Sun, Apr. 16, 2006

Tax Treaty and AMT

SSL - Washington.   The U.S. Court of Appeals for the District of Columbia affirmed the Tax Court's decision in the matter of Peter M. Haver v. Commissioner of Internal Revenue Service, No. 05-1269, on the relationship of the AMT and double tax avoidance treaties. Haver contended that as his German tax liability exceeded his U.S. tax liability he was under no obligation to pay federal income tax.

Instead, Haver relied on Article 23(1) of the Convention Between the United States of America and the Federal Republic of Germany for the Avoidance of Double Taxation of August 29, 1989. Art. 23(1) states that subject to the limitations of U.S. law, U.S. citizens paying taxes in Germany shall be allowed to take a credit for their foreign tax burden against their U.S. income tax obligation. Haver claimed that the Treaty superseded the minimum rules of 26 U.S.C. §59(a)(2)(2000) which stated until the end of 2005 that U.S. citizens could only off set up to 90% of the Alternative Minimum Tax using their foreign tax credit.

The appellate court concluded on April 11, 2006 that the last-in-time doctrine does not apply in this case. Rather, both the Treaty and the prevailing U.S. law are to be viewed simultaneously. Additionally, §59(a), which dates back to 1969, would have been recognized by the negotiating parties as one of the provisions of preexisting law overriding the Treaty under the language of Art. 23: subject to the limitation of the laws of the United States of America. Some other double taxation treaties to which the United States is a party track identical language, such as the UK-USA Double Taxation Convention and the USA-France Income Tax Treaty.

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