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Copyright (c) 1998 The Virginia Tax Review Association
Virginia Tax Review

ARTICLE: U.S. Income Tax Treaties in Research and Planning: A Primer

Summer, 1998

18 Va. Tax Rev. 133

Author

Ernest R. Larkins *

Excerpt

I. INTRODUCTION

The United States is a party to 48 income tax treaties. 1 Several other treaties are pending. 2 Tax treaties provide significant tax benefits to foreign individuals and entities with investment and business activities in the United States. Treaties also reduce tax burdens on U.S. individuals and entities with investment or business dealings in many foreign countries.

This article provides guidance for tax professionals who must consult U.S. income tax treaties in their research and planning activities for these taxpayers. The recently-released U.S. Model Income Tax Treaty 3 is used to illustrate provisions often found in U.S. income tax conventions. Existing treaties are used to illustrate some of the interesting deviations from the U.S. Model Treaty. As background, however, fundamental rules dealing with treaty interpretation and disclosure requirements are briefly reviewed first.

II. TREATY INTERPRETATION

To understand and apply income tax treaties, tax professionals should be familiar with the sources of law that aid in their interpretation. At times, the interpretation of a provision in one treaty can guide the interpretation of a similar provision in another treaty. Statutory and judicial law also provide direction when a treaty conflicts with the Internal Revenue Code (hereinafter, the "Code"). To avoid taxpayer penalties, one must disclose the resolution and interpretation of certain conflicts.

A. Explanations and Definitions

Just as Treasury Regulations interpret the Code, the specific purpose of some legislative documents is to explain and interpret the language of U.S. income tax treaties. The ...
 
 
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