 US
Double Tax Treaties
The United States has income tax treaties (conventions)
with a number of foreign countries, which are negotiated
by the Treasury Department, approved by the President
of the United States, and sent to the US Senate for
its advice and consent. Once approved by the Senate,
the treaty is returned to the President for ratification.
After ratification by the other country, the instruments
of ratification are exchanged and the treaty becomes
law.
Under these treaties, residents of foreign countries
are taxed at a reduced rate or are exempt from income
taxes on certain items of income they receive from sources
within the United States. These reduced rates and exemptions
vary among countries and specific items of income.
The benefits provided by an income tax treaty are generally
on the basis of residence for income tax purposes.
Tax treaties reduce the US taxes on residents of foreign
countries (non-resident aliens). With certain exceptions,
they do not reduce the US taxes of US citizens or residents
(including resident aliens). US citizens and residents
are subject to US income tax on their worldwide income.
But, because treaty provisions generally are reciprocal
(i.e., apply to both treaty countries), a US citizen
or resident who receives income from a treaty country
may refer to the tax treaty to see if it might affect
the tax to be paid to that foreign country.
Income
tax treaties commonly also provide for exchange of information
and mutual assistance, and the curbing of tax avoidance
practices.
If a taxpayer takes a position that any US tax is reduced
or potentially reduced by a US treaty (a treaty-based
position), the taxpayer generally must disclose that
position on a US tax return. If the taxpayer is otherwise
not required to file a tax return because it owes no
tax, a return still has to be filed reporting the taxpayer's
treaty-based position. This disclosure requirement does
not apply to a reduced rate of withholding tax on income
that is not connected with a US trade or business, such
as dividends, interest, rents, or royalties. It also
does not apply to a reduced rate of tax on pay received
for services performed as an employee, including pensions,
annuities, and social security.
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