Article 6 of the Protocol

, which is similar to paragraph 4 of Article 26 of the U.S. Model, provides for assistance in collection of taxes to the extent necessary to ensure that treaty benefits are enjoyed only by persons entitled to those benefits under the terms of the Convention. Under Article 6 of the Protocol, a Contracting State may collect on behalf of the other State those amounts necessary to ensure that any exemption or reduced rate of tax at source granted under the Convention by that other State is not enjoyed by persons not entitled to those benefits. For example, if a U.S. source dividend is paid to an addressee in Italy, the withholding agent under current rules may withhold at the treaty’s portfolio dividend rate of 15 percent. If, however, the addressee is merely acting as a nominee on behalf of a third-country resident, Article 6 of the Protocol would permit Italy to withhold and remit to the United States the additional tax that should have been collected by the U.S. withholding agent.

Unlike the corresponding provision of the Model, this paragraph merely permits, rather than requires, each Contracting State to endeavor to assist in the collection described therein. This provision also makes clear that the Contracting State asked to collect the tax is not obligated, in the process of providing collection assistance, to carry out administrative measures that are different from those used in the collection of its own taxes, or that would be contrary to its sovereignty, security or public policy.

Paragraph 20 of Article 1 of the Protocol

As noted above in the discussion of paragraph 1, the exchange of information provisions of the Convention apply to all taxes imposed by a Contracting State, not just to those taxes designated as covered taxes under Article 2 (Taxes Covered). The U.S. competent authority may, therefore, request information for purposes of, for example, estate and gift taxes or federal excise taxes.

Treaty Effective Dates and Termination in Relation to Competent Authority Dispute Resolution

A tax administration may seek information with respect to a year for which a treaty was in force after the treaty has been terminated. In such a case the ability of the other tax administration to act is limited. The treaty no longer provides authority for the tax administrations to exchange confidential information. They may only exchange information pursuant to domestic law.

The competent authority also may seek information under a treaty that is in force, but with respect to a year prior to the entry into force of the treaty. The scope of the competent authorities to address such a case is not constrained by the fact that a treaty was not in force when the transactions at issue occurred, and the competent authorities have available to them the full range of information exchange provisions afforded under this Article. Even though a prior treaty may have been in effect during the years in which the transaction at issue occurred, the exchange of information provisions of the current treaty apply.