1

DEPARTMENT OF THE TREASURY TECHNICAL EXPLANATION OF THE 

PROTOCOL SIGNED AT WASHINGTON ON SEPTEMBER 23, 2009 AMENDING 

THE CONVENTION BETWEEN THE UNITED STATES OF AMERICA AND THE 

SWISS CONFEDERATION FOR THE AVOIDANCE OF DOUBLE TAXATION AND 

THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON 

INCOME, SIGNED AT WASHINGTON ON OCTOBER 2, 1996, AS AMENDED BY 

THE PROTOCOL SIGNED ON OCTOBER 2, 1996

 

 

This is a Technical Explanation of the Protocol signed at Washington on 

September 23, 2009 and the related Exchange of Notes (hereinafter the “Protocol” and 

“Exchange of Notes” respectively), amending the Convention between the United States 

of America and the Swiss Confederation for the avoidance of double taxation and the 

prevention of fiscal evasion with respect to taxes on income, signed at Washington on 

October 2, 1996 as amended by the Protocol also signed on October 2, 1996 (together, 

the "existing Convention"). 

 

 Negotiations took into account the U.S. Department of the Treasury’s current tax 

treaty policy and the Treasury Department’s Model Income Tax Convention, published 

on November 15, 2006 (the "U.S. Model"). Negotiations also took into account the 

Model Tax Convention on Income and on Capital, published by the Organisation for 

Economic Cooperation and Development (the "OECD Model"), and recent tax treaties 

concluded by both countries. 

 

 This Technical Explanation is an official guide to the Protocol and Exchange of 

Notes. It explains policies behind particular provisions, as well as understandings 

reached during the negotiations with respect to the interpretation and application of the 

Protocol and the Exchange of Notes. 

References to the existing Convention are intended to put various provisions of 

the Protocol into context. The Technical Explanation does not, however, provide a 

complete comparison between the provisions of the existing Convention and the 

amendments made by the Protocol and Exchange of Notes. The Technical Explanation is 

not intended to provide a complete guide to the existing Convention as amended by the 

Protocol and Exchange of Notes. To the extent that the existing Convention has not been 

amended by the Protocol and Exchange of Notes, the technical explanation of the 

Convention signed at Washington on October 2, 1996 and the Protocol signed on also 

signed on October 2, 1996 remains the official explanation. References in this Technical 

Explanation to "he" or "his" should be read to mean "he or she" or "his or her." 

References to the “Code” are to the Internal Revenue Code of 1986, as amended. 

The Exchange of Notes relates to the implementation of new paragraphs 6 and 7 

of Article 25 (Mutual Agreement Procedure), which provide for binding arbitration of 

certain disputes between the competent authorities. 
 

2

Article 1 

 

Article 1 of the Protocol revises Article 10 (Dividends) of the existing Convention 

by restating paragraph 3. New paragraph 3 provides that dividends paid by a company 

resident in a Contracting State shall be exempt from tax in that State if the dividends are 

paid to and beneficially owned by a pension or other retirement arrangement which is a 

resident of the other Contracting State, or an individual retirement savings plan set up in 

and owned by a resident of the other Contracting State, and the competent authorities of 

the Contracting States agree that the pension or retirement arrangement, or the individual 

retirement savings plan, in a Contracting State generally corresponds to a pension or 

other retirement arrangement, or to an individual retirement savings plan, recognized for 

tax purposes in the other Contracting State. 

The exemption from tax provided in new paragraph 3 shall not apply if the 

pension or retirement arrangement or the individual retirement savings plan receiving the 

dividend controls the company paying the dividend. Additionally, in order to qualify for 

the benefits of new paragraph 3, a pension or retirement arrangement or individual 

retirement savings plan must satisfy the requirements of paragraph 2 of Article 22 

(Limitation on Benefits). 

Article 2

 Article 2 of the Protocol replaces paragraph 6 of Article 25 (Mutual Agreement 

Procedure) of the existing Convention with new paragraphs 6 and 7. New paragraphs 6 

and 7 provide a mandatory binding arbitration proceeding. Paragraph 1 of the Exchange 

of Notes provides that binding arbitration will be used to determine the application of the 

Convention in respect of any case where the competent authorities have endeavored but 

are unable to reach an agreement under Article 25 regarding such application (the 

competent authorities may, however, agree that the particular case is not suitable for 

determination by arbitration. Paragraph 1 of the Exchange of Notes provides additional 

rules and procedures that apply to a case considered under the arbitration provisions. 

