ARTICLE 4. BELIEF FROM DOUBLE TAXATION

Under the existing Convention, the United States provides relief from double taxation by allowing a credit for Trinidad and Tobago tax subject to the provi­ sions of the law of the United States.

The proposed Convention employs the same method of avoiding double taxa­ tion in providing that subject to the provisions of United States law in effect for the taxable year (which do not affect the general principle of the Article) credit will be allowed to a United States citizen or resident for Trinidad and Tobago tax paid but not in excess of the portion of United States tax which net income from Trinidad and Tobago sources bears to total net income. Except for the spe

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cial source rules provided by the Convention, this provision does not add to the rights that a United States citizen or resident has to the foreign tax credit, in­ cluding his right under current law to elect the overall limitation, but is for the purpose of giving treaty recognition to such rights. Modifications in United States law after the effective date of the Convention whieh concern the foreign tax credit will be applicable with respect to Trinidad and Tobago source income if

such modifications do not contravene the general principles of the Convention.

With respect to the treatment of dividends which are received by a United States corporation from a corporation resident in Trinidad and Tobago in which such United States corporation owns at least 10 percent of the voting power, the proposed Convention differs in one respect from the provisions which would be applicable to such dividend under the Internal Revenue Code. The proposed Convention provides that in the case of such a dividend such United States corporation must include in gross income the amount of Trinidad and Tobago tax which the Trinidad and Tobago corporation paid on the profits out of which such dividend is paid and which the recipient corporation is "deemed"

to have paid. Thus, the dividend must be grossed up. Under the Internal Revenue Code, however, a dividend does not have to be grossed up in order for the recip­ ient United States corporation to claim a deemed paid credit, if the dividend

is paid by a less developed country corporation and most Trinidad and Tobago corporations will be considered less developed country corporations. Inasmuch as the computation of the deemed paid tax credit without gross-up under the Internal Revenue Code will often produce a more favorable result than the gross-up computation under the proposed Convention, it may be to the advan­

tage of United States corporations in some cases to use the Code rules in com­ puting the deemed paid credit Of course, in these cases United States corpora­ tions may continue to use the Code rules rather than those found in the pro­

posed Convention. In a case where the taxpayer follows the Code rules on gross­ ulp, it may nevertheless use the source rules set forth in Article 5 of the proposed Convention.

The proposed Convention provides that Trinidad and Tobago will allow its residents a credit for the amount of income taxes paid to the United States. In the case of a Trinidad and Tobago corporation which receives a dividend from a United States corporation in which such recipient corporation controls. directly or indirectly, at least 10 percent of the voting power, such corpora­

tion will be allowed a credit against its Trinidad and Tobago tax for the amount of the United States tax paid on the corporate profits out of which such dividend is paid. This credit is, of course, in addition to the credit allowed for the taxes paid to the United States by the Trinidad and Tobago corporation. Under the internal law of Trinidad and Tobago the indirect credit would be allowed only if the recipient corporation owned at least 25 percent of the voting stock in the payor United States corporation. The foreign tax credit Trinidad and Tobago will allow is subject to a per-country limitation.