U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

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29–118

" ! SENATE

104TH CONGRESS

2d Session

TREATY DOC.

1996

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

(III)

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.

(V)

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.
VI

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.
(1)
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