U.S. income tax treaty with Tunisia

Treaty documents and protocols

The convention was signed at Tunis on June 17, 1985. A Supplementary Protocol signed October 4, 1989 amended it, largely to reflect the 1986 U.S. tax reform, before the convention took effect. The IRS lists an Income Tax Treaty and a Technical Explanation, and the PDF it links also contains the protocol, the exchange notes and the transmittal documents.^[1][2]

IRS Table 3 gives a general effective date of January 1, 1990. The protocol changes the royalty rules, adds a limitation on benefits provision, sets a 14 percent ceiling on the branch tax, and adds a rule on how Tunisia treats U.S. citizens and green card holders for residence. A reader who stops at the 1985 articles will miss those changes.^[5][2]

Convention article structure

The convention has 29 numbered articles, with titles ranging from Personal Scope to Termination. Its opening provisions address scope and definitions, along with taxes. Later articles cover income categories, general rules and administrative matters.^[2]

Dividends, interest and royalties

Article 10 allows dividends paid by a company resident in one country to a resident of the other to be taxed in the recipient's country. The payer's country may also tax them. Where the beneficial owner is resident in the other country, source tax is capped at 14 percent of gross dividends for a qualifying company that directly owns at least 25 percent of the payer's share capital, and 20 percent in other cases. The 1989 protocol adds that the lower rate does not apply to dividends paid by a U.S. regulated investment company or real estate investment trust: a regulated investment company's dividends fall under the 20 percent rate, and a real estate investment trust's dividends do too only if the owner is an individual holding less than 25 percent, otherwise U.S. domestic withholding applies. The protocol also replaced the branch tax paragraph, which now allows an additional tax of up to 14 percent on profits attributable to a permanent establishment. The rate limits do not apply to an effectively connected holding.^[2][6]

Article 11 allows interest arising in one country and paid to a resident of the other to be taxed in the recipient's country. The source country may also tax it, with tax capped at 15 percent of gross interest if the beneficial owner resides in the other country. The article exempts specified interest from source tax, including interest beneficially derived by a government entity, qualifying financial institution interest on obligations with a maturity of at least seven years, and certain loans paid by Tunisia's government to a U.S. resident. The cap and general rules have conditions for income connected to a permanent establishment or fixed base.^[2]

Article 12 also lets the recipient's country tax royalties that arise in the other country. The source country may tax them too. As amended by the 1989 protocol, the cap is 15 percent of gross royalties for payments for copyrights, patents, trademarks, designs, secret processes, related information and specified gains, and 10 percent for payments for the use of industrial, commercial or scientific equipment, for technical or economic studies paid out of the other country's public funds, and for accessory technical assistance. The 1985 text allowed 15 percent on all of these.

The convention also addresses amounts paid under a special relationship for dividends and interest, as well as royalties. For each category, the article limits its application to the amount that would have been agreed without that relationship. The excess remains taxable under each country's laws, subject to the convention's other provisions.^[2]

Residence under the convention

Article 4, titled Fiscal Domicile, defines a resident by reference to liability to tax under a country's law because of domicile, residence, place of management, place of incorporation or a similar criterion. The 1989 protocol adds that Tunisia treats a U.S. citizen or green card holder as a U.S. resident only if the individual has a substantial presence, permanent residence or habitual abode in the United States. For an individual treated as resident in both countries, the text first looks to a permanent home and, if one exists in both, to the closer personal and economic relations. If those tests do not resolve the question, it proceeds to habitual abode, then nationality; if nationality also does not resolve it, the competent authorities settle the matter by mutual agreement.^[2]

For a person other than an individual who is resident in both countries, the convention provides for the competent authorities to seek a mutual agreement on residence.

Exchange of information

Article 26 concerns exchange of information and administrative assistance. It calls for competent authorities to exchange information needed to carry out the convention or domestic tax laws covered by it, where taxation is consistent with the convention. It also calls for notification of officially published information about applying the convention. Limits apply to the obligation, including where information is unavailable under domestic law or ordinary administrative practice.^[2]

Limitation on benefits

The original 1985 text had no full limitation on benefits article, only a provision on third-country companies. The 1989 protocol replaced it with new paragraphs 5 to 7 of Article 25, Mutual Agreement Procedure. A person other than an individual that is resident in one country qualifies for benefits in the other only if it meets one of three tests. First, more than 50 percent of its beneficial interest is owned by qualifying residents, the countries or U.S. citizens, and not much of its income goes to other persons. Second, its income is connected to an active trade or business it carries on, and managing investments does not count. Third, it is a company whose principal share class is regularly and substantially traded on a recognized stock exchange, and the Tunisian exchange counts as one.^[2]

Before benefits are denied, the competent authorities are to consult. A person that fails the tests may still be granted benefits if the competent authority of the country where the income arises so decides.^[2]

Saving clause and U.S. citizens

Article 22 says a country may tax its citizen or resident under its domestic law as if the convention had not taken effect, subject to the exceptions stated in paragraph 3. A U.S. citizen resident in Tunisia generally remains subject to U.S. tax on worldwide income under Internal Revenue Code rules.^[3]

Related reading

Related treaty summaries include U.S. income tax treaty with Egypt, U.S. income tax treaty with Portugal, and U.S. income tax treaty with Slovak Republic.

Questions and answers

Related resources

Related glossary terms

• Limitation on benefits: A limitation on benefits article sets conditions for entities in a treaty country to qualify for certain treaty benefits under the applicable U.S. tax treaty.
• Treaty rate table: A treaty rate table summarizes income categories and tax rates or exemptions under U.S. income tax treaties. The IRS explains the tables' scope and limits.

Related articles and guides

• U.S. income tax treaty with Spain: The U.S. income tax treaty with Spain is the 1990 convention as amended by a 2013 Protocol, which replaced the articles on income from investments in full.
• U.S. income tax treaty with Slovak Republic: The Slovak Republic treaty has 30 articles covering income, residence, tax rules, information exchange, limitation on benefits, and the saving clause.

Related pages

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