CONVENTION BETWEEN

THE GOVERNMENT OF THE UNITED STATES OF AMERICA

AND THE GOVERNMENT OF THE REPUBLIC OF CROATIA 

FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE

PREVENTION OF TAX EVASION WITH RESPECT TO TAXES ON INCOME

The Government of the United States of America and the Government of the Republic 

of Croatia, intending to conclude a Convention for the avoidance of double taxation with respect 

to taxes on income without creating opportunities for non-taxation or reduced taxation through 

tax evasion or avoidance (including through treaty-shopping arrangements aimed at obtaining 

reliefs provided in this Convention for the indirect benefit of residents of third states), have 

agreed as follows:
Article 1

GENERAL SCOPE

1. This Convention shall apply only to persons who are residents of one or both of

the Contracting States, except as otherwise provided in this Convention.

2. This Convention shall not restrict in any manner any benefit now or hereafter

accorded:

a) by the laws of either Contracting State; or

b) by any other agreement to which both Contracting States are parties.

3. a) Notwithstanding the provisions of subparagraph (b) of paragraph 2 of this

Article:

i) for purposes of paragraph 3 of Article XXII (Consultation) of the

General Agreement on Trade in Services, the Contracting States agree that

any question arising as to the interpretation or application of this

Convention and, in particular, whether a taxation measure is within the

scope of this Convention, shall be determined exclusively in accordance

with the provisions of Article 25 (Mutual Agreement Procedure) of this

Convention; and

ii) the provisions of Article XVII (National Treatment) of the General

Agreement on Trade in Services shall not apply to a taxation measure

unless the competent authorities agree that the measure is not within the

scope of Article 24 (Non-Discrimination) of this Convention.

b) For the purposes of this paragraph, a "measure" is a law, regulation, rule,

procedure, decision, administrative action or any similar provision or action.

4. Except to the extent provided in paragraph 5 of this Article, this Convention shall

not affect the taxation by a Contracting State of its residents (as determined under Article

4 (Resident)) and its citizens. Notwithstanding the other provisions of this Convention, a

former citizen or former long-term resident of a Contracting State may be taxed in

accordance with the laws of that Contracting State.

5. The provisions of paragraph 4 of this Article shall not affect:

a) the benefits conferred by a Contracting State under paragraph 3 of Article

7 (Business Profits), paragraph 2 of Article 9 (Associated Enterprises), paragraph

7 of Article 13 (Gains), subparagraph (b) of paragraph 1, paragraphs 2, 3 and 6 of

Article 17 (Pensions, Social Security, Annuities, Alimony and Child Support),

paragraph 3 of Article 18 (Contributions to Pension Funds), and Articles 23 (Relief

From Double Taxation), 24 (Non-Discrimination) and 25 (Mutual Agreement

Procedure); and

b) the benefits conferred by a Contracting State under paragraph 1 of Article 18

(Contributions to Pension Funds), and Articles 19 (Government Service), 20

(Students and Trainees) and 27 (Members of Diplomatic Missions and Consular

Posts), upon individuals who are neither citizens of, nor have been admitted for

permanent residence in, that Contracting State.
6. For the purposes of this Convention, an item of income, profit or gain derived by or

through an entity that is treated as wholly or partly fiscally transparent under the taxation laws

of either Contracting State shall be considered to be derived by a resident of a Contracting

State, but only to the extent that the item is treated for purposes of the taxation laws of such

Contracting State as the income, profit or gain of a resident.

7. Where an item of income, profit or gain arising in one of the Contracting States

otherwise would be entitled to the benefits of this Convention in that Contracting State and,

under the law of the other Contracting State, a person's tax in respect of such item is

determined by reference to the amount thereof that is remitted to or received in that other

Contracting State and not by reference to the full amount thereof, then the relief to be allowed

under this Convention in the first-mentioned Contracting State shall apply only to so much of

the amount as is taxed in the other Contracting State.

