The US Department of Treasury announced that the US and Spain signed a Protocol to their bilateral income tax treaty (the Treaty). The Protocol includes twenty-six pages of addenda and revisions to the Treaty. The Department of Treasury highlighted some of the Protocol’s changes to the Treaty:
1) the Protocol provides for “exclusive residence-country” taxation of income from interest, royalties, certain dividends and capital gains;
2) the Protocol requires mandatory binding arbitration if the revenue authorities of Spain and the US are unable to resolve disputes in a reasonable period of time;
3) the Protocol includes a limitation on benefits provision to ensure only residents of Spain and the US benefit from the Treaty;
4) the Protocol mandates a full exchange of tax information between the US and Spain; and
5) the Protocol brings the Treaty into general conformity with more recent bilateral tax treaties.
Many of these changes are to close perceived loopholes in the Treaty and ensure that taxpayers are reporting the same information to both the US and Spain. Individuals or businesses that are covered by the Treaty should contact their tax professionals and ensure that the Protocol does not materially alter their tax positions.