UNITED STATE-ITALY INCOME AND CAPITAL TAX …

1 UNITED STATE-ITALY INCOME AND CAPITAL TAX CONVENTIONC onvention, with Protocol and Exchange of Notes, Signed at Rome April 17, 1984;Transmitted by the President of the UNITED States of America to the Senate July (Treaty Doc. , 98th Cong., 2d Sess.);Reported Favorably by the Senate Committee on Foreign Relations December 11,1985 (S. No. 99-6, 99th Cong., 1st Sess.);Advice and Consent to Ratification by the Senate December 16, 1985;Ratified by the President December 23, 1985;Ratified by Italy December 13, 1985;Ratifications Exchanged at Washington December 30, 1985;Proclaimed by the President September 9, 1987;Entered into Force December 30, 1985; Effective February 1, 1986 for Certain Provisions:January 1, 1985 for Others (Art.)

2 28).GENERAL EFFECTIVE DATE UNDER ARTICLE 28: 1 JANUARY 1985 TABLE OF ARTICLESA rticle 1----------------------------------Perso nal ScopeArticle 2----------------------------------Taxes CoveredArticle 3----------------------------------Gener al DefinitionsArticle 4----------------------------------Resid entArticle 5----------------------------------Perma nent EstablishmentArticle 6----------------------------------Incom e from Immovable PropertyArticle 7----------------------------------Busin ess ProfitsArticle 8----------------------------------Shipp ing and Air TransportArticle

3 9----------------------------------Assoc iated EnterprisesArticle 10---------------------------------Divid endsArticle 11---------------------------------Inter estArticle 12---------------------------------Royal tiesArticle 13---------------------------------Capit al GainsArticle 14---------------------------------Indep endent Personal ServicesArticle 15---------------------------------Depen dent Personal ServicesArticle 16---------------------------------Direc tors' FeesArticle 17---------------------------------Artis tes and AthletesArticle 18---------------------------------Pensi ons.

4 19---------------------------------Gover nment ServiceArticle 20---------------------------------Profe ssors and TeachersArticle 21---------------------------------Stude nts and TraineesArticle 22---------------------------------Other IncomeArticle 23---------------------------------Relie f from Double TaxationArticle 24---------------------------------Non-D iscriminationArticle 25---------------------------------Mutua l Agreement ProcedureArticle 26---------------------------------Excha nge of InformationArticle 27---------------------------------Diplo matic Agents and Consular OfficialsArticle 28---------------------------------Entry into ForceArticle 29---------------------------------Termi nationProtocol-------------------------- ---------of 17 April, 1984 Notes of exchange-----------------------of 17 April, 1984 Letter of Submittal----------------------of 22 June, 1984 Letter of Transmittal--------------------of 3 July.

5 1984 The Saving Clause --------------------Paragraph 2 of Article 1 TAX convention WITH ITALYMESSAGEFROMTHE PRESIDENT OF THE UNITED STATESTRANSMITTINGTHE convention BETWEEN THE GOVERNMENT OF THE UNITED STATES OFAMERICA AND THE GOVERNMENT OF THE REPUBLIC OF ITALY FOR THEAVOIDANCE OF DOUBLE TAXATION WITH RESPECT TO TAXES ON INCOME ANDTHE PREVENTION OF FRAUD OR FISCAL EVASION, TOGETHER WITH ASUPPLEMENTARY PROTOCOL AND EXCHANGE OF NOTES, SIGNED AT ROME ONAPRIL 17, 1984 LETTER OF SUBMITTALDEPARTMENT OF STATE,Washington, June 22, PRESIDENT,The White House.

6 THE PRESIDENT: I have the honor to submit to you, with a view to its transmission to the Senatefor advice and consent to ratification, the convention between the Government of the UNITED States ofAmerica and the Government of the Republic of Italy for the Avoidance of Double Taxation withRespect to Taxes on INCOME and the Prevention of Fraud or Fiscal Evasion (referred to hereafter as"the convention "), together with a supplementary Protocol and exchange of notes signed at Rome onApril 17,1984. The convention will replace the present INCOME tax treaty with Italy which was signed atWashington on March 30, 1955 and has been in force since 1956.

7 It reflects important changes in theUnited States and Italian tax laws and the development of model tax treaties by the UNITED States andthe Organization for Economic Cooperation and Development (OECD). The convention generally follows the pattern of the model INCOME tax convention , with certainmodifications. The convention sets forth agreed definitions of terms; rules allocating taxing jurisdictionbetween the country of source of INCOME and the country of residence of the beneficial owner withrespect to each type of INCOME ( profits, wages and salaries, royalties, interest); the method to beused by each country to avoid double taxation; and procedures for administrative cooperation.

8 The convention retains the provision of the 1955 treaty for a reduced tax rate of 5 percent atsource on dividends paid by a corporation which is a resident of one country to a corporation which is aresident of the other country. The convention extends this benefit to corporations which own 50percent or more of the voting stock of the paying corporation. The 1955 treaty required 95 percentownership to be eligible for the benefit. The new convention introduces a 10 percent rate (rather than15) on dividends paid to a company owning between 10 and 50 percent of the voting stock of thepaying company.

9 The 5 and 10 percent rates do not apply if the recipient company derives more than acertain proportion of its INCOME from passive investments, , as a holding company. All otherdividends paid to residents of the other country may be taxed at source at a rate not exceeding 15percent. The convention also introduces a limitation, not contained in the 1955 treaty, on the taxation atsource of interest paid to residents of the other country. The limit is 15 percent in general, withexemption at source of interest derived by the other government or a wholly owned governmentinstrumentality and of interest derived by a resident of the other country on debt guaranteed or insuredby that government or a wholly owned government instrumentality.

10 One important feature of the convention is that it covers the Italian local INCOME tax, as well asnational INCOME taxes. This is of particular importance with respect to Italian taxes on royalties derivedby UNITED States residents, since the Italian local tax is imposed on such payments and is not covered bythe 1955 treaty. The new convention limits the aggregate tax at source on royalties to a maximum of 10percent, with reduced rates of 5, 7, and 8 percent applicable to copyright royalties, INCOME from theleasing of tangible property and film rentals, respectively.