8. Where an enterprise of a Contracting State derives income from the other Contracting

State, and the first-mentioned Contracting State treats that income as profits attributable to a

permanent establishment situated outside of that Contracting State, the benefits of this

Convention shall not apply to that income if:

a) the income that is treated as profits attributable to the permanent establishment

is subject to a combined aggregate effective rate of tax in the first-mentioned

Contracting State and the state in which the permanent establishment is situated that is

less than the lesser of (i) 15 percent or (ii) 60 percent of the highest general statutory

rate of company tax applicable in the first-mentioned Contracting State; or

b) the permanent establishment is situated in a third state that does not have a

comprehensive convention for the avoidance of double taxation in force with the

Contracting State from which the benefits of this Convention are being claimed,

unless the first-mentioned Contracting State includes the income treated as profits

attributable to the permanent establishment in its tax base.

However, if a resident of a Contracting State is denied the benefits of this Convention

pursuant to subparagraph (a) of this paragraph, the competent authority of the other

Contracting State may, nevertheless, grant the benefits of this Convention with respect to a

specific item of income if such competent authority determines that such grant of benefits is

justified in light of the reasons such resident did not satisfy the requirements of subparagraph

(a) of this paragraph (such as the existence of losses). The competent authority of the

Contracting State to which a request has been made shall consult with the competent authority

of the other Contracting State before either granting or denying the request made under this

paragraph by a resident of that other Contracting State.

9. Nothing in this Convention shall be construed as preventing the United States from

imposing a tax under section 59A, entitled the “Tax on Base Erosion Payments of Taxpayers 

with Substantial Gross Receipts,” of the Internal Revenue Code (as it may be amended from

time to time) on a company that is a resident of the United States or on the profits of a

company that is a resident of Croatia that are attributable to a permanent establishment in the

United States.

Article 2

TAXES COVERED

1. This Convention shall apply to taxes on income imposed on behalf of a Contracting
State irrespective of the manner in which they are levied.

2. There shall be regarded astaxes on income all taxes imposed on total income, or on 

elements of income, including taxes on gains from the alienation of property.

3. The existing taxes to which this Convention shall apply are:

a) in the case of Croatia;

i) the profit tax;

ii) the income tax; and

iii) the local income tax.

b) in the case of the United States: the Federal income taxes imposed by the

Internal Revenue Code (which do not include social security and unemployment taxes)

and the Federal taxes imposed on the investment income of foreign private foundations.

4. This Convention also shall apply to any identical or substantially similar taxes that are

imposed after the date of signature of this Convention in addition to, or in place of, the existing

taxes. The competent authorities of the Contracting States shall notify each other of any

significant changes that have been made in their taxation laws or other laws that relate to the

application ofthis Convention.

Article 3

GENERAL DEFINITIONS

1. For the purposes of this Convention, unless the context otherwise requires:

a) the term "person" includes an individual, an estate, a trust, a partnership, a

company, and any other body of persons;

b) the term "company" means any body corporate or any entity that is treated as

a body corporate for tax purposes according to the laws of the Contracting State in

which it is resident;

c) the terms "enterprise of a Contracting State" and "enterprise of the other

Contracting State" mean, respectively, an enterprise carried on by a resident of a

Contracting State, and an enterprise carried on by a resident of the other Contracting

State; the terms also include an enterprise carried on by a resident of a Contracting

State through an entity that is treated as fiscally transparent in that Contracting State;

d) the term "enterprise" applies to the carrying on of any business;

e) the term "business" includes the performance of professional services and of

other activities of an independent character;

f) the term "international traffic" means any transport by a ship or aircraft, 

except when such transport is solely between places in a Contracting State;

g) the term "competent authority" means: 
i) in Croatia: the Minister of Finance or his authorized representative; 

and

ii) in the United States: the Secretary of the Treasury or his delegate;

h) the term "Croatia" means the territory of the Republic of Croatia as well as 

those maritime areas adjacent to the outer limit of territorial sea, including the sea bed 

and subsoil thereof, over which the Republic of Croatia in accordance with international 

law and the laws of the Republic of Croatia exercises its sovereign rights and 

jurisdiction;

i) the term "United States" means the United States of America, and includes

the states thereof and the District of Columbia; such term also includes the territorial

sea thereof and the sea bed and subsoil of the submarine areas adjacent to that

territorial sea, over which the United States exercises sovereign rights in accordance

with international law; the term, however, does not include Puerto Rico, the U.S.

