Special Message to the Senate Transmitting Income Tax Protocol, U.S.-Germany

To the Senate of the United States:

With a view to receiving the advice and consent of the Senate to ratification, I transmit the protocol between the United States of America and the Federal Republic of Germany, signed at Bonn on September 17, 1965, modifying the convention of July 22, 1954 for the avoidance of double taxation with respect to taxes on income.

I transmit also for the information of the Senate the report of the Secretary of State with respect to the protocol. The protocol has the approval of the Department of State and the Department of the Treasury.

Modification of the 1954 convention in certain respects has been made advisable by reason, not only of experience in the application of the convention since its entry into force, but also of some relevant changes in the tax system of the Federal Republic of Germany. The protocol to effect certain desirable modifications has been formulated as a result of a long period of technical discussions between officials of the two countries.

Some of the modifications are designed to effect improvements in the provisions of the convention and bring them more nearly into line with corresponding provisions in the more recent income-tax conventions concluded by the United States. The convention would be expanded, for some purposes, to cover certain Federal Republic taxes which are not taxes on income as such, thus increasing the tax relief available to American enterprises. United States residents and companies would also derive special benefit from new provisions, unilateral in application, that would exempt them from Federal Republic capital taxes with respect to certain forms of property. American nonprofit institutions would be accorded exemption from Federal Republic tax comparable with that accorded Federal Republic nonprofit institutions under United States law.

The protocol would make various other important amendments or would insert in the convention important new provisions relating to the taxation of industrial and commercial profits, the withholding tax rate on dividends, an extension of the tax exemption of interest to cover interest on debts secured by mortgages, an extension of the tax exemption of royalties to cover payments for "know-how" and gains from the disposition of property or rights which give rise to royalties, a clarification of the provisions dealing with income from real property, the granting of reciprocal exemption with respect to capital gains other than gains on real property, a broadening of the exemption with respect to personal service income, a broadening of the provisions dealing with governmental salaries, wages, and pensions to cover injury or damage sustained as a result of hostilities or political persecution, a modification of the credit article of the convention as applied to shareholders other than Federal Republic parent companies of United States subsidiaries, the disclosure of tax information to courts or administrative bodies concerned with tax assessment and collection, and an improvement in the convention provisions dealing with taxpayer claims in order to prevent double taxation contrary to the convention.

Upon entry into force, the protocol would become in effect an integral part of the 1954 Convention.

LYNDON B. JOHNSON

The White House

September 29, 1965