DEPARTMENT OF THE TREASURY TECHNICAL EXPLANATION OF THE
CONVENTION BETWEEN THE UNITED STATES OF AMERICA AND
THE REPUBLIC OF LITHUANIA FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCA
颁布时间:1998-01-15
Paragraph 9
Paragraph 9 incorporates into the Convention the rule of Code section
864(c)(6). Like the Code section on which it is based, paragraph 8
provides that any income or gain attributable to a permanent establishment
or a fixed base during its existence is taxable in the Contracting State
where the permanent establishment or fixed base is situated, even if the
payment of that income or gain is deferred until after the permanent
establishment or fixed base ceases to exist. This rule applies with
respect to paragraphs 1 and 2 of Article 7 (Business Profits), paragraph 6
of Article 10 (Dividends), paragraph 5 of Articles 11 (Interest),
paragraph 4 of 12 (Royalties), paragraph 3 of Article 13 (Gains), Article
14 (Independent Personal Services) and paragraph 2 of Article 22
(Other Income).
The effect of this rule can be illustrated by the following example.
Assume a company that is a resident of the other Contracting State and
that maintains a permanent establishment in the United States winds up the
permanent establishment's business and sells the permanent establishment's
inventory and assets to a U.S. buyer at the end of year 1 in exchange for
an interest-bearing installment obligation payable in full at the end of
year 3. Despite the fact that Article 13's threshold requirement for U.S.
taxation is not met in year 3 because the company has no permanent
establishment in the United States, the United States may tax the deferred
income payment recognized by the company in year 3.
Relation to Other Articles
This Article is subject to the saving clause of paragraph 4 of Article
1 (General Scope) of the Model. Thus, if a citizen of the United States
who is a resident of Lithuania under the treaty derives business profits
from the United States that are not attributable to a permanent
establishment in the United States, the United States may,
subject to the special foreign tax credit rules of paragraph 3 of Article
24 (Relief from Double Taxation), tax those profits, notwithstanding the
provision of paragraph 1 of this Article which would exempt the income
from U.S. tax.
The benefits of this Article are also subject to Article 23
(Limitation on Benefits). Thus, an enterprise of Lithuania that derives
income effectively connected with a U.S. trade or business may not claim
the benefits of Article 7 unless the resident carrying on the enterprise
qualifies for such benefits under Article 23.
ARTICLE 8
Shipping and Air Transport
This Article governs the taxation of profits from the operation of
ships and aircraft in international traffic. The term "international
traffic" is defined in subparagraph 1(g) of Article 3 (General
Definitions). The taxation of gains from the alienation of ships, aircraft
or containers is not dealt with in this Article but in paragraph 4 of
Article 13 (Gains).
Paragraph 1
Paragraph 1 provides that profits derived by an enterprise of a
Contracting State from the operation in international traffic of ships or
aircraft are taxable only in that Contracting State.Because paragraph 8 of
Article 7 (Business Profits) defers to Article 8 with respect to shipping
income, such income derived by a resident of one of the Contracting States
may not be taxed in the other State even if the enterprise has a permanent
establishment in that other State. Thus, if a U.S. airline has a ticket
office in the other State, that State may not tax the airline's profits
attributable to that office under Article 7. Since entities engaged in
international transportation activities normally will have many permanent
establishments in a number of countries, the rule avoids difficulties that
would be encountered in attributing income to multiple permanent
establishments if the income were covered by Article 7 (Business
Profits).
Paragraph 2
The income from the operation of ships or aircraft in international
traffic that is exempt from tax under paragraph 1 is further defined in
paragraph 2. In addition to income derived directly from the operation of
ships and aircraft in international traffic, this definition also
includes certain items of rental income that are closely related to those
activities. First, income of an enterprise of a Contracting State from the
rental of ships or aircraft on a full basis (i.e., with crew) when such
ships or aircraft are used in international traffic (i.e., when operated
by a resident of one of the contracting states) is income of the lessor
from the operation of ships and aircraft in international traffic and,
therefore, is exempt from tax in the other Contracting State under
paragraph 1. Also, paragraph 2 encompasses income from the lease of ships
or aircraft on a bareboat basis (i.e., without crew), when the ships or
aircraft are operated in international traffic (i.e., when operated by a
resident of one of the contracting states), and the income is incidental
to other income of the lessor from the operation of ships or aircraft in
international traffic. Thus, the coverage of Article 8 of the Convention
is generally consistent with Article 8 of the OECD Model although narrower
than the U.S. Model, which also covers rentals from bareboat leasing that
are not incidental to the operation of ships or aircraft by the lessee. As
discussed above, the classes of income derived from the rental of ships
and air transport not included in this Article are included in Article 12
(Royalties) or Article 7 (Business Profits).