Virgin Islands, Guam or any other United States possession or territory;

j) the term "national" of a Contracting State means:

i) any individual possessing the nationality or citizenship of that

Contracting State; and

ii) any legal person, partnership or association deriving its status as such 

from the laws in force in that Contracting State;

k) the term “pension fund” means any person established in a Contracting State that 

satisfies the following requirements imposed under the laws of that State:

i) is generally exempt from income taxation in that Contracting State;

ii) operates exclusively or almost exclusively:

A) to administer or provide retirement benefits to individuals in 

consideration of their current or past employment (including selfemployment), and benefits that are incidental or ancillary to such 

retirement benefits; or 

B) to earn income for the benefit of one or more persons established 

in the same Contracting State that are generally exempt from income 

taxation in that Contracting State and that are operated exclusively or 

almost exclusively to administer or provide retirement benefits to 

individuals in consideration of their current or past employment (including 

self-employment), and benefits that are incidental or ancillary to such 

retirement benefits;

iii) other than in the case of a transfer from another pension fund established 

in the same Contracting State that qualifies as a tax-deferred transfer:

A) imposes contribution limits determined by reference to the amount 

of income earned by individual participants or the participant’s spouse 

from current or past employment (including self-employment); and
B) allows contributions by individual participants only in the form of 

cash; and

iv) is subject to periodic information reporting requirements to the 

government of the Contracting State in which it is established.

l) the term "special tax regime" means any statute, regulation or administrative 

practice in a Contracting State with respect to a tax described in Article 2 (Taxes 

Covered) that meets all of the following conditions:

i) results in one or more of the following:

A) a preferential rate of taxation for interest, royalties, guarantee

fees or any combination thereof, as compared to income from sales of

goods or services;

B) a permanent reduction in the tax base with respect to interest, 

royalties, guarantee fees or any combination thereof, without a comparable 

reduction for income from sales of goods or services, by allowing:

1) an exclusion from gross receipts;

2) a deduction without regard to any corresponding payment 

or obligation to make a payment;

3) a deduction for dividends paid or accrued; or

4) taxation that is inconsistent with the principles of Article

7 (Business Profits) or Article 9 (Associated Enterprises); or

C) a preferential rate of taxation or a permanent reduction in the tax

base of the type described in part (1), (2), (3) or (4) of subclause (B) of 

this clause with respect to substantially all of a company's income or

substantially all of a company's foreign source income, for companies

that do not engage in the active conduct of a trade or business in that

Contracting State;

ii) in the case of any preferential rate of taxation or permanent reduction in 

the tax base for royalties, does not condition such benefits on the extent of 

research and development activities that take place in the Contracting State;

iii) is generally expected to result in a rate of taxation that is less than the 

lesser of either:

A) 15percent; or

B) 60 percent of the highest general statutory rate of company tax 

applicable in the other Contracting State;

iv) does not apply principally to:

A) pension funds;
B) organizations that are established and maintained exclusively for 

religious, charitable, scientific, artistic, cultural or educational purposes;

C) persons the taxation of which achieves a single level of taxation 

either in the hands of the person or the person's shareholders (with at most 

one year of deferral), that hold a diversified portfolio of securities, that are 

subject to investor-protection regulation in the Contracting State and the 

interests in which are marketed primarily to retail investors; or

D) persons the taxation of which achieves a single level of taxation 

either in the hands of the person or the person's shareholders (with at most 

one year of deferral) and that hold predominantly real estate assets; and

v) after consultation with the first-mentioned Contracting State, has been 

identified by the other Contracting State through diplomatic channels to the 

first- mentioned Contracting State as satisfying clauses (i) through (iv) of this 

subparagraph.

No statute, regulation or administrative practice shall be treated as a special tax

regime until 30 days after the date when the other Contracting State issues a written

public notification identifying the regime as satisfying clauses (i) through (v) of this

subparagraph; and

m) two persons shall be "connected persons" if one owns, directly or indirectly, 

at least 50 percent of the beneficial interest in the other (or, in the case of a 

company, at least 50 percent of the aggregate vote and value of the company's 

shares) or another person owns, directly or indirectly, at least 50 percent of the 

beneficial interest (or, in the case of a company, at least 50 percent of the aggregate 

vote and value of the company's shares) in each person. In any case, a person shall 

be connected to another if, based on all the relevant facts and circumstances, one 

has control of the other or both are under the control of the same person or persons.

