[Senate Treaty Document 104-23]
[From the U.S. Government Publishing Office]
104th Congress 2d Session SENATE Treaty Doc.
104-23
_______________________________________________________________________
PROTOCOL AMENDING ARTICLE VIII OF THE 1948 TAX CONVENTION WITH
RESPECT TO THE NETHERLANDS ANTILLES
__________
MESSAGE
from
THE PRESIDENT OF THE UNITED STATES
transmitting
THE PROTOCOL BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND
THE GOVERNMENT OF THE KINGDOM OF THE NETHERLANDS IN RESPECT OF THE
NETHERLANDS ANTILLES AMENDING ARTICLE VIII OF THE 1948 CONVENTION WITH
RESPECT TO TAXES ON INCOME AND CERTAIN OTHER TAXES AS APPLICABLE TO THE
NETHERLANDS ANTILLES, SIGNED AT WASHINGTON ON OCTOBER 10, 1995
January 3, 1996.--Treaty was read the first time and, together with the
accompanying papers, referred to the Committee on Foreign Relations and
ordered to be printed for the use of the Senate
LETTER OF TRANSMITTAL
----------
The White House, January 3, 1996.
To the Senate of the United States:
I transmit herewith for Senate advice and consent to
ratification, the Protocol between the Government of the United
States of America and the Government of the Kingdom of the
Netherlands in Respect of the Netherlands Antilles Amending
Article VIII of the 1948 Convention with Respect to Taxes on
Income and Certain Other Taxes as Applicable to the Netherlands
Antilles, signed at Washington on October 10, 1995. Also
transmitted for the information of the Senate is the report of
the Department of State with respect to the Protocol.
The Protocol amends Article VIII (1) of the Convention to
limit the exemption from U.S. taxation of interest on debt
instruments to interest paid on instruments issued on or before
October 15, 1984, by a U.S. person to a related controlled
foreign corporation that was in existence before October 15,
1984.
I recommend that the Senate give early and favorable
consideration to the Protocol, and give its advice and consent
to ratification.
William J. Clinton.
LETTER OF SUBMITTAL
----------
Department of State,
Washington, November 27, 1995.
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 Protocol between the Government of the
United States of America and the Government of the Kingdom of
the Netherlands in Respect of the Netherlands Antilles Amending
Article VIII of the 1948 Convention with Respect to Taxes on
Income and Certain Other Taxes as Applicable to the Netherlands
Antilles, signed at Washington on October 10, 1995.
The tax treaty regime between the United States and the
Netherlands Antilles consists of the Convention between the
United States and the Kingdom of the Netherlands for the
Avoidance of Double Taxation and the Prevention of Fiscal
Evasion with Respect to Taxes, signed at Washington on April
29, 1948, and general later agreements. In 1988, the United
States effected termination of the 1948 Convention, as extended
to the Netherlands Antilles, except for Article VIII (interest)
and such ancillary provisions as apply to effectuate, modify,
or limit the Article.
In 1992, the United States and the Netherlands signed a new
Convention for the Avoidance of Double Taxation and the
Prevention of Fiscal Evasion with Respect to Taxes on Income,
which replaced the 1948 Convention. The 1992 Convention entered
into force on December 31, 1993. However, the 1992 Convention
provided that its entry into force would not affect the
preexisting tax regime applicable as between the United States
and the Netherlands Antilles.
In 1992, the United States and the Netherlands signed a new
Convention for the Avoidance of Double Taxation and the
Prevention of Fiscal Evasion with Respect to Taxes on Income,
which replaced the 1948 Convention. 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 1992 Convention entered into force December 31,
1993. However, the 1992 Convention provided that its entry into
force would not affect the preexisting tax regime applicable as
between the United States and the Netherlands Antilles.
Although standards similar to those in the 1992 Convention are
found in other recent U.S. income tax conventions, the 1948
convention does not contain similarly effective provisions
concerning limitation on benefits.
Article VIII of the 1948 Convention generally exempts
interest on debt instruments derived from sources in the United
States and paid to residents of the Netherlands Antilles from
taxation by the United States. Applying the terms of Article
VIII, Netherlands Antilles subsidiaries of U.S. companies lent
to the U.S. companies the proceeds of bonds, ``Eurobonds,''
that has been issued in the international capital markets. The
interest paid by the U.S. companies on these bonds to the
subsidiaries was not subject to U.S. income taxes and thus was
not withheld in the United States. However, in most cases, the
Eurobonds were subject to being called by the Netherlands
Antilles subsidiaries if the interest such subsidiaries
received became subject to withholding in the United States.
Article VIII was left in force to avoid the potential negative
impact of its termination on financial markets by triggering
the Eurobonds' call provisions. (In fact, changes in U.S. tax
law in 1984 that generally exempted interest on new corporate
indebtedness from U.S. withholding had rendered Article VIII's
protection necessary only for corporate debt instruments issued
before mid-1984.) However, the result of leaving Article VIII
in force with respect to all types of debt instruments has been
to allow inappropriate use of the 1948 Convention's tax
benefits by third-country residents.
The Protocol amends Article VIII (1) to limit the exemption
from U.S. taxation on interest on debt instruments to interest
paid on instruments issued on or before October 15, 1984, by a
U.S. person to a related controlled foreign corporation that
was in existence before October 15, 1984. Thus, only those debt
instruments related to the issuance of pre-October 15, 1984,
Eurobonds will continue to be exempt from U.S. taxes pursuant
to the Convention. Residents of third countries will no longer
be able to claim the benefits of the treaty exemption, other
than with respect to such Eurobonds.
The Protocol will enter into force upon the later of June
30, 1996, or the exchange of instruments of ratification. If
the Protocol has not entered into force prior to January 1,
1997, it shall not enter into force.
A technical memorandum explaining in detail the provisions
of the Protocol will be 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 Protocol. It has the full
approval of both Departments.
Respectfully submitted,
Warren Christopher.