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ARTICLE 16. INVESTMENT OR HOLDING COMPANIES

U.S. Income Tax Treaty — Technical Explanation 1970 · 2026-10-03 edition · updated 2026-10-04 · United States

This Article denies the benefits of the dividends, interest, and royalties Articles to a corporation of one of the States deriving such income from sources within the other State if (1) such corporation is entitled to special tax benefits which result in the tax imposed on such income being substantially less than the tax generally Imposed on corporate profits in such State, and (2) 25 percent or more of the capital of the corporation Is owned directly or indirectly by one or more persons who are not individual residents of such State or, in the case of a Trinidad and Tobago corporation, are citizens of the United States.

The purpose of this Article is to deal with a potential abuse which could occur if one of the States provided preferential rates of tax for investment or holding companies. In such a case, residents of third countries could organize a corpora­ tion in the State extending the preferential rates for the purpose of making investments in the other State. The combination of the low tax rates in the first

State and the reduced rates or exemptions in the other State would enable the third-country residents to realize unintended benefits.

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▸Contents — U.S. Income Tax Treaty — Technical Explanation 1970
U.S. Income Tax Treaty — Technical Explanation 1970

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