No new US treaties or protocols entered into force in 2011.
The United States signed new income tax treaties with Hungary and Chile during 2010. The Senate Foreign Relations Committee held a treaty hearing on June 7, 2011, where the treaty with Hungary and the protocols to the treaties with Switzerland and Luxembourg were considered. The committee reported the three pacts to the full Senate with the recommendation that they be approved. However, in late in 2011, Senator Rand Paul placed a “hold” on Senate fl oor consideration of the three pacts—based on his objection to the enhanced exchange of information provisions in the Swiss and Luxembourg agreements—leaving their fate and timing uncertain. The treaty with Chile was not considered at the June 7, 2011 hearing. The State Department held it up with no indication of when it will move forward.
Hungary Treaty – The US-Hungary Treaty was signed on February 4, 2010. It would replace the 1979 treaty currently in effect. The principal focus of the new treaty is the addition of a limitation on benefits article that is consistent with other recent US treaties. The US-Hungary Treaty also provides an exemption from source country taxation of royalties and interest (except contingent interest, which is subject to a 15 % tax rate). Unlike newer treaties with other European Union countries, the US-Hungary Treaty does not contain an exemption from tax for certain parent/subsidiary dividends.
Chile Treaty – The pending US-Chile Treaty represents only the second income tax treaty with a South American country (the treaty with Venezuela was signed in 1999). The new US-Chile Treaty is broadly based on the 2006 US Model Income Tax Treaty, except that it has a more restrictive limitation on benefits article and higher tax rates for dividends, interest, and royalties than those in the US Model. Similar to the US-Hungary Treaty, this treaty does not provide a tax exemption for parent/subsidiary dividends. While the treaty benefits are limited, its (potential) entry into effect could stimulate other South American countries, and, in particular, Brazil, to enter into tax treaties with the United States.
Swiss Protocol – The Swiss protocol primarily updates the exchange of information provision and also includes a binding arbitration requirement for double tax disputes that are not resolved by agreement between the competent authorities of the two countries. Although the agreement’s details have not been made public, the discussion topics likely include the possible elimination of source-country taxation of certain parent/subsidiary dividends and a potential revision to the limitation on benefits article to align it with recent US tax treaties that have tightened the eligibility requirements.
Luxembourg Protocol – The Luxembourg protocol updates the exchange of information provision in the existing US-Luxembourg Treaty.
As we begin 2012, these four pacts await final ratification.