APPENDIX

PORT OF SPAIN, TRINIDAD,
January 9, 1970.

The Honourable J. FIFE SYMINGTON, JR. Ambassador Extraordinary and Plenipotentiary, Embassy of the United States of America, Port-of-Spain.

SIR: I have the honour to refer to your letter of the 9 January which reads as follows:

"I have the honor to refer to the income tax treaty between the Governments of Trinidad and Tobago and the United States, which has been signed today. This treaty makes no provision for special recognition, in the calculation of United States tax on income derived from United States direct investment in Trinidad and Tobago, of tax incentives offered by Trinidad and Tobago to attract such investment.

My Government recognizes the value to Trinidad and Tobago of increased United States investment in your country and the importance which your Government places on promoting such investment through the tax treaty mechanism. I want, therefore, to assure that my Government is prepared, at an early date, to resume discussions with representatives of Trinidad and Tobago with a view toward reaching agreement on a supplementary protocol that would provide a tax impetus to United States direct investment in Trinidad and Tobago."

I have the honour to inform you that my Government accepts the above mentioned assurances and looks forward to the early resumption of discussions on this subject.

Accept, Sir, the renewed assurances of my highest consideration.

ERIC WILLIAMS,
Prime Minister.

CERTIFICATION

TRINIDAD AND TOBAGO CITY OF PORT OF SPAIN EMBASSY OF THE UNITED STATES of AMERICA: SS

I. Robert J. MacQuaid, Consul of the United States of America at Port of Spain, Trinidad, West Indies, duly commissioned and qualified do hereby certify that the attached copy of Embassy Note No. 1 of January 9, 1970 to Dr. the Right Honourable Eric Williams, Prime Minister of Trinidad and Tobago, signed by J. Fife Symington, Jr., American Ambassador, is a true and faithful copy of the original.

In Witness Whereof I have hereunto set my hand and affixed the seal of the Embassy at Port of Spain, Trinidad, West Indies, this 9th day of January, 1970.

No. 1

ROBERT J. MACQUAID, Consul of the United States of America. PORT OF SPAIN, January 9, 1970.

Dr. the Right Honourable ERIC WILLIAMS,
Prime Minister,

Trinidad House.

SIR: I have the honor to refer to the income tax treaty between the Governments of Trinidad and Tobago and the United States, which has been signed today. This treaty makes no provision for special recognition, in the calculation of United States tax on income derived from United States direct investment in Trinidad and Tobago, of tax incentives offered by Trinidad and Tobago to attract such investment.

My Government recognizes the value to Trinidad and Tobago of increased United States investment in your country and the importance which your Government places on promoting such investment through the tax treaty mechanism. I want, therefore, to assure you that my Government is prepared, at an early date, to resume discussions with representatives of Trinidad and Tobago with a view toward reaching agreement on a supplementary protocol that would provide a tax impetus to United States direct investment in Trinidad and Tobago. Accept, Sir, the renewed assurances of my highest consideration. J. FIFE SYMINGTON, JR.

OCTOBER 6, 1970.

TECHNICAL EXPLANATION OF U.S.-BELGIUM INCOME TAX CONVENTION, SIGNED JULY 9, 1970

(Department of the Treasury)

ARTICLE 1. PERSONAL SCOPE

This Article, which is not found in other United States tax treaties, is similar to Article 1 of the Draft Double Taxation Convention on Income and Capital developed by the Fiscal Committee of the Organization for Economic Cooperation and Development and published in 1963 (hereinafter referred to as the OECD Model Convention). The Article does not have substantive importance. Its purpose is to generally delineate the persons who come within the scope of the Convention. The Article is not complete in its delineation of persons covered in that persons who are residents of one or both of the Contracting States are sometimes not covered in the Convention and that other persons who are not residents of either of the Contracting States are covered by this Convention. For example, Article 19 (Governmental Functions) applies to citizens of a third State who come to one of the Contracting States expressly for the purpose of being employed by the other Contracting State. While the title of Article 1 is "Personal Scope," the Convention, of course, is applicable to corporations and other entities as well as to individuals.

