Applying the Saving Clause and Exceptions in U.S. Income Tax Treaties

"Most tax treaties have a saving clause that preserves the right of each country to tax its own citizens and treaty residents as if no tax treaty were in effect"--the IRS. This preserves the U.S.' ability to tax its citizens and long-term residents living abroad. For example, a U.S. taxpayer may conclude, after reviewing a U.S. income tax treaty, that retirement income is taxed only in the country of residence. However, an overlooked saving clause would negate this.

As there is a saving clause in most U.S. income tax treaties, there are also exceptions. Among these could be transactions between related parties, retirement, or Social Security income. These exceptions are critical. Often, there is no consistency in the treatment of certain income items, most notably pensions and Social Security benefits. For example, the U.S. treaty with Portugal allows both the U.S. and Portugal to tax Social Security benefits.

The saving clause and its exceptions can significantly impact the tax consequences of income earned by multinational taxpayers. Here, a foreign tax credit can offset the consequences of double taxation. A careful reading and interpretation of the relative U.S. income tax treaty is essential to properly tax global residents.

Listen as our panel of distinguished international tax advisers reviews the application of the saving clause found in international tax treaties.

1. Saving clause: an introduction
2. Defined
3. Exceptions
4. Treaty benefits
5. Foreign tax credit
6. Applying the saving clause, examples

The panel will cover these and other pertinent issues:

• Determining how the saving clause impacts taxation of U.S. citizens residing outside the U.S.
• Applying the saving clause to Social Security and pension benefits in specific countries
• Common exceptions to the saving clause in U.S. income tax treaties
• Using the foreign tax credit to negate double taxation

Learning Objectives

After completing this course, you will be able to:

• Determine the impact of the saving clause on taxation of U.S. citizens residing abroad
• Identify the saving clause in U.S. income tax treaties
• Decide how to apply the saving clause to taxation of certain income in particular countries
• Ascertain when exceptions override the U.S.' ability to tax U.S. citizens in specific circumstances

• 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 preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of international taxation including residency determination, foreign entity classifications, application of treaty benefits, as well as GILTI, Subpart F, and the related Section 250 deductions.

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).