[Senate Executive Report 104-4]
[From the U.S. Government Publishing Office]
104th Congress Exec. Rept.
SENATE
1st Session 104-4
_______________________________________________________________________
INCOME TAX CONVENTION WITH SWEDEN
_______
August 10 (legislative day, July 10), 1995.--Ordered to be printed
_______________________________________________________________________
Mr. Helms, from the Committee on Foreign Relations, submitted the
following
R E P O R T
[To accompany Treaty Doc. 103-29, 103d Congress, 2d Session]
The Committee on Foreign Relations, to which was referred
the Convention Between the Government of the United States of
America and the Government of Sweden for the Avoidance of
Double Taxation and the Prevention of Fiscal Evasion with
Respect to Taxes on Income signed at Stockholm on September 1,
1994, together with a related exchange of notes, having
considered the same, reports favorably thereon, without
amendment, and recommends that the Senate give its advice and
consent to ratification thereof.
I. Purpose
The principal purposes of the proposed income tax treaty
between the United States and Sweden are to reduce or eliminate
double taxation of income earned by residents of either country
from sources within the other country, and to prevent avoidance
or evasion of income taxes of the two countries. The proposed
treaty is intended to continue to promote close economic
cooperation between the two countries and to eliminate possible
barriers to trade caused by overlapping taxing jurisdictions of
the two countries. It is also intended to enable the countries
to cooperate in preventing avoidance and evasion of taxes.
II. Background
The proposed treaty was signed on September 1, 1994, and
replaces the existing income tax treaty between the two
countries that was signed in 1939, and amended by a
supplementary protocol signed in 1963.
The proposed treaty was transmitted to the Senate for
advice and consent to its ratification on September 14, 1994
(see Treaty Doc. 103-29). The Committee on Foreign Relations
held a public hearing on the proposed treaty on June 13, 1995.
III. Summary
The proposed treaty is similar to other recent U.S. income
tax treaties, the 1981 proposed U.S. model income tax treaty
(the ``U.S. model''),\1\ and the model income tax treaty of the
Organization for Economic Cooperation and Development (the
``OECD model''). However, the proposed treaty contains certain
deviations from those documents. Among other modifications, the
proposed treaty includes a number of revisions to accommodate
aspects of the Tax Reform Act of 1986.
\1\ The U.S. model has been withdrawn from use as a model treaty by
the Treasury Department. Accordingly, its provisions may no longer
represent the preferred position of U.S. tax treaty negotiations. A new
model has not yet been released by the Treasury Department. Pending the
release of a new model, comparison of the provisions of the proposed
treaty against the provisions of the former U.S. model should be
considered in the context of the provisions of comparable recent U.S.
treaties.
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As in other U.S. tax treaties, the objectives of the
proposed treaty are principally achieved by each country
agreeing to limit, in certain specified situations, its right
to tax income derived from its territory by residents of the
other. For example, the proposed treaty contains the standard
treaty provisions that neither country will tax business income
derived by residents of the other unless the business
activities in the taxing country are substantial enough to
constitute a permanent establishment or fixed base and the
income is attributable to the permanent establishment or fixed
base (Articles 7 and 14). Similarly, the proposed treaty
contains the standard ``commercial visitor'' exemptions under
which residents of one country performing personal services in
the other will not be required to pay tax in the other unless
their contact with the other exceeds specified minimums
(Articles 14, 15, and 18). The proposed treaty provides that
dividends and certain capital gains derived by a resident of
either country from sources within the other country generally
may be taxed by both countries (Articles 10 and 13). Generally,
however, dividends received by a resident of one country from
sources within the other country are to be taxed by the source
country on a restricted basis (Article 10). The proposed treaty
also provides that, as a general rule, the source country may
not tax interest and royalties received by a resident of the
other treaty country (Articles 11 and 12).
In situations where the country of source retains the right
under the proposed treaty to tax income derived by residents of
the other country, the treaty generally provides for the relief
of the potential double taxation by requiring the country of
residence either to grant a credit against its tax for the
taxes paid to the second country or to exempt that income
(Article 23).
The treaty contains a ``saving clause'' similar to that
contained in U.S. tax treaties that each country retains the
right to tax its citizens and residents as if the treaty had
not come into effect (Article 1). In addition, the treaty
contains the standard provision that the treaty will not be
applied to deny any taxpayer any benefits he would be entitled
to under the domestic law of the country or under any other
agreement between the two countries (Article 1); that is, the
treaty will only be applied to the benefit of taxpayers.
The proposed treaty differs in certain respects from other
U.S. income tax treaties and from the U.S. and OECD model
treaties. It also differs in significant respects from the
present treaty with Sweden. (The present treaty predates the
1981 U.S. model treaty.) A summary of the provisions of the
proposed treaty, including some of these differences, follows:
(1) The U.S. excise tax on insurance premiums paid to a
foreign insurer generally is covered; that is, the excise tax
is treated as a tax that may be eliminated by treaty. This
treatment is a departure from the prior treaty, which generally
allowed the U.S. excise tax to be imposed on premiums paid to
Swedish insurers. Similar coverage appears in recent tax
treaties (such as the treaties with Germany and the Netherlands
and the present and proposed treaties with France), and under
the U.S. model treaty (Article 2).
(2) The definition of the term ``United States'' as
contained in the proposed treaty generally conforms to the
definition provided in the U.S. model. In both treaties the
term generally is limited to the United States of America, thus
excluding from the definition U.S. possessions and territories.
The proposed treaty, however, makes it clear that the United
States includes its territorial sea and the seabed and subsoil
of the adjacent area over which the United States may exercise
rights in accordance with international law and in which laws
relating to U.S. tax are in force. The U.S. model is silent
with respect to this point. The definition of the term
``Sweden'' as contained in the proposed treaty similarly
includes its territorial sea and other maritime areas over
which Sweden, in accordance with international law, exercises
sovereign rights or jurisdiction (Article 3).
(3) By contrast with the present treaty, the proposed
treaty introduces rules for determining when a person is a
resident of either the United States or Sweden, and hence
(subject to the limitation on benefits) entitled to benefits
under the treaty. The proposed treaty, like the U.S. model
treaty, provides tie-breaker rules for determining the
residence for treaty purposes of ``dual residents,'' or persons
having residence status under the internal laws of each of
these treaty countries. These rules differ in some respects
from the rules in the U.S. model treaty. For example, under the
treaty, as under many other U.S. treaties, Sweden need not
treat U.S. citizens or green card holders as U.S. residents
unless they have a substantial presence, permanent home, or
habitual abode in the United States. The U.S. model, by
contrast, provides for the other country to reduce taxes on all
U.S. citizens, regardless of where they reside. The United
States, however, rarely has been able to negotiate coverage for
nonresident citizens in its income tax treaties (Article 4).
