U.S., Italy launch tax accord after decade delay

WASHINGTON Dec 16 (Reuters) - The U.S. Treasury on Wednesday announced the activation of a long-delayed income tax treaty with Italy that will reduce taxes on U.S. businesses operating in Italy.

The treaty was ratified by the U.S. Senate in 1999, but was not ratified by Italy's parliament until March 2009. It will largely be effective for taxable years starting Jan. 1, applying to taxes withheld at source on Feb. 1.

For businesses and individuals of one country working or operating in the other, the treaty:

-- Limits source country withholding taxes on certain direct dividends to 5 percent, with a 15 percent source-country withholding tax limit on all other dividends.

-- Eliminates source-country withholding taxes on certain interest paid to qualified governmental entities and on interest paid on credit sales of goods, merchandise, services or industrial, commercial or scientific equipment.

-- Limits to 10 percent source-country withholding tax on all other interest payments.

-- Eliminates source-country withholding taxes on royalties for certain literary, artistic or scientific works.

-- Limits withholding taxes on royalties for computer software and commercial industrial, or scientific equipment to 5 percent, while setting an 8 percent limit on all other royalties.

The treaty also provides a comprehensive agreement limiting taxes on benefits, the Treasury said. In addition, the pact also is expected to improve information exchange between the two countries, and strengthen their mechanisms to resolve tax disputes, the Treasury said. (Reporting by David Lawder; Editing by Gary Hill)