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SRI LANKA – US DOUBLE TAXATION AVOIDANCE
CONVENTION ENTERS INTO FORCE The Convention between the Government of Sri Lanka and the Government of the United States for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income and a subsequent Protocol amending the Convention formally entered into force upon the exchange of Instruments of Ratification on 12th July 2004 in Colombo, Sri Lanka. Dr. P.B. Jayasundera, Secretary to the Ministry of Finance and Hon. Jeffrey J. Lunstead, the Ambassador of the United States of America to Sri Lanka exchanged Instruments of Ratification on behalf of their respective governments, at the Ministry of Finance, Colombo. Foreign Minister Lakshman Kadirgamar had earlier signed the Instrument of Ratification on behalf of the Government of Sri Lanka. The agreement with Sri Lanka represents the first tax treaty between the two countries. The tax treaty with the US was first signed in 1985 in Colombo. The Protocol Amending the Convention between the Government of Sri Lanka and the Government of the United States for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income, was signed in September 2002 in Washington DC. Sri Lanka’s Ambassador to the United States, Ambassador Subasinghe commenting on the entry into force of the Convention said, “ this treaty will provide an effective impetus for further strengthening US-Sri Lanka trade and financial relations, and will also enhance the foundation for a deeper and broader trade and investment partnership with the US. This Agreement will enhance profitability for US investors in Sri Lanka and strengthen the existing legal framework for the promotion of US investments.” Bilateral tax treaties are the primary means of eliminating tax barriers to trade and investment. The 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 Convention will protect against double taxation of income for companies with taxable income in both the US and Sri Lanka. It will also provide maximum rates of tax to be applied to various types of income for companies with operations in both the countries. Following the exchange of instruments of ratification in Colombo, United States Ambassador to Sri Lanka, Ambassador Jeffrey Lunstead said, "this cooperative agreement reflects the importance of the growing financial relationships between the US and Sri Lanka and shows how our two countries are working together to further deepen our economic and financial ties.” The Ministry of Finance of Sri Lanka in a statement following the exchange of instruments of ratification of the bilateral Convention in Colombo said, “it is anticipated that the Sri Lanka-US Double Taxation Avoidance Convention will induce substantial capital inflows and technology transfers from the US. It provides for reduced rates of taxation and investors of both countries would be entitled to tax credit in respect of the tax paid in the host country against taxes payable in their home country.” Double Taxation Treaties stimulate the flow of capital, technology and personnel from one country to another, particularly from capital exporting countries to developing countries, by eliminating the burden of taxation in both countries and thereby creating a more attractive investment climate. Thus, the treaty mechanism is a useful tool in harmonizing the tax laws of the host country with those of the home country of foreign investors. The Agreement is yet another milestone in the existing series of bilateral agreements signed between the two countries which include the Bilateral Investment Promotion and Protection Treaty, the Trade and Investment Framework Agreement (TIFA) and the Investment Incentive Agreement (US Overseas Private Investment Corporation). These Agreements, whilst strengthening the foundation for an enhanced trade and investment relationship, also provide a positive environment for a US intention to negotiate an FTA with Sri Lanka. Please click here for US-Sri Lanka Double Taxation Treaty (Convention & Protocol) Embassy of Sri Lanka 12 July 2004
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