United States And Finland Sign Protocol To Income Tax Treaty

by Mike Godfrey, Tax-News.com, Washington

02 June 2006

The US Treasury Department on Wednesday announced that US Ambassador Marilyn Ware and Finland's Coordinate Minister of Finance Ulla-Maj Wideroos have signed a new Protocol to amend the existing bilateral income tax treaty, concluded in 1989, between the two countries.

The agreement signed in Helsinki significantly reduces tax-related barriers to trade and investment flows between the United States and Finland. 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 Protocol brings the tax treaty relationship with Finland into closer conformity with US treaty policy.

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.

In addition, the Protocol eliminates the withholding tax on cross-border royalty payments. The Protocol also strengthens the treaty's provisions preventing so-called treaty shopping, which is the inappropriate use of a tax treaty by third-country residents.

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