U.S. Tax   Treaties

taxmap/pubs/p901-000.htm#TXMP2f584229 What's New

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New tax treaties.

The United States has exchanged instruments of ratification for new income tax treaties with the United Kingdom and Japan and new protocols for the income tax treaties with Australia and Mexico. The provisions of these treaties and protocols are included in the appropriate areas of this publication. The effective dates are as follows:

United Kingdom. The provisions for withholding tax at source are effective for amounts paid or credited after May 1, 2003. For all other taxes, the treaty is effective for tax periods beginning on or after January 1, 2004. An individual who was otherwise entitled to treaty benefits under Article 21 of the former treaty can continue to apply those provisions. A person who was otherwise entitled to benefits under the former treaty can elect to have that treaty apply in its entirety for a 12-month period following the date the new treaty would otherwise apply.

Japan. The provisions for withholding tax at source are effective for amounts paid or credited after July 1, 2004. For all other taxes, the treaty is effective for tax periods beginning on or after January 1, 2005. An individual who was entitled to treaty benefits under Article19 (teachers and researchers) or Article 20 (students and trainees) of the former treaty as of March 30, 2004, can continue to apply those provisions. A person who was otherwise entitled to benefits under the former treaty can elect to have that treaty apply in its entirety for the 12-month period following the date the new treaty would otherwise apply.

Australia. The provisions for withholding tax at source are effective for amounts paid or credited after July 1, 2003. For all other taxes, the protocol is effective for tax periods beginning on or after January 1, 2004.

Mexico. The provisions for withholding tax on dividends are effective for amounts paid or credited on or after September 1, 2003. For all other taxes, the treaty is effective for tax periods beginning on or after January 1, 2004.

taxmap/pubs/p901-000.htm#TXMP078adca7 Reminders

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Disclosure of a treaty-based position that reduces your tax.

If you take the position that any U.S. tax is overruled or otherwise reduced by a U.S. treaty (a treaty-based position), you generally must disclose that position on your affected return.

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U.S.–U.S.S.R. income tax treaty.

The U.S.–U.S.S.R. income tax treaty remains in effect for the following members of the Commonwealth of Independent States: Armenia, Azerbaijan, Belarus, Georgia, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, and Uzbekistan. That treaty will remain in effect until new treaties with these individual countries are negotiated and ratified. Provisions of the U.S.–U.S.S.R. income tax treaty are discussed in this publication under Commonwealth of Independent States.

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U.S.–China income tax treaty.

The U.S.– China income tax treaty does not apply to Hong Kong.

Introduction

This publication will tell you whether a tax treaty between the United States and a particular country offers a reduced rate of, or possibly a complete exemption from, U.S. income tax for residents of that particular country.

Tables in the back of this publication show the countries that have income tax treaties with the United States, the tax rates on different kinds of income, and the kinds of income that are exempt from tax.

You should use this publication only for quick reference. It is not a complete guide to all provisions of every income tax treaty.

Useful items

You may want to see:

See How To Get Tax Help near the end of this publication for information about getting these publications and forms.

taxmap/pubs/p901-000.htm#TXMP1dfb0d59 Obtaining copies of treaties.

You can get complete information about treaty provisions from the taxing authority in the country from which you receive income or from the treaty itself.

You can obtain the text of most of the treaties at www.irs.gov/businesses/international. You can also obtain the text of most of the treaties at the following address:

Department of Treasury  
Office of Public Correspondence  
1500 Pennsylvania Ave. NW — Rm. 3419  
Washington, D.C. 20220

If you have specific questions about a treaty, you can get this information from most Internal Revenue Service offices or from:

Internal Revenue Service  
International Returns Section  
P.O. Box 920  
Bensalem, PA 19020–8518

taxmap/pubs/p901-000.htm#TXMP5c92a098 Application of Treaties

Application of Treaty

The United States has income tax treaties with a number of foreign countries. Under these treaties, residents (not necessarily citizens) of foreign countries are taxed at a reduced rate, or are exempt from U.S. income taxes on certain items of income they receive from sources within the United States. These reduced rates and exemptions vary among countries and specific items of income.

If the treaty does not cover a particular kind of income, or if there is no treaty between your country and the United States, you must pay tax on the income in the same way and at the same rates shown in the instructions for Form 1040NR. Also see Publication 519.

Many of the individual states of the United States tax the income of their residents. Therefore, you should consult the tax authorities of the state in which you live to find out if that state taxes the income of individuals and, if so, whether the tax applies to any of your income.

Tax treaties reduce the U.S. taxes of residents of foreign countries. With certain exceptions, they do not reduce the U.S. taxes of U.S. citizens or residents. U.S. citizens and residents are subject to U.S. income tax on their worldwide income.

Treaty provisions generally are reciprocal (apply to both treaty countries); therefore, a U.S. citizen or resident who receives income from a treaty country may refer to the tables in this publication to see if a tax treaty might affect the tax to be paid to that foreign country. Foreign taxing authorities sometimes require certification from the U.S. Government that an applicant filed an income tax return as a U.S. citizen or resident, as part of the proof of entitlement to the treaty benefits. For information on this, see Publication 686.

taxmap/pubs/p901-000.htm#TXMP548e57ef Disclosure of a treaty-based position that reduces your tax.

If you take the position that any U.S. tax is overruled or otherwise reduced by a U.S. treaty (a treaty-based position), you generally must disclose that position on Form 8833 and attach it to your return. If you are not required to file a return because of your treaty-based position, you must file a return anyway to report your position. The filing of Form 8833 does not apply to a reduced rate of withholding tax on noneffectively connected income, such as dividends, interest, rents or royalties, or to a reduced rate of tax on pay received for services performed as an employee, including pensions, annuities, and social security. For more information, get Publication 519.

If you fail to file Form 8833, you may have to pay a $1,000 penalty. Corporations are subject to a $10,000 penalty for each failure.

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