The US Senate today ratified protocols to the US’s tax treaties with Japan, Switzerland, and Luxembourg. This follows the Senate ratification on Monday of a protocol to the US-Spain tax treaty, the first US ratification of a tax treaty or tax treaty protocol since 2010.
Like US-Spain protocol, all three tax treaty protocols easily cleared the two-thirds vote threshold for ratification. The protocol to the US-Luxembourg tax treaty was passed 93-3 with four senators not voting; the protocol to the US-Japan treaty was passed 95-2 with three senators not voting, and the Swiss protocol was passed 95-2 with three senators not voting.
Senators Mike Lee (R-Utah) and Rand Paul (R-Ky) voted “no” on all three. Dick Durbin (D-IL) joined Lee and Paul in objecting to the ratification of the Luxembourg tax treaty protocol
The US-Japan tax treaty protocol and related exchange of notes, signed in 2013, exempts from withholding all cross-border payments of interest and expands the withholding tax exemption for dividend payments. Under the protocol, dividends are exempt from withholding if the beneficial owner of the dividends owns 50 percent or more of the voting stock in a company paying the dividends for at least six months. Taxation of capital gains from the sale of real property is also modified under the new agreement. Further, the US-Japan protocol provides for a system of mandatory arbitration to resolve cross-border tax disputes.
The protocol with Switzerland, signed in 2009 and corrected with an exchange of notes in 2010, updates the 1996 US-Switzerland treaty, providing for more robust exchange of information between US and Swiss tax authorities. Like the US-Japan tax treaty protocol, the new protocol with Switzerland adopts mandatory arbitration for unresolved cross-border tax disputes.
The US-Luxembourg tax treaty protocol, signed in 2009, updates the US and Luxembourg’s 1996 tax treaty. The new protocol adds stronger provisions on the exchange of information between tax authorities to facilitate the administration of each country’s tax laws.
For each tax treaty protocol to enter into force, the United States and its treaty partner must officially notify each other that all procedures for ratification are met.
The three tax treaty protocols and the protocol with Spain cleared the US Senate Foreign Relations Committee in late June.
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