U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

1

19–112

" SENATE ! 108TH CONGRESS

1st Session 

TREATY DOC. 

2003

108–3

SECOND ADDITIONAL PROTOCOL MODIFYING CONVENTION WITH MEXICO REGARDING DOUBLE TAXATION AND PREVENTION OF FISCAL EVASION

MESSAGE

FROM

THE PRESIDENT OF THE UNITED STATES

TRANSMITTING

SECOND ADDITIONAL PROTOCOL THAT MODIFIES THE CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED STATES OF 

AMERICA AND THE GOVERNMENT OF THE UNITED MEXICAN 

STATES FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE 

PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON 

INCOME, SIGNED AT MEXICO CITY ON NOVEMBER 26, 2002

FEBRUARY 25, 2003.—The Protocol was read the first time, and together 

with the accompanying papers, referred to the Committee on Foreign 

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


E:\Seals\Congress.#13
(III)

LETTER OF TRANSMITTAL 

THE WHITE HOUSE, February 25, 2003. 

To the Senate of the United States: 

I transmit herewith for Senate advice and consent to ratification, 

the Second Additional Protocol that Modifies the Convention Between the Government of the United States of America and the 

Government of the United Mexican States for the Avoidance of 

Double Taxation and the Prevention of Fiscal Evasion with Respect 

to Taxes on Income, signed at Mexico City on November 26, 2002. 

I also transmit, for the information of the Senate, the report of the 

Department of State concerning the proposed Protocol. 

The Convention, as amended by the proposed Protocol, would be 

similar to tax treaties between the United States and other developed nations. It would provide maximum rates of tax to be applied 

to various types of income and protection from double taxation of 

income. The Protocol was concluded in recognition of the importance of the United States economic relations with Mexico. 

I recommend that the Senate give early and favorable consideration to this Protocol, and that the Senate give its advice and consent to ratification.

GEORGE W. BUSH. 

(V)

LETTER OF SUBMITTAL 

DEPARTMENT OF STATE, 

Washington, February 12, 2003. 

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 Second Additional Protocol that Modifies the Convention 

between the Government of the United States of America and the 

Government of the United Mexican States for the Avoidance of 

Double Taxation and the Prevention of Fiscal Evasion with Respect 

to Taxes on Income, signed at Mexico City on November 26, 2002 

(the ‘‘Protocol’’). 

The proposed Protocol with Mexico was negotiated to bring the 

existing Income Tax Convention, concluded in 1992 with a Protocol 

and amended by an Additional Protocol in 1994, up to date and in 

closer conformity with current U.S. tax treaty policy. The Convention, as amended by the proposed Protocol, would provide for maximum rates of tax to be applied to various types of income and protection from double taxation of income. The withholding tax rates 

on investment income in the proposed Protocol are the same or 

lower than those in the existing Convention.

Pursuant to Article II of the proposed Protocol, replacing Article 

10 of the existing Convention, new withholding rates are applicable 

to certain dividends. The proposed Protocol provides a withholding 

tax rate of zero on dividends from certain 80-percent owned corporate subsidiaries as well as dividends paid to qualified pension 

funds. Under the existing Convention, direct dividends meeting a 

10-percent ownership threshold are subject to a 5-percent maximum rate of withholding tax, and portfolio dividends are subject 

to a 10-percent maximum rate of withholding tax. These rates will 

continue to apply under the Convention as amended by the proposed Protocol. 

This would be only the third U.S. income tax treaty to provide 

an exemption from withholding taxes for certain direct dividends—

the others being the recent Income Tax Convention with the 

United Kingdom and the recent Protocol amending our Income Tax 

Convention with Australia, which are now pending before the Senate Foreign Relations Committee. Both the United States and Mexico share an understanding that the existing Income Tax Convention will be promptly amended if the United States concludes a 

treaty with a lower withholding rate on dividends with any other 

country. Therefore, ratification of the proposed Protocol is consistent with this understanding, given that we would simultaneously be seeking ratification of the U.K. and Australia treaties. 

The maximum rates of withholding tax on dividends are subject 

to the standard anti-abuse rules for certain classes of investment 

VI

income found in other U.S. tax treaties and agreements. In addition, the withholding rates described above do not apply if the beneficial owner of the dividend 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 proposed Protocol brings the Convention into conformity 

with current U.S. tax treaty policy as to the treatment of dividends 

paid by U.S. regulated investment companies (RICs) and real estate investment trusts (REITs). The Protocol reflects a change in 

approach, adopted in 1997, which is intended to prevent the use of 

structures designed to avoid U.S. withholding tax on outbound dividends while providing appropriate benefits to portfolio investors in 

RICs and REITs. 

The existing Convention preserves the U.S. right to tax former 

citizens whose loss of citizenship had, as one of its principal purposes, the avoidance of tax. Article I of the proposed Protocol expands this right to include former long-term residents whose loss 

of such status had, as one of its principal purposes, the avoidance 

of tax. 

For purposes of applying rules regarding the elimination of double taxation, the proposed Protocol provides an updated provision 

regarding the source of income. Pursuant to Article V of the proposed Protocol, income that may be taxed by one of the parties to 

the Convention in accordance with the treaty will generally be 

treated as arising in that country. Thus, the other country will generally exempt that income from taxation or provide a credit for the 

taxes paid with respect to such income. 

The United States and Mexico will notify each other, through 

diplomatic channels, when their respective constitutional and statutory requirements for entry into force have been satisfied. In accordance with Article VI, the proposed Protocol will enter into force 

on the date of receipt of the later of such notifications. The proposed Protocol will have effect, with respect to taxes withheld at 

source on dividends, for dividends paid or credited on or after the 

first day of the second month next following the date on which the 

proposed Protocol enters into force. The effective date for all other 

types of taxes is for taxable periods beginning on or after the first 

day of January of the year following the year in which the proposed 

Protocol enters into force. 

The Department of the Treasury and the Department of State cooperated in the negotiation of the proposed Protocol. It has the full 

approval of both Departments. 

Respectfully submitted. 

COLIN L. POWELL. 

(1)


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