Copyright 1999 Federal News Service, Inc.
Federal News Service
OCTOBER 27, 1999, WEDNESDAY
SECTION: IN THE NEWS
LENGTH:
5816 words
HEADLINE: PREPARED TESTIMONY OF
FRED F.
MURRAY
VICE PRESIDENT FOR TAX POLICY
NATIONAL FOREIGN TRADE COUNCIL,
INC.
BEFORE THE SENATE COMMITTEE ON FOREIGN RELATIONS
BODY:
RATIFICATION OF VARIOUS TAX TREATIES
AND PROTOCOLS BETWEEN THE UNITED STATES OF AMERICA AND THE GOVERNMENT OF THE
KINGDOM OF DENMARK, THE REPUBLIC OF ESTONIA, THE FEDERAL REPUBLIC OF GERMANY,
THE REPUBLIC OF ITALY, THE REPUBLIC OF LATVIA, THE REPUBLIC OF LITHUANIA,
REPUBLIC OF SLOVENIA, AND THE REPUBLIC OF VENEZUELA
Mr. Chairman, and
Members of the Committee:
The National Foreign Trade Council, Inc. (the
"NFTC" or the "Council") is pleased to present its views on ratification of the
various income tax treaties and protocols before the Committee today.1 We are
here today to recommend ratification of the treaties and protocols under
consideration by the Committee. We appreciate the Chairman's and the Committee's
actions in scheduling this hearing and agreeing to receive our testimony and
written statement. We strongly urge this Committee to reaffirm the United
States' historic opposition to double taxation by giving your full support to
the pending treaties. The NFTC is an association of businesses with some 550
members, originally founded in 1914 with the support of President Woodrow Wilson
and 341 business leaders from across the U.S. It is the oldest and largest U.S.
association of businesses devoted to international trade matters. Its membership
now consists primarily of U.S. firms engaged in all aspects of international
business, trade, and investment. Most of the largest U.S. manufacturing
companies and most of the 50 largest U.S. banks are Council members. Council
members account for at least 70% of all U.S. nonagricultural exports and 70% of
U.S. private foreign investment. A significant NFTC emphasis is to encourage
policies that will expand U.S. exports and enhance the competitiveness of U.S.
companies by eliminating major tax inequities and anomalies.
The founding of
the Council was in recognition of the growing importance of foreign trade and
investment to the health of the national economy. Since that time, expanding
U.S. foreign trade and investment, and incorporating the United States into an
increasingly integrated world economy, has become an even more vital concern of
our nation's leaders. The share of U.S. corporate earnings attributable to
foreign operations among many of our largest corporations now exceeds 50 percent
of their total earnings. Even this fact in and of itself does not convey the
full importance of exports to our economy and to American-based jobs, because it
does not address the additional fact that many of our smaller and medium-sized
businesses do not consider themselves to be exporters although much of their
product is supplied as inventory or components to other U.S.-based companies who
do export.
Foreign trade is fundamental to our economic growth and our
future standard of living? Although the U.S. economy is still the largest
economy in the world, its growth rate represents a mature market for many of our
companies. As such, U.S. employers must export in order to expand the U.S.
economy by taking full advantage of the opportunities in overseas markets.
Today, some 96% of U.S. firms' potential customers are outside the United
States, and in the 1990's 86% of the gains in worldwide economic activity
occurred outside the United States. In recent years, exports have accounted for
as much as one- third of total U.S. economic growth?
Tax Treaties and Their
Importance to the United States of America
Given the importance of the
international economy to the United States, the Council is grateful to the
Committee for giving international economic relations a prominent place on its
agenda.
As noted, our membership is actively engaged in a broad spectrum of
industrial, commercial, financial, and service activities. The NFTC therefore
seeks to foster an environment in which U.S. companies can be dynamic and
effective competitors in the international business arena. To achieve this goal,
American businesses must be able to participate fully in business activities
throughout the world, through the export of goods, services, technology, and
entertainment, and through direct investment in facilities abroad. As global
competition grows ever more intense, it is vital to the health of U.S.
enterprises, and to their continuing ability to contribute to the U.S. economy,
that they be free from excessive foreign taxes or double taxation that can serve
as a barrier to full participation in the international marketplace. Tax
treaties are a crucial component of the framework that is necessary to allow
such balanced competition. The NFTC has long supported the expansion and
strengthening of the U.S. tax treaty network.
