GENERAL EFFECTIVE DATE UNDER ARTICLE 27: 1 JANUARY 1994 TABLE OF ARTICLES Article 1----------------------------------General Scope Article 2----------------------------------Taxes Covered Article 3----------------------------------General Definitions Article 4----------------------------------Residence Article 5----------------------------------Permanent Establishment Article 6----------------------------------Business Profits Article 7--------------------------------- Adjustments to Income in Cases 　　Where Persons Participate, Directly or Indirectly, in the Management, Control or Capital of Other Persons Article 8----------------------------------International Transport Article 9----------------------------------Income from Real Property Article 10--------------------------------Dividends Article 11--------------------------------Interest Article 12--------------------------------Royalties Article 13--------------------------------Independent Personal Services Article 14--------------------------------Income from Employment Article 15--------------------------------Directors' Fees Article 16--------------------------------Government Service Article 17--------------------------------Pensions Article 18--------------------------------Students, and Researchers Article 19--------------------------------Other Income Article 20--------------------------------Limitation on Benefits Article 21--------------------------------Capital Article 22--------------------------------Relief from Double Taxation Article 23--------------------------------Non-Discrimination Article 24--------------------------------Mutual Agreement Procedure Article 25--------------------------------Exchange of Information Article 26--------------------------------Members of Diplomatic Missions Agents and Consular Officers Article 27--------------------------------Entry into Force Article 28--------------------------------Termination Protocol----------------------------------of 17 June, 1992 Letter of Submittal ---------------------of 25 August, 1992 Letter of Transmittal-------------------of 8 September, 1992 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 THE RUSSIAN FEDERATION FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME AND CAPITAL, TOGETHER WITH A RELATED PROTOCOL, SIGNED AT WASHINGTON ON JUNE 17, 1992 　　　　　　　　　　　LETTER OF SUBMITTAL 　　　　　　　　　　　　　　　　　　　　　　　　DEPARTMENT OF STATE, 　　　　　　　　　　　　　　　　　　　Washington, DC, August 25, 1992. 9215975 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 the Russian Federation for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital, together with a related protocol, which you signed at Washington on June 17, 1992. 　　The Convention would replace, with respect to Russia, the existing income tax convention between the United States and the Union of Soviet Socialist Republics, which was signed at Washington on June 20, 1973, and would modernize tax relations between the two countries. It is hoped and expected that the new Convention will be an important impetus to Russia's emergence as a market economy by encouraging and facilitating greater United States private sector investment in Russia. The Convention will establish a framework which we hope will contribute to the expansion of economic relations between the two countries on a broader and reciprocal basis. 　　The new Convention provides for exemption from tax at source of interest and royalties. Dividends would be subject to tax at source at a maximum rate of 10 percent, reduced to 5 percent in the case of dividends paid by a subsidiary corporation in one country to its parent corporation (in this case defined as a more than 10 percent ownership interest) in the other country. The 5 percent rate would also apply to branch profits. Capital gains on assets other than real property would be taxable only in the country of residence of the person deriving the gain. (Such gains are dealt with in the residual article on "other income" which provides for exclusive taxation at residence of income not effectively connected with a place of business in the other country.) Gains with respect to real property may be taxed where the property is located. 　　Under the new Convention if a construction site or drilling rig is maintained by a resident of one country in the other country for a period longer than 18 months, the site or rig would constitute a "permanent establishment", and become subject to profits tax in the other country. Business profits in general are taxable in the other country only to the extent attributable to a permanent establishment there, and then only on a net basis with deductions for business expenses. 　　The Convention provides conditions under which each country may tax income derived by individual residents of the other country from independent personal services or as employees, as well as pension income and social security benefits. Special relief is granted to visiting students, trainees, and researchers. The provision in the existing treaty of a two year exemption for visiting teachers and journalists is not retained. Any person who prefers the existing treaty may continue to have it applied in its entirety for one year after the new Convention enters into force. Items of income not specifically dealt with may be taxed only in the country of residence. 　　The benefits of the Convention are limited to residents of the two countries meeting certain standards designed to prevent residents of third countries from inappropriately using the Convention. Similar standards are found in other recent United States income tax conventions. The new Convention assures that the residence country will avoid double taxation of income which arises in the country and has been taxed there in accordance with the treaty's provisions. In addition, the Convention includes standard administrative provisions which will permit the tax authorities of the two countries to cooperate to resolve issues of potential double taxation and to exchange information relevant to implementing the Convention and the domestic laws imposing the taxes covered by the Convention. The nondiscrimination provisions go beyond the standard provisions in including assurances of nondiscriminatory tax treatment with respect to residents of third States as well as residents of the taxing State. 　　The Convention will enter into force on the date of the exchange of instruments of ratification. The provisions concerning taxes on dividends, interest and royalties will take effect on the first day of the second month following the exchange of instruments of ratification, and provisions concerning other taxes will take effect for taxable years beginning on or after January 1 following the exchange of instruments of ratification. Upon entry into force of the Convention, the 1973 tax treaty will cease to have effect between the United States and the Russian Federation. As noted above, a taxpayer may elect to apply the 1973 treaty in full for one additional taxable year if its provisions are more favorable. 　　A protocol accompanies the Convention and forms an integral part of it. It clarifies the operation of certain provisions and denies treaty benefits with respect to dividends and interest paid by certain United States investment companies. Most significantly, it guarantees the deductibility of wage costs and interest that might not otherwise be deductible under Russian law to permanent establishments in Russia of United States residents and to Russian entities owned at least 30 percent by United States residents and having total corporate capital of at least $100,000. In such cases, the interest rate is subject to certain limits and the taxpayer may not apply any reduced tax rate applicable to taxpayers not claiming such deductions. 　　A technical memorandum explaining in detail the provisions of the Convention will be prepared by the Department of the Treasury and will be submitted separately to the Senate Committee on Foreign Relations. 　　The Department of the Treasury and the Department of State cooperated in the negotiation of the Convention. It has the full approval of both Departments. Respectfully submitted, 　　　　　　　　　　　　　　　　　　　　　　　　　　ARNOLD KANTER 　　　　　　　　　　　　　　　　　　　　　　　　　　Acting Secretary. Enclosures: As stated. 　　　　　　　　　　　　　LETTER OF TRANSMITTAL 　　　　　　　　　　　　　　　　　THE WHITE HOUSE, September 8, 1992. 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 the Russian Federation for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, signed at Washington on June 17, 1992, together with a related Protocol. I also transmit the report of the Department of State. 　　The convention replaces, with respect to Russia, the 1973 income tax convention between the United States of America and the Union of Soviet Socialist Republics. It will modernize tax relations between the two countries and will facilitate greater private sector United States investment in Russia. 　　I recommend that the Senate give early and favorable consideration to the convention and related protocol and give its advice and consent to ratification. 　　　　　　　　　　　　　　　　　　　　　　　　　　　　　GEORGE BUSH.