Publication 54 |
2001 Tax Year |
Common Benefits
Some common tax treaty benefits are explained below. The credits,
deductions, exemptions, reductions in rate, and other benefits
provided by tax treaties are subject to conditions and various
restrictions. Benefits provided by certain treaties are not provided
by others.
1. Personal service income.
If you are a U.S. resident
who is in a treaty country for a limited number of days in the tax
year and you meet certain other requirements, pay you receive for
personal services performed in that country may be exempt from that
country's income tax.
2. Professors and teachers.
If you are a U.S.
resident, pay you receive for the first 2 or 3 years that you are
teaching or doing research in a treaty country may be exempt from that
country's income tax.
3. Students,
trainees, and apprentices. If
you are a U.S. resident, amounts you receive from the United States
for study, research, or business, professional and technical training
may be exempt from a treaty country's income tax.
Some treaties exempt grants, allowances, and awards received from
governmental and certain nonprofit organizations. Also, under certain
circumstances, a limited amount of pay received by students, trainees,
and apprentices may be exempt from the income tax of many treaty
countries.
4. Pensions and annuities.
If you are a U.S.
resident, nongovernment pensions and annuities you receive may be
exempt from the income tax of treaty countries.
Most treaties contain separate provisions for exempting government
pensions and annuities from treaty country income tax, and some
treaties provide exemption from the treaty country's income tax for
social security payments.
5. Investment income.
If you are a U.S. resident,
investment income, such as interest and dividends, that you receive
from sources in a treaty country may be exempt from that country's
income tax or taxed at a reduced rate.
Several treaties provide exemption for capital gains (other than
from sales of real property in most cases) if specified requirements
are met.
6. Tax credit provisions. If you are a U.S. resident who
receives income from or owns capital in a foreign country, you may be
taxed on that income or capital by both the United States and the
treaty country.
Most treaties allow you to take a credit against or deduction from
the treaty country's taxes based on the U.S. tax on the income.
7. Nondiscrimination provisions. Most U.S. tax treaties
provide that the treaty country cannot discriminate by imposing more
burdensome taxes on U.S. citizens who are residents of the treaty
country than it imposes on its own citizens in the same circumstances.
8. Saving clauses. U.S. treaties contain saving clauses
that provide that the treaties do not affect the U.S. taxation of its
own citizens and residents. As a result, U.S. citizens and residents
generally cannot use the treaty to reduce their U.S. tax liability.
However, most treaties provide exceptions to saving clauses that
allow certain provisions of the treaty to be claimed by U.S. citizens
or residents. It is important that you examine the applicable saving
clause to determine if an exception applies.
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