TAX CONVENTION WITH THE NETHERLANDS GENERAL …

1 TAX CONVENTION WITH THE NETHERLANDSGENERAL EFFECTIVE DATE UNDER ARTICLE 37: 1 JANUARY 1994 TABLE OF ARTICLESCHAPTER I---------------------------SCOPE OF THE CONVENTIONA rticle 1-------------------------------- GENERAL ScopeArticle 2--------------------------------Taxes CoveredCHAPTER II--------------------------DEFINITIONSA rticle 3-------------------------------- GENERAL DefinitionsArticle 4--------------------------------Residen tArticle 5--------------------------------Permane nt EstablishmentCHAPTER III-------------------------TAXATION OF INCOMEA rticle

2 6--------------------------------Income from Real PropertyArticle 7--------------------------------Busines s ProfitsArticle 8--------------------------------Shippin g and Air TransportArticle 9--------------------------------Associa ted EnterprisesArticle 10------------------------------Dividend sArticle 11------------------------------Branch TaxArticle 12------------------------------Interest Article 13------------------------------Royaltie sArticle 14------------------------------Capital GainsArticle 15------------------------------Independ ent Personal ServicesArticle 16------------------------------Dependen t Personal ServicesArticle 17------------------------------Director s' FeesArticle 18------------------------------Artistes and AthletesArticle 19------------------------------Pensions Annuities.

3 AlimonyArticle 20------------------------------Governme nt ServiceArticle 21------------------------------Professo rs and TeachersArticle 22------------------------------Students and TraineesArticle 23------------------------------Other IncomeChapter IV-----------------------------Eliminati on of Double TaxationArticle 24------------------------------Basis of TaxationArticle 25------------------------------Methods of Elimination of Double TaxationCHAPTER V-------------------------SPECIAL PROVISIONSA rticle 26-----------------------------Limitatio n on BenefitsArticle 27-----------------------------Offshore ActivitiesArticle 28-----------------------------Non-Discr iminationArticle 29-----------------------------Mutual Agreement ProcedureArticle 30-----------------------------Exchange of Information and Administrative AssistanceArticle 31-----------------------------Assistanc e and Support in CollectionArticle 32-----------------------------Limitatio n of Articles 30 and 31 Article

4 33-----------------------------Diplomati c Agents and Consular OfficersArticle 34-----------------------------Regulatio nsArticle 35-----------------------------Exempt Pension TrustsArticle 36-----------------------------Exempt OrganizationsCHAPTER VI------------------------FINAL PROVISIONSA rticle 37-----------------------------Entry into ForceArticle 38-----------------------------Terminati onMemorandum of Understanding---of 13 October, 1993 Notes of Exchange-------------------of 13 October, 1993 Letter of Submittal ------------------of 23 April, 1993 Letter of Transmittal-----------------of 12 May, 1993 Protocol-------------------------------- of 13 October, 1993 Notes of Exchange (Protocol)------of 13 October, 1993 Letter of Submittal (Protocol)------of 21 October, 1993 Letter of Transmittal (Protocol)

5 ----of 22 October, 1993 The Saving Clause -----------------Paragraph 1 of Article 24 MESSAGEFROM THE PRESIDENT OF THE UNITED STATESTRANSMITTINGTHE CONVENTION BETWEEN THE UNITED STATES OF AMERICAAND THE KINGDOM OF THE NETHERLANDS FOR THE AVOIDANCE OFDOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TOTAXES ON INCOME, SIGNED AT WASHINGTON ON DECEMBER 18, 1992 LETTER OF SUBMITTALDEPARTMENT OF STATE,Washington, April 23, PRESIDENT,The White House. THE PRESIDENT: I have the honor to submit to you, with a view to its transmission to the Senatefor advice and consent to ratification, the CONVENTION Between the Government of the United States ofAmerica and the Government of the Kingdom of the NETHERLANDS for the Avoidance of Double Taxationand the Prevention of Fiscal Evasion with Respect to Taxes on Income, signed at Washington onDecember 18, 1992.

6 The CONVENTION would replace the 1948 income tax CONVENTION between theUnited States and the NETHERLANDS , which was last amended in 1965. The CONVENTION provides maximum withholding rates of tax at source on payments of dividends,interest and royalties which are generally the same as those both in the model and in the NETHERLANDS treaty. These provisions are generally favorable for investors in the Netherlandsbecause they provide certainty and in most cases substantially reduce the tax cost of investing there.

7 The taxation of capital gains under the new CONVENTION will be essentially the same as under theexisting treaty and the model, except that a special "fresh-start" rule, similar to the rule in the income tax CONVENTION , is provided to increase basis to fair market value as of the end of 1984(due to a change in law) for gains on certain real property interests that have been heldcontinuously by a NETHERLANDS resident since 1980. In addition, deferral of tax on gains arising fromcertain corporate reorganizations is provided until such gains are also recognized in the other State,provided the payment of the tax is adequately secured.

8 As with the existing CONVENTION , business profits in GENERAL are taxable in the other country only tothe extent attributable to a permanent establishment there. In addition, the new CONVENTION preservesthe right to impose its branch tax on branches of NETHERLANDS corporations. This tax is notimposed under the existing treaty. The CONVENTION will also accommodate a provision of the 1986 TaxReform Act that attributes to a permanent establishment income that is earned during the life of thepermanent establishment, but is deferred, and not received until after the permanent establishment nolonger exists.

9 Special rules are provided for the taxation of income from offshore mineral exploration these rules, a relatively short presence on a country's continental shelf by a driller is adequate forthe driller to be treated as having a permanent establishment in that country. Similar rules are found treaties with other countries bordering the North Sea. The CONVENTION provides, as in the model, for exclusive residence country taxation of profitsfrom international operation of ships and aircraft. Unlike the model, however, the reciprocal exemptiondoes not extend to income from the use or rental of containers and from the non-incidental rental ofships and aircraft.

10 Under the new CONVENTION , such income is treated as business profits. The CONVENTION provides conditions under which each country may tax income derived byindividual residents of the other country from independent personal services or as employees, as well aspension income and social security benefits. Special relief is granted to visiting students, trainees, andresearchers. Items of income not specifically dealt with may be taxed only in the country of residence. The CONVENTION provides that the NETHERLANDS and the United States will recognize each other'spublic charities on a reciprocal basis for purposes of exempting the organizations from tax.