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U.S. Tax Treaties Third-Country Use: Is Time Running Out? by STEVEN P. HANNES / Partner, Washington Service Center The U.S. has had income tax treaties with foreign nations since 1939. The network of U.S. income tax treaties has expanded significantly since then, especially in the last decade. With those that were ratified by the Senate in 1981, the U.S. now has 35 such treaties in force, with two others awaiting ratification overseas. Now, however, this expansion is threatened by claims that U.S. tax treaties are being improperly used by residents of "third"countries (not the U.S. or its treaty partner) at times with the blessing of the U.S. treaty partner. Claims of such treaty abuse or "treaty shopping" also threaten existing treaty relationships with the Netherlands, the Netherlands Antilles, and Switzerland. What effect do income tax treaties have on the U.S. economy? In 1978, $3.9 billion of income was paid to residents of tax treaty countries who had U.S. investments. This represented 87 percent of the income earned by foreign persons on U.S. investments. If one assumes a 10 percent return on investment, this means U.S. investments held by or through treaty country residents totaled at least $39 billion in 1978. Thus, the treaties provide protection for significant amounts of cross-border investments. Critics claim, however, that some of these treaties are being used improperly, thereby depriving the U.S. of needed and legitimate tax revenue. Statistics published in 1981 in a widely publicized U.S. government report, Tax Havens and Their Use by United States Taxpayers—An Overview, suggest that certain jurisdictions with low tax rates which have tax treaties with the United States are vehicles for disproportionately large amounts of both U.S. investment overseas and foreign investment into the United States. According to the report, U.S. gross dividends, interest, 23
Object Description
Title |
Third-country use: Is time running out? |
Author |
Hannes, Steven P. |
Subject |
Double taxation -- United States -- Treaties |
Office/Department |
Touche Ross. Washington, D. C. Office |
Citation |
Tempo, Vol. 28, no. 1 (1982), p. 23-26 |
Date-Issued | 1982 |
Source | Originally published by: Touche Ross, & Co. |
Rights | Copyright and permission to republish held by: Deloitte |
Type | Text |
Format | PDF page image with corrected OCR scanned at 400 dpi |
Collection | Deloitte Digital Collection |
Digital Publisher | University of Mississippi Library. Accounting Collection |
Date-Digitally Created | 2010 |
Language | eng |
Identifier | Tempo_1982_Spring-p23-26 |