 New paragraph 6 provides that a case shall be resolved through arbitration when 

the competent authorities have endeavored but are unable to reach a complete agreement 

regarding a case and the following three conditions are satisfied. First, tax returns have 

been filed with at least one of the Contracting States with respect to the taxable years at 

issue in the case. Second, the case is not a case that the competent authorities agree 

before the date on which arbitration proceedings would otherwise have begun, is not 

suitable for determination by arbitration. Third, all concerned persons and their 

authorized representatives agree, according to the provisions of new subparagraph 7)d), 

not to disclose to any other person any information received during the course of the 

arbitration proceeding from either Contracting State or the arbitration board, other than 

the determination of the board (confidentiality agreement). The confidentiality 

agreement may also be executed by any concerned person that has the legal authority to 

bind any other concerned person on the matter. For example, a parent corporation with 

the legal authority to bind its subsidiary with respect to confidentiality may execute a 
 

3

comprehensive confidentiality agreement on its own behalf and that of its subsidiary. 

New paragraph 6 provides that an unresolved case shall not be submitted to 

arbitration if a decision on such case has already been rendered by a court or 

administrative tribunal of either Contracting State. 

New paragraph 7 provides additional rules and definitions to be used in applying 

the arbitration provisions. Subparagraph 7)a) provides that the term “concerned person” 

means the person that brought the case to competent authority for consideration under 

Article 25 and includes all other persons, if any, whose tax liability to either Contracting 

State may be directly affected by a mutual agreement arising from that consideration. 

For example, a concerned person does not only include a U.S. corporation that brings a 

transfer pricing case with respect to a transaction entered into with its Swiss subsidiary 

for resolution to the U.S. competent authority, but also the Swiss subsidiary, which may 

have a correlative adjustment as a result of the resolution of the case. 

Subparagraph 7)c) provides that an arbitration proceeding begins on the later of 

two dates: two years from the commencement date of that case (unless both competent 

authorities have previously agreed to a different date), or the earliest date upon which all 

concerned persons have entered into a confidentiality agreement and the agreements have 

been received by both competent authorities. The commencement date of the case is 

defined by subparagraph 7)b) as the earliest date on which the information necessary to 

undertake substantive consideration for a mutual agreement has been received by both 

competent authorities. 

Subparagraph 1)c) of the Exchange of Notes provides that notwithstanding the 

initiation of an arbitration proceeding, the competent authorities may reach a mutual 

agreement to resolve the case and terminate the arbitration proceeding. Correspondingly, 

a concerned person may withdraw its request for the competent authorities to engage in 

the Mutual Agreement Procedure and thereby terminate the arbitration proceeding at any 

time. 

Subparagraph 1)p) of the Exchange of Notes provides that each competent 

authority will confirm in writing to the other competent authority and to the concerned 

persons the date of its receipt of the information necessary to undertake substantive 

consideration for a mutual agreement. Such information will be submitted to the 

competent authorities under relevant internal rules and procedures of each of the 

Contracting States. The information will not be considered received until both competent 

authorities have received copies of all materials submitted to either Contracting State by 

concerned persons in connection with the mutual agreement procedure. 

The Exchange of Notes provides several procedural rules once an arbitration 

proceeding under paragraph 6 of Article 25 has commenced, but the competent 

authorities may complete these rules as necessary. In addition, as provided in 

subparagraph 1)f) of the Exchange of Notes, the arbitration panel may adopt any 

procedures necessary for the conduct of its business, provided the procedures are not 
 

4

inconsistent with any provision of Article 25 or of the Exchange of Notes. 

Subparagraph 1)e) of the Exchange of Notes provides that each Contracting State 

has 90 days from the date on which the arbitration proceeding begins to send a written 

communication to the other Contracting State appointing one member of the arbitration 

panel. The members of the arbitration panel shall not be employees of the tax 

administration which appoints them. Within 60 days of the date the second of such 

communications is sent, these two board members will appoint a third member to serve 

as the chair of the panel. The competent authorities will develop a non-exclusive list of 

individuals familiar in international tax matters who may potentially serve as the chair of 

the panel, but in any case, the chair can not be a citizen or resident of either Contracting 

State. In the event that the two members appointed by the Contracting States fail to agree 

on the third member by the requisite date, these members will be dismissed and each 

Contracting State will appoint a new member of the panel within 30 days of the dismissal 

of the original members. 

