U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

1 

49–112 ★ (Star Print) 

" ! SENATE 109TH CONGRESS

2d Session 

TREATY DOC. 

2006

109–20 

PROTOCOL AMENDING TAX CONVENTION WITH 

GERMANY 

MESSAGE 

FROM

THE PRESIDENT OF THE UNITED STATES 

TRANSMITTING

PROTOCOL AMENDING THE CONVENTION BETWEEN THE UNITED 

STATES OF AMERICA AND THE FEDERAL REPUBLIC OF GERMANY FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE 

PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON 

INCOME AND CAPITAL AND TO CERTAIN OTHER TAXES, SIGNED 

ON AUGUST 29, 1989, SIGNED AT BERLIN JUNE 1, 2006 (THE 

‘‘PROTOCOL’’), ALONG WITH A RELATED JOINT DECLARATION 

SEPTEMBER 29, 2006.—Protocol was read the first time, and together with 

the accompanying papers, referred to the Committee on Foreign Relations and order to be printed for the use of the Senate 


cprice-sewell on PROD1PC71 with HEARINGE:\Seals\Congress.#13

cprice-sewell on PROD1PC71 with HEARING
(III)

LETTER OF TRANSMITTAL 

THE WHITE HOUSE, September 29, 2006. 

To the Senate of the United States: 

I transmit herewith, for Senate advice and consent to ratification, a Protocol Amending the Convention Between the United 

States of America and the Federal Republic of Germany for the 

Avoidance of Double Taxation and the Prevention of Fiscal Evasion 

with Respect to Taxes on Income and Capital and to Certain Other 

Taxes, Signed on August 29, 1989, signed at Berlin June 1, 2006 

(the ‘‘Protocol’’), along with a related Joint Declaration. Also transmitted for the information of the Senate is the report of the Department of State with respect to the Protocol. 

The Protocol eliminates the withholding tax on certain cross-border dividend payments. Like a number of recent U.S. tax agreements, the proposed Protocol provides for the elimination of the 

withholding tax on dividends arising from certain direct investments and cross-border dividend payments to pension funds. The 

Protocol also provides for mandatory arbitration of certain cases before the competent authorities. This provision is the first of its kind 

in a U.S. tax treaty. In addition, the Protocol also modernizes the 

Convention to bring it into closer conformity with current U.S. taxtreaty policy, including strengthening the treaty’s provisons preventing so-called treaty shopping. 

I recommend that the Senate give early and favorable consideration to the Protocol, along with the Joint Declaration and give it 

advice and consent to ratification. 

GEORGE W. BUSH. 


cprice-sewell on PROD1PC71 with HEARING

cprice-sewell on PROD1PC71 with HEARING
(V)

LETTER OF SUBMITTAL 

DEPARTMENT OF STATE, 

Washington, August 2, 2006. 

The PRESIDENT, The White House. 

THE PRESIDENT: I have the honor to submit to you, with a view 

to its transmission to the Senate for advice and consent to ratification, a Protocol Amending the Convention Between the United 

States of America and the Federal Republic of Germany for the 

avoidance of Double Taxation and the Prevention of Fiscal Evasion 

with Respect to Taxes on Income and Capital and to Certain Other 

Taxes, Signed on 29th August 1989, signed at Berlin June 1, 2006 

(the ‘‘Protocol’’), along with a related Joint Declaration. 

The Protocol eliminates the withholding tax on certain cross-border dividend payments. Like a number of recent U.S. tax agreements, the Protocol provides for the elimination of the withholding 

tax on dividends arising from certain direct investments and crossborder dividend payments to pension funds. 

The Protocol also provides for mandatory arbitration of certain 

cases before the competent authorities. This provision is the first 

of its kind in a U.S. tax treaty. In addition, the Protocol modernizes 

the Convention to bring into closer conformity with current U.S. 

tax-treaty policy, including strengthening the treaty’s provisions 

preventing so-called treaty shopping. 

The Protocol was concluded in recognition of the importance of 

the United States’ economic relations with Germany. The Department of the Treasury and the Department of State cooperated in 

the negotiation of the Protocol. It has the full approval of both Departments. 

Respectfully submitted. 

CONDOLEEZZA RICE. 

Enclosures. 

KEY PROVISIONS OF THE U.S.-GERMANY INCOME TAX PROTOCOL

The Protocol to the income tax Convention with Germany was 

negotiated to bring the current Convention, concluded in 1989, into 

closer conformity with current U.S. tax treaty policy. There are, as 

with all bilateral tax conventions, some variations from these 

norms. In the Protocol, these differences reflect particular aspects 

of German law and treaty policy, the interaction of U.S. and German law, and U.S.-German economic relations. 

