Senate approves four tax treaty protocols

Tax Hot Topics newsletter The Senate voted overwhelmingly to ratify four tax treaty protocols that had languished for more than a decade.

The protocol with Spain, approved July 16, and protocols with Japan, Luxembourg and Switzerland, approved July 17, amend existing treaties with each country. Many of the changes are limited in nature, addressing issues such as the exchange of information, dispute resolution and tax collection.

The most substantive changes are found in the protocol with Spain, which includes provisions that:

  • Exempt certain direct dividends from source-country withholding
  • Limit source-country taxation on all the dividends and branch profits in a manner consistent with the 2006 U.S. Model Income Tax Convention
  • Exempt cross-border payments of interest, royalties and capital gains in a manner consistent with the 2006 U.S. Model Income Tax Convention

Three new tax treaties with Chile, Hungary and Poland remain stuck in the Senate. Foreign Relations Committee Chair Jim Risch (R-Idaho) has indicated a desire to see them through, suggesting they could be approved by the end of the year. However, it is uncertain whether Senate leadership would be willing to devote the floor time that will likely be necessary. In floor remarks ahead of the votes on the four treaty protocols, Senate Majority Leader Mitch McConnell (R-Ky.) alluded to the needs of a company in his state as an impetus for advancing the measures, a supporting factor the new treaties lack.

In addition, Treasury has concluded that the three instruments require reservations to account for the base erosion anti-abuse tax (BEAT) enacted by the Tax Cuts and Jobs Act, further complicating the outlook for ratification. Several Senate Democrats have questioned the decision and are seeking further clarification from Treasury.

Dustin Stamper
Managing Director
Washington National Tax Office
T +1 202 861 4144

Omair Taher
Senior Associate
Washington National Tax Office
T +1 202 861 4143

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