Tax treaties are bilateral
agreements between the United States and foreign countries that serve to
harmonize the tax systems of the two countries. In the absence of tax treaties,
income from international transactions or investment may be subject to "double
taxation": once by the country where the income arises and again by the country
of the income recipient's residence. Tax treaties eliminate this double taxation
by allocating taxing jurisdiction between the two treaty countries.
In
addition, the tax systems of most countries impose withholding taxes, frequently
at high rates, on payments of dividends, interest, and royalties to foreigners.
These taxes can be reduced only by treaty. If U.S. enterprises earning such
income abroad cannot enjoy the reduced foreign withholding rates offered by a
tax treaty, they may suffer double taxation and be unable to compete with
business ventures from other countries that do have such benefits. Thus, tax
treaties serve to prevent this barrier to U.S. participation in international
commerce.
Tax treaties also provide other features which are vital to the
competitive position of U.S. businesses. For example, by prescribing
internationally agreed thresholds for the imposition of taxation by foreign
countries on inbound investment, and by requiring foreign tax laws to be applied
in a nondiscriminatory manner to U.S. enterprises, treaties offer a significant
measure of certainty to potential investors. Another extremely important
benefit, that is available exclusively under tax treaties, is the mutual
agreement procedure, a bilateral administrative mechanism for avoiding double
taxation.
The United States has in force some forty-nine/4 Conventions for
the Avoidance of Double Taxation and the Prevention of Fiscal Evasion With
Respect to Taxes on Income ("income tax treaties") with various jurisdictions,
not including other agreements affecting income taxes and tax administration
(e.g., Exchange of Tax Information Agreements or Treaties of Friendship and
Navigation that may include provisions that deal with tax matters). It has taken
more than sixty years to negotiate, sign, and approve the treaties that form the
current network? A number of new agreements are being negotiated by the Treasury
Department. Nevertheless, the U.S. treaty network has never been as extensive as
the treaty networks of our principal competitors. The U.S. treaty network still
covers considerably less of the developing world, compared to coverage by the
networks of Japan and leading European nations. This discrepancy has persisted
for many years, even though the United States relies on the developing world to
buy a far larger share of its exports than does Europe.
As noted
above, the typical income tax treaty provides for the elimination or at least
mitigation of double taxation in a number of ways: modification of sourcing
rules, clarification of rules affecting computation of foreign
tax credits, specification of certain taxes that may be
considered income taxes for the purposes of the foreign
tax credit, rules allocating income to permanent
establishments or establishing transfer prices, rules establishing the competent
authority mechanism, and other rules in which jurisdiction to tax is
relinquished. The reciprocal reduction of withholding taxes imposed by the
respective contracting states on dividends, interest, royalties, and certain
other types of cross-border flows is the most important form of mutually agreed
relinquishment of jurisdiction to tax. The treaties also provide a number of
"administrative" mechanisms for resolution of disputes as to state of residence,
exchange of tax information between tax authorities of the two contracting
states, nondiscrimination against nationals or other parties of one contracting
state by the other contracting state, and the like.
The principal function
of an income tax treaty is to facilitate international trade, investment, and
commerce by removing or preventing tax barriers to the free flow or exchange of
goods and services and the free movement of capital and persons. In making such
an agreement, a contracting state acts in two capacities.
First, as a
country of residence, the contracting state imposes tax on the income derived by
resident individuals and legal entities (and, in countries like the United
States that tax their citizens on a world- wide basis, its non-resident citizens
and those legal entities organized under its laws or otherwise subject to its
jurisdiction). In this capacity, the contracting state seeks to minimize the
source- based taxes imposed on these taxpayers by the other contracting state,
its treaty partner. If, like the United States, its system of world- wide
taxation is relieved by a foreign tax credit mechanism, it will have a revenue
interest in this result, but even in other circumstances, it will have an
interest in the reduction of source- based taxes as a means of assuring fair
treatment of its taxpayers and promoting their foreign trade and commerce.
