Excerpt from Prepared Statement of H. Patrick Oglesby, International Tax Counsel, Alan L. Fischl and Robert E. Culbertson, Staff of the Joint Committee on Taxation

Before you for consideration are proposed income tax treaties with Denmark and Italy (and proposed protocols to those treaties) that would replace the existing treaties with those countries. Also before you for consideration are proposed income tax treaties with Barbados, Cyprus, and China (and a proposed protocol to the latter treaty). The proposed treaties with Barbados, Cyprus, and China would be the first comprehensive u.s. Income tax treaties with those countries.

In light of the materials already provided to you, we will not describe the features of each treaty in this presentation. Instead, we would like to focus our discussion today on the tax policy issues presented by various provisions in these treaties. General tax policy issues raised by two or more of the treaties are analyzed first below. Separate discussions of each treaty follow.

The credit provided in the proposed treaty with Denmark for the Danish hydrocarbon tax has generated some controversy. Otherwise, these treaties and protocols are, for the most part, noncontroversial. In the past, the Committee has recommended a reservation or an understanding on a particular provision of certain treaties and protocols. We recommend a reservation to prevent the treaty with Barbados from overriding a provision of the 1984 Tax Reform Act that prevents tax haven abuse and an understanding to prevent the Italian treaty from allowing double foreign tax credits. We believe that it would be appropriate to make it clear to all parties that the treaties with Barbados, China, Cyprus, and Italy do not override a provision of the 1984 Act that prevents the use of foreign corporations to inflate foreign tax credits artificially. Also, we recommend that the Committee indicate in its report accompanying the resolution approving ratification of the treaty with China that a reexamination of that treaty, which has a very limited anti-treaty shopping provision, will be necessary if treaty shopping abuses develop in the future. In addition, we believe that in certain other instances the Committee may want to consider stating in its reports accompanying the resolutions approving ratification that a particular provision is intended to be interpreted in a certain way or that the policy reflected in a particular provision is not viewed as precedent for future u.s. Tax treaty negotiations.

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