The US Treasury Department has announced that the protocol to the 1984 income tax treaty between the United States and Barbados, signed on 14 July 2004, entered into force on 20 December 2004. According to the Treasury Department announcement, the protocol will generally effective for taxable years beginning on or after 1 January 2005, and the provisions of the protocol relating to withholding taxes applies for amounts paid or credited on or after 1 February 2005.

The protocol includes an extensive limitation on benefits article that is intended to allow the US-Barbados treaty to be used only by bona fide residents of the United States and Barbados and prevent Barbados from being used as a treaty-shopping jurisdiction.

The provision on withholding taxes regulates that a person which under the limitation on benefits provision would qualify for the benefits of the treaty but is entitled to income tax benefits under the provisions of a special tax re…