Income Tax Treaty Practice for Tax Counsel: Planning and Structuring Transactions to Maximize Treaty-Based Benefits

Description

The United States has income tax treaties in force with over 60 countries. The treaties' goals are to eliminate or reduce double income taxation. U.S. federal income tax benefits are available to non-U.S. enterprises and nonresident aliens (and some U.S. citizens living abroad). Benefits are also available to U.S. enterprises, citizens, and residents for foreign country income taxes. Tax advisers working with nonresident aliens or non-U.S. enterprises with U.S. investments or business activities must identify who is eligible for treaty benefits and how to claim and report treaty-based tax benefits. Similarly, tax advisers to U.S. individuals and enterprises with foreign-source income must identify who is eligible for treaty benefits (under both U.S. tax treaties and treaties between other jurisdictions) and how to claim and report the attendant benefits.

While each income tax treaty has its specific terms and requirements, most income tax treaties have common themes and terminology. For example, under most income tax treaties, taxpayers may claim exemption from source country taxation for personal services income. Other key provisions include reduction or exemption of withholding taxes on interest and dividends and royalties.

The current U.S. model tax treaty serves as the baseline text the U.S. uses to negotiate and update tax conventions. It includes several provisions that may limit or deny treaty benefits for income subject to preferential foreign tax regimes. A number of other model treaties have also been developed. The Organisation for Economic Cooperation and Development, or OECD, has developed a model tax treaty and accompanying commentaries which serve as a starting point for certain other countries in their treaty negotiations and can aid in the interpretation of both U.S. and non-U.S. tax treaties. This panel will focus primarily on the key provisions of the U.S. and OECD model treaties, and will also discuss the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (Multilateral Instrument or MLI) that enables participating countries to rapidly implement changes to some terms of their tax treaties without renegotiating the terms of each treaty. Tax attorneys involved in cross-border transactions need to understand the MLI and recent changes to the worldwide treaty network to properly advise their clients.

Listen as our expert panel explains critical tax treaty provisions that tax counsel needs to know in drafting and negotiating cross-border ownership structures and transactions for individual, small business, and middle-market clients.