US And Iceland Sign New Income Tax Treaty

by Glen Shapiro, LawAndTax-News.com, New York

25 October 2007

The Treasury Department announced earlier this week that Deputy Secretary Robert M. Kimmitt and Icelandic Finance Minister Árni M. Mathiesen have signed a new income tax treaty between the United States and Iceland.

In a ceremony held at the Treasury Department, the two officials signed a new tax treaty that brings the existing agreement into closer conformity with current US tax treaty policy.

For example, the new treaty contains a comprehensive limitation on benefits provision that is consistent with many recently concluded US tax treaties.

The agreement also maintains the existing treaty's withholding tax exemption on cross-border interest payments, as well as the existing treaty's reductions in withholding taxes on cross-border dividend payments.

The taxes to which the Convention will apply in Iceland are the income taxes to the state and the income tax to the municipalities.

In the United States, the taxes to which the Convention shall apply are the Federal income taxes imposed by the Internal Revenue Code, and the Federal excise taxes imposed with respect to private foundations.

The Convention shall apply also to any identical or substantially similar taxes that are imposed after the date of signature of the Convention in addition to, or in place of, the existing taxes. The competent authorities of the Contracting States shall notify each other of any significant changes that have been made in their respective taxation or other laws that significantly affect their obligations under this Convention.

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