Germany And US Correct Errors In New DTA

by Ulrika Lomas, for LawAndTax-News.com, Brussels

25 August 2006

The US Treasury Department on Wednesday announced that the United States and the Federal Republic of Germany have exchanged diplomatic notes correcting typographical errors in the recently signed Protocol to the US-German income tax treaty.

The corrected text replaces the original text from the date on which the Protocol was signed and will be incorporated into the original text when the Protocol is printed in the Treaties and Other International Acts Series (TIAS).

Deputy Treasury Secretary, Robert M. Kimmitt, and Barbara Hendricks, Parliamentary Secretary of State for the German Ministry of Finance signed the new Protocol in June to amend the existing bilateral income tax treaty, concluded in 1989, between the two countries.

The agreement significantly reduces tax-related barriers to trade and investment flows between the United States and Germany. It also modernizes the treaty to take account of changes in the laws and policies of both countries since the current treaty was signed.

The most important aspect of the Protocol deals with the taxation of cross-border dividend payments. The Protocol is one of a few recent US tax agreements to provide for the elimination of the source-country withholding tax on dividends arising from certain direct investments and on dividends paid to pension funds.

The Protocol also provides for mandatory arbitration of certain cases that cannot be resolved by the competent authorities within a specified period of time. This provision is the first of its kind in a US tax treaty.

In addition, the Protocol strengthens the treaty's provisions preventing so-called treaty shopping, which is the inappropriate use of a tax treaty by third-country residents. The Protocol also modernizes the treaty relationship in several ways and brings it into closer conformity with current US tax treaty policy.

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