PROTOCOL TO THE 1984 TREATY (1991)
Date of Conclusion: 18 December 1991.
Entry into Force: 29 December 1993.
Effective Date: 1 January 1994 (see Article VIII) .
PROTOCOL AMENDING THE CONVENTION BETWEEN
THE UNITED STATES OF AMERICA AND BARBADOS
FOR THE AVOIDANCE OF DOUBLE TAXATION AND
THE PREVENTION OF FISCAL EVASION
WITH RESPECT TO TAXES ON INCOME
- Article 5 (Permanent Establishment) of the Convention shall be deleted and replaced by the following:
- For the purposes of this Convention, the term “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on.
- The term “permanent establishment” includes especially
- a) a place of management;
- b) a branch;
- c) an office;
- d) a factory;
- e) a workshop; and
- f) a mine, an oil or gas well, a quarry, or any other place of extraction of natural resources.
- A building site or construction or installation project, or an installation or drilling rig or ship used for the exploration or exploitation of natural resources, constitutes a permanent establishment only if it lasts more than 183 days in any 12-month period.
- Notwithstanding the preceding provisions of this Article, the term “permanent establishment” shall be deemed not to include:
- a) the use of facilities solely for the purpose of storage, display, or delivery of goods or merchandise belonging to the enterprise;
- b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display, or delivery;
- c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;
- d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or of collecting information, for the enterprise;
- e) the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character;
- f) the maintenance of a fixed place of business solely for any combination of the activities mentioned in subparagraphs a) to e).
- Notwithstanding the provisions of paragraphs 1 and 2, where a person – other than an agent of an independent status to whom paragraph 6 applies – is acting on behalf of an enterprise and has and habitually exercises in a Contracting State an authority to conclude contracts in the name of the enterprise, that enterprise shall be deemed to have a permanent establishment in that State in respect of any activities which that person undertakes for the enterprise, unless the activities of such person are limited to those mentioned in paragraph 4 which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph.
- An enterprise shall not be deemed to have a permanent establishment in a Contracting State merely because it carries on business in that State through a broker, general commission agent, or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business.
- The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.”
Paragraph 1 of Article 7 (Business Profits) of the Convention shall be deleted and replaced by the following:
“l. The business profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on or has carried on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on or has carried on business as aforesaid, the business profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment.”
- The following shall be added to paragraph 2 of Article 10 (Dividends) of the Convention, immediately preceding the last sentence of the paragraph:
“Subparagraph (a) shall not apply in the case of dividends paid by a United States Regulated Investment Company or Real Estate Investment Trust. Subparagraph (b) shall apply in the case of dividends paid by a Regulated Investment Company. In the case of dividends paid by a Real Estate Investment Trust, subparagraph (b) shall apply if the beneficial owner of the dividends is an individual holding a less than 10 percent interest in the Real Estate Investment Trust; otherwise the rate of tax applicable under domestic law shall apply.”
- The second sentence of paragraph 5 of Article 10 (Dividends) of the Convention shall be deleted and replaced by the following:
“In addition, a company which is a resident of Barbados shall be exempt from United States accumulated earnings tax if individuals (other than United States citizens) who are residents of Barbados control directly or indirectly throughout the last half of the taxable year more than 50 percent of the entire voting power or value of the company.”
- Paragraph 6 of Article 10 (Dividends) shall be deleted and replaced by the following:
“6. Where a company that is a resident of a Contracting State derives profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company, except insofar as such dividends are paid to a resident of that other State or are attributable to a permanent establishment or a regular base situated in that other State, even if the dividends paid consist wholly or partly of profits or income arising in such other State.”
In paragraph 1 of Article 11 (Interest) of the Convention, the phrase “12.5 percent” shall be replaced by “5 percent”.
In paragraph 2 of Article 12 (Royalties) of the Convention, the phrase “12.5 percent” shall be replaced by “5 percent”.
A new Article 13A shall be added to the Convention as follows:
(1) A company which is a resident of a Contracting State may be subject in the other Contracting State to a tax in addition to the tax allowable under the other provisions of this Convention.
