Ashford International Law P.C.

Summary

1. A tax convention changes a United States result only when a specific article applies, the person qualifies for it, and the position is disclosed.
2. The United States has income tax conventions with some sixty countries, estate and gift tax conventions with fifteen, and totalization agreements with thirty-one. Each network is analysed separately.
3. The saving clause preserves United States taxation of citizens and residents; relief for an American abroad comes from its listed exceptions and the credit article.
4. The modern, domicile-based estate tax conventions can remove United States estate tax on a securities portfolio altogether; the older, situs-based conventions mainly reallocate and, in several cases, enlarge the $60,000 exemption by proration.
5. A treaty-based return position must generally be disclosed (section 6114), on penalty of $1,000 per failure, or $10,000 for a C corporation (section 6712). California does not follow the income tax conventions.

Part I. Where a treaty question arises

A convention usually arrives inside an ordinary file: a client moving to Munich with an IRA, a non-citizen surviving spouse in London, a Swiss family holding American shares, heirs in Paris, an employee seconded to Lyon. Domestic law produces an answer in each case, and a convention may displace it. Treaties and federal statutes have equal rank, the later in time prevails in a conflict (section 7852(d)(1)), and the Code is applied with due regard to any treaty obligation (section 894(a)).

Each convention is read together with its protocols, the Treasury technical explanation and any exchanges of notes, and its wording frequently departs from the United States Model. The analysis therefore starts from the text in force for the specific year, not from general treaty principles.

Part II. Income tax conventions

Residence and the tie-breaker

An individual resident in both countries under their domestic laws is assigned to one of them by the tie-breaker: permanent home, centre of vital interests, habitual abode, nationality, and finally mutual agreement. A green card holder or substantial-presence resident who is treaty-resident abroad computes United States income tax as a nonresident alien on Form 1040-NR with Form 8833, but remains a resident for other purposes of the Code (Treas. Reg. § 301.7701(b)-7). For a long-term green card holder, the claim ends lawful permanent resident status for tax purposes (section 7701(b)(6)) and can bring the individual within section 877A. A tie-breaker claim made to save tax in one year can produce an exit tax.

The saving clause

Nearly every United States convention reserves the right of the United States to tax its citizens and residents as if the convention had not come into effect (Article 1(4) of the 2016 United States Model). The following paragraph lists the exceptions, typically the relief from double taxation article, certain pension and social security rules, and the non-discrimination and mutual agreement articles. For a citizen abroad the question is whether the article concerned appears among the exceptions. The re-sourcing rule in the relief article, which allows foreign tax to be credited against United States tax on United States source income, is often the most valuable provision for that client.

Pensions and social security benefits

Since 2008, German statutory pensions paid to a United States resident are taxable only in the United States under Article 18(5) of the German convention; the British convention likewise reserves social security payments to the recipient’s state of residence (Article 17(3)). Contributions to foreign plans, lump sums and Roth accounts after a move abroad depend on the particular convention and are frequently misreported.

Withholding, limitation on benefits and disclosure

Reduced rates on dividends, interest and royalties require that the recipient be the beneficial owner, satisfy the limitation on benefits article, and document the claim on the correct Form W-8. A foreign family company or trust that fails the limitation on benefits tests bears the statutory 30 percent rate (sections 871(a) and 881(a)) regardless of its residence. A return position that a convention overrides or modifies the Code must be disclosed on Form 8833, subject to the waivers in Treas. Reg. § 301.6114-1(c).

The states follow the conventions in part or not at all; California requires treaty-exempt income to be added back on Schedule CA (540). The Hungarian convention ceased to have effect on January 1, 2024, and the conventions with Russia and Belarus are partially suspended.

Part III. Estate and gift tax conventions

The instructions to Form 706-NA list fifteen estate tax treaty jurisdictions. The older conventions (1947 to 1955) allocate taxing rights by agreed situs rules and leave the question of who is taxed to domestic law. The modern conventions, with the Netherlands (1969), France and the United Kingdom (1978), Germany (1980), Austria (1982) and Denmark (1983), fix a single fiscal domicile through a tie-breaker and confine the country that is not the domicile country essentially to real property and permanent establishment property. For a decedent domiciled in one of those six countries, United States estate tax on a portfolio of American shares is removed, not reduced. Canada has no estate tax convention; the relief is in Article XXIX B of the income tax convention.