Second, the country of source may impose a tax on income derived by
individuals and entities resident in its treaty partner. In this role, the
contracting states have multiple and sometimes incongruent interests. The source
country may be interested in protecting its revenues from unwarranted erosion.
However, it is also concerned with providing a hospitable environment for
desirable inbound foreign investment. As these bilateral treaties are reciprocal
agreements, contracting states must be willing to make concessions with respect
to taxing authority to gain similar reciprocal concessions from its treaty
partner.
The loss of revenue from withholding taxes, or other reductions of
source-based taxation has now, after these six decades, become generally
accepted as the price for obtaining for its taxpayers the benefits of neutral
tax treatment with respect to their international trade, investment, and
commerce. In fact, there has developed are markably broad, general consensus
among national governments, even those who agree on few other principles, that
it is in their interest to enter into income tax treaties, and almost as broad
consensus as to the form of the mechanisms adopted.
Income tax treaties
enable U.S. firms to compete in foreign countries, and foreign firms to
establish plants in the United States and invest in U.S. securities. Without the
tax treaty network and complementary national legislation, double taxation would
create an enormous barrier to the international movement of capital and
technology. Likewise, a crippling of our treaty network could cause world trade
to shrink because so much of it depends upon cross-border investment and open
channels for movement of capital and technology.
A study, conducted under
the auspices of the NFTC, illustrates the possible consequences of abandoning
all existing U.S. tax treaties, and, in selective ways, changing U.S. tax laws
to extract more revenue from inward foreign investment:
- Broadly speaking,
the average foreign tax burden on income
flowing to the United States, which is predominantly from direct investment and
therefore subject to foreign corporate tax as well as withholding taxes, would
rise from about 16.0 percent (with a treaty network) to about 23.4 percent
(without a treaty network). The average U.S. tax burden on
income flowing to foreign investors would
similarly rise from about 9.1 percent to about 14.1 percent.
- In relative
terms, the tax burdens on U.S. investment abroad and foreign investment in the
United States would thus escalate by about the same amount. However, the
absolute tax level is lower on foreign investments in the United States because
that investment is concentrated in bank deposits and portfolio securities, which
are not immediately subject to the U.S. corporate income tax.
- As a
consequence of higher tax rates, international investment could implode. Using a
conservative estimating procedure, it was calculated that the stocks of U.S.
investment abroad and foreign investment in the United States would each shrink
by about $340 billion annually, without a treaty network. - Reduced foreign
investment in the United States would curb competition in the U.S. marketplace
and raise U.S. interest rates. U.S. consumers would have to pay higher prices
for a smaller variety of goods, investment would be squeezed and, ultimately,
growth rates would be lower. In addition, the smaller role of multinational
firms would curtail U.S. exports by some $21 billion annually, which would
reduce the domestic employment of those firms and their suppliers by an
estimated 340,000 jobs.
- In order for the U.S. Treasury to realize any
revenue gain from the non-treaty world, the Congress would need to impose a new
withholding tax on interest paid to foreign investors on their U.S. bank
deposits and Treasury securities. At a rate of 5 percent, the new tax would
raise significant revenue, about $6.4 billion annually. However, the larger tax
revenues would be more than offset by the inevitable rise in U.S. Treasury
interest payments (net of associated tax reflows) on Treasury debt held by the
public in this country and abroad. Higher interest payments to the public (net
of tax reflows) were estimated by the model at $7.1 billion.
If the level of
international investment imploded by twice as much as the conservative
estimating procedure might suggest, the U.S. Treasury would lose $0.8 billion on
U.S. income payments to foreigners, and $3.2 billion on U.S. income receipts
from foreign sources. In other words, the Treasury could lose up to $4.0 billion
from a policy that abandoned the U.S. tax treaty network.