Paragraph 2 also clarifies, consistent with the Commentary to Article
8 of the OECD Model, that income earned by an enterprise from the inland
transport of property or passengers within either Contracting State falls
within Article 8 if the transport is undertaken as part of the
international transport of property or passengers by the enterprise.
Thus, if a U.S. shipping company contracts to carry property from the
other State to a U.S. city and, as part of that contract, it transports
the property by truck from its point of origin to an airport in the other
State (or it contracts with a trucking company to carry the property to
the airport) the income earned by the U.S. shipping company from the
overland leg of the journey would be taxable only in the United States.
Similarly, Article 8 also would apply to income from lighterage undertaken
as part of the international transport of goods.
Finally, certain non-transport activities that are an integral part of
the services performed by a transport company are understood to be covered
in paragraph 1, though they are not specified in paragraph 2. These
include, for example, the performance of some maintenance or catering
services by one airline for another airline, if these services are
incidental to the provision of those services by the airline for itself.
Income earned by concessionaires, however, is not covered by Article 8.
These interpretations of paragraph 1 also are consistent with the
Commentary to Article 8 of the OECD Model.
Paragraph 3
Under this paragraph, profits of an enterprise of a Contracting State
that is engaged in the operation of ships and aircraft derived from the
use, maintenance or rental of containers (including equipment for their
transport) that are used for the transport of goods in international
traffic are exempt from tax in the other Contracting State. Thus, this
paragraph applies only to income from the use, maintenance or rental of
containers that is incidental to other income from international traffic.
This differs from the U.S. Model in which both incidental and
non-incidental income from the rental of containers is included in Article
8.
Paragraph 4
This paragraph clarifies that the provisions of paragraphs 1 and 3
also apply to profits derived by an enterprise of a Contracting State from
participation in a pool, joint business or international operating agency.
This refers to various arrangements for international cooperation by
carriers in shipping and air transport. For example, airlines from two
countries may agree to share the transport of passengers between the two
countries. They each will fly the same number of flights per week and
share the revenues from that route equally, regardless of the number of
passengers that each airline actually transports. Paragraph 4 makes clear
that with respect to each carrier the income dealt with in the Article is
that carrier's share of the total transport, not the income derived from
the passengers actually carried by the airline. This paragraph corresponds
to paragraph 4 of Article 8 of the OECD Model.
Relation to Other Articles
As with other benefits of the Convention, the benefit of exclusive
residence country taxation under Article 8 is available to an enterprise
only if it is entitled to benefits under Article 23 (Limitation on
Benefits).
This Article also is subject to the saving clause of paragraph 4 of
Article 1 (General Scope) of the Model. Thus, if a citizen of the United
States who is a resident of the Lithuania derives profits from the
operation of ships or aircraft in international traffic, notwithstanding
the exclusive residence country taxation in paragraph 1 of Article 8, the
United States may, subject to the special foreign tax credit rules of
paragraph 3 of Article 24 (Relief from Double Taxation), tax those profits
as part of the worldwide income of the citizen. (This is an unlikely
situation, however, because non-tax considerations (e.g., insurance)
generally result in shipping activities being carried on in corporate
form.)
ARTICLE 9
Associated Enterprises
This Article incorporates in the Convention the arm's length principle
reflected in the U.S. domestic transfer pricing provisions, particularly
Code section 482. It provides that when related enterprises engage in a
transaction on terms that are not arm's length, the Contracting States may
make appropriate adjustments to the taxable income and tax liability of
such related enterprises to reflect what the income and tax of these
enterprises with respect to the transaction would have been had there been
an arm's length relationship between them.
Paragraph 1
This paragraph is essentially the same as its counterpart in the OECD
Model. It addresses the situation where an enterprise of a Contracting
State is related to an enterprise of the other Contracting State, and
there are arrangements or conditions imposed between the enterprises in
their commercial or financial relations that are different from those that
would have existed in the absence of the relationship. Under these
circumstances, the Contracting States may adjust the income (or loss) of
the enterprise to reflect what it would have been in the absence of such a
relationship.
The paragraph identifies the relationships between enterprises that
serve as a prerequisite to application of the Article. As the Commentary
to the OECD Model makes clear, the necessaryelement in these relationships
is effective control, which is also the standard for purposes of section
482. Thus, the Article applies if an enterprise of one State participates
directly or indirectly in the management, control, or capital of the
enterprise of the other State. Also, the Article applies if any third
person or persons participate directly or indirectly in the management,
control, or capital of enterprises of different States. For this purpose,
all types of control are included, i.e., whether or not legally
enforceable and however exercised or exercisable.
The fact that a transaction is entered into between such related
enterprises does not, in and of itself, mean that a Contracting State may
adjust the income (or loss) of one or both of the enterprises under the
provisions of this Article. If the conditions of the transaction are
consistent with those that would be made between independent persons, the
income arising from that transaction should not be subject to adjustment
under this Article.
