Ratification of the U.S.-Bulgaria Treaty on Avoidance of Double Taxation

09/23/2008

Seventeen years after the first initiating talks started in 1991 on income tax treaty, on September 23 2008 the U.S. Senate ratified the Convention between the Government of the United States of America and the Government of the Republic of Bulgaria for the Avoidance of Double Taxation. Thus the Convention, popularly known as Treaty for the Avoidance of Double Taxation, will enter into force in January 2009 after the remaining, essentially administrative approvals by the U.S. National Security Council State Department.

The two countries signed the Treaty at Washington on February 23, 2007 after a 3-year lobbying campaign spearheaded by AmCham. An accompanying Protocol Amending the Convention between the Government of the United States of America and the Government of the Republic of Bulgaria for the Avoidance of the Double Taxation was signed in Sofia on February 26, 2008. On July 11, 2008, the Bulgarian Parliament ratified the Protocol of Amendment, following an earlier ratification of the Treaty. The US President George Bush wrote to the Senate of the United States with regard to the Treaty for Avoidance of Double Taxation on June 4, 2008, recommending that the Senate give early and favorable consideration to the proposed Treaty, and give its consent to ratification to both the Treaty and the proposed Protocol of Amendment.

The ratification of the Treaty will make a difference for the businesses and the citizens of both countries. The Treaty generally reduces the withholding tax on cross-border dividend, interest, and royalty payments. Importantly, the Treaty eliminates withholding tax on cross-border dividend payments to pension funds and cross-border interest payments made to financial institutions. It also contains provisions designed to prevent so-called treaty shopping.

The enforcement of the Treaty in 2009 will help accelerate the growing flow of U.S. – Bulgarian trade and investment and will ensure that the investors maximize the economic benefit from their projects. It will also allow a wider circle of investors to take advantage of the significant opportunities afforded by the favorable investment climate in the country.

The American Chamber of Commerce in Bulgaria and its members have played a vital role in restarting the long-stalled Treaty negotiations, and had lobbied successfully for bringing them to a conclusion both in Sofia and in Washington D.C. In 2003 the Chamber submitted its position paper and in-depth analyses both to the U.S. Treasury and to the Bulgarian Ministry of Finance, and assisted the process of negotiations in 2005 and 2006 between the U.S. Treasury and the Bulgarian Ministry of Finance. Every opportunity to raise the issue and accelerate the process was used: meetings in the U.S. Treasury in Washington, D.C. and the U.S. Chamber of Commerce, regular and ad hoc meetings in the U.S. Senate and Congress and the Bulgarian Parliament and Government, advocacy letters and position papers to all interested institutions. It paid off.

On behalf of the Board of Directors and the AmCham Public Affairs Committee we would like to extend gratitude and appreciation to all companies and individuals that had worked actively with AmCham Bulgaria to lobby for the Treaty and its ratification. We all can share this stellar success and congratulate ourselves for being agents of change.

Borislav Boyanov         Kenneth M. Lefkowitz
President                     Vice-president and Public Affairs Committee Chair