Letter of Submittal

                             DEPARTMENT OF STATE,
                             Washington, October 19, 1993.


 The PRESIDENT,
 The White House.

THE PRESIDENT: I have the honor to submit to you, with a view to its transmission to the Senate for advice and consent to ratification, the Convention Between the United States of America and the Czech Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, signed in Prague on September 16, 1993. The new Convention will be the first income tax convention between the two countries, and is part of the continuing effort of the United States to expand economic relations with the Czech Republic.

This Convention is based on the standard model income tax conventions published by the U.S. Treasury Department and the Organization for Economic Cooperation and Development, and takes into account the current tax laws and recent income tax treaty policies of the two countries.

Like other U.S. income tax conventions, this bilateral Convention provides rules specifying when various categories of income derived by a resident of one country may be taxed by the other country, and in certain cases specifies limits on the rate of tax that may be imposed by the country where the income arises (the ``source'' country). The Convention also confirms that the residence country will avoid international double taxation by granting a foreign tax credit; and it provides for administrative cooperation to avoid double taxation and prevent fiscal evasion of taxes on income.

The Convention provides limits on the tax that may be imposed by the country of source on dividends, branch profits, interest and royalties derived by residents of the other country. The maximum tax at source on dividends is 5 percent on dividends paid by a 10 percent-owned subsidiary to its parent corporation, and 15 percent on other dividends. The 5 percent rate also applies to the ``dividend equivalent amount'' of branch profits. Interest payments are exempt from tax at source. These limits on the taxation of dividends, branch profits, and interest are consistent with the positions of the U.S. model income tax treaty. The maximum rate of tax at source on royalties is 10 percent. This rate is consistent with that in several other U.S. income tax conventions. The rules governing the taxation of capital gains are consistent with the positions of the U.S. model income tax convention and with U.S. law with respect to the taxation of gains from real property.

Business profits derived by a resident of one country generally are taxable by the other country only to the extent that the profits are attributable to a permanent establishment there, and then only on a net basis with deductions for business expenses. The Convention provides for reciprocal tax exemption at source of income from the international operation of ships and aircraft, and from the rental of containers for use in international transport.

The Convention provides conditions under which each country may tax income derived by individual residents of the other country from independent personal services or as employees, as well as pension income and social security benefits. Special relief is provided to visiting students, trainees, teachers and researchers.

Any item of income not specifically dealt with in the Convention may be taxed only in the country of residence.

The benefits of the Convention are limited to residents of the two countries meeting certain standards designed to prevent residents of third countries from inappropriately deriving benefits from the Convention. In addition, the Convention includes standard administrative provisions to permit the tax authorities of the two countries to cooperate in resolving issues of potential double taxation and to exchange information relevant to implementing the Convention and domestic income tax laws.

The Convention includes non-discrimination provisions standard to treaties to avoid double taxation; these provisions apply to all taxes at all levels of government. The Convention also confirms that each country will avoid double taxation of its residents by granting a foreign tax credit for income tax paid to the other country on income that arises there and has been taxed in accordance with the provisions of the Convention.

The Convention will enter into force on the date of the exchange of instruments of ratification. Its provisions will take effect, for taxes withheld at source, for payments made on or after the first day of the second month following the entry into force. In respect of other taxes, payable by return, the provisions will have effect for taxable periods beginning on or after the first day of January of the year of entry into force.

A technical memorandum explaining in detail the provisions of the Convention is being prepared by the Department of the Treasury and will be submitted separately to the Senate Committee on Foreign Relations.

The Department of the Treasury and the Department of State cooperated m the negotiation of the Convention. It has the full approval of both Departments.

   Respectfully submitted, 
                                        WARREN CHRISTOPHER

Enclosure: As stated.

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