Convention, with Exchange of Notes, Signed at Nicosia March 19, 1984; Transmitted by the President of the United States of America to the Senate August 21,1984 (Treaty Doc. No. 98-32, 98th Cong., 2d Sess.); 　　Reported Favorably by the Senate Committee on Foreign Relations December 11, 1985 (S. Ex. Rept. No. 99-8, 99th Cong., 1st Sess.); Advice and Consent to Ratification by the Senate December 16,1985; Ratified by the President December 23,1985; Ratified by Cyprus December 18, 1985; Ratifications Exchanged at Washington December 31, 1985; Proclaimed by the President September 9, 1986; Entered into Force December 31, 1985. GENERAL EFFECTIVE DATE UNDER ARTICLE 30: 1 JANUARY 1986 TABLE OF ARTICLES Article 1---------------------------------Taxes Covered Article 2---------------------------------General Definitions Article 3---------------------------------Fiscal Residence Article 4---------------------------------General Rules of Taxation Article 5---------------------------------Relief from Double Taxation Article 6---------------------------------Source of Income Article 7---------------------------------Non-Discrimination Article 8---------------------------------Business Profits Article 9---------------------------------Permanent Establishment Article 10--------------------------------Shipping and Air Transport Article 11--------------------------------Related Persons Article 12--------------------------------Dividends Article 13--------------------------------Interest Article 14--------------------------------Royalties Article 15--------------------------------Income from Real Property Article 16--------------------------------Gains Article 17--------------------------------Independent Personal Services Article 18--------------------------------Dependent Personal Services Article 19--------------------------------Artistes and Athletes Article 20--------------------------------Directors' Fees Article 21--------------------------------Students and Trainees Article 22--------------------------------Governmental Functions Article 23--------------------------------Private Pensions and Annuities Article 24--------------------------------Social Security Payments Article 25--------------------------------Diplomatic and Consular Officers Article 26--------------------------------Limitation on Benefits Article 27--------------------------------Mutual Agreement Procedure Article 28--------------------------------Exchange of Information Article 29--------------------------------Assistance in Collection Article 30--------------------------------Entry into Force Article 31--------------------------------Termination Letter of Submittal---------------------of 9 August 1984 Letter of Transmittal-------------------of 21 August 1984 Notes of Exchange---------------------of 19 March, 1984 The "Saving Clause"-------------------Paragraph 3 of Article 4 MESSAGE FROM THE PRESIDENT OF THE UNITED STATES TRANSMITTING THE CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND THE GOVERNMENT OF THE REPUBLIC OF CYPRUS FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME, TOGETHER WITH A RELATED EXCHANGE OF NOTES, SIGNED AT NICOSIA ON MARCH 19, 1984 LETTER OF SUBMITTAL DEPARTMENT OF STATE, Washington, August 9,1984. 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 Government of the United States of America and the Government of the Republic of Cyprus for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (the Convention), together with a related exchange of notes, signed at Nicosia on March 19, 1984. 　　An income tax convention with Cyprus was signed in 1980. In reviewing it, however, the Senate Committee on Foreign Relations found that convention subject to potential abuse by third-country residents. The convention was returned to you for renegotiation in 1981. 　　The present Convention incorporates the provisions of the 1980 treaty and includes revisions which would effectively eliminate the potential for abuse. 　　The tax laws of Cyprus are very favorable to foreign owned entities doing business in Cyprus and to firms established in Cyprus which conduct business abroad. The new Convention contains provisions designed to prevent abuse by third-country residents who seek to route income through an entity established in one of the Contracting States for the purpose of obtaining treaty benefits. To accomplish this, the Convention provides that benefits to be granted to an item of income by one of the Contracting States will be denied if, under the law of the other State, that income is subject to a substantially lower tax than the tax which would apply if the income were derived from sources in that other State. In addition, benefits under the Convention are denied to a company which is a resident of a Contracting State if (1) 25 percent or more of that company is owned by nonresidents of that State, or (2) regardless of ownership, that company is used as a conduit to channel deductible payments to companies or other persons who are not residents of that State. Benefits will be granted, however, if the establishment, acquisition and maintenance of the company concerned and the conduct of its business did not have as their principal purpose the obtaining of treaty benefits. Similarly, payments of income to a trustee in a Contracting State will not be granted treaty benefits if the income is derived in connection with a scheme, the principal purpose of which is to obtain treaty benefits. 　　