Subparagraph1)g) of the Exchange of Notes establishes deadlines for submission 

of materials by the Contracting States to the arbitration panel. Each competent authority 

has 60 days from the date of appointment of the chair to submit a Proposed Resolution 

describing the proposed disposition of the specific monetary amounts of income, expense 

or taxation at issue in the case, and a supporting Position Paper. Copies of each State’s 

submissions are to be provided by the panel to the other Contracting State on the date on 

which the later of the submissions is submitted to the panel. Each of the Contracting 

States may submit a Reply Submission to the panel within 120 days of the appointment 

of the chair to address points raised in the other State’s Proposed Resolution or Position 

Paper. If one Contracting State fails to submit a Proposed Resolution within the requisite 

time, the Proposed Resolution of the other Contracting State is deemed to be the 

determination of the arbitration panel in the case and the arbitration proceeding will be 

terminated. Additional information may be supplied to the arbitration panel by a 

Contracting State only at the panel’s request. The panel will provide copies of any such 

requested information, along with the panel’s request, to the other Contracting State on 

the date on which the request or response is submitted. All communication from the 

Contracting States to the panel, and vice versa, is to be in writing between the chair of the 

panel and the designated competent authorities with the exception of communication 

regarding logistical matters. 

Subparagraph 1)h) of the Exchange of Notes provides that the presenter of the 

case to the competent authority of a Contracting State may submit a Position Paper to the 

panel for consideration by the panel. The Position Paper must be submitted within 90 

days of the appointment of the chair, and the panel will provide copies of the Position 

Paper to the Contracting States on the date on which the later of the submissions of the 

Contracting States is submitted to the panel. 

Subparagraph 1)i) of the Exchange of Notes provides that the arbitration panel 

must deliver a determination in writing to the Contracting States within six months of the 

appointment of the chair. The determination must be one of the two Proposed 
 

5

Resolutions submitted by the Contracting States. Subparagraph 1)b) of the Exchange of 

Notes provides that the determination may only provide a determination regarding the 

amount of income, expense or tax reportable to the Contracting States. The 

determination has no precedential value, and consequently the rationale behind a panel’s 

determination would not be beneficial and may not be provided by the panel. 

Subparagraphs 1)j) and 1)k) of the Exchange of Notes provide that unless any 

concerned person does not accept the decision of the arbitration panel, the determination 

of the panel constitutes a resolution by mutual agreement under Article 25 and, 

consequently, is binding on both Contracting States. Within 30 days of receiving the 

determination from the competent authority to which the case was first presented, each 

concerned person must advise that competent authority whether the person accepts the 

determination. In addition, if the case is in litigation, each concerned person who is a 

party to the litigation must also advise, within the same time frame, the court of its 

acceptance of the arbitration determination, and withdraw from the litigation the issues 

resolved by the arbitration proceeding. If any concerned person fails to advise the 

competent authority and relevant court within the requisite time, such failure is 

considered a rejection of the determination. If a determination is rejected, the case cannot 

be the subject of a subsequent arbitration proceeding. 

For purposes of the arbitration proceeding, the members of the arbitration panel 

and their staffs shall be considered “persons or authorities” to whom information may be 

disclosed under Article 26 (Exchange of Information). Subparagraph 1)n) of the 

Exchange of Notes provides that all materials prepared in the course of, or relating to the 

arbitration proceeding are considered information exchanged between the Contracting 

States. No information relating to the arbitration proceeding or the panel’s determination 

may be disclosed by members of the arbitration panel or their staffs or by either 

competent authority, except as permitted by the Convention and the domestic laws of the 

Contracting States. Members of the arbitration panel and their staffs must agree in 

statements sent to each of the Contracting States in confirmation of their appointment to 

the arbitration board to abide by and be subject to the confidentiality and nondisclosure 

provisions of Article 26 of the Convention and the applicable domestic laws of the 

Contracting States, with the most restrictive of the provisions applying. 

 

 Subparagraph 1)m) of the Exchange of Notes provides that the applicable 

domestic law of the Contracting States determines the treatment of any interest or 

penalties associated with a competent authority agreement achieved through arbitration. 

