[Senate Treaty Document 108-25]
[From the U.S. Government Publishing Office]
108th Congress Treaty Doc.
SENATE
2d Session 108-25
_______________________________________________________________________
PROTOCOL AMENDING TAX CONVENTION
WITH THE NETHERLANDS
__________
MESSAGE
from
THE PRESIDENT OF THE UNITED STATES
TRANSMITTING
PROTOCOL AMENDING 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
(INCLUDING EXCHANGE OF NOTES WITH ATTACHED UNDERSTANDING), SIGNED AT
WASHINGTON ON MARCH 8, 2004 (THE ``PROTOCOL'').
July 16, 2004.--Convention 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, July 16, 2004.
To the Senate of the United States:
I transmit herewith for Senate advice and consent to
ratification, the Protocol Amending 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,
DC., on March 8, 2004. Transmitted for the Senate's information
is an exchange of notes with an attached Understanding, which
provides clarification with respect to the application of the
Convention, as amended, in specific cases. Also transmitted for
the information of the Senate is the report of the Department
of State with respect to the Protocol.
The Protocol would bring the existing Convention into
closer conformity with current U.S. tax treaty policy. As
modified by the Protocol, the Convention would be similar to
tax treaties between the United States and other developed
nations. The Protocol was concluded in recognition of the
importance of the United States' economic relations with the
Netherlands.
The Protocol would modify the treatment of certain cross-
border dividend payments and would modernize the Convention's
anti-treaty-shopping provisions. The Protocol also would
liberalize provisions in the existing Convention regarding the
mutual recognition of each country's pension plans. Other
provisions in the Protocol update the Convention to take
account of changes in law in the two countries over the last 10
years. The exchange of notes with an attached Understanding
provides guidance to taxpayers and each government regarding
the intended interpretation of certain provisions of the
existing Convention, as amended.
I recommend that the Senate give early and favorable
consideration to this Protocol, and that the Senate give its
advice and consent to ratification.
George W. Bush.
LETTER OF SUBMITTAL
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Department of State,
May 24, 2004.
The President,
The White House.
Mr. President: I have the honor to submit to you, with a
view to its transmission to the Senate for advice and consent
to ratification, a Protocol Amending 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 March 8, 2004 (the ``Protocol''). Also enclosed for the
information of the Senate is an exchange of notes with an
attached Understanding, which provides clarification with
respect to the application of the Convention, as amended, in
specified cases.
The proposed Protocol was negotiated to bring the existing
Convention, concluded in 1992, into closer conformity with
current U.S. tax treaty policy. The proposed Protocol was
concluded in recognition of the importance of the United
States' economic relations with the Netherlands.
Article 3 of the proposed Protocol, which modifies Article
10 of the Convention, provides for the elimination of
withholding taxes on certain types of cross-border direct
dividends. Under the existing Convention, dividends may be
taxed by the country of source at a maximum rate of 5 percent
on direct dividends (where the recipient of the dividends owns
at least 10 percent of the company paying the dividends) and 15
percent on all other dividends. Pursuant to the proposed
Protocol, the withholding tax will be eliminated entirely with
respect to dividends from certain 80-percent owned corporate
subsidiaries. The other rules will, however, remain in place
with respect to those dividends that do not quality for this
elimination.
The dividends article of the proposed Protocol also updates
the provisions applicable to dividends paid by U.S. Regulated
Investment Companies (RICs) and Real Estate Investment Trusts
(REITs) to make them consistent with current U.S. treaty
policy. The new provision reflects a change in approach adopted
in 1997, which is intended to prevent the use of structures
designed to avoid U.S. withholding taxes on outbound dividends
while providing appropriate benefits to portfolio investors in
RICs and REITs.
Article 7 of the proposed Protocol includes a revised
``Limitation on Benefits'' provision, which is designed to deny
``treaty-shoppers'' the benefits of the Convention. The new
provision corresponds more closely to those in recent U.S.
treaties than did the provision in the existing Convention.
The existing Convention preserves the U.S. right to tax
former citizens whose loss of citizenship had, as one of its
principal purposes, the avoidance of tax. In order to take
account of section 877 of the Internal Revenue Code as amended
in 1996, Article 6 of the proposed Protocol expands this right
to include taxation of former long-term residents whose loss of
such status had, as one of its principal purposes, the
avoidance of tax.
Article 5 of the proposed Protocol includes provisions
intended to coordinate the two countries' rules regarding
earnings and accretions of pension plans and cross-border
contributions to pension plans. In addition, the proposed
Protocol extends certain benefits regarding cross-border
pension contributions that exist in the current treaty to U.S.
citizens residing in the Netherlands who contribute to
Netherlands pension plans.
The exchange of notes with an attached Understanding
accompanying the proposed Protocol provides additional
explanations and guidance regarding the agreed interpretation
of the Convention, as amended.
The United States and the Netherlands will notify each
other when their respective constitutional requirements for
entry into force of the proposed Protocol have been satisfied.
The proposed Protocol will enter into force on the date of the
later of such notifications. It will have effect, with respect
to taxes withheld at source, on the first day of the second
month next following the date of entry into force. With respect
to other types of taxes it will have effect for taxable periods
beginning on or after January 1 of the year following the date
of entry into force.
The Department of the Treasury and the Department of State
cooperated in the negotiation of the proposed Protocol. It has
the full approval of both Departments.
Respectfully submitted,
Colin L. Powell.