ARTICLE 2. TAXES COVERED

This Article designates the taxes of the respective States which are the subject of the proposed Convention. With respect to the United States, the taxes included are the United States Federal income taxes imposed by the Internal Revenue Code. This includes, for example, the surtax and would also include such taxes as the temporary surcharge which was in force from 1968 to 1970. However, the Convention is not intended to apply to taxes which are in the nature of a penalty such as the taxes imposed under section 531 (accumulated earnings tax) and section 541 (personal holding company tax) of the Internal Revenue Code.

With respect to Belgium, the taxes included are (1) the individual income tax; (2) the corporate income tax; (3) the income tax on legal entities: (4) the income tax on nonresidents; (5) the prepayments and additional prepayments; and (6) surcharges on any of the taxes referred to in (1) through (5), including the communal supplement to the individual income tax.

The Belgian individual income tax is payable by resident individuals on income from all sources but with reduced rates for foreign source income.

The Belgian corporate income tax is payable by resident Belgian companies on income from all sources but with reduced rates for foreign source income. The Belgian income tax on legal entities is a tax payable in lieu of the corporate income tax and is imposed upon the political subdivisions of Belgium and those resident legal entities which are not engaged in business activity. This tax is levied solely on income from movable capital (generally dividend and interest income) and real property.

The Belgian income tax on nonresidents is payable by nonresident individuals. corporations, and other legal entities on income earned or received in Belgium. In addition to the above-enumerated taxes, prepayment of tax in the form of withholding by the payor is required by Belgian law in the case of income from movable capital (generally dividend and interest income) and income from real property. There is also a standard professional prepayment (withholding) which applies to wages and salaries, remuneration paid by a corporation to managers. directors and persons with similar functions, and to pensions, certain prizes and subsidies, and in the case of a nonresident recipient, alimony. These taxes are

known as "les précomptes." While Articles 2 also lists "additional prepayments" (compléments de précomptes), that tax, which was an additional 15 percent prepayment on income from movable capital, has not been in force since January 1, 1967. It was included at the request of Belgium in the case such tax is reestablished, although even in the absence of an express reference, a new or re-established tax would be covered by paragraph (2) of this Article. In the case of income from real property, Belgian law provides for an additional advance payment in the case of taxpayers subject to the income tax on nonresidents whose fiscal domicile is in a country with whom Belgium has concluded a double taxation agreement giving Belgium exclusive right to tax real property situated in her territory. Since, under the proposed Convention, Belgium does not have an exclusive right to tax United States residents on income from real property, there is no additional advance payment on such income paid to United States residents.

Pursuant to paragraph (2) of this Article the proposed Convention would also apply to taxes substantially similar to those enumerated which are imposed, in addition to or in place of the existing income taxes, after the date of signature of this Convention (July 9, 1970).

This Article also provides that the competent authorities of the Contracting States are to notify each other of any amendments of the laws imposing the enumerated taxes and of the adoption of any taxes which are subsequently imposed by transmitting the text of any amendments or new statutes at least once a year. Further, the competent authorities are to notify each other of the publication by their respective States of any material concerning the application of this Convention, whether in the form of regulations, rulings, or judicial decisions, by transmitting the text of any such material at least once a year.

ARTICLE 3. GENERAL DEFINITIONS

This Article sets out definitions of certain of the basic terms used in the proposed Convention. A number of important terms, however, are defined elsewhere in the Convention.

Any term used in this Convention which is not defined therein shall, unless the context otherwise requires, have the meaning which it has under the laws of the State which is imposing the tax. However, in a case where a term has a different meaning under the laws of Belgium and the United States or where the meaning under the laws of one or both of the States is not clear, the competent authorities may agree on a uniform definition. See Article 25 (Mutual Agreement Procedure). While treaties in the past did not specify the power of the competent authorities to resolve such differences in definitions, this power is nevertheless inherent in the authority set forth in the mutual agreement article of these treaties to resolve "difficulties or doubts."

