Tax treaty update - JCT explanation of tax treaty with Chile; Foreign Relations Committee hearing set for February 26 

February 24:  The Joint Committee on Taxation (JCT) today released an explanation of the United States-Chile income tax treaty and related Protocol—which, along with several other pending tax treaties, will be the subject of a Senate Foreign Relations hearing scheduled for Wednesday, February 26, 2014.

The United States-Chile income tax treaty was signed in February 2010 and, if ratified, would be the first income tax treaty between the two countries. The United States-Chile income tax treaty also is accompanied by a Protocol and by official understandings implemented by exchanges of diplomatic notes.

The Senate Foreign Relations Committee has scheduled a public hearing on this tax treaty for February 26, 2014.

JCT report

The JCT report—X-10-14 [PDF 223 KB]—includes:

  • A summary of the treaty
  • A brief overview of U.S. tax laws relating to international trade and investment and of U.S. income tax treaties in general
  • A discussion of investment and trade flows between the United States and Chile
  • An article-by-article explanation of the treaty provisions and of the related provisions in the Protocol and diplomatic notes
  • A discussion of issues that members of the Foreign Relations Committee may wish to consider in their treaty deliberations

U.S. ratification process

In the United States, ratification requires the advice and consent of the Senate. A signed tax treaty is first referred to the Senate Foreign Relations Committee for consideration. A public hearing for the tax treaty is typically held.

The Senate Foreign Relations Committee then reports the treaty with a recommendation to the full Senate. The Treaty Clause of the Constitution requires approval by a two-thirds vote, although tax treaties ordinarily are approved by unanimous consent without an actual vote. Following Senate approval, the treaty is referred to the U.S. State Department, where the “Instrument of Ratification” is drafted and forwarded to the president for signature.

A provision in the United States-Chile income tax treaty provides that the United States and Chile will notify each other in writing, through diplomatic channels, when the ratification procedures are completed in each country. The treaty will then enter into force on the date of the later of these notifications.

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