 Subparagraph 1)l) of the Exchange of Notes provides that any meetings of the 

arbitration panel shall be in facilities provided by the Contracting State whose competent 

authority initiated the mutual agreement proceedings in the case. Subparagraph 1)o) of 

the Exchange of Notes provides that fees and expenses are borne equally by the 

Contracting States, including the cost of translation services. In general, the fees of 

members of the arbitration panel will be set at the fixed amount of $2,000 per day or the 

equivalent amount in Swiss francs. The expenses of members of the panel will be set in 

accordance with the International Centre for Settlement of Investment Disputes (ICSID) 
 

6

Schedule of Fees for arbitrators (in effect on the date on which the arbitration board 

proceedings begin). The competent authorities may amend the set fees and expenses of 

members of the board. Meeting facilities, related resources, financial management, other 

logistical support, and general and administrative coordination of the arbitration 

proceeding will be provided, at its own cost, by the Contracting State whose competent 

authority initiated the mutual agreement proceedings. All other costs are to be borne by 

the Contracting State that incurs them. 

Article 3

 Article 3 of the Protocol replaces Article 26 (Exchange of Information) of the 

existing Convention. This Article provides for the exchange of information and 

administrative assistance between the competent authorities of the Contracting States. 

Paragraph 1 of Article 26

The obligation to obtain and provide information to the other Contracting State is 

set out in new Paragraph 1. The information to be exchanged is that which may be 

relevant for carrying out the provisions of the Convention or the domestic laws of the 

United States or of Switzerland concerning taxes covered by the Convention, insofar as 

the taxation thereunder is not contrary to the Convention. This language incorporates the 

standard in 26 U.S.C. Section 7602 which authorizes the IRS to examine “any books, 

papers, records, or other data which may be relevant or material.” (emphasis added) In 

United States v. Arthur Young & Co., 465 U.S. 805, 814 (1984), the Supreme Court 

stated that the language “may be” reflects Congress’s express intention to allow the IRS 

to obtain “items of even potential relevance to an ongoing investigation, without 

reference to its admissibility.” (emphasis in original) However, the language “may be” 

would not support a request in which a Contracting State simply asked for information 

regarding all bank accounts maintained by residents of that Contracting State in the other 

Contracting State. 

Exchange of information with respect to each State’s domestic law is authorized 

to the extent that taxation under domestic law is not contrary to the Convention. Thus, for 

example, information may be exchanged with respect to a covered tax, even if the 

transaction to which the information relates is a purely domestic transaction in the 

requesting State and, therefore, the exchange is not made to carry out the Convention. An 

example of such a case is provided in the OECD Commentary: a company resident in one 

Contracting State and a company resident in the other Contracting State transact business 

between themselves through a third-country resident company. Neither Contracting State 

has a treaty with the third State. To enforce their internal laws with respect to transactions 

of their residents with the third-country company (since there is no relevant treaty in 

force), the Contracting States may exchange information regarding the prices that their 

residents paid in their transactions with the third-country resident. 

New paragraph 1 clarifies that information may be exchanged that relates to the 

administration or enforcement of the taxes covered by the Convention. Thus, the 

competent authorities may request and provide information for cases under examination 
 

7

or criminal investigation, in collection, on appeals, or under prosecution. 

Information exchange is not restricted by paragraph 1 of Article 1 (General 

Scope). Accordingly, information may be requested and provided under this Article with 

respect to persons who are not residents of either Contracting State. For example, if a 

third-country resident has a permanent establishment in Switzerland, and that permanent 

establishment engages in transactions with a U.S. enterprise, the United States could 

request information with respect to that permanent establishment, even though the thirdcountry resident is not a resident of either Contracting State. Similarly, if a third-country 

resident maintains a bank account in Switzerland, and the Internal Revenue Service has 

reason to believe that funds in that account should have been reported for U.S. tax 

purposes but have not been so reported, information can be requested from Switzerland 

with respect to that person’s account, even though that person is not the taxpayer under 

examination. 

The obligation to exchange information under paragraph 1 does not limit a 

Contracting State's ability to employ unilateral procedures otherwise available under its 

domestic law to obtain, or to require the disclosure of, information from a taxpayer or 

third party. Thus, the Protocol does not prevent or restrict the United States' information 

gathering authority or enforcement measures provided under its domestic law. 