A nonresident decedent’s credit is $13,000, the equivalent of a $60,000 exemption, and may exceed that amount only to the extent a treaty requires (section 2102(b)(3)(A)). Nine conventions do: those with Australia, Canada, Finland, France, Germany, Greece, Italy, Japan and Switzerland. The credit becomes the full applicable credit amount multiplied by the ratio of the United States gross estate to the worldwide gross estate. A decedent domiciled in Germany with a worldwide estate of $20,000,000, whose only United States asset is a Florida apartment worth $2,000,000, is entitled to one tenth of the $5,945,800 credit on the 2026 basic exclusion of $15,000,000, or $594,580. Before deductions, the tax on the apartment falls from $732,800 to $151,220. The claim requires disclosure of the worldwide estate on a timely return, and the British and Austrian conventions contain no proration at all.

Where the surviving spouse is not a citizen, the marital deduction requires a qualified domestic trust (section 2056(d)). Several conventions offer separate marital relief, and the Canadian convention a marital credit; an estate may claim either the statutory deduction or the treaty relief, not both (Treas. Reg. § 20.2056A-1(c)). Seven conventions also cover gifts. A treaty-based position on Form 706-NA is disclosed by an attached statement (Treas. Reg. § 301.6114-1).

Sources: Instructions for Form 706-NA; the texts of the conventions and protocols. Status as of September 2026.

Part IV. Totalization agreements

Totalization agreements are not tax treaties. Concluded under section 233 of the Social Security Act, thirty-one are in force, the most recent with Romania from September 1, 2026. Each agreement assigns coverage to one country, generally the country where the work is performed, with a detached-worker exception for assignments expected to last five years or less. Earnings covered abroad under an agreement are exempt from FICA and self-employment tax (sections 3101(c), 3111(c) and 1401(c)) only if a certificate of coverage documents the exemption; a self-employed individual attaches a copy to the return. The agreements do not govern the income taxation of benefits, which remains a matter for the income tax convention, and the networks are independent: the Hungarian totalization agreement remains in force although the income tax convention does not.

Part V. How the firm conducts a treaty analysis

The firm follows the same sequence in every file: status under the domestic law of both countries; the instruments in force for the year; the tie-breaker and entitlement, including limitation on benefits; the article governing each item of income and each asset, and the saving clause exceptions; the tax in both countries, the order of credits and any residual double taxation; and the disclosure required on each federal and state return.

The advisor receives a written analysis citing the articles relied on, stating the position to be taken on each return and the forms that carry it, and identifying the points that depend on facts still to be confirmed. The firm’s attorneys are also licensed in Germany, so the German side of a German-American file is addressed in the same analysis. Scope and fee are agreed after an initial call.

Part VI. Practical steps

1. Record at intake the citizenship, immigration status, residence and domicile of each client and beneficiary.
2. Obtain the convention and every protocol in force for the year, and confirm that the convention has not been terminated or suspended.
3. Before a green card holder claims treaty residence abroad, test long-term resident status and the consequences under section 877A.
4. Before applying any article to a United States citizen or resident, check the saving clause and its exceptions.
5. Disclose each treaty-based position on Form 8833, or by statement on Form 706-NA, and keep the supporting analysis in the file.
6. For work abroad, obtain the certificate of coverage before the first payroll.
7. For a nonresident’s estate, choose deliberately between a qualified domestic trust and treaty marital relief, and assemble the worldwide estate figures before the return is due.

How the firm helps

Ashford International Law PC prepares treaty analyses for CPAs, enrolled agents, attorneys, trust officers and financial advisors, and supports them through the return or estate settlement that follows; see For Advisors. The firm’s detailed guides on double taxation relief and the death tax credit under all gift, inheritance and estate tax treaties and on the qualified domestic trust and transfers to a non-citizen spouse under the Code and the treaties are on the Articles and Guides page. Related pages cover nonresidents with United States assets, estate planning for non-US citizens, non-US beneficiaries, tax compliance, financial institutions and Americans moving to Western Europe. Advisors can reach the firm through the Contact page.

This page is intended for general educational purposes and does not constitute legal or tax advice, nor does it create an attorney-client relationship. The matters described depend on the specific facts, the countries and states concerned, and the law in effect at the relevant time. Figures and treaty status are stated as of September 2026 and must be confirmed before any decision.