U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

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69–112

" ! SENATE 106TH CONGRESS

1st Session

TREATY DOC.

1999

106–9

TAX CONVENTION WITH SLOVENIA

MESSAGE

FROM

THE PRESIDENT OF THE UNITED STATES

TRANSMITTING

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 JUNE 21, 1999

SEPTEMBER 13, 1999.—Convention was read the first time, and together

with the accompanying papers, referred to the Committee on Foreign

Relations and ordered to be printed for the use of the Senate.

(III)

LETTER OF TRANSMITTAL

THE WHITE HOUSE, September 13, 1999.

To the Senate of the United States:

I transmit herewith for Senate advice and consent to ratification

the 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 June 21, 1999. Also transmitted is

the report of the Department of State concerning the Convention.

This Convention, which is similar to tax treaties between the

United States and OECD nations, provides maximum rates of tax

to be applied to various types of income and protection from double

taxation of income. This Convention also provides for resolution of

disputes and sets forth rules making its benefits unavailable to

residents who are engaged in treaty-shopping or with respect to

certain abusive transactions.

I recommend that the Senate give early and favorable consideration to this Convention and that the Senate give its advice and

consent to ratification.

WILLIAM J. CLINTON.

(V)

LETTER OF SUBMITTAL

DEPARTMENT OF STATE, Washington, August 10, 1999.

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, the 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 June 21, 1999 (‘‘the Convention’’).

This Convention will be the first such convention between the

United States of America and the Republic of Slovenia. This Convention generally follows the patterns of the U.S. Model Tax Treaty

while incorporating some provisions found in the OECD Model

Treaty. It provides for maximum rates of tax to be applied to various types of income, protection from double taxation of income,

and exchange of information. It also contains rules making its benefits unavailable to persons who are engaged in treaty shopping

and new provisions denying benefits in the case of certain abusive

transactions. Like other U.S. tax conventions, this Convention provides rules specifying when income that arises in one of the countries and is attributable to residents of the other country may be

taxed by the country in which the income arises (the ‘‘source’’ country).

The withholding rates on investment income under the new Convention generally are consistent with those found in treaties with

OECD member countries. Pursuant to Article 10, dividends from

direct investments are subject to tax by the source country at a

rate of five percent. The threshold criterion for direct investment

is 25 percent. Other dividends are generally taxable at 15 percent.

Under Article 12, royalties arising in one Contracting State and

owned by a resident of the other Contracting State are subject to

a five-percent tax by the source country.

Under Article 11 of this Convention, interest arising in one Contracting State and earned by a resident of the other Contracting

State is subject to taxation by the source country at a maximum

rate of five percent. However, interest received, guaranteed or insured by the government or central bank of either Contracting

State and interest with respect to deferred payment for personal

property or services is exempt from withholding by the source

country.

The reduced withholding rates described above do not apply if

the beneficial owner of the income is a resident of one Contracting
VI

State who carries on business in the other Contracting State in

which the income arises and the income is attributable to a permanent establishment or fixed base. If the income is attributable to

a permanent establishment, it will be taxed as business profits,

and if the income is attributable to a fixed base, it will be taxed

as independent personal services.

The maximum rates of withholding tax described in the preceding paragraphs are subject to the standard anti-abuse rules for

certain classes of investment income found in other U.S. tax treaties and agreements.

The taxation of capital gains, described in Article 13 of this Convention, generally follows the rule of recent U.S. tax treaties and

the U.S. Model. Gains on real property (immovable property) are

taxable in the country in which the property is located, and gains

from the sale of personal property are taxed only in the State of

residence of the seller, unless attributable to a permanent establishment or fixed base in the other State.

Article 7 of this Convention generally follows the standard rules

for taxation by one country of the business profits of a resident of

the other. The non-residence country’s right to tax such profits is

generally limited to cases in which the profits are attributable to

a permanent establishment located in that country. Article 10 of

this Convention, like similar provisions in several recent U.S. treaties, preserves the right of the United States to impose its branch

taxes in addition to the basic corporate tax on a branch’s business.

Article 8 of the proposed Convention, regarding the taxation of

income from the operation of the ships and aircraft in international

traffic and from the use, maintenance or rental of containers used

in international traffic, is fully consistent with the U.S. Model. This

Convention provides for exclusive residence-country taxation of

profits from the international operation of ships or aircraft, including profits from the rental of ships and aircraft when the ship or

aircraft is operated by the lessee in international traffic or when

the rental activity is incidental to the operation of ships or aircraft

by the lessor. All income from the use, maintenance or rental of

containers used in international traffic is likewise exempt from

source-country taxation under this Convention.

The taxation of income from the performance of personal services

under Articles 14 through 17 of this Convention generally follows

standard U.S. treaty policy. The dollar threshold for taxation of

athletes and entertainers is slightly lower than in the U.S. Model

Treaty because of the lower average income level in Slovenia. Also,

certain host-country exemptions are available to visiting students,

trainees, professors, and researchers (Article 20).

Article 22 of this Convention contains significant anti-treatyshopping rules making its benefits unavailable to persons engaged

in treaty-shopping. In addition, this Convention contains new provisions aimed at preventing abuse with respect to specific transactions. Under these new provisions, a person otherwise entitled to

treaty benefits will be denied those benefits if the main purpose or

one of the main purposes of the creation or assignment of the

rights giving rise to the income was to take advantage of the treaty.
VII

This Convention also contains rules necessary for its administration, including rules for the resolution of disputes under the Convention (Article 25) and for exchange of information (Article 26).

The Convention would permit the General Accounting Office and

the tax-writing committees of Congress (and analogous Slovenian

authorities) to obtain access to certain tax information exchanged

under the Convention for use in their oversight of the administration of tax laws.

This Convention is subject to ratification. In accordance with the

provisions of Article 29, it will enter into force upon the exchange

of instruments of ratification. With respect to taxes withheld at

source, it will take effect for payments made or credited on or after

the first day of the third month following the date on which the

Convention comes into force; with respect to other taxes, the Convention will take effect for taxable periods beginning on or after the

first day of January following the date on which the Convention enters into force.

This Convention, once ratified, will remain in force indefinitely

unless terminated by one of the Contracting States, pursuant to

Article 30. That Article provides that either State may terminate

the Convention by giving prior notice through diplomatic channels.

The Department of the Treasury and the Department of State cooperated in the negotiation of the Convention. It has the full approval of both Departments.

Respectfully submitted,

MADELEINE ALBRIGHT.

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