- In any event,
U.S. multinational enterprises would be substantially worse off. Their
income flows before foreign tax would contract
from $279 billion to $240 billion. Their combined tax burden, counting payments
both to foreign governments and the U.S. Treasury (after allowing for the U.S.
foreign tax credit), would rise by $9.4 billion. The loss of income coupled with
a rising tax burden would significantly impair the competitive strength of U.S.
multinational enterprises relative to rival firms based in Japan and Europe.
-- G. Hufbauer, "Tax Treaties and American Interests -- A Report to the
National Foreign Trade Council, Inc." (1988).
While the preceding analysis
is now somewhat out of date, world-wide expansion of business enterprises and
the increasing importance of foreign investment flows and exports have served to
increase the importance of our treaty network. These conclusions nevertheless
serve to illustrate the importance of maintaining and expanding the treaty
network of which the United States is a member, and in a world in which U.S.
multinational enterprises must compete. Absent a "level playing field"
environment, taxes of all types on the income and capital flows of U.S.
multinational enterprises can easily escalate in proportion to the economic
activity involved. Particularly where more than two jurisdictions are involved,
they can exceed one hundred percent.
Taxpayers are not the only
beneficiaries of tax treaties. Treaties protect the legitimate enforcement
interests of the U.S. Treasury by providing for the exchange of information
between tax authorities. Treaties have also provided a framework for the
resolution of disputes with respect to overlapping claims by the respective
governments. In particular, the practices of the Competent Authorities under the
treaties have led to agreements, known as "Advance Pricing Agreements" or "APAs"
within which tax authorities of the United States and other countries, have been
able to avoid costly and unproductive disputes over appropriate transfer prices
for the trade in goods and services between related entities.
APAs,
which are agreements jointly entered into between one or more countries and
particular taxpayers, have become common and increasingly popular procedures for
countries and taxpayers to settle their transfer pricing issues in advance of
dispute. The clear trend is that treaties are becoming an increasingly important
tool used by tax authorities and taxpayers alike in striving for fairer and more
efficient application of the tax laws.
Treaties Before the Committee Today
Five of the eight agreements before the Committee today represent new tax
treaty relationships for the United States: Estonia, Latvia, Lithuania,
Slovenia, and Venezuela. The remaining three agreements modify existing
relationships.
Virtually all treaty relationships depend upon difficult and
sometimes delicate negotiations aimed at resolving conflicts between the tax
laws and policies of the negotiating countries. The resulting compromises always
reflect a series of concessions by both countries from their preferred
positions. Recognizing this, but also cognizant of the vital role tax treaties
play in creating a level playing field for enterprises engaged in international
commerce, the NFTC believes that treaties should be evaluated on the basis of
their overall effects in encouraging international flows of trade and investment
between the United States each of its treaty partners, in providing the guidance
enterprises need to plan for the future, in providing nondiscriminatory
treatment for U.S. traders and investors as compared to those of other
countries, and in meeting a minimum level of acceptability in comparison with
the preferred U.S. position and expressed goals of the business community.
Comparisons of a particular treaty's provisions with the U.S. Model or with
treaties with other countries may not in some cases provide an appropriate basis
for analyzing a treaty's value.
The treaties and protocols presently under
consideration represent a good illustration of the contribution of such
agreements to the economic competitiveness of U.S. companies and to the proper
administration of U.S. tax laws. Each of these treaties also includes important
advantages for the administration of U.S. tax laws. They offer the possibility
of administrative assistance between the relevant tax authorities. The treaties
also include modem safeguards against treaty-shopping in accordance with
established U.S. policy.Moreover, each of the new treaties contains two very
significant provisions of great importance. First, each treaty contains a
nondiscrimination article which ensures even-handed treatment of taxpayers by
both contracting states. Second, they contain a mutual agreement article which
ensures that each country lives up to its treaty obligations to avoid double
taxation.
Likewise, these treaties set international norms for the conduct
of administrative audits of transactions between affiliates and provides a
mechanism to resolve tax disputes. Without these, U.S. companies could not be
assured of protections against arbitrary tax assessments. These tax treaties
help create the environment for predictable tax treatment of cross-border
business transactions so necessary to successful global business enterprises.