The Convention provides further for maximum rates of tax at source on payments of dividends, interest and royalties. With respect to dividends, it stipulates that the United States tax on dividends paid to a Cypriot resident may not exceed 15 percent in the case of portfolio dividends, and 5 percent in the case of direct investment dividends. The rule for Cyprus is somewhat different in order to reflect the Cypriot integrated individual/corporate tax system. Under the Convention, Cyprus may not impose any tax on dividends beyond the tax on the profits of the corporation out of which the dividends are paid. 　　Moreover, United States individual dividend recipients may file for a refund of any Cyprus tax paid at the corporate level, with respect to dividends received, which is in excess of that individual's liability for Cypriot individual income tax. 　　The Convention also provides, on a reciprocal basis, for a 10 percent maximum rate of tax at source on interest. Certain types of interest, however, are exempt at source. These include interest received, guaranteed or insured by the government of a Contracting State or an instrumentality of that government, interest received by a bank and interest received in connection with the sale of property or the performance of personal services. Royalties are reciprocally exempt at source. 　　In addition, 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. Also included are the normal rules necessary for administering the treaty, including rules for the resolution of disputes under the Convention and the exchange of information. The treaty provisions reflect 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 recently enacted provisions of the Internal Revenue Code. The Convention also authorizes the General Accounting Office to obtain access to certain tax information exchanged under its provisions, which is relevant to the function of overseeing the administration of the United States tax laws. 　　The accompanying exchange of notes makes clear that the Convention itself will provide the necessary authority to the Government of Cyprus to implement fully the comprehensive exchange of information provisions, including access to bank information and information regarding corporate stock ownership and the beneficial ownership of trusts. 　　Article 30 concerns the entry into force of the Convention and the application of its provisions. The Convention will enter into force upon the exchange of instruments of ratification. 　　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 the Convention. It has the approval of both Departments. Respectfully submitted, KENNETH W. DAM. LETTER OF TRANSMITTAL THE WHITE HOUSE, August 21, 1984. To the Senate of the United States: 　　I transmit herewith for Senate advice and consent to ratification the Convention between the Government of the United States of America and the Government of the Republic of Cyprus 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 Nicosia on March 19, 1984. I also transmit the report of the Department of State on the Convention. 　　The Convention replaces an earlier convention signed at Nicosia on March 26, 1980, but returned by the Senate for renegotiation in December 1981. The new Convention incorporates the provisions of the 1980 treaty and includes revisions designed to eliminate the potential for abuse by third-country residents. 　　I recommend that the Senate give early and favorable consideration to this Convention, with the related exchange of notes, and give its advice and consent to ratification. 　 RONALD REAGAN. BY THE PRESIDENT OF THE UNITED STATES OF AMERICA A PROCLAMATION CONSIDERING THAT: 　　The Convention between the United States of America and Cyprus 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 Nicosia on March 19, 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; 　　The Convention was ratified by the President of the United States of America on December 23, 1985, in pursuance of the advice and consent of the Senate, and was ratified on the part of Cyprus on December 18, 1985; 　　The instruments of ratification of the Convention were exchanged at Washington on December 31, 1985, and accordingly the Convention entered into force on that date, its provisions to have effect as specified in Article 30; 　　NOW THEREFORE I, Ronald Reagan, President of the United States of America, proclaim and make public the Convention and exchange of notes to the end that they be observed and fulfilled with good faith on and after December 31, 1985, 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. Shultz, Secretary of State.