The Treasury Department recently announced that the U.S. and Croatia have signed an income tax treaty. The new tax treaty is the first comprehensive tax treaty that the U.S. has signed in over 10 years, but it will require ratification in the Senate before it can go into effect.
Treasury stated that the new tax treaty reflects its current tax treaty policies and is a milestone in Treasury’s efforts to expand the U.S. tax treaty network.
The new tax treaty closely follows the U.S. Model Income Tax Treaty. Key aspects of the new treaty include:
- Elimination of withholding taxes on cross-border payments of dividends paid to pension funds and on payments of interest
- Reductions in withholding taxes on cross-border payments of dividends other than those paid to a pension fund, as well as royalties
- Modern anti-abuse provisions intended to prevent instances of non-taxation of income as well as treaty shopping
- Robust dispute resolution mechanisms including mandatory binding arbitration
- Standard provisions for the exchange of information to help the revenue authorities of both nations carry out their duties as tax administrators
A full version of the treaty is available here.
The new treaty will not enter into force until the U.S. and Croatia notify each other that they have completed their requisite domestic procedures. In the U.S., this requires ratification by at least a two-thirds vote in the Senate, something that has been difficult in recent years. A tax treaty with Chile has been languishing since 2010, while treaties with Hungary and Poland have been stuck since 2013, all over objections from Sen. Rand Paul, R-Ky.
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