Convention, with an Exchange of Notes, Signed at Bridgetown December 31, 1984; 　 Transmitted by the President of the United States of America to the Senate February 25, 1985 (Treaty Doc. No.99-3, 99th Cong., 1st Sess.); 　　Reported Favorably by the Senate Committee on Foreign Relations December 11, 1985 (S. Ex. Rept. No. 99-9, 99th Cong., 1st Sess.); Advice and Consent to Ratification by the Senate December 16, 1985; Ratified by the President January 14, 1986; Ratified by Barbados February 6, 1986; Ratifications Exchanged at Washington February 28, 1986; Proclaimed by the President September 9, 1986; Entered into Force February 28, 1986. GENERAL EFFECTIVE DATE UNDER ARTICLE 28: 1 JANUARY 1984 TABLE OF ARTICLES Article 1----------------------------------General Scope Article 2----------------------------------Taxes Covered Article 3----------------------------------General Definitions Article 4----------------------------------Residence Article 5----------------------------------Permanent Establishment Article 6----------------------------------Income from Real Property (Immovable Property) Article 7----------------------------------Business Profits Article 8----------------------------------Shipping and Air Transport Article 9----------------------------------Associated Enterprises Article 10--------------------------------Dividends Article 11--------------------------------Interest Article 12--------------------------------Royalties Article 13--------------------------------Gains Article 14--------------------------------Independent Personal Services Article 15--------------------------------Dependent Personal Services Article 16--------------------------------Directors' Fees Article 17--------------------------------Artistes and Athletes Article 18--------------------------------Pensions, Annuities, Alimony, and Child Support Article 19--------------------------------Government Service Article 20--------------------------------Students and Apprentices Article 21------------------------------- Other Income Article 22--------------------------------Limitation on Benefits Article 23--------------------------------Relief from Double Taxation Article 24--------------------------------Non-discrimination Article 25--------------------------------Mutual Agreement Procedure Article 26--------------------------------Exchange of Information Article 27--------------------------------Diplomatic Agents and Consular Officers Article 28--------------------------------Entry into Force Article 29--------------------------------Termination Letter of Submittal---------------------of 11 February, 1985 Letter of Transmittal-------------------of 25 February, 1985 Notes of Exchange---------------------of 31 December, 1984 Protocol ---------------------------------of 18 December, 1991 Letter of Submittal (Protocol)--------of 22 September, 1992 Letter of Transmittal (Protocol)------of 30 September, 1992 Notes of Exchange (Protocol)--------of 18 December, 1991 Memorandum of Understanding-----of 18 December, 1991 The "Saving Clause"-------------------Paragraph 3 of Article 1 　　 MESSAGE 　　 FROM 　　 THE PRESIDENT OF THE UNITED STATES 　　 TRANSMITTING 　　　　THE CONVENTION BETWEEN THE UNITED STATES OF AMERICA 　　　　AND BARBADOS FOR THE AVOIDANCE OF DOUBLE TAXATION 　　　　AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO 　　　　TAXES ON INCOME, TOGETHER WITH AN EXCHANGE OF NOTES, 　　　　　　SIGNED AT BRIDGETOWN ON DECEMBER 31, 1984 LETTER OF SUBMITTAL DEPARTMENT OF STATE, Washington, February 11, 1985. The PRESIDENT, The White House. 　　THE PRESIDENT: I have the honor to submit to you, with a view to its transmission to the Senate for advice and consent to ratification, the Convention between the United States of America and Barbados for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (referred to hereafter as "the Convention"), together with an exchange of notes, signed at Bridgetown on December 31, 1984. 　　The Convention is the first income tax treaty to be negotiated between the United States and Barbados. In general, it follows the pattern of other recent United States income tax treaties and the current draft United States Model Income Tax Convention. The Convention deviates from these models, however, in several significant respects to reflect Barbados' status as a developing country. 　　The Convention establishes maximum rates of tax at source on payments of dividends, interest and royalties. It provides that the tax in the source country on dividends paid to a resident of the other country may not exceed 15 percent in the case of portfolio dividends, and 5 percent in the case of direct investment dividends. The Convention also provides for a maximum 12.5 percent rate of tax on interest at source. However, interest received, guaranteed or insured by the Government of a Contracting State is exempt from tax in the country of source. Royalties are also subject to a maximum tax rate of 12.5 percent. 　　The Convention contains rules found in most United States tax treaties regarding the taxation of business profits, personal service income, transportation income, real property income and capital gains, and the granting of relief from double taxation. In recognition of the fact that Barbados is a developing country, the Convention provides somewhat broader rights for the source country to tax business profits and certain types of personal service income than is generally true for United States tax treaties with developed countries. 　　Also provided are the normal rules necessary for administering the Convention, including rules for the resolution of disputes under the treaty and the exchange of information. The exchange of information article provides, among other things, that bank information as well as other information with respect to Barbadian and third-country residents will be made available to the United States competent authority (Treasury). This is consistent with the more specific provisions of the agreement with Barbados on the exchange of tax information under the Caribbean Basin Economic Recovery Act of 1983, which entered into force on December 3, 1984. 　　The Convention reflects the views of the Senate expressed in its consideration of other recent United States tax treaties. For example, the rules for the taxation of gains on real property conform to the provisions of the General Accounting Office to obtain access to certain tax information exchanged under the treaty which is relevant to its function of overseeing the administration of United States tax laws. 　　