(4) The proposed treaty does not contain the U.S. model
treaty provision under which investors in real property in the
country not of their residence, and who make an election to be
taxed on those investments on a net basis, are bound by that
election for all subsequent years unless the countries agree to
allow the taxpayer to terminate it. Instead, the making of the
election is controlled by internal law. Although current U.S.
and Swedish law independently provide for elective net basis
taxation, the making of a second election under internal U.S.
law is restricted once a first election has been revoked.
Unlike the U.S. model treaty and most U.S. treaties, but like
the OECD model treaty and several recent U.S. treaties, the
proposed treaty defines real property to include accessory
property, as well as livestock and equipment used in
agriculture and forestry (Article 6).
(5) By contrast to most other U.S. treaties, the proposed
treaty treats a permanent establishment as if it were a
``distinct and separate enterprise'' (as in the OECD model
treaty) rather than a ``distinct and independent enterprise''
(as in the U.S. model treaty). The language in other U.S.
treaties is intended to make clear that, as described in
paragraph 10 of the OECD Commentaries to Article 7, a permanent
establishment is to be treated as if it were a totally
independent enterprise, i.e., one that deals independently with
all related companies, not just its home office. The Treasury
Department Technical Explanation of the Convention Between the
Government of the United States of America and the Government
of Sweden for the Avoidance of Double Taxation and the
Prevention of Fiscal Evasion With Respect to Taxes on Income
signed at Stockholm on September 1, 1994, May 1995 (``Technical
Explanation'') explains that in the course of the negotiations
of the proposed treaty, the Swedish negotiators made clear that
they subscribed to the interpretation in the OECD Commentaries,
but preferred to retain the language from the OECD model. The
explanation further states that there should be no difference
in applications between paragraph 2 of Article 7 of the
proposed treaty and its analog in other U.S. treaties (Article
7).
(6) The business profits article of the proposed treaty
omits the force of attraction rules contained in the Code,
providing instead that the business profits to be attributed to
a permanent establishment shall include only the profits
derived from the assets or activities of the permanent
establishment. This is consistent with the U.S. model (Article
7).
(7) The proposed treaty, like the present and model
treaties, provides that profits of an enterprise of one treaty
country from the operation of ships or aircraft in
international traffic are taxable only in that country. Like
the U.S. model treaty, but unlike the present treaty, the
proposed treaty provides that profits of a treaty-country
enterprise from the use or rental of containers and related
equipment used in international traffic shall be taxable only
in that country (Article 8).
(8) Profits derived by the air transport consortium
Scandinavian Airlines System (SAS) are subject to the exemption
from tax for international traffic under the proposed treaty
only to the extent that the SAS profits correspond to the
participation held in that consortium by AB Aerotransport
(ABA), the Swedish partner of SAS. SAS is an entity in the
nature of a partnership which was created jointly by the
legislatures of Sweden, Norway and Denmark. The entire income
of the consortium will be subject to an exemption from tax for
international traffic because, in addition to the proposed
treaty, there are treaties between the United States and Norway
and Denmark that provide similar exemptions to residents of
those countries. In addition, notes exchanged at the signing of
the treaty provide that all income earned by Scandinavian
Airlines of North America Inc. (SANA Inc.), a New York
corporation, from the operation in international traffic of
aircraft would be treated as income of SAS, the consortium
whose constituent corporate members own the stock of SANA Inc.
The Technical Explanation states that (1) SANA Inc. was created
and is operated as an entity apart from SAS to satisfy U.S.
regulations regarding foreign airlines, which SAS as a
consortium could not meet, (2) SANA Inc. is a conduit for SAS
with regard to receipts and its expenses are guaranteed by SAS
and, therefore, (3) the income of SANA Inc. will be taxed under
the proposed treaty in the same manner as if it were earned
directly by SAS. The same result is achieved with respect to
the Danish and Norwegian partners in SAS. The result is spelled
out in an exchange of notes with Norway, in the same manner as
in this treaty. The present Danish treaty predates the
establishment of SANA Inc., and is, therefore, silent on this
issue. Similar notes were signed in connection with the 1980
treaty with Denmark which was approved by the Committee, but
was not approved by the full Senate (on other grounds) (Article
8).
(9) The associated enterprise article of the proposed
treaty incorporates the general principles of section 482 of
the Internal Revenue Code (``Code''). It also conforms more
closely than does the present treaty to the corresponding
article in the U.S. model. Under the present treaty, each
country may tax an enterprise resident in that country on
profits that were, by virtue of its participation in the
management or the financial structure of an enterprise of the
other contracting State, reduced by non-arm's-length conditions
agreed to or imposed upon the second enterprise. In these
cases, adjustments may be made in the accounts of the resident
enterprise. The proposed treaty contains broader language,
similar to the U.S. model, expressly permitting the use of
internal law standards such as section 482. It further provides
that either treaty country must correlatively adjust any tax
liability it previously imposed on an enterprise for profits
reallocated to an associated enterprise by the other treaty
country, if the first country agrees with the substance of the
second country's adjustment (Article 9).
(10) Under the proposed treaty, as well as the U.S. model,
direct investment dividends (i.e., dividends paid to companies
resident in the other country that own directly at least 10
percent of the voting shares of the payor) will generally be
taxable by the source country, after the treaty is fully phased
in, at a rate no greater than 5 percent. Portfolio investment
dividends (i.e., those paid to companies owning less than a 10
percent voting share interest in the payor, or to noncorporate
residents of the other country) are generally taxable by the
source country at a rate no greater than 15 percent (Article
10).
(11) Like the U.S. model treaty, the proposed treaty
generally defines ``dividends'' as income from shares or other
rights which participate in profits and which are not debt
claims. Unlike the U.S. model treaty, the proposed treaty also
provides that the term dividends includes income from
arrangements, including debt obligations, carrying the right to
participate in profits to the extent so characterized under the
law of the source country. Thus, the treaty would permit
dividend treatment of an ``equity kicker'' amount that is paid
on a loan (Article 10).
(12) The prohibition on source country tax in excess of 5
percent on direct investment dividends does not apply to a
dividend from a regulated investment company (a ``RIC''). These
dividends are generally subject to a 15-percent tax. In
addition, a dividend from a real estate investment trust (a
``REIT'') is taxed at source at the 15-percent portfolio
dividend rate if the beneficial owner of the dividend is a
Swedish individual who owns less than a 10-percent interest in
the REIT (dividends paid by a REIT are taxed at source at the
full 30-percent statutory rate in other cases) (Article 10).
