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LEX FORI INTERNATIONAL LAWYERS
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Tax treaties are an often forgotten lynchpin in advising the international client. Structures are often put together which complicate a client’s situation when the simple, straightforward foreign investment in U.S. assets would have yielded more favorable tax results under a treaty. As of January 31, 1998, the United States has entered into new income tax treaties with several countries including:
With respect to estate and gift tax treaties in force, as of January 31, 1998, the U.S. had tax treaties in force with the following countries: Australia, Austria, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, the Netherlands, Norway, South Africa, Sweden, Switzerland, and United Kingdom.
Several tax treaties are awaiting approval, signature, or are under active negotiation. The estate and gift tax treaties under the active negotiation include France and Germany.
If a non-U.S. resident’s estate is permitted a marital deduction because of a treaty between the U.S. and the decedent’s country domicile, this estate may take the marital deduction either under the treaty or through a Qualified Domestic Trust (QDOT), but not both.
Treaties can affect both income, estate and gift taxation. For example, under the U.S. – France Income Tax Treaty, a resident of France is entitled to complete exemption from the U.S. capital gains and interest income earned in the United States. Further, U.S. tax on income dividends from U.S. corporations is reduced from 30% to 5-15%. To avail oneself of treaty benefits, a taxpayer must complete Form 8833 and file it with his U.S. income, estate or gift tax return.
The bottom line is always checks the applicable treaty and compare its benefits to the default rules.