Speaking on U.S. - Sri Lanka trade relations, Senator Richard Lugar says strong commercial relationship can also help
improve internal stability in Sri Lanka

The United States Senate Committee on Foreign Relations held a hearing on the US -Sri Lanka Double Taxation Agreement and Protocol on February 25, 2004. The hearing was chaired by Senator Richard Lugar (R-Indiana). Ms. Barbara M. Agnus, International Tax Counsel of the Department of Treasury, Mr. John Yin, Chief of Staff of the Congress Joint Committee on Taxation and Mr. William A. Reinsch, President of the National Foreign Trade Council testified at the hearing, the first step towards US ratification of the Agreement.

The agreement with Sri Lanka represents the first tax treaty between the two countries. The proposed tax treaty with the US was first signed in 1985. The Protocol Amending the Convention between the Government of Sri Lanka and the US Government for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, was signed in September 2002. Hon. Milinda Moragoda, former Minister for Economic Reform, Science and Technology and the Hon. Christina Rocca, US assistant Secretary of State for South Asian Affairs, singed the Agreement on behalf of their respective governments. The Tax Treaty was not acted upon by the Senate at the time (1986) since changes made to the US International Tax Rules by the Tax Reform Act of 1986 necessitated revisions to the Agreement. The proposed tax protocol, which was signed in September 2002, amends the 1985 convention to reflect changes in domestic laws since 1985, as well as, developments in US Tax Treaty Policy and include modifications that better reflect US Tax Treaty Preferences.

Senator Lugar (R-Indiana) chairing the meeting observed that the United States is Sri Lanka's largest export market, with almost 40 per cent of Sri Lanka's exports destined for the US, while American businesses sell significant amounts of wheat, electrical machinery, textile, medical instruments and other products in Sri Lanka. Over 90 US companies have more than US$500 million invested in Sri Lanka, and these companies stand to benefit from the Protocol's prevention of double taxation on revenue earned.

Sri Lanka's Ambassador to the United States, Ambassador Subasinghe commenting on the hearing said, "this proposed treaty will provide an effective impetus for further strengthening US- Sri Lanka trade relations, and will also enhance the groundwork for a proposed free trade partnership with the US. It has the potential to significantly attract US investments to re-investment in Sri Lanka, as well as, encourage a growing number of Sri Lanka businesses into the United States. The conclusion of this Agreement is expected to generate greater confidence with US investors wishing to invest in Sri Lanka and would also strengthen the existing legal framework for the promotion of US investments such as the Bilateral Investment Promotion and Protection Treaty and the Trade and Investment Framework Agreement (TIFA)."

Ms. Barbara Angus emphasized that Sri Lanka has been a significant economic and political partner of the US for many years and strengthening its economic relations with Sri Lanka would also help the island achieve growth and political stability. Senator Lugar too, reiterated the importance of economic development for political stability in the country.

Mr. William Reinsch, testifying before the Committee supported early ratification of the Treaty and highlighted that the Treaty would expand the ongoing discussions under the US-Sri Lanka Trade and Investment Framework agreement aimed at developing and diversifying trade between the two countries.

The bilateral tax treaties are the primary means of eliminating tax barriers to trade and investment. The proposed Treaty will relieve Double Taxation both in the United States and Sri Lanka through the Foreign Tax Credit Mechanism. It will also provide for non-discriminatory treatment by one country to residents and nationals of the other. Further, the Treaty includes an exchange of information provisions that generally follows the US Model. Sri Lanka has confirmed its ability to obtain and exchange key tax related information.

The Government of Sri Lanka has fulfilled all legal processes with regard to the Treaty and the Protocol. The Sri Lanka Tax Treaty has been unanimously approved by the Senate Foreign Relations Committee. Following ratification by the Senate, the Treaty and the Protocol will come into force upon a bilateral exchange of Instruments of Ratification.

Embassy of Sri Lanka
Washington DC

04 March 2004

Click here for the testimony at the hearing


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