(13) The proposed treaty provides an exemption from U.S.
excise taxes on private foundations in the case of a religious,
scientific, literary, educational, or charitable organization
which is resident in Sweden, but only if such organization has
received substantially all of its support from persons other
than citizens or residents of the United States. This provision
is designed to ensure that the Nobel Foundation, a Swedish
charitable organization, will not be subject to U.S. excise
taxes (Article 10).
(14) Unlike the present treaty, the proposed treaty
expressly permits the United States to impose its branch
profits tax. The United States may only apply its branch
profits tax to the portion of the business profits of a Swedish
company attributable to a permanent establishment or to certain
income from real property. The amount of profits subject to the
branch profits tax is limited to the amount representing the
``dividend equivalent amount,'' as defined under the Code
(Article 10).
(15) Like the U.S. model, the proposed treaty generally
provides that interest derived and beneficially owned by a
resident of a country may be taxed only by that country. Thus,
the proposed treaty generally exempts from the U.S. 30-percent
tax U.S. source interest paid to Swedish residents, and exempts
from Swedish tax interest paid to U.S. residents. The proposed
treaty also provides that the exemption at source for interest
does not apply to an excess inclusion of a U.S. real estate
mortgage investment conduit (a ``REMIC''). The U.S. model
(which was written before the enactment of the REMIC regime)
does not exclude an excess inclusion of a REMIC from the
exemption at source for interest (Article 11).
(16) Like the present treaty, the proposed treaty provides
that royalties derived and beneficially owned by a resident of
a country generally may be taxed only by that country. Thus,
the proposed treaty generally exempts from the U.S. 30-percent
tax all U.S. source royalties paid to Swedish residents, and
exempts from Swedish tax royalties paid to U.S. residents.
These reciprocal exemptions are similar to those provided in
the U.S. and OECD model treaties. However, unlike under the
U.S. model treaty, payments for the use of, or the right to
use, any motion pictures and works on film, tape or other means
of reproduction used for radio or television broadcasting, are
treated as royalties (Article 12).
(17) Both the U.S. model treaty and the proposed treaty
provide for source country taxation of capital gains from the
disposition of real property regardless of whether the taxpayer
is engaged in a trade or business in the source country. The
proposed treaty expands the present treaty (and U.S. model)
definition of real property for these purposes to encompass
``U.S. real property interests.'' This safeguards U.S. tax
under the Foreign Investment in Real Property Tax Act of 1980
which applies to dispositions of U.S. real property interests
by nonresident aliens and foreign corporations (Article 13).
(18) The proposed treaty permits Sweden to impose its
statutory tax on gains by an expatriate resident in the United
States from any property derived by this individual during the
10 years following the date on which the individual ceased to
be a resident of Sweden. Under the proposed treaty, the United
States also retains a right to tax its former citizens for 10
years where their loss of citizenship had as one of its
principal purposes the avoidance of tax (Article 13).
(19) The proposed treaty generally conforms to the U.S.
model treaty the provisions relating to independent personal
services. Under the proposed treaty, like the model treaty,
independent personal services performed by a resident of one
country in the other country can be taxed by the source country
only if the income is attributable to a fixed base regularly
available to the individual in the source country for the
purpose of performing his or her activities (Article 14).
(20) The dependent services article of the proposed treaty
varies slightly from that article of the U.S. model. Under the
U.S. model, salaries, wages and other similar remuneration
derived by a resident of one treaty country in respect of
employment exercised in the other country is taxable only in
the residence country (i.e., is not taxable in the other
country) if the recipient is present in the other country for a
period or periods not exceeding in the aggregate 183 days in
the taxable year concerned and certain other conditions are
satisfied. The proposed treaty contains a similar rule, but
like the OECD model as revised in 1992, provides that the
measurement period for the 183-day test is not limited to the
taxable year; rather, the source country may not tax the income
if the individual is not present there for a period or periods
exceeding in the aggregate 183 days in a 12-month period
(Article 15).
(21) The proposed treaty prohibits source country tax on
remuneration of a treaty country resident employed as a member
of the regular complement of a ship or aircraft operating in
international traffic (including an aircraft operated in
international traffic by the air transport consortium
Scandinavian Airlines System). This is the same as the U.S.
model provision, but differs from the present treaty (which
provides no special rule for such employment income) and from
the OECD model, which permits taxation in such case by the
country in which the place of effective management of the
employer is situated (Article 15).
(22) The proposed treaty allows directors' fees paid by a
company resident in one country to a resident of the other
country to be taxed in the first country if the fees are paid
for services performed in that country. The U.S. model treaty
and the present treaty, on the other hand, subject directors'
fees to the normal rules regarding the taxation of persons
performing personal services. Under the U.S. model treaty (and
the present treaty), the country where the recipient resides
generally has primary taxing jurisdiction over personal service
income and the source country tax on directors' fees is
limited. By contrast, under the OECD model treaty the country
where the company is resident has full taxing jurisdiction over
directors' fees and other similar payments the company makes to
residents of the other treaty country, regardless of where the
services are performed. Thus, the proposed treaty represents a
compromise between the U.S. model and the OECD model positions
(Article 16).
(23) The proposed treaty, unlike the present treaty,
contains a limitation on benefits, or ``anti-treaty shopping,''
article. This proposed treaty provision retains in some
respects the outline of the limitation on benefits provisions
contained in recent U.S. treaties and in the branch tax
provisions of the Internal Revenue Code and Treasury
Regulations. The proposed treaty provision is similar to the
limitation on benefits article contained in the recent U.S.
income tax treaty with Germany (Article 17).
(24) As is true of the U.S. and the OECD model treaties,
the proposed treaty contains a separate set of rules that apply
to the taxation of income earned by entertainers (such as
theater, motion picture, radio, or television ``artistes'' or
musicians) and athletes. These rules apply notwithstanding the
other provisions dealing with the taxation of income from
personal services and business profits and are intended, in
part, to prevent entertainers and athletes from using the
treaty to avoid paying any tax on their income earned in one of
the countries. The dollar threshold for taxation under the
proposed treaty, however, is less than one-third of the
threshold provided in the U.S. model. U.S. tax treaties
generally follow the U.S. model rules, but often use a lower
annual income threshold. Under the OECD model, entertainers and
athletes may be taxed by the country of source, regardless of
the amount of income they earn from artistic or sporting
endeavors (Article 18).
