GENERAL EFFECTIVE DATE UNDER ARTICLE 37: 1 JANUARY 1994 TABLE OF ARTICLES CHAPTER I---------------------------SCOPE OF THE CONVENTION Article 1--------------------------------General Scope Article 2--------------------------------Taxes Covered CHAPTER II--------------------------DEFINITIONS Article 3--------------------------------General Definitions Article 4--------------------------------Resident Article 5--------------------------------Permanent Establishment CHAPTER III-------------------------TAXATION OF INCOME Article 6--------------------------------Income from Real Property Article 7--------------------------------Business Profits Article 8--------------------------------Shipping and Air Transport Article 9--------------------------------Associated Enterprises Article 10------------------------------Dividends Article 11------------------------------Branch Tax Article 12------------------------------Interest Article 13------------------------------Royalties Article 14------------------------------Capital Gains Article 15------------------------------Independent Personal Services Article 16------------------------------Dependent Personal Services Article 17------------------------------Directors' Fees Article 18------------------------------Artistes and Athletes Article 19------------------------------Pensions Annuities. Alimony Article 20------------------------------Government Service Article 21------------------------------Professors and Teachers Article 22------------------------------Students and Trainees Article 23------------------------------Other Income Chapter IV-----------------------------Elimination of Double Taxation Article 24------------------------------Basis of Taxation Article 25------------------------------Methods of Elimination of Double Taxation CHAPTER V-------------------------SPECIAL PROVISIONS Article 26-----------------------------Limitation on Benefits Article 27-----------------------------Offshore Activities Article 28-----------------------------Non-Discrimination Article 29-----------------------------Mutual Agreement Procedure Article 30-----------------------------Exchange of Information and Administrative Assistance Article 31-----------------------------Assistance and Support in Collection Article 32-----------------------------Limitation of Articles 30 and 31 Article 33-----------------------------Diplomatic Agents and Consular Officers Article 34-----------------------------Regulations Article 35-----------------------------Exempt Pension Trusts Article 36-----------------------------Exempt Organizations CHAPTER VI------------------------FINAL PROVISIONS Article 37-----------------------------Entry into Force Article 38-----------------------------Termination Memorandum 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)----of 22 October, 1993 The "Saving Clause"-----------------Paragraph 1 of Article 24 　　　　　　　　　　　　　　MESSAGE 　　　　　　　　FROM THE PRESIDENT OF THE UNITED STATES 　　　　　　　　　　　　　TRANSMITTING 　　THE CONVENTION BETWEEN THE UNITED STATES OF AMERICA AND THE KINGDOM OF THE NETHERLANDS FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME, SIGNED AT WASHINGTON ON DECEMBER 18, 1992 LETTER OF SUBMITTAL DEPARTMENT OF STATE, Washington, April 23, 1993. The PRESIDENT, The White House. 　　THE PRESIDENT: I have the honor to submit to you, with a view to its transmission to the Senate for advice and consent to ratification, the Convention Between the Government of the United States of America and the Government of the Kingdom of the Netherlands for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, signed at Washington on December 18, 1992. The Convention would replace the 1948 income tax convention between the United 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 U.S. model and in the existing U.S.- Netherlands treaty. These provisions are generally favorable for U.S. investors in the Netherlands because they provide certainty and in most cases substantially reduce the tax cost of investing there. 　　The taxation of capital gains under the new Convention will be essentially the same as under the existing treaty and the U.S. model, except that a special "fresh-start" rule, similar to the rule in the U.S.- Canada income tax convention, is provided to increase basis to fair market value as of the end of 1984 (due to a change in U.S. law) for gains on certain U.S. real property interests that have been held continuously by a Netherlands resident since 1980. In addition, deferral of tax on gains arising from certain corporate reorganizations is provided until such gains are also recognized in the other State, provided the payment of the tax is adequately secured. 　　As with the existing convention, business profits in general are taxable in the other country only to the extent attributable to a permanent establishment there. In addition, the new Convention preserves the U.S. right to impose its branch tax on U.S. branches of Netherlands corporations. This tax is not imposed under the existing treaty. The Convention will also accommodate a provision of the 1986 Tax Reform Act that attributes to a permanent establishment income that is earned during the life of the permanent establishment, but is deferred, and not received until after the permanent establishment no longer exists. 　　Special rules are provided for the taxation of income from offshore mineral exploration activities. Under these rules, a relatively short presence on a country's continental shelf by a driller is adequate for the driller to be treated as having a permanent establishment in that country. Similar rules are found in U.S. treaties with other countries bordering the North Sea. 　　