This Article defines geographical Belgium and geographical United States to include their respective continental shelves. The addition of a definition of the continental shelf is intended to clarify what the Contracting States consider to be included within their respective jurisdictions to tax. The United States continental shelf is defined as the seabed and subsoil of the adjacent submarine areas beyond the territorial sea over which the United States exercises exclusive rights in accordance with international law for the purpose of exploration and exploitation of the natural resources of such area, but only to the extent that the person, property, or activity to which this Convention is being applied is connected with such exploration or exploitation. For example, the income earned by a ship and its employees engaged in taking seismograph soundings on the United States continental shelf will be treated for tax purposes the same as the income from a comparable activity on the land of one of the States of the United States. A comparable definition is used in the case of Belgium. The definition of the continental shelf in the case of the United States only includes the continental shelf surrounding the 50 States. Thus, for example, the continental shelf surrounding Puerto Rico is not included. If the treaty were extended beyond the 50 States and the District of Columbia (see Article 29-Extension to Territories) the continental shelf of the extended areas could also be covered. The defined continental shelf is only part of the United States or Belgium, as the case may be, in limited situations. It is included only to the extent that a person or property or activity to which the Convention is being applied is connected with exploration or exploitation of the continental shelf. The phrase "connected with" does not require physical attachment to the continental shelf to be within the scope of the definition.

The Article also defines "United States corporation" and "Belgian corporation." Because of the difference in concept, an entity could under Belgian law be considered to be a Belgian corporation and under United States law to be a United States corporation. For purposes of the proposed Convention, such a corporation would be treated as a corporation of neither State because of the provisions in the definitions of a corporation of the United States, and a corporation of Belgium, that an entity may not be considered a corporation of the United States, or Belgium, if it is a corporation of the other State under domestic law of that other State. While the benefits of the Convention would generally be unavailable in such cases, it is relatively easy for taxpayers to avoid dual residency.

ARTICLE 4. FISCAL DOMICILE

This Article sets forth rules for determining "fiscal domicile" or residence of individuals, corporations and other persons for purposes of the proposed Convention. Residence is important because, in general, only a resident of one of the Contracting States may qualify for the benefits of the Convention. This Article is patterned generally after the fiscal domicile article of the OECD Model Convention.

The term "a resident of Belgium" means a corporation of Belgium as defined in Article 3 (General Definitions) and any person (other than a corporation) who is a resident of Belgium for purposes of its tax. The term "a resident of the United States" means a United States corporation as defined in Article 3 (General Definitions) and any person (except a corporation or any other entity treated as a corporation for United States tax purposes) resident in the United States for purposes of its tax. The language in parentheses is intended to deal with the problem of dual residency of a corporation. An entity which would be considered a Belgian corporation under Belgian law and a United States corporation under United States law would, under Article 3 (General Definitions) of the Convention, be neither a Belgian corporation nor a United States corporation. Therefore, it was necessary to make clear that such an entity is not included within the term "any person" for purposes of the second part of the definitions. In addition, the parenthetical language in the definition of a resident of the United States is intended to make clear that a foreign corportaion, or other entity treated as a foreign corporation for United States tax purposes, which is a resident of the United States for certain purposes of its income tax law is not, under the Convention, a resident of the United States.

In the case of the United States, the definition provides that a partnership, estate, or trust is treated as a resident only to the extent that the income derived by such person is subject to United States tax as the income of a resident. This language, although different from the Income Tax Convention between the United States and France, signed July 28, 1967, is intended to achieve the same result. Under United States law, a partnership is never, and an estate or trust is often not, taxed as such. Under the proposed Convention, in the case of the United States, income received by a partnership, estate, or trust will not qualify for the benefits of the Convention unless such income is subject to tax in the United States. Thus, in effect, the status of income which is subject to tax only in the hands of the partners or beneficiaries, will be determined by the residence of such partners or beneficiaries. With respect to income taxed in the hands of the estate or trust, the residence of the estate or trust is determinative. This provision is nonreciprocal because of the absence of a similar problem under Belgian law.