Similarly, the fact that associated enterprises may have concluded
arrangements, such as cost sharing arrangements or general services
agreements, is not in itself an indication that the two enterprises have
entered into a non-arm's length transaction that should give rise to an
adjustment under paragraph 1. Both related and unrelated parties enter
into such arrangements (e.g., joint venturers may share some development
costs). As with any other kind of transaction, when related parties enter
into an arrangement, the specific arrangement must be examined to see
whether or not it meets the arm's length standard. In the event that it
does not, an appropriate adjustment may be made, which may include
modifying the terms of the agreement or recharacterizing the
transaction to reflect its substance.
It is understood that the "commensurate with income" standard for
determining appropriate transfer prices for intangibles, added to Code
section 482 by the Tax Reform Act of 1986, was designed to operate
consistently with the arm's length standard. The implementation of this
standard in the section 482 regulations is in accordance with the general
principles of paragraph 1 of Article 9 of the Convention, as interpreted
by the OECD Transfer Pricing Guidelines.
This Article also permits tax authorities to deal with thin
capitalization issues. They may, in the context of Article 9, scrutinize
more than the rate of interest charged on a loan between related persons.
They also may examine the capital structure of an enterprise, whether a
payment in respect of that loan should be treated as interest, and, if it
is treated as interest, under what circumstances interest deductions
should be allowed to the payor. Paragraph 2 of the Commentaries to Article
9 of the OECD Model, together with the U.S. observation set forth in
paragraph 15 thereof, sets forth a similar understanding of the scope of
Article 9 in the context of thin capitalization.
Paragraph 2
When a Contracting State has made an adjustment that is consistent
with the provisions of paragraph 1, and the other Contracting State agrees
that the adjustment was appropriate to reflect arm's length conditions,
that other Contracting State is obligated to make a correlative adjustment
(sometimes referred to as a "corresponding adjustment") to the tax
liability of the related person in that other Contracting State. This
Convention, like the OECD Model but unlike the U.S. Model, does not
specify that the other Contracting State must agree with the initial
adjustment before it is obligated to make the correlative adjustment, but
paragraph 6 to the Commentary on Article 9 of the OECD Model makes clear
that the paragraph is to be interpreted that way.
As explained in the OECD Commentaries, Article 9 leaves the treatment
of "secondary adjustments" to the laws of the Contracting States. When an
adjustment under Article 9 has been made, one of the parties will have in
its possession funds that it would not have had at arm's length. The
question arises as to how to treat these funds. In the United States the
general practice is to treat such funds as a dividend or contribution to
capital, depending on the relationship between the parties. Under certain
circumstances, the parties may be permitted to restore the funds to the
party that would have the funds at arm's length, and to establish an
account payable pending restoration of the funds. See Rev. Proc. 99-32,
1999-34 I.R.B. 296.
The Contracting State making a secondary adjustment will take the
other provisions of the Convention, where relevant, into account. For
example, if the effect of a secondary adjustment is to treat a U.S.
corporation as having made a distribution of profits to its parent
corporation in Lithuania, the provisions of Article 10 (Dividends) will
apply, and the United States may impose a 5 percent withholding tax on the
dividend. Also, if under Article 24 Relief from Double Taxation) Lithuania
generally gives a credit for taxes paid with respect to such dividends, it
would also be required to do so in this case.
The competent authorities are authorized by paragraph 2 to consult, if
necessary, to resolve any differences in the application of these
provisions. For example, there may be a disagreement over whether an
adjustment made by a Contracting State under paragraph 1 was appropriate.
If a correlative adjustment is made under paragraph 2, it is to be
implemented notwithstanding any time limits or other procedural
limitations in the law of the Contracting State making the adjustment. If
a taxpayer has entered a closing agreement (or other written settlement)
with the United States prior to bringing a case to the competent
authorities, the U.S. competent authority will endeavor only to obtain a
correlative adjustment from Lithuania. See Rev. Proc. 96- 13, 1996-13
I.R.B. 31, Section 7.05.
Paragraph 3
Paragraph 3 preserves the right of Contracting States to apply
internal law provisions relating to adjustments between related parties.
They also reserve the right to make adjustments in cases involving tax
evasion or fraud. Such adjustments -- the distribution, apportionment, or
allocation of income, deductions, credits or allowances -- are permitted
even if they are different from, or go beyond, those authorized by
paragraph 1 of the Article, as long as they accord with the general
principles of paragraph 1, i.e., that the adjustment reflects what would
have transpired had the related parties been acting at arm's length. For
example, while paragraph 1 explicitly allows adjustments of deductions in
computing taxable income, it does not deal with adjustments to tax
credits. It does not, however, preclude such adjustments if they can be
made under internal law.
The provision does not grant authority not otherwise present under
internal law. The OECD Model reaches the same result. See paragraph 4 of
the Commentaries to article 9.