Irs Publication 54 - Tax Guide For U.s. Citizens And Resident Aliens Abroad

In this situation (Example 5), you can-

applicable saving clause to determine if an ex-

Common Benefits

not use Form 2555-EZ since you had

ception applies.

TIP

earned income other than salaries and

More information on treaties. Publication

wages and you had business expenses.

Some common tax treaty benefits are explained

901 contains an explanation of treaty provisions

below. The credits, deductions, exemptions, re-

that apply to amounts received by teachers,

ductions in rate, and other benefits provided by

students, workers, and government employees

tax treaties are subject to conditions and various

and pensioners who are alien nonresidents or

restrictions. Benefits provided by certain treaties

residents of the United States. Since treaty pro-

are not provided by others.

visions generally are reciprocal, you can usually

Personal service income. If you are a U.S.

substitute “United States” for the name of the

resident who is in a treaty country for a limited

treaty country whenever it appears, and vice

number of days in the tax year and you meet

versa when “U.S.” appears in the treaty exemp-

certain other requirements, pay you receive for

tion discussions in Publication 901.

Tax Treaty

personal services performed in that country may

Publication 597 contains an explanation of a

be exempt from that country’s income tax.

number of frequently-used provisions of the

Professors and teachers. If you are a U.S.

United States – Canada income tax treaty.

Benefits

resident, pay you receive for the first 2 or 3 years

that you are teaching or doing research in a

treaty country may be exempt from that coun-

Competent

try’s income tax.

Topics

Students, trainees, and apprentices. If

Authority Assistance

you are a U.S. resident, amounts you receive

This chapter discusses:

from the United States for study, research, or

•

business, professional and technical training

Some common tax treaty benefits,

If you are a U.S. citizen or resident alien, you

may be exempt from a treaty country’s income

can request assistance from the U.S. competent

•

How to get help in certain situations, and

tax.

authority if you think that the actions of the

•

Some treaties exempt grants, allowances,

How to get copies of tax treaties.

United States, a treaty country, or both, cause or

and awards received from governmental and

will cause a tax situation not intended by the

certain nonprofit organizations. Also, under cer-

treaty between the two countries. You should

Useful Items

tain circumstances, a limited amount of pay re-

read any treaty articles, including the mutual

You may want to see:

ceived by students, trainees, and apprentices

agreement procedure article, that apply in your

may be exempt from the income tax of many

situation.

Publication

treaty countries.

The U.S. competent authority cannot con-

Pensions and annuities. If you are a U.S.

sider requests involving countries with which the

597

Information on the United

resident, nongovernment pensions and annui-

United States does not have a tax treaty.

States-Canada Income Tax Treaty

ties you receive may be exempt from the income

tax of treaty countries.

901

U.S. Tax Treaties

Effect of request for assistance. If your re-

Most treaties contain separate provisions for

quest provides a basis for competent authority

See chapter 7 for information about getting

exempting government pensions and annuities

assistance, the U.S. competent authority gener-

these publications.

from treaty country income tax, and some trea-

ally will consult with the treaty country compe-

ties provide exemption from the treaty country’s

tent authority on how to resolve the situation.

income tax for social security payments.

How to make your request. It is important

Investment income. If you are a U.S. resi-

Purpose of

that you make your request for competent au-

dent, investment income, such as interest and

thority consideration as soon as either of the

dividends, that you receive from sources in a

Tax Treaties

following occurs.

treaty country may be exempt from that coun-

try’s income tax or taxed at a reduced rate.

•

You are denied treaty benefits.

Several treaties provide exemption for capi-

The United States has tax treaties or conven-

•

Actions taken by both the United States

tal gains (other than from sales of real property

tions with many countries. See Table 6-1 at the

and the foreign country result in double

in most cases) if specified requirements are met.

end of this chapter for a list of these countries.

taxation or will result in taxation not in-

Tax credit provisions. If you are a U.S.

Under these treaties and conventions, citi-

tended by the treaty.

resident who receives income from or owns cap-

zens and residents of the United States who are

ital in a foreign country, you may be taxed on

subject to taxes imposed by the foreign coun-

In addition to making a request for assistance,

that income or capital by both the United States

tries are entitled to certain credits, deductions,

you should take steps so that any agreement

and the treaty country.

exemptions, and reductions in the rate of taxes

reached by the competent authorities is not

Most treaties allow you to take a credit

of those foreign countries. If a foreign country

barred by administrative, legal, or procedural

against or deduction from the treaty country’s

with which the United States has a treaty im-

barriers. Some of the steps you should consider

taxes based on the U.S. tax on the income.

poses a tax on you, you may be entitled to

taking include the following.

Nondiscrimination provisions. Most U.S.

benefits under the treaty.

•

tax treaties provide that the treaty country can-

Filing a protective claim for credit or refund

Treaty benefits generally are available to re-

not discriminate by imposing more burdensome

of U.S. taxes.

sidents of the United States. They generally are

taxes on U.S. citizens who are residents of the

•

not available to U.S. citizens who do not reside

Delaying the expiration of any period of

treaty country than it imposes on its own citizens

in the United States. However, certain treaty

limitations on the making of a refund or

in the same circumstances.

benefits and safeguards, such as the nondis-

other tax adjustment.

Saving clauses. U.S. treaties contain sav-

crimination provisions, are available to U.S. citi-

•

ing clauses that provide that the treaties do not

Avoiding the lapse or termination of your

zens residing in the treaty countries. U.S.

affect the U.S. taxation of its own citizens and

right to appeal any tax determination.

citizens residing in a foreign country may also be

residents. As a result, U.S. citizens and re-

•

entitled to benefits under that country’s tax trea-

Complying with all applicable procedures

sidents generally cannot use the treaty to re-

ties with third countries.

for invoking competent authority consider-

duce their U.S. tax liability.

ation.

You should examine the specific treaty

However, most treaties provide exceptions

•

articles to find if you are entitled to a tax

TIP

to saving clauses that allow certain provisions of

Contesting an adjustment or seeking an

credit, tax exemption, reduced rate of

the treaty to be claimed by U.S. citizens or re-

appropriate correlative adjustment with re-

tax, or other treaty benefit or safeguard.

sidents. It is important that you examine the

spect to the U.S. or treaty country tax.

Page 34

Chapter 6 Tax Treaty Benefits

Irs Publication 54 - Tax Guide For U.s. Citizens And Resident Aliens Abroad - 2008 Page 34

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