US tax treaty shopping rules: Traps for the unwary
01 June 2012
Income tax treaties can provide significant protections for European investors and businesses in the US. As Congress seeks to close tax loopholes, to generate additional revenue, users of US tax treaties may face even tighter anti-treaty-shopping rules, warn Alfred Groff, Kristen Garry and Nathan Tasso, of Shearman & Sterling.
|US Congress is looking to close numerous loopholes to generate extra cash
Traditionally, US tax laws have imposed withholding tax of 30% on US
source dividends, interest, rents, royalties and similar income paid to
non-US persons. These taxes were enacted at a time that the US was an
economic juggernaut, i.e., not concerned with encouraging in-bound
investment. In the 1960s, non-US investors flush with US dollars looked
for ways to invest profitably in the US. High US withholding tax
presented a major barrier to in-bound US investment and tax advisors
devised strategies to reduce US withholding taxes.
One common strategy that developed is treaty shopping. Generally,
treaty shopping is a practice in which a non-US investor forms a
corporation in a jurisdiction (other than its own) that has an income
tax treaty with the US in which the investment or business is
undertaken. The classic situation is the Aiken...
This article is available to subscribers and current trialists of International Tax Review only. Please log in or subscribe for access to the rest of the article.
Alternatively take a free trial, giving you 7 days of access.
This article is available to subscribers only. To read the rest of this article please subscrbe.
This article is available to trialists and subscribers only. Please take a free 7 day trial to read the rest of the article.