(25) Under the proposed treaty, pensions and other similar
remuneration beneficially derived by a resident of either
country in consideration of past employment generally are
subject to tax only in the recipient's country of residence.
However, pensions and other payment made by one of the
countries under the provisions of its social security system or
similar legislation paid to a resident of the other country or
to a citizen of the United States will be taxable only in the
paying country. Similar legislation is defined in the notes
exchanged at the time of the signing of the proposed treaty to
refer to United States Tier 1 Railroad Retirement benefits. The
proposed treaty also provides for the deductibility of
contributions of an employee in the host country of the
employee, under certain circumstances, to a pension or
retirement arrangement in the other country, as may be agreed
by the competent authorities of the two countries (Article 19).
(26) The proposed treaty retains the present treaty's rule
that, as a general matter, employment compensation paid by a
treaty country government may only be taxed by that country.
If, however, the employee is a citizen of the other country, or
did not become a resident of the other country solely for the
purposes of his employment, the other country has the exclusive
taxing right. A similar set of rules applies to pensions in
respect of government service. The proposed treaty applies to
all compensation paid by a governmental entity for services
rendered to that governmental entity, regardless of whether the
services are rendered in the discharge of governmental
functions, so long as the services are not rendered in
connection with a business carried on by the governmental
entity (Article 20).
(27) The present and proposed treaties, like the U.S.
model, preclude a visited country from taxing certain
compensation received by students, trainees, and certain other
temporary visitors, when that compensation is for purposes of
full time education or training and is received from abroad
(Article 21).
(28) The proposed treaty, unlike the present treaty,
contains the standard other income article, found in the model
treaties and more recent treaties, under which income not dealt
with in another treaty article generally may be taxed only by
the residence country (Article 22).
(29) The relief from double taxation article of the
proposed treaty, which generally ensures that each country
allow foreign tax credits for the income taxes imposed by the
other country, contains a special rule (not contained in the
present treaty but contained in many other treaties) for U.S.
citizens who reside in Sweden. Under this rule, Sweden will
allow as a credit against Swedish tax the U.S. income taxes
paid on U.S. source income. The credit, however, will not
exceed the amount of tax that would have been paid to the
United States if the resident were not a U.S. citizen (Article
23).
(30) The proposed treaty greatly expands the non-
discrimination rule in the present treaty, generally conforming
it to the U.S. model. The present treaty prohibits only
discrimination under the laws of one country against citizens
of the other country resident in the first country. The
proposed treaty prohibits discrimination under the laws of one
country against nationals of the other country in the same
circumstances as nationals of the first country. The proposed
treaty also prohibits discrimination under the laws of one
country against permanent establishments of enterprises of the
other country, against the deductibility of amounts paid to
residents of the other country, or against enterprises owned by
residents of the other country (Article 24).
(31) Like the U.S. model treaty, the proposed treaty makes
express provision for competent authorities to mutually agree
on topics that would arise under the present treaty, but are
not mentioned in the present treaty's mutual agreement article,
such as the characterization of particular items of income, the
common meaning of a term, the application of procedural aspects
of internal law, and the elimination of double taxation in
cases not provided for in the treaty. Also like the U.S. model,
the proposed treaty makes express provision for competent
authorities to mutually agree on topics that would arise under
the proposed treaty (Article 25).
(32) The proposed treaty provides that its dispute
resolution procedures under the mutual agreement article would
take precedence over the corresponding provisions of any other
agreement between the United States and Sweden in determining
whether a law or other measure is within the scope of the
proposed treaty. Unless the competent authorities agree that
the law or other measure is outside the scope of the proposed
treaty, only the proposed treaty's nondiscrimination rules, and
not the nondiscrimination rules of any trade or investment
agreement in effect between the United States and Sweden,
generally would apply to that law or measure. The only
exception to this general rule is that the nondiscrimination
rules of the General Agreement on Tariffs and Trade would
continue to apply with respect to trade in goods (Article 25).
(33) The proposed treaty contains a provision requiring
each country to undertake to lend administrative assistance to
the other in collecting taxes covered by the treaty. This
provision, carried over with modifications from the present
treaty, is more expansive than the administrative assistance
provision in the U.S. model treaty. Among other things, the
proposed treaty provision specifies that one country's
application to the other for assistance must include a
certification that the taxes at issue have been ``finally
determined.'' A country is not required to lend assistance with
respect to the country's own citizens or entities, except as
necessary to ensure that exemptions or reduced rates under the
treaty will not be enjoyed by those not entitled to them.
Neither country, however, is required to carry out
administrative measures different from those used in the
collection of its own taxes, or which would be contrary to its
sovereignty, security, or public policy (Article 27).
IV. Entry Into Force and Termination
A. Entry into Force
The proposed treaty will enter into force upon the exchange
of instruments of ratification. The proposed treaty will take
effect for the United States, with regard to withholding taxes
on dividends, interest or royalties, for amounts paid or
credited on or after the first day of the January following the
date on which the treaty enters into force. With respect to
other taxes, the proposed treaty will take effect for taxable
years beginning on or after the first of January following the
date the treaty enters into force. For Sweden, with regard to
taxes on income, the proposed treaty will take effect for
income derived on or after the first day of January following
the date on which the treaty enters into force; with regard to
the Swedish capital tax, for tax that is assessed in or after
the second calendar year following the year the treaty enters
into force; and with regard to the excise tax imposed on
insurance premiums paid to foreign insurers, for premiums paid
on or after the first day of January following the date the
treaty enters into force.
B. Termination
The proposed treaty will continue in force until terminated
by a treaty country. Either country may terminate it at any
time after five years from the date of its entry into force, by
giving at least six months prior notice through diplomatic
channels.
In the case of the United States, with respect to taxes
withheld at source, a termination will be effective for amounts
paid or credited on or after the first of January following the
expiration of the six-month period. With respect to other
taxes, a termination is to be effective for taxable years
beginning on or after the first of January following the
expiration of the six-month period.
In the case of Sweden, with respect to taxes on income, a
termination will be effective for income derived on or after
the first day of January following the expiration of the six
months period. With respect to the capital tax, a termination
will be effective for tax that is assessed in or after the
second calendar year following the expiration of the 6 months
period. With respect to the excise tax imposed on insurance
premiums paid to foreign insurers, a termination will be
effective for premiums paid on or after the first day of
January following the expiration of the six months period.
V. Committee Action
The Committee on Foreign Relations held a public hearing on
the proposed treaty with Sweden, and on other proposed tax
treaties and protocols, on June 13, 1995. The hearing was
chaired by Senator Thompson. The Committee considered the
proposed treaty on July 11, 1995, and ordered the proposed
treaty and protocol favorably reported by a voice vote, with
the recommendation that the Senate give its advice and consent
to the ratification of the proposed treaty.
