2004
Protocol Jan. 1, 2008   Sweden Jan. 1, 1996
Greece Jan. 1, 1953   Protocol Jan. 1, 2007
Hungary Jan. 1, 1980   Switzerland Jan. 1, 1998
Iceland Jan. 1, 2009   Thailand Jan. 1, 1998
India Jan. 1, 1991   Trinidad and Tobago Jan. 1, 1970
Indonesia Jan. 1, 1990   Tunisia Jan. 1, 1990
Ireland Jan. 1, 1998   Turkey Jan. 1, 1998
Israel Jan. 1, 1995   Ukraine Jan. 1, 2001
Italy Jan. 1, 2010   United Kingdom Jan. 1, 2004
Jamaica Jan. 1, 1982   Venezuela Jan. 1, 2000
Japan Jan. 1, 2005      

 1Information on the treaty can be found in Publication 597, Information on the United States—Canada Income Tax Treaty.
2The 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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