Although the term "United States" does not encompass U.S. possessions for most 

purposes of the Convention, Section 7651 of the Code authorizes the Internal Revenue 

Service to utilize the provisions of the Internal Revenue Code to obtain information from 

the U.S. possessions pursuant to a proper request made under Article 26. If necessary to 

obtain requested information, the Internal Revenue Service could issue and enforce an 

administrative summons to the taxpayer, a tax authority (or a government agency in a 

U.S. possession), or a third party located in a U.S. possession. 

 

Paragraph 2 of Article 26 

New paragraph 2 provides assurances that any information exchanged will be 

treated as secret, subject to the same disclosure constraints as information obtained under 

the laws of the requesting State. Information received may be disclosed only to persons, 

including courts and administrative bodies, involved in the assessment, collection, or 

administration of, the enforcement or prosecution in respect of, or the determination of 

the of appeals in relation to, the taxes covered by the Convention. The information must 

be used by these persons in connection with the specified functions. Information may also 

be disclosed to legislative bodies, such as the tax-writing committees of Congress and the 

Government Accountability Office, engaged in the oversight of the preceding activities. 

Information received by these bodies must be for use in the performance of their role in 

overseeing the administration of U.S. tax laws. Information received may be disclosed in 

public court proceedings or in judicial decisions. 

New paragraph 2 also provides that information received by a Contracting State 

may be used for other purposes when such information may be used for such other 
 

8

purpose under the laws of both States, and the competent authority of the requested State 

has authorized such use. This provision is derived from the OECD Model Commentary, 

which explains that Contracting States may add this provision to broaden the purposes for 

which they may use information exchanged to allow other non-tax law enforcement 

agencies and judicial authorities on certain high priority matters (e.g., to combat money 

laundering, corruption, or terrorism financing). To ensure that the laws of both States 

would allow the information to be used for such other purpose, the Contracting States 

will only seek consent under this provision to the extent that the non-tax use is allowed 

under the provisions of the Mutual Legal Assistance Treaty between the United States 

and Switzerland which entered into force on January 23, 1977 (or as it may be amended 

or replaced in the future). 

 

Paragraph 3 of Article 26

New paragraph 3 provides that the obligations undertaken in paragraphs 1 and 2 

to exchange information do not require a Contracting State to carry out administrative 

measures that are at variance with the laws or administrative practice of either State. Nor 

is a Contracting State required to supply information not obtainable under the laws or 

administrative practice of either State, or to disclose trade secrets or other information, 

the disclosure of which would be contrary to public policy. 

Thus, a requesting State may be denied information from the other State if the 

information would be obtained pursuant to procedures or measures that are broader than 

those available in the requesting State. However, the statute of limitations of the 

Contracting State making the request for information should govern a request for 

information. Thus, the Contracting State of which the request is made should attempt to 

obtain the information even if its own statute of limitations has passed. In many cases, 

relevant information will still exist in the business records of the taxpayer or a third party, 

even though it is no longer required to be kept for domestic tax purposes. 

While paragraph 3 states conditions under which a Contracting State is not 

obligated to comply with a request from the other Contracting State for information, the 

requested State is not precluded from providing such information, and may, at its 

discretion, do so subject to the limitations of its internal law. 

Paragraph 4 of Article 26

New paragraph 4 provides that when information is requested by a Contracting 

State in accordance with this Article, the other Contracting State is obligated to obtain the 

requested information as if the tax in question were the tax of the requested State, even if 

that State has no direct tax interest in the case to which the request relates. In the absence 

of such a paragraph, some taxpayers have argued that paragraph 3(a) prevents a 

Contracting State from requesting information from a bank or fiduciary that the 

Contracting State does not need for its own tax purposes. This paragraph clarifies that 

paragraph 3 does not impose such a restriction and that a Contracting State is not limited 

to providing only the information that it already has in its own files. 
 

9

Paragraph 5 of Article 26 

New paragraph 5 provides that a Contracting State may not decline to provide 

information because that information is held by financial institutions, nominees or 

persons acting in an agency or fiduciary capacity. Thus, paragraph 5 would effectively 

prevent a Contracting State from relying on paragraph 3 to argue that its domestic bank 

secrecy laws (or similar legislation relating to disclosure of financial information by 

financial institutions or intermediaries) override its obligation to provide information 

under paragraph 1. This paragraph also requires the disclosure of information regarding 

the beneficial owner of an interest in a person, such as the identity of a beneficial owner 

of bearer shares. Paragraph 5 further provides that the requested State has the power to 

meet its obligations under Article 26, and paragraph 5 in particular, even though it may 

not have such powers for purposes of enforcing its own tax laws. 

