ARTICLE 2

Taxes Covered

Paragraph 1 identifies the existing taxes to which the Convention applies. In the United States, these taxes are the Federal income taxes imposed by the Code, but excluding the accumulated earnings tax (Code section 531), except as provided in paragraph 5 of Article 10 (Dividends), the personal holding company tax (Code section 541) and social security taxes. Thus, this paragraph and paragraph 5 of Article 10 restrict the application of the accumulated earnings tax in the case of certain Barbadian companies manufacturing approved products in Barbados and certain companies controlled by residents of Barbados. (See the discussion of paragraph 5 of Article 10 below.) Paragraph 1 also covers the excise taxes on insurance premiums paid to foreign insurers and with respect to private foundations. The excise taxes on insurance premiums, however, are covered only to the extent that risks covered by the premiums are not reinsured with a person not entitled to relief from such taxes under this or any other U.S. Convention.

The Barbadian taxes covered are the Income Tax (including the premium income tax), the Corporation Tax (including the tax on branch profits) and the Petroleum Winning Operations Tax.

Paragraph 2 provides that the Convention shall also apply to any taxes imposed subsequent to December 31, 1984, which are identical or substantially similar to the taxes existing on that date and covered by the Convention. The competent authorities agree to notify each other of any significant changes in their respective tax laws and of any official published material relating to the application of the Convention including this technical explanation.