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June 1, 2006
js-4301
United States and Germany Sign Protocol to Income Tax Treaty
WASHINGTON, DC – The Treasury Department today announced that Deputy Secretary Robert M. Kimmitt and Barbara Hendricks, Parliamentary Secretary of State, Ministry of Finance, signed a new Protocol to amend the existing bilateral income tax treaty, concluded in 1989, between the two countries. The Protocol was signed Thursday in Berlin.
The agreement significantly reduces tax-related barriers to trade and investment flows between the United States and Germany. It also modernizes the treaty to take account of changes in the laws and policies of both countries since the current treaty was signed.
The most important aspect of the Protocol deals with the taxation of cross-border dividend payments. The Protocol is one of a few recent U.S. tax agreements to provide for the elimination of the source-country withholding tax on dividends arising from certain direct investments and on dividends paid to pension funds. The Protocol also provides for mandatory arbitration of certain cases that cannot be resolved by the competent authorities within a specified period of time. This provision is the first of its kind in a U.S. tax treaty. In addition, the Protocol also strengthens the treaty's provisions preventing so-called treaty shopping, which is the inappropriate use of a tax treaty by third-country residents. The Protocol also modernizes our treaty relationship in several ways and brings it into closer conformity with current U.S. tax treaty policy.
Welcoming the Convention, Deputy Secretary Kimmitt said "The signing of the Protocol today reflects the cooperation and close economic ties between the United States and Germany. The Convention is also an important signal to investors that the doors to foreign investment remain open both in Germany and the United States."
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