(2) Such tax may be imposed only on:
(a) in the case of the United States:
(i) the “dividend equivalent amount” of the business profits of the company which are effectively connected (or treated as effectively connected) with the conduct of a trade or business in the United States and which are either attributable to a permanent establishment in the United States or subject to tax in the United States under Article 6 (Income from Real Property) or Article 13 (Gains) of this Convention; and
(ii) the excess, if any, of interest deductible in the United States in computing the profits of the company that are subject to tax in the United States and are either attributable to a permanent establishment in the United States or subject to tax in the United States under Article 6 (Income from Real Property) or Article 13 (Gains) of this Convention over the interest paid by or from the permanent establishment or trade or business in the United States; and
(b) in the case of Barbados:
(i) on amounts sufficient to provide that a branch in Barbados of a United States company (or a company of the United States otherwise taxable on net income in Barbados) is taxed in a manner comparable to a similarly situated Barbadian company and its United States shareholder, and
(ii) on interest expenses which are deductible for computing the income described in the preceding sub-subparagraph, and which are comparable to amounts described in subparagraph (a)(ii) of this paragraph.
(3) The taxes described in paragraph (2) of this Article shall not be imposed at a rate exceeding:
(a) the rate specified in paragraph (2)(a) of Article 10 (Dividends) for the taxes described in subparagraphs (a)(i) and (b)(i) of paragraph (2) of this Article; and
(b) the appropriate rate specified in paragraph (1) of Article 11 (Interest) for the taxes described in subparagraphs (a)(ii) and (b)(ii) of paragraph (2) of this Article.”
Article 22 (Limitation on Benefits) of the Convention shall be deleted and replaced by the following:
Limitation on Benefits
- A person that is a resident of a Contracting State and derives income from the other Contracting State shall be entitled, in that other Contracting State, to all the benefits of this Convention only if such person is:
(a) an individual;
(b) a Contracting State or a political subdivision or local authority thereof;
(c) engaged in the active conduct of a trade or business in the first-mentioned Contracting State (other than the business of making or managing investments, unless these activities are banking or insurance activities carried on by a bank or insurance company), and the income derived from the other Contracting State is derived in connection with, or is incidental to, that trade or business;
(d) a company in whose principal class of shares there is substantial and regular trading on a recognized stock exchange;
(e)(i) a person, more than 50 percent of the beneficial interest in which (or in the case of a company, more than 50 percent of the number of shares of each class of whose shares) is owned, directly or indirectly, by persons entitled to the benefits of this Convention under subparagraphs (a), (b), (d), or (f) or who are citizens of the United States; and
(ii) a person, more than 50 percent of the gross income of which is not used, directly or indirectly, to meet liabilities (including liabilities for interest or royalties) to persons not entitled to the benefits of this Convention under subparagraphs (a), (b), (d), or (f) and who are not citizens of the United States; or
(f) an entity that is a not-for-profit organization and that, by virtue of that status, is generally exempt from income taxation in its Contracting State of residence, provided that more than half of the beneficiaries, members or participants, if any, in such organization are persons that are entitled, under this Article, to the benefits of this Convention.
- A person that is not entitled to the benefits of this Convention pursuant to the provisions of paragraph 1 may, nevertheless, be granted the benefits of the Convention if the competent authority of the State in which the income in question arises so determines.
- For the purposes of paragraph 1, the term “recognized stock exchange” means:
(a) the NASDAQ System owned by the National Association of Securities Dealers, Inc. and any stock exchange registered with the Securities and Exchange Commission as a national securities exchange for purposes of the Securities Exchange Act of 1934; and
(b) any other stock exchange agreed upon by the competent authorities of the Contracting States.
- The competent authorities of the Contracting States shall consult together with a view to developing a commonly agreed application of the provisions of this Article. The competent authorities shall, in accordance with the provisions of Article 26 (Exchange of Information), exchange such information as is necessary for carrying out the provisions of this Article and safeguarding, in cases envisioned therein, the application of their domestic law.”
- This Protocol shall be ratified and instruments of ratification shall be exchanged as soon as possible.
- The Protocol shall enter into force upon the exchange of instruments of ratification, and shall have effect
(a) in respect of taxes imposed in accordance with Articles 10 (Dividends), 11 (Interest) and 12 (Royalties) for amounts paid or credited on or after the first day of the second month next following the date on which this Protocol enters into force;
(b) in respect of other taxes, for taxable years beginning on or after the first day of January next following the date on which the Protocol enters into force.
IN WITNESS WHEREOF, the undersigned, duly authorized thereto by their respective Governments, have signed this Protocol.
Done at Washington, in duplicate, this 18th day of December, 1991.