U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

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69–118

" ! SENATE 106TH CONGRESS

1st Session

TREATY DOC.

1999

106–3

TAX CONVENTION WITH VENEZUELA

MESSAGE

FROM

THE PRESIDENT OF THE UNITED STATES

TRANSMITTING

THE 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 JANUARY 25, 1999

JUNE 29, 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, June 29, 1999.

To the Senate of the United States:

I transmit herewith for Senate advice and consent to ratification

the 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, together with a Protocol, signed at Caracas on January 25, 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 other developing nations, provides maximum

rates of tax to be applied to various types of income and protection

from double taxation of income. The Convention also provides for

resolution of disputes an sets forth rules making its benefits unavailable to residents that are engaged in treaty shopping.

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, DC.

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 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, together

with a Protocol, signed at Caracas on January 25, 1999 (‘‘the Convention’’).

This Convention will be the first such Convention between the

United States of America and the Republic of Venezuela. This Convention generally follows the pattern of the 1996 U.S. Model Tax

Convention while incorporating some provisions found in recent tax

treaties between the United States and developing nations. 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, and it contains rules making its benefits unavailable

to persons who are engaged in treaty shopping. The proposed withholding rates, while in some respects higher than those in the U.S.

Model, are the same as those in other U.S. treaties with developing

countries and other Venezuela tax treaties. Also, the withholding

rates reflect Venezuela’s territorial system of taxation and the objective of establishing an adequate single level of tax on cross-border investment income. 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).

Pursuant to Article 10, dividends from direct investments are

subject to tax by the source country at a maximum rate of five percent. The ownership threshold for direct investment is ten percent,

consistent with other modern U.S. tax treaties, in order to facilitate

direct investment. Other dividends are generally taxable at 15 percent. Under Article 12, royalties for the use of industrial, commercial, or scientific equipment derived and beneficially owned by a

resident of a Contracting State are subject to tax at a maximum

rate of five percent by the source country; all other royalties are

subject to tax at a maximum rate of ten percent.

Under Article 11 of the proposed Convention, most interest arising in one Contracting State and owned by a resident of the other
VI

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

maximum rate of ten percent. However, interest income received by

a financial institution (including an insurance company) is subject

to tax at a maximum rate of 4.95 percent, and interest earned on

government debt and debt guaranteed by government agencies is

exempt from taxation 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

State who carries on business in the other Contracting State and

the income is attributable to a permanent establishment or fixed

base situated in that other State. 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 a payment for 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 the Convention follows the format of the U.S. Model. Gains and income derived from the sale of real property and from real property interests may be taxed by the State in which the property is located.

Likewise, gains or income from the sale of personal property, if attributable to a fixed base or permanent establishment situated in

a Contracting State, may be taxed in that State. All other gains,

including gains from the sale of ships, aircraft and containers, and

gains from the sale of stock in a corporation, are taxable only in

the State of residence of the seller.

Article 7 of the proposed Convention generally follows the standard rules for taxation by one country of the business profits of a

resident of the other. The source 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. As do all recent U.S. treaties, this Convention preserves the right of the

United States to impose its branch taxes in addition to the basic

corporate tax on a branch’s business.

Under Article 8 of the proposed Convention, income from the operation of ships and aircraft in international traffic and from the

use, maintenance or rental of containers used in international traffic is taxed in a manner consistent with the U.S. Model. Article 8

permits only the country of residence to tax 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 the proposed Convention.

The taxation of income from the performance of personal services

under Articles 14 through 16 of the New Convention is essentially

the same as that under recent U.S. treaties with some developing

countries but grants a taxing right to the host country with respect

to such income that is broader than in the OECD or U.S. Model

treaties.
VII

Article 17 of the proposed Convention contains significant antitreaty-shopping rules making its benefits unavailable to persons

engaged in treaty-shopping.

Rules necessary for administration, including rules for the resolution of disputes under the Convention and for exchange of information, are contained in Articles 26 and 27.

The Convention would permit the General Accounting Office and

the tax-writing committees of Congress to obtain access to certain

tax information exchanged under the Convention for use in their

oversight of the administration of U.S. tax laws.

This Convention is subject to ratification. In accordance with the

provisions of Article 29, it will enter into force when the Governments notify each other through diplomatic channels that their

constitutional requirements for entry into force have been met. It

will have effect for payments made or credit on or after the first

day of January following entry into force with respect to taxes

withheld by the source country; 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.

The proposed convention will remain in force indefinitely unless

terminated by one of the Contracting States, pursuant to Article

30. At any time after five years from the date on which the Convention enters into force, either Contracting State may terminate

the Convention as of the end of a calendar year by giving notice

of the termination through diplomatic channels at least six months

prior to the end of that calendar year.

A Protocol accompanies and forms an integral part of the Convention.

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,

MADELINE ALBRIGHT.

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