U.S. income tax treaty with Slovenia

Treaty documents and protocols

The convention was signed at Ljubljana on June 21, 1999. No protocol or amending convention applies to the convention. The convention has 30 articles, running from General Scope to Termination, and includes articles on limitation on benefits and on exchange of information and administrative assistance.^[1][2][4]

The convention is generally effective January 1, 2002. Source tax is capped at 5 percent on interest, and at 5 percent or 15 percent on dividends depending on the owner.^[4][5]

Dividends, interest, and royalties

Article 10 allows dividends paid by a resident of one country to a resident of the other to be taxed in that other country. The payer's country may also tax them under its laws. Where the beneficial owner is a resident of the other country, the source-country rate is capped at 5 percent of the gross dividends if the beneficial owner is a company that directly owns at least 25 percent of the payer's voting stock, or, for Slovenia where there is no voting stock, 25 percent of its statutory capital. In other cases, the stated cap is 15 percent.^[2]

The 5 percent company-owner rate does not apply to dividends paid by a U.S. regulated investment company or real estate investment trust. For a regulated investment company, the other-case rate applies. For a real estate investment trust, that rate also does not apply unless one of the listed ownership or publicly traded stock conditions is met. The article separately provides that the source country may not tax dividends beneficially owned by a resident of the other country that is a qualified governmental entity and does not control the payer.^[2]

Article 11 caps source-country tax on interest at 5 percent of the gross amount when the beneficial owner resides in the other country. Interest is taxable only in the other country if the beneficial owner is a qualified governmental entity that does not control the payer, if the debt is guaranteed or insured by such an entity of the other country, or if the interest is on a deferred payment for movable property or services. IRS Table 1 shows 5 percent for ordinary interest.^[2][5]

Article 12 permits royalties arising in one country and paid to a resident of the other to be taxed in that other country. The source country may also tax the royalties under its laws, but its tax is capped at 5 percent of the gross amount when the beneficial owner resides in the other country. The article defines royalties to include consideration for use of specified intellectual property or information about industrial, commercial, or scientific experience, and certain gains from transferring such property when contingent on its productivity, use, or disposition.^[2]

Each article says its general paragraphs do not apply when the beneficial owner conducts business in the source country through a permanent establishment, or performs independent personal services there from a fixed base. The relevant income must be attributable to that establishment or base. In those circumstances, the articles refer to the convention's business profits or independent personal services rules. The articles on dividends, interest, and royalties also address special relationships. They cover amounts beyond what would have been agreed without that relationship.^[2]

Residence and dual residence

Article 4 generally defines a resident of a country as a person liable to tax there because of domicile, residence, citizenship, place of management, place of incorporation, or a similar criterion. For a U.S. citizen or lawful permanent resident, U.S. residence under this definition applies only if the person has a substantial presence, permanent home, or habitual abode in the United States. It excludes a person liable to tax only on local-source income, local capital, or profits attributable to a local permanent establishment.^[2]

When an individual qualifies as a resident of both countries under the first paragraph, the convention applies a sequence of tie-breaking rules. The individual is assigned to the country where a permanent home is available. If homes are available in both, the test is closer personal and economic relations. If that cannot be determined, or there is no permanent home in either country, habitual abode applies. If habitual abode is in both or neither, nationality decides; if the individual is a national of both or neither, the countries' competent authorities are to seek agreement.^[2]

Information exchange and treaty benefits

Article 26, Exchange of Information and Administrative Assistance, has the competent authorities exchange information relevant to carrying out the convention or the domestic laws on covered taxes, and says the exchange is not restricted by Article 1. Received information is secret in the same way as domestic information and is disclosed only to persons and authorities involved in assessment, collection, enforcement or appeals. A country does not have to act contrary to law or practice, supply information it cannot obtain in the normal course of administration, or disclose trade secrets or information contrary to public policy. When asked, it obtains information as if its own tax were involved and may provide witness depositions and authenticated copies of original documents.^[2]

The convention has a Limitation on Benefits article, Article 22. It addresses which residents qualify for treaty benefits and lists categories including individuals, qualified governmental entities, certain companies, and specified organizations. It also provides a route tied to active business when the income is connected or incidental to that business and the business is substantial relative to the activity generating income in the other country. A competent authority may grant benefits to a resident who does not otherwise qualify under the article.^[2]

The saving clause and U.S. citizens

Article 1, paragraph 4, states that a country may tax its residents and, because of citizenship, may tax its citizens as though the convention had not taken effect. It identifies exceptions in paragraph 5, including specified provisions on associated enterprises and pensions, along with social security. Other exceptions concern relief from double taxation, nondiscrimination, and mutual agreement procedure. The exceptions for benefits under Articles 19 (Government Service), 20 (Students, Trainees, Professors and Researchers), and 27 (Diplomatic Agents and Consular Officers) apply to individuals who are neither citizens of nor admitted for permanent residence in the country granting the benefits.^[2]

Questions and answers

Related pages

• Tax treaties: All treaty partners listed by the IRS.
• Treaty documents lookup: Find IRS-listed treaty documents by country.