Transactions in tangible goods, intangible goods including computer software,
information and services are more viable if the tax rules applied are consistent
and avoid double taxation. It is vital that these treaties be ratified so that
U.S.-based business can be better prepared to compete in an global marketplace.
Though all of the treaties before the Committee today are important and
serve to expand the tax treaty network of the United States, two of the treaties
before the Committee are especially important to U.S. business interests.
Republic of Venezuela
According to data received by NFTC, Venezuela is a
major destination for U.S.-based foreign investment, and the U.S. is a major
recipient of Venezuelan foreign investment. In fact, Venezuelan companies and
individuals have invested more than one-hundred billion dollars in the United
States. Venezuela exported more than $9.3 billion in trade to the U.S. in 1998,
and imported more that $6.5 billion that year. Venezuela is the second largest
importer and exporter to the U.S. in the Western Hemisphere outside of those
countries in the North American Free Trade Agreement (Brazil is first).
The
United States currently has no tax treaties in force and effect with countries
on the continent of South America. This remark bears emphasis. South American
countries, including Venezuela, consistently rank at or near the top of NFTC
surveys in their importance to U.S.- based companies. The U.S. is Venezuela's
most important trading partner, and many U.S.-based companies have a significant
stake in Venezuela, its economy and its people. If the treaty is ratified and
comes into force and effect, U.S. Venezuela business will be put onto the same
competitive footing that companies from other nations currently have in their
relationships in Venezuela. There are twelve other countries with whom Venezuela
currently has double taxation treaties.6
This treaty is extremely important,
as noted above, because of its importance to U.S.based companies and their
interests in Venezuela. It is perhaps even more critically important because its
ratification would tend to encourage more cooperation between the government of
Venezuela and that of the United States. Conversely, failure to ratify the
treaty may have important negative implications to that relationship. It is
difficult to overstate the importance of gaining a foothold in our treaty
network with South American countries, particularly in light of some of the
tensions that have sometimes existed between the U.S. and its neighbors and
friends to the south.
The NFTC congratulates the Treasury for its efforts to
persevere through difficult negotiations and changes in governments in Venezuela
to make this landmark treaty.
Italian Republic
The Treasury Department
is to be commended for modernizing tax treaties with our major trading partners
and specifically members of the European Union.
The new treaty with Italy
updates the existing treaty to reflect current tax policies in the United States
and Italy. The new treaty addresses the replacement of the Italian local income
tax (l'imposta locale sul redditi or "ILOR") by the new Italian regional tax on
productive activities (l'imposta regionale sulle attivat...produttive or
"IRAP"), revises the withholding rates for passive investment income for
residents of each country, and strengthens the administrative provisions. Our
economic relationship with the Italian Republic is one of our most important,
and the changes made by the treaty are beneficial and important to our companies
and workers.
Ratification of the treaties and protocols before the Committee
today continues the momentum that is needed to bring other nations into the U.S.
treaty network. It sends a continuing signal that the U.S. wishes to reduce and
eventually eliminate existing impediments to global business. The larger
business community hopes that side issues do not get in the way of a treaty
process that is working. We are extremely pleased that both the Executive Branch
and the Congress have given the tax treaties very high priority.
General
Comments on Tax Treaty Policy
The NFTC also wishes to emphasize how
important treaties are in creating, preserving, and implementing an
international consensus on the desirability of avoiding double taxation,
particularly with respect to transactions between related entities. The United
States, together with many of its treaty partners, has worked long and hard to
promote acceptance of the arm's length standard for pricing transactions between
related parties. The worldwide acceptance of this standard, which is reflected
in the intricate treaty network covering the United States and dozens of other
countries, is a tribute to our government's commitment to prevent conflicting
income measurements from leading to double taxation and the resulting
distortions and barriers for healthy international trade. Treaties are a crucial
element in achieving this goal, because they express both government's
commitment to the arm's length standard and provide the only available bilateral
mechanism, the competent authority procedure, to resolve overlapping claims.