An individual who is a resident of both States under the rules of domestic law employed by such States for determining residence will be deemed to be a resident of the State in which he has his permanent home, his center of vital interests (closest economic and personal relations), his habitual abode, or his citizenship, in the order listed. If the issue is not settled by these tests, the competent authorities will decide by mutual agreement the one State of which he will be considered to be a resident. Thus for purposes of the Convention, including the savings clause of Article 23(1), an individual can be resident in Belgium or the United States, but not both.

ARTICLE 5. PERMANENT ESTABLISHMENT

This Article defines the term "permanent establishment." The existence of a permanent establishment is, under the terms of the proposed Convention, a pre

requisite for one State to tax the industrial or commercial profits of a resident of the other State. The concept is also significant in determining the applicability of other provisions of the Convention, such as Article 10 (Dividends), Article 11 (Interest), Article 12 (Royalties), and Article 13 (Capital Gains). The definition of "permanent establishment" is a modernized version of the definition found in some of our older treaties including the 1948 Convention with Belgium. The new definition is similar to the definition found in our French Convention.

The term "permanent establishment" means "a fixed place of business through which a resident of one of the Contracting States engages in industrial or commercial activity." Ilustrations of the concept of a fixed place of business include a seat of management, a branch, an office, a factory, a workshop, a warehouse, a place of extraction of natural resources, or a building site or construction or installation project which exists for more than 12 months. As a general rule, any fixed facility through which an individual, corporation or other person conducts industrial or commercial activity will be treated as its permanent establishment unless it falls in one of the specific exceptions described below. The proposed Convention uses the term "a seat of management" which was the term used in our Convention with France. The technical explanation of our French Convention explains the definition of the term "a seat of management" and its difference in meaning from the term "a place of management" as follows:

It should be noted that this convention uses the term "seat of management" where the OECD model convention and prior agreements to which the United States is a party used the term "place of management"; both terms are translations of the French term "un siege de direction" and it is believed the translation found in this convention is the more accurate. Prior agreements in which the term "place of management" appears will be interpreted therefore as if the words "seat of management" had been used.

That explanation is applicable to the proposed Belgian Convention.

This Article specifically provides that a permanent establishment does not include a fixed place of business of a resident of one of the Contracting States which is located in the other Contracting State if it is used only for one or more of the following—(1) the use of facilities for the purpose of storage, display, or delivery of goods or merchandise belonging to the resident; (2) the maintenance of a stock of goods or merchandise belonging to the resident for the purpose of storage, display, or delivery; (3) the maintenance of a stock of goods or merchandise belonging to the resident for the purpose of processing by another person; (4) the maintenance of a fixed place of business for the purpose of purchasing goods or merchandise, or for collecting information, for the resident; (5) the maintenance of a fixed place of business for the purpose of advertising, or the supplying of information, for scientific research, or for similar activities which have a preparatory or auxiliary character, for the resident; or (6) the maintenance of a building site or construction or installation project which does not exist for more than 12 months. The building site or construction or installation project exception is merely a clarification of the rule that such an activity for more than 12 months is a permanent establishment and, accordingly, such an activity for 12 months or less is not a permanent establishment. These exceptions are cumulative and a site or facility used solely for more than one of these purposes will not be considered a permanent establishment under the proposed Convention. The 12-month construction project rule is a physical test under which the resident must be actively engaged in the project during that 12-month period. This Article also provides that notwithstanding the provisions described in the preceding paragraph if three conditions are met, a resident of one State will have a permanent establishment in the other State. The conditions are:

1. The resident has a fixed place of business in that other State (a) which consists of facilities for the storage, display or delivery of goods or merchandise belonging to the resident; (b) which consists of a stock of goods or merchandise belonging to the resident which is held for processing by another person; or (c) which is used for the purpose of purchasing goods or merchandise for the resident;

2. The goods or merchandise described in paragraph 1 above are either subject to substantial processing in that State (whether or not purchased there) or are purchased in that other State (and are not thereafter subject to substantial processing in another State); and

3. All or part of such goods or merchandise is sold by the resident or his agent for use, consumption, or disposition in that other State.