One of the reasons ratification has been delayed is that Senator Rand Paul (R-KY) is concerned that the treaties will not protect the privacy rights of American taxpayers. The U.S. Model Tax Convention is the basic text used by the Treasury Department when negotiating tax treaties. The outstanding tax treaties discussed above with Chile, Hungary and Poland were negotiated on the basis of the 2006 version of the U.S. Model Income Tax Convention. In 2016, the Treasury Department (under the Obama administration) released an update to the U.S. Model Income Convention (see PwC Insight, Final US Model Income Tax Treaty could significant reduce access to treaty benefits, February 29, 2016). At a public forum in April 2021, a Treasury Department official said that the U.S. wants to amend existing tax treaties with Switzerland and Israel, and that the U.S. has concluded tax treaties with Colombia, concluded tax treaty negotiations with Norway and Romania, and participates in ongoing tax treaty negotiations with Croatia. Note: Among the issues discussed in a renegotiated agreement with Switzerland could be the possible removal of withholding tax on certain parent/subsidiary dividends, which is in line with some other recent US tax treaties. However, in addition to updating the agreement to be more consistent with current U.S. tax treaty policy, we expect that these points will also include the possible revision of the LOB section to tighten eligibility requirements.

Effective July 1, 2020, NAFTA is replaced by the Agreement between the United States, Mexico and Canada (USMCA). On May 19, 2020, pending the effective date of the USMCA, the Treasury Department and the IRS unilaterally issued the 2020-2006 announcement stating that the Treasury Department and the IRS, including the relevant U.S. agency, when the USMCA enters into force for the purposes of applying an applicable U.S. tax treaty, consider any reference to NAFTA in a U.S. bilateral income tax treaty to be a reference to the USMCA. (See PwC Insights, Treasury to interpret references to NAFTA as references to the USMCA for specific tax treaty purposes, May 20, 2020.) As a result, companies that meet industry requirements based on U.S., Mexican or Canadian ownership under the derivative benefits test – that is, U.S.B multinationals whose foreign subsidiaries rely on U.S. contractual benefits based on the fact that the parent company is a publicly traded U.S. tax resident – may continue to be considered to otherwise satisfy the U.S. criterion. Action: U.S.

income tax treaties have a significant impact on inbound investment in the U.S. The agreements offer global companies based outside the U.S. (“inbound companies”) the opportunity to effectively manage their international tax burden, but their access to favorable contractual benefits could pose some eligibility challenges, especially if tax treaties are updated. Incoming companies should assess the current state of affairs for the tax treaties on which they currently rely and how future treaty changes could affect their inbound investments in the United States. Observation: The 2016 U.S. Model Tax Convention was generally considered too restrictive, restricting benefit provisions that restrict access to contracts, even in the case of certain common business structures. Future treaty amendments that include this restrictive policy could affect these structures., The seven treaties and protocol were already adopted by the Senate Foreign Affairs Committee in 2015 at the 114th Congress. But it is precisely the treaties with Spain, Switzerland, Japan and Luxembourg that are currently progressing in the Senate. For the adoption of a conventional resolution, two-thirds of the senators present must vote in favour. Observation: Given the significant impact of the Tax Reform Act of 2017, we expect the current Treasury Department to continue to review the 2016 U.S. Model Tax Convention for necessary updates. (see PwC Insight, Tax reform readiness: Implications for US tax treaties, August 17, 2018).

It seems that updating existing treaties and expanding the U.S. tax treaty network could be a priority (although it is just one of many) for the Biden administration. The greater certainty that tax treaties offer to mitigate overtaxation or double taxation is an important area for global companies operating in the United States and can be a crucial determinant for non-U.S. companies investing in the United States. The diversity of countries` approaches to tax policy can pose serious challenges for cross-border businesses and trade. Tax treaties aim to limit these challenges and avoid double taxation of income. The bilateral treaties pending before the Senate offer an opportunity to make the United States a more attractive place for companies from our contracting countries that can invest and hire. If a national residing in Poland earns income in another country that has not concluded the DVB-T with Poland, double taxation based on the imputation method is avoided. The resident of Poland is liable for income tax levied on his world income, but this tax is reduced proportionally by the income tax paid abroad.

Many DVB-T offer the same method of credit. However, some of them provide for the exemption method (i.e. foreign income covered by such an agreement is exempt from tax in Poland). The foreign shareholder (whether an individual or a foreign corporation) could file a U.S. tax return to try to reconcile their domestic tax liability with their U.S. liabilities. However, without a tax treaty, the U.S. could simply choose not to refund some or all of the withholding tax levied.

The contractual eligibility of some companies may be affected by the WITHDRAWAL of the United Kingdom from the EU (Brexit). (See PwC Insights, The US tax treaty landscape at the start of 2020: What US inbounds need to know, January 30, 2020.) A resident of a country that is a party to a U.S. tax treaty and wishes to take advantage of the treaty must generally comply with the anti-negotiation provisions of the treaty in the Limitation of Benefits (LOB) article. Businesses sometimes meet this criterion based on the final ownership of an owner who would qualify for an equivalent benefit under a U.S. tax treaty with the owner`s country of residence if U.S. income was paid directly to that owner (an “equivalent beneficiary”), as well as by passing a basic erosion test. This is the “derivative benefit” criterion. A qualified owner is described in several contracts with reference to a U.S., Mexican or Canadian tax resident in a country that is a party to the North American Free Trade Agreement (NAFTA) or a European owner who resides in an EU member state. In the absence of tax treaties, most countries apply withholding taxes on dividends paid by a subsidiary to its head office or to other shareholders in another country. The United States applies a 30% withholding tax on payments to foreign shareholders in situations where there is no tax treaty. If foreign countries also tax these dividends, this would lead to double taxation. Observation: Companies that rely on a UK company to be established in an EU Member State (either as owner or as a beneficiary of a deductible payment) for the purposes of the contract benefits test should assess the ability to use contractual services.

As an IRS representative discussed at a public forum in May 2021, the Brexit issue presents a bigger challenge and may not be resolved in the same way. In the absence of unilateral guidelines (e.g. B an opinion of the IRS) or bilateral agreements (e.g.B. an agreement with the competent authority) or a renegotiation of the relevant contracts – none of which have taken place to date – it can be assumed that a UK company that was an equivalent beneficiary compared to a subsidiary resident in another country with an applicable US tax treaty, no longer meets this definition. .