The most important aspect of the Protocol relates to the taxation 

of cross-border dividend payments. Under the Protocol, most dividends paid by a subsidiary in one country to its parent in the other 


cprice-sewell on PROD1PC71 with HEARING
VI

country will be exempt from withholding tax in the subsidiary’s 

home country, rather than being subject to the current treaty’s 

maximum withholding tax rate for direct dividends of five percent. 

The proposed Protocol also provides for a withholding rate of zero 

on cross-border dividend payments to pension funds. Eliminating 

withholding taxes on cross-border direct dividends and cross-border 

dividend payments to pension funds is consistent with an overall 

view that investment income should be taxed by the country of residence, not the country of source. 

The Protocol also provides for mandatory arbitration of certain 

cases before the competent authorities. The arbitration provided for 

in the Protocol is at the taxpayer’s election with respect to competent authority cases that cannot be resolved within a specified 

period, generally two years from the commencement of the case. 

The determination of an arbitration board constitutes a resolution 

by mutual agreement under the Convention and is binding on both 

countries, unless the taxpayer does not accept the determination. 

This provision is the first of its kind in a U.S. tax treaty and will 

be well received by the business community. 

In addition, the Protocol also updates the current treaty’s treatment of pensions. It removes barriers to the flow of personal services between the United States and Germany that could otherwise 

result from discontinuities in the laws of the two countries regarding the deductibility of pension contributions. 

The Protocol also strengthens the treaty’s provisions preventing 

so-called treaty shopping, which is the inappropriate use of a tax 

treaty by third-country residents. 

Moreover, the Protocol updates the current treaty to reflect U.S. 

and German legislative changes since 1989. For example, the Protocol updates the ‘‘saving clause’’ to provide that former citizens or 

long-term residents of the United States may, for the period of ten 

years following the loss of such status, be taxed in accordance with 

the laws of the United States. 

The Protocol also modernizes our treaty relationship and brings 

it into closer conformity with current U.S. tax treaty policy by making technical changes to the article dealing with the elimination of 

double taxation and by eliminating the article dealing with the taxation of independent personal services. 

The proposed Protocol will enter into force upon the exchange of 

instruments of ratification. It will have effect, with respect to taxes 

withheld at source, for amounts paid or credited on or after the 

first day of January of the year upon which the Protocol enters into 

force and, with respect to other taxes, for taxable years beginning 

on or after the first day of January next following the date upon 

which the Protocol enters into force. However, where any person 

would be entitled to greater benefits under the Convention as unmodified by the Protocol, the Convention as unmodified, at the election of the person, continues to have effect in its entirety with respect to such person for a period of twelve-months from the date 

the provisions of the Protocol are effective. 


cprice-sewell on PROD1PC71 with HEARING
(1) 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 242 here TD20.001
2 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 243 here TD20.002
3 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 244 here TD20.003
4 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 245 here TD20.004
5 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 246 here TD20.005
6 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 247 here TD20.006
7 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 248 here TD20.007
8 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 249 here TD20.008
9 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 250 here TD20.009
10 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 251 here TD20.010
11 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 252 here TD20.011
12 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 253 here TD20.012
13 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 254 here TD20.013
14 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 255 here TD20.014
15 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 256 here TD20.015
16 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 257 here TD20.016
17 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 258 here TD20.017
18 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 259 here TD20.018
19 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 260 here TD20.019
20 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 261 here TD20.020
21 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 262 here TD20.021
22 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 263 here TD20.022
23 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 264 here TD20.023
24 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 265 here TD20.024
25 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 266 here TD20.025
26 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 267 here TD20.026
27 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 268 here TD20.027
28 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 269 here TD20.028
29 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 270 here TD20.029
30 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 271 here TD20.030
31 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 272 here TD20.031
32 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 273 here TD20.032
33 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 274 here TD20.033
34 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 275 here TD20.034
35 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 276 here TD20.035
36 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 277 here TD20.036
37 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 278 here TD20.037
38 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 279 here TD20.038
39 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 280 here TD20.039
40 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 281 here TD20.040
41 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 282/304 here TD20.041
42 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 0 1 here TD20.042
43 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 0 2 here TD20.043
44 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 0 3 here TD20.044
45 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 0 4 here TD20.045
46 


cprice-sewell on PROD1PC71 with HEARINGInsert graphic folio 0 5 here TD20.046