U.S. income tax treaty with Turkmenistan

The IRS lists the treaty documents, and the convention has its own articles. The text's provisions address income, residence, information exchange, and the treatment of U.S. citizens.

Treaty documents and protocols

The IRS lists one document for Turkmenistan, an income tax treaty it labels 1973. It is the convention between the United States and the Soviet Union on matters of taxation, signed at Washington on June 20, 1973, with notes of exchange. The IRS tables treat that treaty as the one that applies to Armenia, Azerbaijan, Belarus, Georgia, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan and Uzbekistan. There is no protocol, no technical explanation and no later bilateral convention with Turkmenistan in the IRS list.^[1]^[2]^[4]

The treaty entered into force on January 29, 1976, and its Article XIII gives it effect for income derived from January 1, 1976. IRS Table 3, which lists the treaty under the Commonwealth of Independent States, shows a general effective date of January 1, 1987 instead.

The treaty is narrow. It exempts only listed items, such as certain royalties, interest on trade financing and some related income, and sets no general dividend or interest rates. IRS Table 1 shows the 30 percent statutory rate for dividends and general interest for these countries, with the interest exemption limited to trade financing between the United States and the member state and excluding general banking interest.^[5]^[2]

Article titles and subjects

The convention begins with rules on covered taxes and general definitions, then addresses income and exemptions. Later articles concern citizens, treaty application, transactions associated with exempt income, non-discrimination, competent-authority procedures, information exchange, entry into force, and termination.

Titles of the convention's articles
Article	Title
I	Taxes Covered^[2]
II	General Definitions^[2]
III	Income Subject to Tax^[2]
IV	Income of Representation^[2]
V	Shipping and Aircraft^[2]
VI	Exemptions^[2]
VII	Taxation on Citizens^[2]
VIII	Application of Treaty^[2]
IX	Exemption of Transaction Giving Rise to Exempt Income^[2]
X	Non-Discrimination^[2]
XI	Mutual Agreement Procedure^[2]
XII	Exchange of Information^[2]
XIII	Entry into Force^[2]
XIV	Termination^[2]

Income provisions in Article III

Article III is titled "Income Subject to Tax." Its first paragraph says that specified income from sources in one contracting state, derived by a resident of the other, is taxable only in that other state. The listed categories include royalties and interest connected with trade financing. It does not set out a separate dividends article or state dividend, interest, or royalty rates.^[2]

For royalties, Article III covers rentals and other payments for using specified property or holding the right to use it. Examples include copyrights, patents, industrial designs, processes, formulas, and computer programs. The list also names literary, artistic, and scientific works, along with marks, equipment, and know-how. No percentage rate is stated for these payments. The stated treatment is conditioned on source in one state and residence in the other.^[2]

For interest, the specifically listed category is interest on indebtedness connected with financing trade between the United States and the Soviet Union. This includes interest on credits and loans. The text excludes interest received by a resident of the other state from conducting a general banking business in the first state. It provides no stated percentage rate. The provision's scope depends on the trade-financing connection and the banking-business exception.^[2]

Article III contains no distinct dividends category or dividends rate. Beyond the named royalty and trade-financing interest categories, its first paragraph also lists certain gains, technical services tied to an installation contract, sales or services through independent agents acting in their ordinary business, and reinsurance premiums. The technical-services category is limited to work connected with an installation contract and carried out within the stated 36-month period at one location.^[2]

The second paragraph addresses activities conducted in one state by a resident of the other. It says the state shall not attribute taxable income to listed activities, including purchasing goods and using facilities for storage or delivery. The list also covers displaying goods and certain advertising, information-gathering, or research activities that have a preparatory or auxiliary character.^[2]

Residence and citizens

Article II defines a resident of the United States as a corporation or other organization treated as a corporation for tax purposes and created under U.S. or state law, or an individual resident in the United States for tax purposes. It defines a Soviet Union resident in parallel terms, referring to an entity created under Soviet Union or Union Republic law, or an individual resident there for tax purposes.^[2]

The convention does not provide a tie-breaker rule for a person who is a resident of both countries. Article II gives separate definitions for each country's residents but includes no paragraph addressing dual residence. Article VII states that the convention does not restrict a contracting state's right to tax its own citizen.^[2]

Information exchange and benefits limitation

Article XII, Exchange of Information, is short. The competent authorities are to notify each other every year of amendments to the tax laws covered by Article I and of new taxes of the kind described there, by sending the texts, and to tell each other of any material about applying the convention. It does not provide for exchanging taxpayer information on request.^[2]

The convention has no article titled "Limitation on Benefits" and contains no provision under that title. Its fourteen-article list instead includes "Application of Treaty" and "Exemption of Transaction Giving Rise to Exempt Income." Article VIII says the convention applies only to taxation of income from activity conducted in a contracting state in accordance with that state's laws and regulations. Article IX links an exemption on income to an exemption on the transaction giving rise to that income.^[2]

The convention assigns competent-authority roles in Article II. For the Soviet Union it names the Ministry of Finance; for the United States, it names the Secretary of the Treasury or a delegate. Article XI describes a procedure for a resident who claims that action by one or both states results, or will result, in taxation inconsistent with the convention. When the claim is considered to have merit, the competent authorities are to seek agreement.^[2]

Questions and answers

Which treaty documents does the IRS list for Turkmenistan?

The IRS lists an "Income Tax Treaty" identified with 1973.

Does the convention state a dividend withholding rate?

The convention's Article III does not contain a separately identified dividends category or a dividends rate. Its first paragraph lists specified income categories, including royalties and certain interest connected with trade financing.^[2]

What does Article III say about royalties?

It includes payments for the use or right to use specified works, intellectual property, equipment, and know-how among the listed categories. For covered source-state income earned by a resident of the other state, paragraph one states taxation is only in that other state, subject to the article's terms.^[2]

What interest does Article III cover?

It lists interest on indebtedness connected with financing trade between the United States and the Soviet Union. The category includes credits and loans. It excludes interest received by a resident of the other state from conducting general banking business in the first state.^[2]

How does the convention define a U.S. resident?

The definition includes a corporation or qualifying organization created under U.S., state, or District of Columbia law, and an individual resident in the United States for tax purposes. The convention gives no rule for resolving dual residence.^[2]

Does the convention include a limitation on benefits article?

The convention's article list has no article with that title. The text includes provisions titled "Application of Treaty" and "Exemption of Transaction Giving Rise to Exempt Income," which address application and the treatment of transactions associated with exempt income.^[2]

Which treaty applies, and when did it take effect?

The IRS lists the 1973 convention between the United States and the Soviet Union as the treaty for Turkmenistan. It entered into force on January 29, 1976. IRS Table 3 shows a general effective date of January 1, 1987, while Article XIII gives the treaty effect for income derived from January 1, 1976.^[2]^[4]

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.