Paragraph 2 of the Exchange of Notes provides that the Contracting States 

understand that there may be instances when paragraph 3 of Article 26 may be invoked to 

decline a request to supply information that is held by a person described in paragraph 5 

of the Article. Such refusal must be based, however, on reasons unrelated to that person's 

status as a bank, financial institution, agent, fiduciary or nominee, or the fact that the 

information relates to ownership interests. For example, a Contracting State may decline 

to provide information relating to confidential communications between attorneys and 

their clients that are protected from disclosure under that State's domestic law. 

Treaty effective dates and termination in relation to exchange of information 

 Article 5 of the Protocol sets forth rules governing the effective dates of the 

provisions of Articles 3 and 4 of the Protocol. The competent authorities are obligated to 

exchange information described in new paragraph 5 of Article 26 if that information 

relates to any date beginning on or after September 23, 2009, the date on which the 

Protocol was signed notwithstanding the provisions of the existing Convention. In all 

other cases of application of new Article 26, the competent authorities are obligated to 

exchange information that relates to taxable periods beginning on or after January 1 of 

the year following the date of signature of the Protocol. 

A tax administration may also seek information with respect to a year for which a 

treaty was in force after the treaty has been terminated. In such a case the ability of the 

other tax administration to act is limited. The treaty no longer provides authority for the 

tax administrations to exchange confidential information. They may only exchange 

information pursuant to domestic law or other international agreement or arrangement. 

Article 4

 

 Article 4 of the Protocol replaces paragraph 10 of the Protocol to the existing 

Convention. New Protocol paragraph 10 provides greater detail regarding how the 

provisions of revised Article 26 (Exchange of Information) will be applied. 
 

10

 New Protocol paragraph 10)a) lists the information that should be provided to the 

requested State by the requesting State when making a request for information under 

paragraph 26 of the Convention. Clause i) of paragraph 10)a) provides that a request 

must contain information sufficient to identify the person under examination or 

investigation. In a typical case, information sufficient to identify the person under 

examination or investigation would include a name, and to the extent known, an address, 

account number or similar identifying information. It is mutually understood that there 

can be circumstances in which there is information sufficient to identify the person under 

examination or investigation even though the requesting State cannot provide a name. 

 Clause ii) of paragraph 10)a) provides that a request for information must contain 

the period of time for which the information is requested. Clause iii) of paragraph 10)a) 

provides that a request for information must contain a statement of the information 

sought, including its nature and the form in which the requesting State wishes to receive 

the information from the requested State. Clause iv) of paragraph 10)a) provides that a 

request for information must contain a statement of the tax purpose for which the 

information is sought. Clause v) of paragraph 10)a) provides that the request must 

include the name and, to the extent known, the address of any person believed to be in 

possession of the requested information. 

New Protocol paragraph 10)b) provides confirmation of the extent to which 

information is to be exchanged pursuant to new paragraph 1 of Article 26. The purposes 

of referring to information that may be relevant is to provide for exchange of information 

to the widest extent possible. This standard nevertheless does not allow the Contracting 

States to engage in so-called “fishing expeditions” or to request information that is 

unlikely to be relevant to the tax affairs of a given taxpayer. For example, the language 

“may be” would not support a request in which a Contracting State simply asked for 

information regarding all bank accounts maintained by residents of that Contracting State 

in the other Contracting State. New Protocol paragraph 10)b) further confirms that the 

provisions of new Protocol paragraph 10)a) are to be interpreted in order not to frustrate 

effective exchange of information. 

New Protocol paragraph 10)c) provides that the requesting State may specify the 

form in which information is to be provided (e.g., authenticated copies of original 

documents (including books, papers, statements, records, accounts and writings)). The 

intention is to ensure that the information may be introduced as evidence in the judicial 

proceedings of the requesting State. The requested State should, if possible, provide the 

information in the form requested to the same extent that it can obtain information in that 

form under its own laws and administrative practices with respect to its own taxes. 

 New Protocol paragraph 10)d) confirms that Article 26 of the Convention does 

not restrict the possible methods for exchanging information, but also does not commit 

either Contracting State to exchange information on an automatic or spontaneous basis. 

The Contracting States expect to provide information to one another necessary for 

carrying out the provisions of the Convention. 
 