VI. Committee Comments
On balance, the Committee on Foreign Relations believes
that this treaty is in the interest of the United States and
urges that the Senate act promptly to give its advice and
consent to ratification. The Committee has taken note of
certain issues raised by the proposed treaty, and believes that
the following comments may be useful to U.S. Treasury officials
in providing guidance on these matters should they arise in the
course of future treaty negotiations.
A. Treaty Shopping
The proposed treaty, like a number of U.S. income tax
treaties, generally limits treaty benefits for treaty country
residents so that only those residents with a sufficient nexus
to a treaty country will receive treaty benefits. Although the
proposed treaty is intended to benefit residents of Sweden and
the United States only, residents of third countries sometimes
attempt to use a treaty to obtain treaty benefits. This is
known as ``treaty shopping.'' Investors from countries that do
not have tax treaties with the United States, or from countries
that have not agreed in their tax treaties with the United
States to limit source country taxation to the same extent that
it is limited in another treaty, may, for example, attempt to
secure a lower rate of tax by lending money to a U.S. person
indirectly through a country whose treaty with the United
States provides for a lower rate. The third-country investor
may do this by establishing a subsidiary, trust, or other
investing entity in that treaty country which then makes the
loan to the U.S. person and claims the treaty reduction for the
interest it receives. Although the present Swedish treaty does
not contain an anti-treaty-shopping provision, treaty shopping
through Sweden apparently has not been a problem. However, as
the United States negotiates anti-treaty-shopping provisions
with additional countries, treaty shopping through countries
with treaties without such provisions may become more of a
problem.
The anti-treaty-shopping provision of the proposed treaty
is similar to an anti-treaty-shopping provision in the Code (as
interpreted by Treasury regulations) and in several newer
treaties. Some aspects of the provision, however, differ either
from the anti-treaty-shopping provision of the U.S. model or
from the anti-treaty-shopping provisions sought by the United
States in some treaty negotiations since the model was
published in 1981. The issue is whether the anti-treaty-
shopping provision of the treaty effectively forestalls
potential treaty-shopping abuses.
One provision of the anti-treaty-shopping article of the
proposed treaty is more lenient than the comparable rule in one
version proposed with the U.S. model. That U.S. model proposal
allows benefits to be denied if 75 percent or less of a
resident company's stock is held by individual residents of the
country of residence, while the proposed treaty (like several
newer treaties and an anti-treaty-shopping provision in the
Code) lowers the qualifying percentage to 50, and broadens the
class of qualifying shareholders to include residents of either
treaty country (and citizens of the United States). Thus, this
safe harbor is considerably easier to enter, under the proposed
treaty. On the other hand, counting for this purpose
shareholders who are residents of either treaty country would
not appear to invite the type of abuse at which the provision
is aimed, since the targeted abuse is ownership by third-
country residents attempting to obtain treaty benefits.
Another provision of the anti-treaty-shopping article
differs from the comparable rule of the U.S. model, but the
effect of the change is less clear. The general test applied by
the U.S. model to allow benefits, short of meeting the bright-
line ownership and base-erosion test, is a broadly subjective
one, looking to whether the acquisition, maintenance, or
operation of an entity did not have ``as a principal purpose
obtaining benefits under'' the treaty. By contrast, the
proposed treaty contains a more precise test that allows denial
of benefits only with respect to income not derived in
connection with the active conduct of a trade or business.
(However, this active trade or business test does not apply
with respect to a business of making or managing investments,
except for banking and insurance activities carried on by a
bank or an insurance company, so benefits can be denied with
respect to such a business regardless of how actively it is
conducted.) In addition, the proposed treaty gives the
competent authority of the source country the ability to
override this standard.
The practical difference between the proposed treaty tests
and the U.S. model test will depend upon how they are
interpreted and applied. The principal purpose test may be
applied leniently (so that any colorable business purpose
suffices to preserve treaty benefits), or it may be applied
strictly (so that any significant intent to obtain treaty
benefits suffices to deny them). Similarly, the standards in
the proposed treaty could be interpreted to require, for
example, a more active or a less active trade or business
(though the range of interpretation is far narrower). Thus, a
narrow reading of the principal purpose test could
theoretically be stricter than a broad reading of the proposed
treaty tests (i.e., would operate to deny benefits in
potentially abusive situations more often).
As part of its consideration of the proposed treaty, the
Committee asked the Treasury Department to provide additional
explanation regarding the sufficiency of the anti-treaty
shopping provisions in the proposed treaty and other treaties.
The relevant portion of Treasury's letter responding to this
and other inquires, dated July 5, 1995, is reproduced below:
2
\2\ Letter from Assistant Secretary of the Treasury (Tax Policy),
Leslie B. Samuels to Senator Fred Thompson, Committee on Foreign
Relations, July 5, 1995 (``July 5, 1995 Treasury letter'').
7. Is Treasury confident that the anti-treaty
shopping provisions in these treaties will ensure full
payment of taxes by multinational corporations and
eliminate abuse of the treaties to lower taxes?
In conjunction with various domestic statutes and
regulations, the limitation on benefits provisions
should be very effective in preventing underpayment of
U.S. withholding taxes by non-residents, including
multinationals.
The Committee continues to believe that the United States
should maintain its policy of limiting treaty-shopping
opportunities whenever possible. In exercising any latitude
Treasury has to adjust the operation of the proposed treaty,
Treasury should satisfy itself that its rules adequately deter
treaty-shopping abuses. The present income tax treaty between
the United States and Sweden does not contain anti-treaty-
shopping rules. The proposed anti-treaty-shopping provision may
be effective in preventing third-country investors from
obtaining treaty benefits by establishing investing entities in
Sweden since third-country investors may be unwilling to share
ownership of such investing entities on a 50-50 basis with U.S.
or Swedish residents or other qualified owners to meet the
ownership test of the anti-treaty-shopping provision. Further
the base erosion test provides protection from certain
potential abuses of a Swedish conduit. Finally, Sweden imposes
significant taxes of its own; these taxes may deter third-
country investors from seeking to use Swedish entities to make
U.S. investments. On the other hand, the Committee is aware
that implementation of the tests for treaty shopping set forth
in the treaty may raise factual, administrative, or other
issues that currently cannot be foreseen. The Committee
emphasizes that the new rules must be implemented so as to
serve as an adequate tool for preventing possible treaty-
shopping abuses in the future.
