Income Tax Treaty Practice for Tax Counsel: Planning and Structuring Transactions to Maximize Treaty-Based Benefits

The United States has income tax treaties in force with over 60 countries. The treaties' goals are to eliminate or reduce double income taxation. U.S. federal income tax benefits are available to non-U.S. enterprises and nonresident aliens (and some U.S. citizens living abroad). Benefits are also available to U.S. enterprises, citizens, and residents for foreign country income taxes. Tax advisers working with nonresident aliens or non-U.S. enterprises with U.S. investments or business activities must identify who is eligible for treaty benefits and how to claim and report treaty-based tax benefits. Similarly, tax advisers to U.S. individuals and enterprises with foreign-source income must identify who is eligible for treaty benefits (under both U.S. tax treaties and treaties between other jurisdictions) and how to claim and report the attendant benefits.

While each income tax treaty has its specific terms and requirements, most income tax treaties have common themes and terminology. For example, under most income tax treaties, taxpayers may claim exemption from source country taxation for personal services income. Other key provisions include reduction or exemption of withholding taxes on interest and dividends and royalties.

The current U.S. model tax treaty serves as the baseline text the U.S. uses to negotiate and update tax conventions. It includes several provisions that may limit or deny treaty benefits for income subject to preferential foreign tax regimes. A number of other model treaties have also been developed. The Organisation for Economic Cooperation and Development, or OECD, has developed a model tax treaty and accompanying commentaries which serve as a starting point for certain other countries in their treaty negotiations and can aid in the interpretation of both U.S. and non-U.S. tax treaties. This panel will focus primarily on the key provisions of the U.S. and OECD model treaties, and will also discuss the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (Multilateral Instrument or MLI) that enables participating countries to rapidly implement changes to some terms of their tax treaties without renegotiating the terms of each treaty. Tax attorneys involved in cross-border transactions need to understand the MLI and recent changes to the worldwide treaty network to properly advise their clients.

Listen as our expert panel explains critical tax treaty provisions that tax counsel needs to know in drafting and negotiating cross-border ownership structures and transactions for individual, small business, and middle-market clients.

1. Purpose of income tax treaties and basic principles
2. Conditions to benefits under U.S. income tax treaties (residence, limitations on benefits, anti-abuse rules)
3. Treatment of personal services income
4. Permanent establishment
5. Taxation of dividends, interest, and royalties
6. Recent developments

The panel will review these and other key issues:

• Purposes of income tax treaties
• Persons who can claim benefits
• Common residency provisions; tie-breakers for dual residents
• Savings clauses applicable to U.S. citizens
• Limitations on benefits
• Exemptions for personal services income
• Permanent establishment (basic principles and evolution under BEPS)
• Treatment of interest and dividends, as well as royalties
• Recent developments

Learning Objectives

After completing this course, you will be able to:

• Identify whether a taxpayer is a qualified resident eligible to receive benefits under a treaty
• Determine whether a taxpayer has a permanent establishment based on tax treaty provisions
• Discern how to apply the various limitation of benefits tests under treaties
• Identify key treaty benefits for qualified residents
• Recognize how mutual agreement procedure provisions function to resolve double taxation adjustments
• Identify upcoming changes to certain treaty provisions impacting interpretation and application

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience at mid-level within the organization, preparing transaction documents and partnership agreements, supervising other attorneys or accountants. Specific knowledge and understanding of foreign income tax rules, including U.S. tax disclosure and withholding requirements; familiarity with tax treaty structures and U.S. tax rules mitigating the impact of dual taxation on economic activities carried on by U.S. taxpayers in other countries and tax jurisdictions.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).