U.S.-Russia tax treaty
Many key provisions of the U.S.-Russia tax treaty were suspended effective Aug. 16, 2024. These include Articles 1(4), 5-21, and 23, which provided for reduced withholding rates on dividends, interest, and royalties, as well as permanent-establishment protection for business profits. Thus, Russian residents will no longer qualify for reduced FDAP (fixed, determinable, annual or periodical) rates under the treaty and will be subject to tax in the U.S. on effectively connected income regardless of whether they have a permanent establishment in the U.S.
Other suspended articles pertain to artists and athletes, international transportation, independent personal services, employment, real property, and pensions.
Article 4 (Residency) continues in force. Individuals who are treated as residents of both the U.S. and Russia may apply the residency tiebreaker rule in Article 4 to assign residency to one of the countries.
Although Article 22 (Double Taxation) also remains in force, it is no longer excluded from the scope of the savings clause. As a result, U.S. residents may not apply its provisions to determine the ability to claim an FTC for Russian taxes. However, because Article 22 does not include a resourcing rule, it is unlikely to have a material impact on the FTCs that would otherwise be available under domestic U.S. law.
U.S.-Hungary and U.S.-Chile tax treaties
The U.S.-Hungary tax treaty has been fully terminated. For withholding taxes, the termination is effective for payments made on or after Jan. 1, 2024. With respect to other taxes, the termination is effective for tax years beginning on or after Jan. 1, 2024.
The U.S.-Chile tax treaty entered into force Dec. 19, 2023. The treaty is effective Feb. 1, 2024, for withholding taxes and on or after Jan. 1, 2024, for other taxes. Chile is the second South American country (the other is Venezuela) that has a double tax treaty with the U.S.
The U.S.-Chile tax treaty is generally based on the 2006 U.S. model treaty, but has higher rates on dividends, interest and royalties. The lowest rate on dividends is 5% for corporate shareholders, other than real estate investment trusts, with substantial holdings. Tax on interest is generally reduced to 10%, with a lower 4% rate applied to certain types of taxpayers, including primarily financial institutions and insurance companies. Rates on royalties are reduced generally to 10%, with a lower 2% rate for payments for the right to use industrial, commercial or scientific equipment.
In Notice 2024-11, the IRS and Treasury removed the U.S.-Russia and U.S.-Hungary treaties from the list of U.S. tax treaties that satisfy the requirements of IRC section 1(h)(11)(C)(i)(II) and added Chile. As a result, individual shareholders receiving dividends from Russian or Hungarian corporations generally will not qualify for capital gains rates under section 1(h)(11). However, dividends received from Chilean corporations may now qualify.
link