b. transfer pricing
The proposed treaty, like most other U.S. tax treaties,
contains an arm's-length pricing provision. The proposed treaty
recognizes the right of each country to reallocate profits
among related enterprises residing in each country, if a
reallocation is necessary to reflect the conditions which would
have been made between independent enterprises. The Code, under
section 482, provides the Secretary of the Treasury the power
to make reallocations wherever necessary in order to prevent
evasion of taxes or clearly to reflect the income of related
enterprises. Under regulations, the Treasury Department
implements this authority using an arm's-length standard, and
has indicated its belief that the standard it applies is fully
consistent with the proposed treaty.\3\ A significant function
of this authority is to ensure that the United States asserts
taxing jurisdiction over its fair share of the worldwide income
of a multinational enterprise. The arm's-length standard has
been adopted uniformly by the leading industrialized countries
of the world, in order to secure the appropriate tax base in
each country and avoid double taxation, ``thereby minimizing
conflict between tax administrations and promoting
international trade and investment.'' \4\
\3\ The OECD report on transfer pricing generally approves the
methods that are incorporated in the current Treasury regulations under
section 482 as consistent with the arm's-length principles upon which
Article 9 of the proposed treaty is based. See ``Transfer Pricing
Guidelines for Multinational Enterprises and Tax Administrations,''
OECD, Paris 1995.
\4\ Id. (preface).
Some have argued in the recent past that the IRS has not
performed adequately in this area. Some have argued that the
IRS cannot be expected to do so using its current approach.
They argue that the approach now set forth in the regulations
is impracticable, and that the Treasury Department should adopt
a different approach, under the authority of section 482, for
measuring the U.S. share of multinational income.5 Some
prefer a so-called ``formulary apportionment'' approach, which
can take a variety of forms. The general thrust of formulary
apportionment is to first measure total profit of a person or
group of related persons without regard to geography, and only
then to apportion the total, using a mathematical formula,
among the tax jurisdictions that claim primary taxing rights
over portions of the whole. Some prefer an approach that is
based on the expectation that an investor generally will insist
on a minimum return on investment or sales.6
\5\ See generally The Breakdown of IRS Tax Enforcement Regarding
Multinational Corporations: Revenue Losses, Excessive Litigation, and
Unfair Burdens for U.S. Producers: Hearing before the Senate Committee
on Governmental Affairs, 103d Cong., 1st Sess. (1993) (hereinafter,
Hearing Before the Senate Committee on Governmental Affairs).
\6\ See Tax Underpayments by U.S. Subsidiaries of Foreign
Companies: Hearings Before the Subcommittee on Oversight of the House
Committee on Ways and Means, 101st Cong., 2d Sess. 360-61 (1990)
(statement of James E. Wheeler); H.R. 460, 461, and 500, 103d Cong.,
1st Sess. (1993); sec. 304 of H.R. 5270, 102d Cong., 2d Sess. (1992)
(introduced bills); see also Department of the Treasury's Report on
Issues Related to the Compliance with U.S. Tax Laws by Foreign Firms
Operating in the United States: Hearing Before the Subcommittee on
Oversight of the House Committee on Ways and Means, 102d Cong., 2d
Sess. (1992).
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A debate exists as to whether an alternative to the
Treasury Department's current approach would violate the arm's-
length standard embodied in Article 9 of the proposed treaty,
or the nondiscrimination rules embodied in Article 25.7
Some, who advocate a change in internal U.S. tax policy in
favor of an alternative method, fear that U.S. obligations
under treaties such as the proposed treaty would be cited as
obstacles to change. The issue is whether the United States
should enter into agreements that might conflict with a move to
an alternative approach in the future, and if not, the degree
to which U.S. obligations under the proposed treaty would in
fact conflict with such a move.
\7\ Compare Tax Conventions with: The Russian Federation, Treaty
Doc. 102-39; United Mexican States, Treaty Doc. 103-7; The Czech
Republic, Treaty Doc. 103-17; The Slovak Republic, Treaty Doc. 103-18;
and The Netherlands, Treaty Doc. 103-6. Protocols Amending Tax
Conventions with: Israel, Treaty Doc. 103-16; The Netherlands, Treaty
Doc. 103-19; and Barbados, Treaty Doc. 102-41. Hearing Before the
Committee on Foreign Relations, United States Senate, 103d Cong., 1st
Sess. 38 (1993) (``A proposal to use a formulary method would be
inconsistent with our existing treaties and our new treaties.'') (oral
testimony of Leslie B. Samuels, Assistant Secretary for Tax Policy,
U.S. Treasury Department); a statement conveyed by foreign governments
to the U.S. State Department that ``[w]orldwide unitary taxation is
contrary to the internationally agreed arm's length principle embodied
in the bilateral tax treaties of the United States'' (letter dated 14
October 1993 from Robin Renwick, U.K. Ambassador to the United States,
to Warren Christopher, U.S. Secretary of State); and American Law
Institute Federal Income Tax Project: International Aspects of United
States Income Taxation II: Proposals on United States Income Tax
Treaties (1992), at 204 (n. 545) (``Use of a world-wide combination
unitary apportionment method to determine the income of a corporation
is inconsistent with the `Associated Enterprises' article of U.S. tax
treaties and the OECD model treaty'') with Hearing Before the Senate
Committee on Governmental Affairs at 26, 28 (``I do not believe that
the apportionment method is barred by any tax treaty that United States
has now entered into.'') (statement of Louis M. Kauder). See also
Foreign Income Tax Rationalization and Simplification Act of 1992:
Hearings Before the House Committee on Ways and Means, 102d Cong., 2d
Sess. 224, 246 (1992) (written statement of Fred T. Goldberg, Jr.,
Assistant Secretary for Tax Policy, U.S. Treasury Department).
As part of its consideration of the proposed treaty, the
Committee requested the Treasury Department to provide
additional information on the Administration's current policy
with respect to transfer pricing issues. The information
requested included a description of the Administration's
general position on transfer pricing issues, an analysis of
whether the United States should interpret Article 9 of tax
treaties regarding transfer pricing as permitting other methods
of pricing such as the unitary method or formulary
apportionment method and the reasons for industry's support of
the arm's-length pricing method. In addition, the Committee
also inquired whether the Treasury Department is satisfied that
the proposed treaty, and other treaties that are the subject of
the hearing, ensure foreign corporations are paying their share
of U.S. taxes. The relevant portions of Treasury's response to
these inquiries, in the July 5, 1995 Treasury letter, are
---------------------------------------------------------------------------
reproduced below:
1. Please describe the position of the U.S. Treasury with
regard to the transfer pricing issue.