11

 New Protocol paragraph 10)e) provides clarification regarding the application of 

paragraph 3)a) of revised Article 26, which provides that in no case shall the provisions 

of paragraphs 1 and 2 be construed so as to impose on a Contracting State the obligation 

to carry out administrative measures at variance with the laws and administrative practice 

of that or the other Contracting State. The Contracting States understand that the 

administrative procedural rules regarding a taxpayer’s rights (such as the right to be 

notified or the right to an appeal) provided for in the requested State remain applicable 

before information is exchanged with the requesting State. Notification procedures 

should not, however, be applied in a manner that, in the particular circumstances of the 

request, would frustrate the efforts of the requesting State. The Contracting States further 

understand that such rules are intended to provide the taxpayer a fair procedure and are 

not to prevent or unduly delay the exchange of information process. 

Article 5 

 Article 5 of the Protocol contains the rules for bringing the Protocol into force and 

giving effect to its provisions. 

Paragraph 1 

Paragraph 1 provides for the ratification of the Protocol by both Contracting 

States according to their constitutional and statutory requirements. Instruments of 

ratification shall be exchanged as soon as possible. 

In the United States, the process leading to ratification and entry into force is as 

follows: Once a treaty has been signed by authorized representatives of the two 

Contracting States, the Department of State sends the treaty to the President who formally 

transmits it to the Senate for its advice and consent to ratification, which requires 

approval by two-thirds of the Senators present and voting. Prior to this vote, however, it 

generally has been the practice for the Senate Committee on Foreign Relations to hold 

hearings on the treaty and make a recommendation regarding its approval to the full 

Senate. Both Government and private sector witnesses may testify at these hearings. 

After the Senate gives its advice and consent to ratification of the protocol or treaty, an 

instrument of ratification is drafted for the President's signature. The 

President's signature completes the process in the United States. 

Paragraph 2

Paragraph 2 provides that the Convention will enter into force upon the exchange 

of instruments of ratification. The date on which a treaty enters into force is not 

necessarily the date on which its provisions take effect. Paragraph 2, therefore, also 

contains rules that determine when the provisions of the treaty will have effect. 

Under paragraph 2(a), the Convention will have effect with respect to taxes 

withheld at source (principally dividends, interest and royalties) for amounts paid or 
 

12

credited on or after the first day of January of the year following the entry into force of 

the Protocol. For example, if instruments of ratification are exchanged on October 25 of 

a given year, the withholding rates specified in paragraph 3 of Article 10 (Dividends) 

would be applicable to any dividends paid or credited on or after January 1 of the 

following year. If for some reason a withholding agent withholds at a higher rate than 

that provided by the Convention (perhaps because it was not able to re-program its 

computers before the payment is made), a beneficial owner of the income that is a 

resident of the other Contracting State may make a claim for refund pursuant to section 

1464 of the Code. 

Paragraph 2)b) provides rules for the effective dates of Articles 3 and 4 of the 

Protocol. Those Articles shall have application for requests made on or after the date of 

entry into force of the Protocol. Clause i) provides that information described in 

paragraph 5 of revised Article 26 (Exchange of Information) shall be exchanged upon 

request if such information relates to any date beginning on or after September 23, 2009, 

the date of signature of the Protocol. Clause ii) provides that in all other cases, 

information shall be exchanged pursuant to Articles 3 and 4 if the information relates to 

taxable periods beginning on or after January 1, 2010. 

Paragraph 2)c) sets forth a specific effective date for purposes of the binding 

arbitration provisions of new paragraphs 6 and 7 of revised Article 25 (Mutual 

Agreement Procedure) (Article 2 of the Protocol). Paragraph 2)c) provides new 

paragraphs 6 and 7 of revised Article 25 is effective for cases i) that are under 

consideration by the competent authorities as of the date on which the Protocol enters 

into force, and ii) cases that come under such consideration after the Protocol enters into 

force. In addition, paragraph 2)c) provides that the commencement date for cases that 

are under consideration by the competent authorities as of the date on which the Protocol 

enters into force is the date the Protocol enters into force. As a result, cases that are open 

and unresolved as of the entry into force of the Protocol will go into binding arbitration 

on the later of two years after the entry into force of the Protocol (unless both competent 

authorities have previously agreed to a different date) and the earliest date upon which 

the agreement required by new paragraph 6)d) of revised Article 25 has been received by 

both competent authorities.