The Convention contains provisions designed to prevent third-country residents from taking unwarranted advantage of the treaty by routing income through an entity established for that purpose in one of the Contracting States. Because Barbados has very favorable tax law provisions which apply in its "offshore sector" to certain foreign owned entities established in Barbados and doing business outside of that country, it is very important that abuse of the Convention be prevented. The Convention provides that benefits granted under the Convention to an item of income by one of the Contracting States will not be granted if (1) less than 50 percent of the beneficial interest in the person receiving the income is owned by residents of Barbados or the United States, or by United States citizens, or (2) a substantial part of the income of the person receiving the income is used to meet liabilities to persons other than residents of a Contracting State or United States citizens. Even if a person comes within either of the conditions specified above, however, treaty benefits will be granted if the income is derived in connection with, or is incidental to, an active business conducted in a Contracting State, other than the business of managing investments. The effect of these rules with respect to the Barbadian offshore sector is to deny treaty benefits with respect to income from traditional banking and insurance business to Barbadian offshore companies which are investment companies, banks or insurance companies, other offshore companies, as well as other Barbadian residents owned by third country residents, will have to meet the active business test described above in order to receive treaty benefits. 　　During the course of the negotiations, the Barbados delegation expressed strong interest in including provisions which would give an incentive for United States investment in Barbados and which would treat gifts by United States persons to Barbadian charities as charitable contributions. The exchange of notes accompanying the Convention provides assurances that if United States treaty policies with respect to these two matters should change so as to permit the United States to agree to the provisions sought by Barbados, the United States would reopen negotiations with a view to amending the treaty appropriately. 　　The Convention will enter into force upon the exchange of instruments of ratification. The provisions of the Convention will have effect for the United States as follows: 　　(i) in respect of tax withheld at the source for amounts paid or credited on or after the first day of the second month following the date on which this Convention enters into force; 　　(ii) in respect of other taxes, for taxable years beginning on or after January 1, 1984. 　　The Convention will remain in effect indefinitely unless terminated by one of the Contracting States. Either Contracting State may, on or before June 30 in any calendar year after the year 1988, give notice of termination to the other Contracting State. 　　A technical memorandum explaining in detail the provisions of the Convention is being prepared by the Department of the Treasury and will be submitted separately to the Senate Committee on Foreign Relations. 　　The Department of the Treasury, with the cooperation of the Department of State, was primarily responsible for the negotiation of this Convention. It has the approval of both Departments. Respectfully submitted, GEORGE P. SHULTZ. LETTER OF TRANSMITTAL THE WHITE HOUSE, February 25, 1985. To the Senate of the United States: 　　I transmit herewith, for Senate advice and consent to ratification, the Convention between the United States of America and Barbados for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income ("the Convention"), together with an exchange of notes, signed at Bridgetown on December 31, 1984. I also transmit the report of the Department of State on the Convention. 　　The Convention, in general, follows the pattern of other United States income tax treaties and the current draft United States Model Income Tax Convention, but deviates from the model in certain respects to reflect Barbados' status as a developing country. 　　Among the principal features of the Convention are provisions to prevent third-country residents from taking unwarranted advantage of the treaty. The Convention also establishes maximum rates of tax at source on payments of dividends, interest, and royalties. 　　The exchange of notes indicates the willingness of the United States Government to reopen discussions, should circumstances change, which would permit the inclusion of additional provisions to create incentives to promote the flow of United States investment to Barbados. I recommend that the Senate give early and favorable consideration to this matter, and give advice and consent to ratification of the Convention, together with the related exchange of notes. 　　　 RONALD REAGAN. BY THE PRESIDENT OF THE UNITED STATES OF AMERICA A PROCLAMATION CONSIDERING THAT: 　　The Convention between the United States of America and Barbados for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, together with an exchange of notes, was signed at Bridgetown on December 31, 1984, the texts of which are hereto annexed; 　　The Senate of the United States of America by its resolution of December 16, 1985, two-thirds of the Senators present concurring therein, gave its advice and consent to ratification of the Convention, together with a related exchange of notes, subject to the following reservation: 　　"That the words 'voting power' in Article 10, paragraph 5 shall be construed to mean 'voting power or value' for purposes of imposing the tax under section 531 of the Internal Revenue Code of 1954"; 　　The Convention, together with the exchange of notes, was ratified, subject to the above reservation, by the President of the United States of America on January 14, 1986, in pursuance of the advice and consent of the Senate, and was ratified on the part of Barbados on February 6, 1986; The instruments of ratification of the Convention were exchanged at Washington on February 28, 1986, and accordingly the Convention entered into force on that date, its provisions to have effect as specified in Article 28; 　　NOW, THEREFORE, I, Ronald Reagan, President of the United States of America, proclaim and make public the Convention and related exchange of notes to the end that they be observed and fulfilled with good faith on and after February 28, 1986, by the United States of America and by the citizens of the United States of America and all other persons subject to the jurisdiction thereof. 　　IN TESTIMONY WHEREOF, I have signed this proclamation and caused the Seal of the United States of America to be affixed. 　　DONE at the city of Washington this ninth day of September in the year of our Lord one thousand nine hundred eighty-six and of the Independence of the United States of America the two hundred eleventh. By the President: RONALD REAGAN George P. Schultz Secretary of State