While estimates of the magnitude of the problem vary,
Treasury regards transfer pricing as one of the most important
international tax issues that it faces. Treasury believes that
both foreign and U.S.-owned multinationals have engaged in
significant income shifting through improper transfer pricing.
Treasury identified three problems that allowed these
abuses to occur: (1) lack of substantive guidance in U.S.
regulations for taxpayers and tax administrators to apply in
cases where the traditional approaches did not work; (2) lack
of an incentive for taxpayers to attempt to set their transfer
prices in accordance with the substantive rules; and (3) lack
of international consensus on appropriate approaches. To
resolve these problems, Treasury has taken the following steps
in the last two years:
In July 1994, Treasury issued new final regulations
under section 482 of the Internal Revenue Code. These
regulations contain methods that were not reflected in
prior final regulations: the Comparable Profits and
Profit Split Methods. These methods are intended to be
used when the more traditional methods are unworkable
or do not provide a reliable basis for determining an
appropriate transfer price.
In August 1993, Congress enacted a Treasury proposal
to amend section 6662(e) of the Internal Revenue Code.
This provision penalizes taxpayers that both (1) are
subject to large transfer pricing adjustments and (2)
do not provide documentation indicating that they made
a reasonable effort to comply with the regulations
under section 482 in setting their transfer prices.
Treasury issued temporary regulations implementing the
statute in February 1994.
In July 1994, the Organization for Economic
Cooperation and Development issued a draft report on
transfer pricing. The United States is an active
participant in this body. The OECD transfer pricing
guidelines serve as the basis for the resolution of
transfer pricing cases between treaty partners and it
therefore is critical that any approach adopted in any
country be sanctioned in this report in order to reduce
the risk of double taxation. The draft report permits
the use of the new U.S. methods in appropriate cases.
2. Why shouldn't the United States interpret Article 9 of
the tax treaties regarding transfer pricing as permitting other
methods of pricing such as the unitary or formulary
apportionment method?
If Treasury adopted such an interpretation, it would send a
signal to our treaty partners that we were moving away from the
arm's length standard to a different, more arbitrary approach.
Sending such a signal would be very destructive and, if
implemented, would inevitably result in double (and under)
taxation due to the fundamental inconsistency between the
approach used in the United States and that used elsewhere.
Further, adopting such an interpretation would invite non-OECD
countries to introduce their own approaches that currently
cannot be foreseen, but that could inappropriately increase
their tax bases at the expense of the United States and other
countries.
3. The consensus regarding transfer pricing methods is
currently the arm's length standard. Will the U.S. remain open
to the possibility of better or alternative methods without
moving to such alternative methods unilaterally?
If it appeared that another approach was superior to the
current approach, the U.S. would push for the adoption of this
new approach on a multilateral basis so that there would be the
necessary international consensus in favor of the new approach.
4. Why does industry support the arm's length pricing
method?
Most multinationals are willing to pay their fair share of
tax. Their primary concern is that they not be subjected to
double taxation. Because the arm's length standard is the
universally adopted international norm and the major countries
of the world have adopted a consensus interpretation of that
standard within the OECD, the risks of double taxation are
infinitely smaller under the arm's length standard than under
any other approach.
5. A recent GAO report suggested that many foreign
corporations are not paying their fair share of taxes. Is
Treasury satisfied that these treaties ensure full payment of
required taxes?
A tax treaty by itself will not prevent transfer pricing
abuses. Rather, the treaty leaves it to the internal rules and
practices of the treaty partners to deal with such issues. In
the United States, Treasury has taken the measures described
above to ensure that foreign--and domestic--corporations pay
their fair share of taxes. A tax treaty can make these internal
measures more effective, particularly through the exchange of
information provisions that enable the U.S. tax authorities to
obtain transfer pricing information on transactions between
related parties in the United States and the treaty partner.
The treaties also facilitate Advance Pricing Agreements that
preclude the possibility of double taxation and at the same
time ensure that each country receives an appropriate share of
the taxes paid by a multinational.
C. Relationship to Uruguay Round Trade Agreements
The multilateral trade agreements encompassed in the
Uruguay Round Final Act, which entered into force as of January
1, 1995, include a General Agreement on Trade in Services
(``GATS''). This agreement generally obligates members (such as
the United States and Sweden) and their political subdivisions
to afford persons resident in member countries (and related
persons) ``national treatment'' and ``most-favored-nation
treatment'' in certain cases relating to services. The GATS
applies to ``measures'' affecting trade in services. A
``measure'' includes any law, regulation, rule, procedure,
decisions, administrative action, or any other form. Therefore,
the obligations of the GATS extend to any type of measure,
including taxation measures.
However, the application of the GATS to tax measures is
limited by certain exceptions under Article XIV and Article
XXII(3). Article XIV requires that a tax measure not be applied
in a manner that would constitute a means of arbitrary or
unjustifiable discrimination between countries where like
conditions prevail, or a disguised restriction on trade in
services. Article XIV(d) allows exceptions to the national
treatment otherwise required by the GATS, provided that the
difference in treatment is aimed at ensuring the equitable or
effective imposition or collection of direct taxes in respect
of services or service suppliers of other members. ``Direct
taxes'' under the GATS comprise all taxes on income or capital,
including taxes on gains from the alienation of property, taxes
on estates, inheritances and gifts, and taxes on the total
amounts of wages or salaries paid by enterprises as well as
taxes on capital appreciation.
Article XXII(3) provides that a member may not invoke the
GATS national treatment provisions with respect to a measure of
another member that falls within the scope of an international
agreement between them relating to the avoidance of double
taxation. In case of disagreement between members as to whether
a measure falls within the scope of such an agreement between
them, either member may bring this matter before the Council
for Trade in Services. The Council is to refer the matter to
arbitration; the decision of the arbitrator is final and
binding on the members. However, with respect to agreements on
the avoidance of double taxation that are in force on January
1, 1995, such a matter may be brought before the Council for
Trade in Services only with the consent of both parties to the
tax agreement.
Article XIV(e) allows exceptions to the most-favored-nation
treatment otherwise required by the GATS, provided that the
difference in treatment is the result of an agreement on the
avoidance of double taxation or provisions on the avoidance of
double taxation in any other international agreement or
arrangement by which the member is bound.
The proposed treaty provides that notwithstanding any other
agreement to which the United States and Sweden are parties, a
dispute concerning whether a measure is within the scope of the
proposed treaty is to be considered only by the competent
authorities under the dispute settlement procedures of the
proposed treaty. Moreover, the proposed treaty provides that
the nondiscrimination provisions of the proposed treaty are the
only nondiscrimination provisions that may be applied to a
taxation measure unless the competent authorities determine
that the taxation measure is not within the scope of the
proposed treaty (with the exception of nondiscrimination
obligations under the General Agreement on Tariffs and Trade
(``GATT'') with respect to trade in goods).
