[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.



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