The United States and its treaty partners have completed ratification procedures for the protocols to amend the U.S. income tax treaties with Switzerland, Luxembourg, Japan and Spain. As a result, the protocols are now in force to amend the U.S. income tax treaties with Switzerland, Luxembourg and Japan. The protocol to amend the U.S. income tax treaty with Spain will enter into force in November, 2019. The long-awaited ratification of these protocols comes approximately ten years after the protocol was signed in the case of Luxembourg and Switzerland.

Background

The United States signed protocols to amend its tax treaties with Luxembourg and Switzerland in 2009 and with Spain and Japan in 2013. The U.S. Senate approved the tax protocols with these countries in July 2019.

Switzerland protocol

The protocol to amend the income tax treaty with Switzerland entered into force on September 20, 2019 and provides for:

• Exemption from source-country withholding tax on cross-border dividends beneficially owned by certain pension funds or other retirement arrangements (or individual retirement savings plans) that are approved by the competent authorities of both countries
  
• Broad exchange of information between competent authorities for tax purposes
• Mandatory binding arbitration of unresolved competent authority cases.

The protocol was signed in September 2009.

Luxembourg protocol

The protocol to amend the income tax treaty with Luxembourg entered into force on September 9, 2019 and provides for broad exchange of information between competent authorities for tax purposes. The protocol was signed in May 2009.

Japan protocol

The protocol to amend the income tax treaty with Japan entered into force on August 30, 2019 and provides for: 

• Exemption from withholding taxes on interest (subject to certain exceptions)
  
• Expansion of the scope of dividends eligible for exemption from withholding tax (allowing 50%-owned companies to qualify, and reducing the required holding period to six months (from 12 months))
• Amendments to the capital gains article for consistency with the Foreign Investment in Real Property Tax Act (FIRPTA)
• Mandatory binding arbitration of unresolved competent authority cases
• Provisions to enable the competent authorities to assist each other in the collection of taxes
• Broad exchange of information between the competent authorities for tax purposes.

The protocol was signed in January 2013.

Spain protocol

The protocol to amend the income tax treaty with Spain will enter into force on November 27, 2019 and provides for: 

• Exemption from withholding taxes for interest (subject to certain exceptions), royalties, and capital gains
  
• Exemption from withholding tax for dividends paid to certain pension funds, or to companies holding shares representing 80% or more of voting power in the subsidiary and meeting certain other requirements (and a parallel exemption from branch profits tax)
• A new comprehensive limitation on benefits article
• A new provision addressing income earned through fiscally transparent entities
• Mandatory binding arbitration of unresolved competent authority cases
• Broad exchange of information between competent authorities for tax purposes.

The protocol was signed in January 2013.

For more information, contact your KPMG advisor. 

Information is current to September 24, 2019. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500