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What Does The New U.S. Treasury Model Tax Treaty Mean For You?



John Richardson

On July 12, the U.S. Treasury released its 2016 Model Tax Treaty. I suspect that people will interpret this in terms of how it affects their individual tax situations. This gives a huge clue with respect to information exchange and how the U.S. views “double taxation,” citizenship-based taxation, and related issues.

In the past, brokers have been tremendously resourceful in analyzing complex documents such as these. I invite you to read the model agreement and comment on whether you see any improvement in how it affects your situation in different countries.

Common sense dictates that the text of the model treaty can be used as an interpretive aid for interpreting the existing treaties.

I am particularly interested in whether you see anything in this which would affect, pensions, PFIC, foreign corporations, etc.

Discussion

 

Is the 2016 Model Tax Treaty about continuing double taxation or is it about ending double taxation? Is this Treaty better suited for justifying the exchange of information under FATCA?

When (if) you comment, please make clear which country you live in.

I notice right at the beginning, Article I reads:

4. Except to the extent provided in paragraph 5 of this Article, this Convention shall not affect the taxation by a Contracting State of its residents (as determined under Article 4 (Resident)) and its citizens. Notwithstanding the other provisions of this Convention, a former citizen or former long-term resident of a Contracting State may be taxed in accordance with the laws of that Contracting State.

5. The provisions of paragraph 4 of this Article shall not affect:

  • the benefits conferred by a Contracting State under paragraph 3 of Article 7 (Business Profits), paragraph 2 of Article 9 (Associated Enterprises), paragraph 7 of Article 13 (Gains), subparagraph (b) of paragraph 1, paragraphs 2, 3 and 6 of Article 17 (Pensions, Social Security, Annuities, Alimony and Child Support), paragraph 3 of Article 18 (Pension Funds), and Articles 23 (Relief From Double Taxation), 24 (Non-Discrimination) and 25 (Mutual Agreement Procedure)
  • the benefits conferred by a Contracting State under paragraph 1 of Article 18 (Pension Funds), and Articles 19 (Government Service), 20 (Students and Trainees) and 27 (Members of Diplomatic Missions and Consular Posts), upon individuals who are neither citizens of, nor have been admitted for permanent residence in, that Contracting State.

The Reality of U.S. Citizenship Abroad

My name is John Richardson. I am a Toronto based lawyer – member of the Bar of Ontario. This means that, any counselling session you have with me will be governed by the rules of “lawyer client” privilege. This means that:

“What’s said in my office, stays in my office.”

The U.S. imposes complex rules and life restrictions on its citizens wherever they live. These restrictions are becoming more and more difficult for those U.S. citizens who choose to live outside the United States.

FATCA is the mechanism to enforce those “complex rules and life restrictions” on Americans abroad. As a result, many U.S. citizens abroad are renouncing their U.S. citizenship. Although this is very sad. It is also the reality.

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