The Committee believes that it is important that the
competent authorities are granted the sole authority to resolve
any potential dispute concerning whether a measure is within
the scope of the proposed treaty and that the nondiscrimination
provisions of the proposed treaty are the only appropriate
nondiscrimination provisions that may be applied to a tax
measure unless the competent authorities determine that the
proposed treaty does not apply to it (except nondiscrimination
obligations under GATT with respect to trade in goods). The
Committee also believes that the provision of the proposed
treaty is adequate to preclude the preemption of the mutual
agreement provisions of the proposed treaty by the dispute
settlement procedures under the GATS.
D. Insurance Excise Tax
The proposed treaty, unlike the present treaty, contains a
waiver of the U.S. excise tax on insurance premiums paid to
foreign insurers. Thus, for example, a Swedish insurer or
reinsurer without a permanent establishment in the United
States can collect premiums on policies covering a U.S. risk or
a U.S. person free of this tax. However, the tax is imposed to
the extent that the risk is reinsured by the Swedish insurer or
reinsurer with a person not entitled to the benefits of the
proposed treaty or another treaty providing exemption from the
tax. This latter rule is known as the ``anti-conduit'' clause.
Although waiver of the excise tax appears in the 1981 U.S.
model treaty, waivers of the excise tax have raised serious
Congressional concerns. For example, concern has been expressed
over the possibility that such waivers may place U.S. insurers
at a competitive disadvantage to foreign competitors in U.S.
markets if insubstantial tax is imposed by the other country to
the treaty (or any other country) on the insurance income of
its residents (or the income of companies with which they
reinsure their risks). Moreover, in such a case waiver of the
tax does not serve the purpose of treaties to avoid double
taxation, but instead has the undesirable effect of eliminating
all taxation.
The U.S.-Barbados and U.S.-Bermuda tax treaties each
contained such a waiver as originally signed. In its report on
the Bermuda treaty, the Foreign Relations Committee expressed
the view that those waivers should not have been included. The
Committee stated that waivers should not be given by Treasury
in its future treaty negotiations without prior consultations
with the appropriate committees of Congress. 8 Congress
subsequently enacted legislation to ensure the sunset of the
waivers in the two treaties. The waiver of the tax in the
treaty with the United Kingdom (where the tax was waived
without the so-called ``anti-conduit rule'') has been followed
by a number of legislative efforts to redress perceived
competitive imbalance created by the waiver.
\8\ The Committee understands that such consultations took place
in connection with the proposed treaty.
---------------------------------------------------------------------------
Technical Explanation explains that the U.S. negotiators
agreed to waive these insurance excise taxes ``only after a
review of Swedish law indicated that the income tax imposed by
Sweden on Swedish resident insurers results in a burden that is
substantial in relation to the U.S. tax on U.S. resident
insurers.'' Thus, unlike Bermuda and Barbados, Sweden appears
to impose substantial tax on income, including insurance
income, of its residents. In addition, unlike the U.K. waiver,
the Swedish treaty waiver contains the standard anti-conduit
language. Thus, although it may be difficult to generalize
about the precise tax burdens Swedish insurers bear relative to
U.S. insurers, or the precise effects of imposing or waiving
the excise tax on Swedish insurers' rates of economic return,
there is reason to believe that agreeing not to impose the tax
on Swedish insurers is consistent with the criteria the
Committee has previously laid down for waiver of the tax.
As part of its consideration of the proposed treaty, the
Committee asked the Treasury Department to provide additional
explanation on the insurance excise tax waiver provision. The
relevant portions of the July 5, 1995 Treasury letter
responding to this and other inquiries are reproduced below:
1. Is Treasury satisfied that no competitive imbalance
will result from the insurance excise tax waiver provision?
Our insurance experts reviewed Swedish taxation of
insurance companies resident in Sweden to ensure that the
competitive position of U.S. insurance companies will not be
affected adversely by granting a waiver of the U.S. insurance
excise tax to Swedish companies. This review confirmed that
Swedish insurance companies bear a significant level of Swedish
tax on their income from insuring U.S. risks.
2. Can this Committee be assured that this waiver is
peculiar to the Swedish treaty as a result of the substantial
tax burdens and will not provide a precedent for future waivers
in tax treaties?
The coverage of the insurance excise tax is not peculiar
to the Swedish treaty. It has been U.S. treaty policy for about
20 years to cover the insurance excise tax, and thereby waive
its imposition, where the other country sought coverage,
subject to an anti-abuse provision, so long as the other
country did not have a comparable tax that it was not willing
to cover. In recent years, in accordance with Congressional
views, we have modified our policy to cover the tax only in
treaties with countries that impose a significant level of tax
on their resident insurance companies. As indicated above,
Sweden passed this test.
Swedish law may, however, exempt low-taxed foreign income
of a Swedish resident from tax; if foreign laws that apply to
the foreign insurance income of a Swedish resident were changed
in the future (or applied differently than they are now), the
result might be a level of tax inconsistent with the criteria
previously laid down by the Committee for waiver of the U.S.
excise tax on premiums. While the Committee has no reason
currently to expect that such foreign law changes will occur,
the Committee is aware of this possibility, and thus instructs
the Treasury Department promptly to inform the Committee of any
changes in foreign laws or business practices that would have
an impact on the tax burden of Swedish insurers relative to
that of U.S. insurers.
VII. Budget Impact
The Committee has been informed by the staff of the Joint
Committee on Taxation that the proposed treaty is estimated to
have a negligible effect on Federal budget receipts during the
fiscal year 1995-2000 period.
VIII. Explanation of Treaty Provisions
For a detailed, article-by-article explanation of the
proposed treaty, see the ``Treasury Department Technical
Explanation of the Convention Between the Government of the
United States of America and the Government of Sweden for the
Avoidance of Double Taxation and the Prevention of Fiscal
Evasion With Respect to Taxes on Income Signed at Stockholm on
September 1, 1994,'' May 1995.
IX. Text of the Resolution of Ratification
Resolved (two-thirds of the Senators present concurring
therein), That the Senate advise and consent to the
ratification of the Convention between the Government of the
United States of America and the Government of Sweden for the
Avoidance of Double Taxation and the Prevention of Fiscal
Evasion with Respect to Taxes on Income, signed at Stockholm on
September 1, 1994, together with related exchange of notes
(Treaty Doc. 103-29).