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Protocol amending the German-American Double Taxation Convention entered into force

Exchange of Instruments: Deputy Chief of Mission Johannes Haindl and Wesley S. Scholz, Director of the the Office of Investment Affairs, exchanged documents at the State Department, on December 28, 2007.

The June 1, 2006, Protocol amending the German-American Double Taxation Convention of August 29, 1989, entered into force on Friday, 28 December 2007 with the exchange of the instruments of ratification at the U.S. Department of State in Washington, D.C.

In conventions on double taxation the contracting states define how to avoid the double taxation of the income obtained in one of the States by a person or legal entity resident in the other State.

The Protocol updates the provisions of the Double Taxation Convention in several areas, in particular from the standpoint of policies regarding competitiveness and investment, and thus contributes to fostering German-U.S. economic relations and Germany as a business and investment location.

The main revisions contained in the Protocol are as follows:

The complete elimination of taxation at the source on dividends paid by subsidiaries to their parent companies (a measure that is retroactive to January 1, 2007). This will prevent the multiple taxation of profits and thus contribute to better competitive conditions for direct investment. At the same time Germany will remain as an attractive location for U.S. corporations.
Retirement pension institutions will be mutually recognized for tax purposes in order to facilitate the exchange of personnel between the respective States.
Introduction of a mandatory arbitration procedure whose decisions will be binding for the contracting States. For the first time, the United States have agreed to such procedures in their contractual practices. Taxpayers will thus be better protected from double taxation.

Along with the expanded benefits that the Protocol grants, the limitation of benefits provision of the convention has also been adapted in order to prevent the abuse of its benefits.

The Protocol also takes into account the consequences of the integration of large economic spaces such as the European Union (EU), the European Economic Area (EEA), and the North American Free Trade Agreement (NAFTA).

December 28, 2007

Link

Protocol (German and English)

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