The Convention provides, as in the U.S. model, for exclusive residence country taxation of profits from international operation of ships and aircraft. Unlike the model, however, the reciprocal exemption does not extend to income from the use or rental of containers and from the non-incidental rental of ships and aircraft. Under the new Convention, such income is treated as business profits. 　　The Convention provides conditions under which each country may tax income derived by individual residents of the other country from independent personal services or as employees, as well as pension income and social security benefits. Special relief is granted to visiting students, trainees, and researchers. 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's public charities on a reciprocal basis for purposes of exempting the organizations from tax. The benefits of the Convention are limited to residents of the two countries meeting certain standards designed to prevent residents of third countries from inappropriately deriving benefits from the Convention. The existing convention contains no such limitation on benefits, although similar standards are found in other recent U.S. income tax conventions. This is one of the most significant elements in the new Convention. 　　The Convention also provides for the elimination of another abuse relating to the granting of U.S.treaty benefits to third-country permanent establishments of Netherlands corporations that are exempt from tax in the Netherlands. Under the new Convention, if the Netherlands has not dealt satisfactorily with this so-called "triangular case" problem through legislation prior to Senate consideration of the Convention, negotiations will be reopened to address this issue. 　　The Convention seeks to assure that the country of residence of a taxpayer will avoid double taxation of income which arises in the other country and has been taxed there in accordance with the treaty's provisions by generally allowing a credit against its own tax in an amount equal to the income tax paid in the other country. In addition, the Convention includes standard administrative provisions which will permit the tax　authorities of the two countries to cooperate to resolve issues of potential double taxation and to　exchange information relevant to implementing the Convention and the domestic laws imposing the taxes covered by the Convention. The Convention also provides for future arbitration for the resolution of certain disputes that cannot be resolved under traditional tax treaty procedures. Arbitration will not be used until both countries agree that experience with such procedures in other contexts have been satisfactory. The Convention also includes non-discrimination provisions standard to treaties to avoid double taxation which apply to all taxes at all levels of government. 　　The Convention will enter into force 30 days after the date that the Governments have notified each other that their constitutional requirements have been satisfied. The provisions will take effect for taxes payable at source, for payments made and for other taxes for taxable years beginning on or after January 1 following the date of entry into force. Where the 1948 convention affords a more favorable result for a taxpayer than the new Convention, the taxpayer may elect to continue to apply the provisions of the 1948 convention, in its entirety, for one additional year. 　　An Understanding, which provides guidance to taxpayers and tax authorities on the proper interpretation of the rules, and an exchange of notes are included for the information of the Senate. 　　A technical memorandum explaining in detail the provisions of the Convention is being prepared by the Department of the Treasury and will be submitted separately to the Senate Committee on Foreign Relations. 　　The Department of the Treasury and the Department of State cooperated in the negotiation of the Convention. It has the full approval of both Departments. Respectfully submitted, WARREN CHRISTOPHER Enclosures: As stated. . LETTER OF TRANSMITTAL THE WHITE HOUSE, May 12,1993. To the Senate of the United States: 　　I transmit herewith for the advice and consent of the Senate to ratification the Convention Between the Government of the United States of America and the Government of the Kingdom of the Netherlands for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, signed at Washington on December 18, 1992. An Understanding and exchange of notes are enclosed for the information of the Senate. Also transmitted for the information of the Senate is the report of the Department of State with respect to the Convention. 　　The Convention replaces the existing income tax convention between the United States and the Kingdom of the Netherlands signed at Washington in 1948 and last amended in 1965. It is intended to reduce the distortions (double taxation or excessive taxation) that can arise when two countries tax the same income, thereby enabling U.S. firms to compete on a more equitable basis in the Netherlands and further enhancing the attractiveness of the United States to Dutch investors. In general, the Convention follows the pattern of other recent U.S. income tax treaties and is based on the U.S. and OECD Model treaties and recent income tax conventions of both parties. It will serve to modernize tax relations between the two countries. 　　I recommend that the Senate give early and favorable consideration to the Convention and give its advice and consent to ratification. WILLIAM J.CLINTON.