ARTICLE 29. DIPLOMATIC AGENTS AND CONSULAR OFFICERS

The proposed treaty contains the rule found in other U.S. tax treaties that its provisions are not to affect the privileges of diplomatic agents or consular officers under the general rules of international law or the provisions of special agreements. Accordingly, the treaty will not defeat the exemption from tax which a host country may grant to the salary of diplomatic officials of the other country. Because the saving clause applies only with respect to individuals who are citizens (or have immigrant status), for example, U.S. diplomats who are Indian residents (but neither are citizens of nor have immigrant status in India) are protected from Indian tax. Similarly, Indian diplomats who are U.S. residents (but neither are citizens of nor have immigrant status in the United States) are protected from U.S. tax.

ARTICLE 30. ENTRY INTO FORCE

The proposed treaty states that each country is to notify the other country in writing, through diplomatic channels, upon the completion of their respective ratification procedures. In the United States, the ratification process is completed upon the signing of the ratification document by the President, on the advice and consent of the Senate. The proposed treaty will enter into force when the latter of the ratification notifications is exchanged. With respect to taxes withheld at source in the United States, the treaty is effective for amounts paid or credited on or after the first day of January following the treaty's entry into force. With respect to other taxes imposed by the United States, the treaty is effective for taxable periods beginning on or after the first day of January following the treaty's entry into force. With respect to taxes imposed by India, the treaty is effective for income arising in any taxable year beginning on or after the first day of April following the calendar year during which the treaty enters into force.

ARTICLE 31. TERMINATION

This proposed treaty is to remain in force indefinitely, but either country may terminate it unilaterally by giving notice on or before June 30th in any calendar year after the expiration of a period of five years from the date on which the treaty enters into force. A termination would be effective for amounts paid or credited on or after the first day of January following the notice of termination with respect to taxes withheld at source in the United States. With respect to other taxes imposed by the United States, a termination would be effective for taxable periods beginning on or after the first day of January following the notice of termination. With respect to taxes imposed by India, a termination would be effective for income arising in any taxable year beginning on or after the first day of April following the calendar year during which the notice of termination is given.

Nothing in Article 31 affects the ability of the United States and India to enter into a superseding agreement or otherwise to bilaterally renegotiate the proposed treaty.

EXCHANGE OF NOTES

At the signing of the proposed treaty, notes were exchanged dealing with three issues. First, the notes state that although both countries agreed not to include a tax-sparing credit in the proposed treaty, in the event that the United States amends its laws concerning the provision of tax-sparing credits or reaches agreement on the provision of a tax-sparing credit with any other country, the proposed treaty would be promptly amended to incorporate a taxsparing credit. Such an amended treaty would be subject to the usual ratification procedures of both countries.

This discussion reflects the desire of India and other developing countries to have the United States adopt a tax-sparing credit. Many developed countries provide a tax-sparing credit in order to avoid what, in the view of some, is a conflict with the foreign investment incentive policies of developing countries. A tax-sparing credit is an income tax credit provided by a country (typically a developed country) against its own tax on income from a developing country. The credit equals the full amount of the developing country's nominal tax on the income, notwithstanding the developing country's reduction or elimination of the tax as part of an investment incentive program. Many developing countries, for example, provide "tax holidays" to residents of other countries who invest in the developing country. Generally, under these tax holidays, the developing countries forego tax on the profits from the foreignowned business for a period of time. Absent a tax-sparing credit, those profits typically would be taxed in full by the country of residence of the business's foreign owner upon repatriation in dividend form. The United States has declined to give tax-sparing credits.

In addition, the diplomatic notes explain under what circumstances a person may be considered to habitually secure orders in one country, wholly or almost wholly for an enterprise, as discussed above under Article 5 (Permanent Establishment). Finally, the notes present the memorandum of understanding regarding the interpretation of aspects of Article 12 (Royalties and Fees for Included Services) relating to the scope of included services, as discussed above under Article 12.

IX. TEXT OF RESOLUTION OF RATIFICATION

Resolved (two-thirds of the Senators present concurring therein), That the Senate advise and consent to the ratification of the Convention between the Government of the United States of America and the Government of the Republic of India for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, together with a related protocol, signed at New Delhi on September 12, 1989 (Treaty Doc. 101-5).

O

TREATY DOCUMENT 101-6, 101ST CONGRESS, 1ST SESSION, COUNCIL OF EUROPE-OECD CONVENTION ON MUTUAL ADMINISTRATIVE ASSISTANCE IN TAX MATTERS

39-119

JULY 27 (legislative day, JULY 10), 1990.-Ordered to be printed

U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON: 1990