Article VIII of the Protocol — U.S. Income Tax Treaty

giving effect to its provisions.

Paragraph 1 provides for the ratification of the Convention by both Contracting States and the exchange of instruments of ratification as soon as possible thereafter. The Protocol shall enter into force upon the exchange of instruments of ratification.

In the United States, the process leading to ratification and entry into force is as follows: Once a protocol or treaty has been signed by authorized representatives of the two Contracting States, the Department of State sends the protocol or treaty to the President who formally transmits it to the Senate for its advice and consent to ratification, which requires approval by two-thirds of the Senators present and voting. Prior to this vote, however, it generally has been the practice of the Senate Committee on Foreign Relations to hold hearings on the protocol or treaty and make a recommendation regarding its approval to the full Senate. Both Government and private sector witnesses may testify at these hearings. After the Senate gives its advice and consent to ratification of the protocol or treaty, an instrument of ratification is drafted for the President's signature. The President's signature completes the process in the United States.

The date on which a treaty enters into force is not necessarily the date on which its provisions take effect. Paragraph 2 contains rules that determine when the provisions of the treaty will have effect.

Under subparagraphs (a)(i) and (b)(i), the provisions of the Protocol relating to taxes withheld at source will have effect with respect to amounts paid or credited (or in the case of Finland, income derived) on or after the first day of the second month next following the date on which the Protocol enters into force. For example, if instruments of ratification are exchanged on April 25 of a given year, the withholding rates specified in paragraph 2 of Article 10 (Dividends) would be applicable to any dividends paid or credited on or after June 1 of that year. Similarly, the revised Limitation on Benefits provisions of Article VI of the Protocol would apply with respect to any payments of interest, royalties or other amounts on which withholding would apply under the Code if those amounts are paid or credited on or after June 1.

This rule allows the benefits of the withholding reductions to be put into effect as soon as possible, without waiting until the following year. The delay of one to two months is required to allow sufficient time for withholding agents to be informed about the change in withholding rates. If for some reason a withholding agent withholds at a higher rate than that provided by the Convention (perhaps because it was not able to reprogram its computers before the payment is made), a beneficial owner of the income that is a resident of Finland may make a claim for refund pursuant to section 1464 of the Code.

For all other taxes, subparagraphs (a)(ii) and (b)(ii) specify that the Protocol will have effect for any taxable period beginning on or after January 1 of the year next following entry into force.

In both Contracting States, provisions of the Protocol relating to taxes withheld at source covered by paragraph 3 of Article 10 (Dividends) will have effect with respect to income derived on or after January 1, 2007, provided that the Protocol enters into force before December 31, 2007. The relevant date for this purpose is the date on which income from the dividend is derived by the beneficial owner, rather than to the date on which the income was originally derived by the company paying the dividend. The phrase “income derived” was used because it is compatible with the standard for inclusion of income under Finnish tax law. It is intended to have a meaning similar to the phrase “income paid or credited,” a standard more commonly used in U.S. tax treaties. Thus, provided the Protocol enters into force prior to December 31, 2007, the provisions of the Protocol eliminating withholding on companies and pension funds meeting the requirement of paragraph 3 of Article 10 (Dividends) will have effect with respect to income derived from dividends paid or accrued on or after January 1, 2007.