The US tax treaty landscape: What US inbounds need to know

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January 2020

Overview

Following a lengthy hiatus in the tax treaty approval process, four US treaty protocols entered into force in 2019: the protocols to treaties with Spain, Switzerland, Japan, and Luxembourg. Three pending treaties – with Chile, Hungary, and Poland – remain pending before the US Senate; the timing for action on those treaties remains uncertain. Treaty eligibility for some companies may be affected by new trade agreements such as the United States-Mexico-Canada Agreement (USMCA) and other developments such as Brexit. 

Tax treaties are an important and often essential tool that can significantly affect US inbound investment. Treaties can provide inbound companies with a number of opportunities to effectively manage their international tax burdens, while also bringing significant challenges in terms of their access and use. Given these upcoming global developments, inbound companies should be evaluating treaty benefits on which they have relied.

The takeaway

After having been stalled in the ratification process for several years, four treaty protocols entered into force in 2019. At the same time, uncertainty remains with respect to the three new/renegotiated treaties pending before the Senate. That uncertainty comes from whether there is sufficient political will to move the treaties through the process among a number of competing government priorities, and how interaction with the 2017 tax reform act may be addressed. 

In addition, the starting text for treaty negotiations, the 2016 US model tax treaty, may be updated to reflect changing treaty policy and the impact of the 2017 tax reform act. 

Lastly, changes to trade and political agreements may result in greater difficulty for some companies to qualify for benefits under certain treaties, so companies relying on owners that are resident in a jurisdiction that is a party to NAFTA, or on UK parent companies, which until the occurrence of Brexit are resident in an EU member state, may need to re-evaluate their eligibility for benefits.

Contact us

Christopher Kong

US inbound tax leader, PwC US

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