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

You should carefully examine the spe-

not affect the U.S. taxation of its own citizens

protective steps and when any required steps

TIP

cific treaty articles that may apply to

need to be taken.

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

find if you are entitled to a tax credit, tax

residents generally cannot use the treaty to re-

Your request for competent authority

exemption, reduced rate of tax, or other treaty

duce their U.S. tax liability.

consideration should be addressed to:

benefit or safeguard.

However, most treaties provide exceptions

to saving clauses that allow certain provisions of

Internal Revenue Service

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

Director, International

sidents. It is important that you examine the

Common Benefits

LM:IN:T

applicable saving clause to determine if an ex-

950 L’Enfant Plaza South, SW

ception applies.

Some common tax treaty benefits are explained

Washington, DC 20024.

below. The credits, deductions, exemptions, re-

The request should contain all essential

ductions in rate, and other benefits provided by

items of information, including the following

tax treaties are subject to conditions and various

Competent

items.

restrictions. Benefits provided by certain treaties

are not provided by others.

•

The facts from which the issue arises.

Authority Assistance

1. Personal service income. If you are a

•

The amounts of income and tax involved.

U.S. resident who is in a treaty country for a

•

limited number of days in the tax year and you

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

A description of the issue and identifica-

meet certain other requirements, pay you re-

request assistance from the U.S. competent au-

tion of the relevant treaty provisions.

ceive for personal services performed in that

thority if you think that the actions of the United

•

The respective positions taken by you and

country may be exempt from that country’s in-

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

the foreign country.

come tax.

cause a tax situation not intended by the treaty

2. Professors and teachers. If you are a

•

between the two countries. You should read any

Copies of any protests, briefs, or other

U.S. resident, pay you receive for the first 2 or 3

pertinent documents.

specific treaty articles, including the mutual

years that you are teaching or doing research in

agreement procedure article, that apply in your

a treaty country may be exempt from that

Additional details on the procedures for re-

situation.

country’s income tax.

questing competent authority assistance are in-

3. Students, trainees, and apprentices. If

If your request provides a basis for compe-

cluded in Revenue Procedure 96 – 13, which is

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

tent authority assistance, the U.S. competent

in Cumulative Bulletin 1996 – 1.

from the United States for study, research, or

authority will consult with the treaty country com-

business, professional and technical training

petent authority on how to resolve the situation.

More information on treaties and problems.

may be exempt from a treaty country’s income

Publication 901 contains an explanation of

The U.S. competent authority cannot con-

tax.

treaty provisions that apply to amounts received

sider requests involving countries with which the

Some treaties exempt grants, allowances,

by teachers, students, workers, and government

and awards received from governmental and

United States does not have an applicable tax

employees and pensioners who are alien non-

certain nonprofit organizations. Also, under cer-

treaty.

residents or residents of the United States.

tain circumstances, a limited amount of pay re-

It is important that you make your request for

Since treaty provisions generally are reciprocal,

ceived by students, trainees, and apprentices

competent authority consideration as soon as

may be exempt from the income tax of many

you can usually substitute “United States” for the

either of the following occurs.

treaty countries.

name of the treaty country whenever it appears,

4. Pensions and annuities. If you are a

and vice versa when “U.S.” appears in the treaty

•

You are denied treaty benefits.

U.S. resident, nongovernment pensions and an-

exemption discussions in Publication 901.

•

nuities you receive may be exempt from the

Actions taken by both the United States

Publication 597 contains an explanation of a

income tax of treaty countries.

and the foreign country result in double

number of frequently used provisions of the

Most treaties contain separate provisions for

taxation or will result in taxation not in-

United States – Canada income tax treaty.

exempting government pensions and annuities

tended by the treaty.

from treaty country income tax, and some trea-

ties provide exemption from the treaty country’s

In addition to making a request for assistance,

income tax for social security payments.

Obtaining Copies

you should take steps so that any agreement

5. Investment income. If you are a U.S.

reached by the competent authorities is not

resident, investment income, such as interest

of Tax Treaties

barred by administrative, legal, or procedural

and dividends, that you receive from sources in

barriers. Some of the steps you should consider

a treaty country may be exempt from that

Table 6 – 1 lists those countries with which the

taking include the following.

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

United States has income tax treaties. This table

Several treaties provide exemption for capi-

is updated through December 31, 2001.

1) Filing a protective claim for credit or refund

tal gains (other than from sales of real property

You can get complete information about

in most cases) if specified requirements are met.

of U.S. taxes.

treaty provisions from the taxing authority in the

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

2) Delaying the expiration of any period of

country from which you receive income or from

resident who receives income from or owns cap-

limitations on the making of a refund or

the treaty itself. You can obtain the text of most

ital in a foreign country, you may be taxed on

other tax adjustment.

of the treaties at You can also

that income or capital by both the United States

obtain the text of most of the treaties at the

and the treaty country.

3) Avoiding the lapse or termination of your

following address:

Most treaties allow you to take a credit

right to appeal any tax determination.

against or deduction from the treaty country’s

4) Complying with all applicable procedures

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

Department of Treasury

for invoking competent authority consider-

7. Nondiscrimination provisions. Most

Office of Public Liaison

ation.

U.S. tax treaties provide that the treaty country

1500 Pennsylvania Ave. NW — Rm. 4418

cannot discriminate by imposing more burden-

5) Contesting any adjustment or seeking an

Washington, DC 20220.

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

appropriate correlative adjustment with re-

the treaty country than it imposes on its own

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

If you have specific questions about a treaty,

citizens in the same circumstances.

Taxpayers can consult with the U.S. competent

you can get this information from most Internal

8. Saving clauses. U.S. treaties contain

authority to determine whether they need to take

saving clauses that provide that the treaties do

Revenue Service offices or from:

Chapter 6 Tax Treaty Benefits

Page 33

Publication 54 - Tax Guide For U.s. Citizens And U.s. Citizens Abroad - 2001 Page 33

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