The NFTC recognizes that determination of the appropriate arm's length
transfer price for the exchange of goods and services between related entities
is sometimes a complex task which can lead to good faith disagreements between
we!l-intentioned parties. Nevertheless, the points of international agreement on
the governing principles far outnumber any points of disagreement.
Indeed, after decades of close examination, governments around the world
agree that the arm's length principle is the best available standard for
determining the appropriate transfer price, because of both its economic
neutrality and its ability to be applied by taxpayers and revenue authorities
alike by reference to verifiable data.
The NFTC strongly supports the
efforts of the Internal Revenue Service and Treasury to promote continuing
international consensus on the appropriate transfer pricing standards. We
applaud the continuing growth of the Advance Pricing Agreement ("APA") program,
which is designed to achieve agreement between taxpayers and revenue authorities
on the proper pricing methodology to be used, before disputes arise. We commend
the Internal Revenue Services' efforts to refine and improve the competent
authority process under treaties, to make it a more efficient and reliable means
to avoid double taxation.
The NFTC supported the arbitration option in
earlier treaties with Germany, Mexico, and the Netherlands, and we urge that it
be readily available in those unusual cases where competent authority
negotiations prove unsuccessful.
These developments emphasize the
international consensus behind the arms-length standard. We cannot overemphasize
the potential damage we believe could result from any movement away from that
consensus.In fact, a recurring theme of our testimony is the importance of
considering the United States as a member of the world community of nations, and
the importance to United States business interests of providing harmony between
the tax system of the United States and that of other nations where United
States companies must conduct their business. The same is true as well for
foreign investors who invest capital in the United States.
The NFTC also
wishes to reaffirm its support for the existing procedure by which Treasury
consults on a regular basis with this Committee, the tax-writing Committees, and
the appropriate Congressional Staffs concerning treaty issues and negotiations
and the interaction between treaties and developing tax legislation. We
encourage all participants in such consultations to give them a high priority.
We also respectfully encourage this Committee to schedule tax treaty hearings,
if possible at least once a year, to enable improvements in the treaty network
to enter into effect as quickly as possible. The NFTC also wishes to reaffirm
its view, frequently voiced in the past, that Congress should avoid occasions of
overriding by subsequent domestic legislation the U.S. treaty commitments that
are approved by this Committee. We believe that consultation, negotiation, and
mutual agreement upon changes, rather than unilateral legislative abrogation of
treaty commitments, better supports the mutual goals of treaty partners.
Two
of the agreements before the Committee today, those with Italy and Slovenia,
have provisions that contain "main purpose" tests that do not appear in any
other U.S. treaties or the U.S. Model Treaty. Although NFTC does not support
inappropriate use of such treaties, the wording of these tests are vague and
unclear. The tests must be applied in a subjective way under treaty language
that may be difficult to change if they do not work as intended. The rules may
cause considerable uncertainty to taxpayers in the application of otherwise
available provisions of the treaties. The NFTC would hope that the Treasury
would not use its franchise to negotiate treaties as a way to achieve new
authority under new and untested general anti- avoidance rules, particularly
where the need for such rules has not been vetted in the public discourse or has
been refused by the Congress in other contexts. NFTC strongly supports the
immediate ratification of both treaties, but finds the inclusion of these test
provisions to be troubling.
In Conclusion
Again, the Council is grateful
to the Chairman and the Members of the Committee for giving international
economic relations prominence in the Committee's agenda. The NFTC appreciates
the opportunity to submit written comments on the treaties and protocols pending
before the Committee. We respectfully urge the Committee to proceed with
ratification of these treaties and the protocol as expeditiously as possible.
