US TREASURY OFFICIALS PIN TRADE HOPES ON TAX PACTS

US TREASURY OFFICIALS PIN TRADE HOPES ON TAX PACTS

U.S. Treasury officials are hopeful that a half-dozen new income tax treaties and protocols will take force by year's end, helping spur U.S. trade and investment with Canada, Mexico, France, Portugal, Sweden and Ukraine.

Hours before taking its August recess, the Senate approved tax accords with all six nations. Now it is up to each of these countries to approve the pacts. Some of them, but not Canada and France, have already done so.Washington is optimistic, however, that all six agreements will come into effect on or before Jan. 1. And, they indicate, there is an outside chance a tax treaty with Kazakhstan will win Senate approval before Congress adjourns this fall.

Tax treaties, says the National Foreign Trade Council, a Washington-based business group, are "vital" to U.S. companies as "global competition grows ever more intense." They protect firms against double taxation, excessive foreign taxes and discriminatory treatment by foreign governments.

As U.S. officials and businesses await action abroad on the six recently negotiated tax agreements, Treasury is negotiating yet other treaties. Talks on completely new treaties are under way with Turkey, Thailand, Venezuela, South Africa, Estonia, Latvia and Lithuania. Meanwhile, U.S. officials are trying to improve existing treaties with such countries as Austria, Switzerland and Luxembourg.

All this activity, a U.S. Treasury department official says, reflects a deliberate Clinton administration effort to help U.S. firms compete in a steadily expanding international economy.

Recent tax treaties with Mexico, Russia and the Czech Republic are among the results. Altogether, the United States has income tax treaties with more than 40 countries, including all of its biggest trading partners, officials say.

Further down the road, they say, they hope to begin treaty talks with Chile, Argentina, Brazil, Malaysia and Singapore, among others.

Of the tax agreements just approved by the Senate, a protocol to the U.S.-Canadian tax treaty may have the biggest business impact. This protocol, says the National Foreign Trade Council, represents a "final component" within the North American Free Trade Agreement.

Gradually halving to 5 percent the dividend withholding tax rate on large corporate investors will spur already large two-way U.S.-Canadian capital flows, the council says. U.S. companies in Canada, it notes, will reap substantially higher net dividend income from Canadian subsidiary earnings.

The protocol expands withholding tax exemptions on royalties beyond copyrights to those related to computer software, patents, certain commercial, industrial and scientific information, and potentially, to broadcasting. It further pares the maximum withholding tax rate on interest income from 15 percent to 10 percent.

The pending tax treaty with France, to replace a nearly 30-year-old treaty, promises to be of special help to U.S. recording firms, the council says. France will exempt royalties on copyrighted sound or picture recordings, cinematographic film and software.

This exemption, says the council, should further boost U.S. entertainment and software exports.

The pending treaty with Sweden updates an existing 56-year-old treaty - the oldest U.S. income tax in force - and provides, among other things, "more straightforward" relief from double taxation.

The treaty with Portugal, the first between the two countries, sharply pares withholding taxes on dividends, interest and royalties, which is expected to spur U.S. investment in Portugal and lead to more U.S. exports to Portugal.

The new U.S.-Mexican tax protocol will facilitate U.S.-Mexican trade, analysts say, by assuring that goods sold by U.S. merchants into Mexico are exempt from Mexico's value-added tax and that goods bought by U.S. merchants for export to Mexico are exempt from sales taxes in border states.

The pending treaties with Ukraine and Kazakhstan, similar to the Russian tax treaty, also will provide tax benefits and help promote more stable tax environments in the two countries. While the Senate has approved the Ukraine treaty, it has held off on the Kazakhstan treaty until U.S. and Kazakhstan authorities renegotiate an information sharing provision.