Text - Treaty Document: Senate Consideration of Treaty Document 108-25All Information (Except Treaty Text)

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[Senate Treaty Document 108-25]
[From the U.S. Government Printing 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

                              ----------                              

                                       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.