FOOTNOTES:
1 Convention Between the Government of the United States of
America and the Government of the Kingdom of Denmark for the Avoidance of Double
Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income
Signed at Washington, D.C., on the 19th Day of August, 1999, Together with a
Protocol Signed at the Same Time and Place; Convention Between the United States
of America and the Republic of Estonia for the Avoidance of Double Taxation and
the Prevention of Fiscal Evasion With Respect to Taxes on Income, Signed at
Washington, D.C., on the 15 Day of January, 1998; Protocol Signed at Washington,
D.C., on the 14th Day of December, 1998, Amending the Convention Between the
United States of America and Federal Republic of Germany For the Avoidance of
Double Taxation with Respect to Taxes on Estates, Inheritances, and Gifts,
Signed at Bonn on December 3, 1980; Convention Between the Government of the
United States of America and the Government of the Italian Republic for the
Avoidance of Double Taxation With Respect to Taxes on Income and the Prevention
of Fraud or Fiscal Evasion, Signed at Washington, D.C., on the 25th Day of
August, 1999, Together with a Protocol Signed at the Same Time and Place;
Convention Between the United States of America and the Republic of Latvia for
the Avoidance of Double Taxation and the Prevention of Fiscal Evasion With
Respect to Taxes on Income, Signed at Washington, D.C., on the 15th Day of
January, 1998; Convention Between the Government of the United States of America
and the Government of the Republic of Lithuania for the Avoidance of Double
Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income,
Signed at Washington, D.C., on the 15th Day of January, 1998; Convention Between
the United States of America and the Republic of Slovenia for the Avoidance of
Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on
Income and Capital, Signed at Ljubljana, on the 21st Day of June, 1999; And,
Convention Between the Government of the United States of America and The
Government of the Republic of Venezuela for the Avoidance of Double Taxation and
the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital,
Signed at Caracas on the 25th Day of January, 1999, Together with a Protocol
Signed at the Same Time and Place.
2 Continued robust exports by U.S. firms
in a wide variety of manufactures and especially advanced technological products
-- such as sophisticated computing and electronic products and cutting-edge
pharmaceuticals -- are critical for maintaining satisfactory rates of GDP growth
and the international competitiveness of the U.S. economy. Indeed, it is widely
acknowledged that strong export performance ranks among the primary forces
behind the economic well-being that U.S. workers and their families enjoy today,
and expect to continue to enjoy in the years ahead." Gary Hufbauer (Reginald
Jones Senior Fellow, Institute for International Economics) and Dean DeRosa
(Principal Economist, ADR International, Ltd.), "Costs and Benefits of the
Export Source Rule, 19982002," A Report Prepared for the Export Source
Coalition, February 19, 1997. For an extensive discussion of the importance of
foreign operations and cross-border trade and investment to the United States
and the effects of globalization of the world economy, see Ch. 5, "The NFTC
Foreign Income Project: International Tax
Policy for the 21st Century; Part One: A Reconsideration of Subpart F," National
Foreign Trade Council, Inc., Washington, D.C., March 25, 1999.
3 See, Fourth
Annual Report of the Trade Promotion Coordinating Committee (TPCC) on the
National Export Strategy: "Toward the Next Century: A U.S. Strategic Response to
Foreign Competitive Practices," October 1996, U.S. Department of Commerce, ISBN
0-16-048825-7; J. David Richardson and Karin Rindal, "Why Exports Matter:
More!," Institute for International Economics and the Manufacturing Institute,
Washington, D.C., February 1996.
4 The count is somewhat imprecise - e.g.,
the effects of the treaty with the former Union of Soviet Socialist Republics
and its effects on the former members of that Union are not considered (the
count may be increased by up to nine depending upon how such effects are
determined). Some treaties have been terminated in part, and there are a number
under active negotiation or renegotiation, or that have been signed but not
ratified.
5 The current international consensus favoring income tax treaties
is derived from sixty years of evolution, starting with the model income tax
treaty drafted by the League of Nations in 1927, culminating in its "London
Model" treaty in 1946, and carried on later by the United Nations, and the
Committee on Fiscal Affairs of the Organization for Economic Cooperation and
Development ("OECD"). The U.S. first signed a bilateral tax treaty in 1932 with
France, which treaty never went into force. The first effective treaty, also
with France, was signed July 25, 1939, and came into force on January 1, 1945.
6 Belgium, Czech Republic, France, Germany, Italy, Norway, Portugal, Sweden,
Switzerland, The Netherlands, Trinidad & Tobago, and the United Kingdom. (A
treaty with Mexico ratified by Venezuela is pending ratification by Mexico.)
END
LOAD-DATE: October 28, 1999