2. As regards the application of this Convention at any time by a Contracting State, any

term not defined herein shall, unless the context otherwise requires, or the competent

authorities agree to a common meaning pursuant to the provisions of Article 25 (Mutual

Agreement Procedure), have the meaning that it has at that time under the law of that

Contracting State for the purposes of the taxes to which this Convention applies, any meaning

under the applicable tax laws of that Contracting State prevailing over a meaning given to the

term under other laws of that Contracting State.

Article 4

RESIDENT

1. For the purposes of this Convention, the term "resident of a Contracting State" means

any person who, under the laws of that Contracting State, is liable to tax therein by reason of his

domicile, residence, citizenship, place of management, place of incorporation, or any other

criterion of a similar nature, and also includes that Contracting State and any political subdivision

or local authority thereof. Thisterm does not include any person whose tax is determined in that

Contracting State, in whole or in part, on a fixed-fee, "forfait" or similar basis, or who is liable to

tax in respect only of income from sources in that Contracting State or of profits attributable to a

permanent establishment in that Contracting State.
2. The term "resident of a Contracting State" includes:

a) a pension fund established in that Contracting State; and

b) an organization that is established and maintained in that Contracting State

exclusively forreligious, charitable, scientific, artistic, cultural, or educational purposes;

notwithstanding that all or part of its income or gains may be exempt from tax under the 

domestic law of that Contracting State.

3. Where, by reason of the provisions of paragraph 1 of this Article, an individual is a 

resident of both Contracting States, then his status shall be determined asfollows:

a) he shall be deemed to be a resident only of the Contracting State in which he has 

a permanent home available to him; if he has a permanent home available to him in both

Contracting States, he shall be deemed to be a resident only of the Contracting State

with which his personal and economic relations are closer (center of vital interests);

b) if the Contracting State in which he has his center of vital interests cannot be

determined, or if he does not have a permanent home available to him in either

Contracting State, he shall be deemed to be a resident only of the Contracting State in

which he has a habitual abode;

c) if he has a habitual abode in both Contracting States or in neither of them, he

shall be deemed to be a resident only of the Contracting State of which he is a national;

d) if he is a national of both Contracting States or of neither of them, the competent

authorities of the Contracting States shall endeavor to settle the question by mutual

agreement.

4. Where by reason of the provisions of paragraph 1 of this Article a company is a resident 

of both Contracting States, such company shall not be treated as a resident of either Contracting 

State for purposes of its claiming the benefits provided by this Convention.

5. Where by reason of the provisions of paragraph 1 of this Article a person other than an

individual or a company is a resident of both Contracting States, the competent authorities of the 

Contracting States shall by mutual agreement endeavor to determine the mode of application of 

this Convention to that person.

Article 5

PERMANENT ESTABLISHMENT

1. For the purposes of this Convention, the term "permanent establishment" means a fixed

place of business through which the business of an enterprise is wholly or partly carried on.

2. The term "permanent establishment" includes especially:

a) a place of management;

b) abranch;

c) an office;
d) a factory;

e) aworkshop; and

f) a mine, an oil or gas well, a quarry, or any other place of extraction of natural

resources.

3. A building site or construction or installation project, or an installation or drilling rig or 

ship used for the exploration or exploitation of the sea bed and its subsoil and their natural

resources, situated in one of the Contracting States constitutes a permanent establishment only if

it lasts, or the activities of the rig or ship lasts, for more than twelve months. For the sole purpose

of determining whether the twelve-month period referred to in this paragraph has been exceeded:

a) where an enterprise of a Contracting State carries on activities in the other

Contracting State at a place that constitutes a building site or construction or installation

project and these activities are carried on during periods of time that in the aggregate do 

not last more than twelve months; and

b) connected activities are carried on at the same building site or construction or

installation project during different periods of time, each exceeding thirty days, by one

or more enterprises that are connected persons with respect to the first-mentioned

enterprise,

these different periods of time shall be added to the periods of time during which the firstmentioned enterprise has carried on activities at that building site or construction or installation

project.

4. Notwithstanding the preceding provisions of this Article, the term "permanent

establishment" shall be deemed not to include:

a) the use of facilities solely for the purpose of storage, display or delivery of

goods or merchandise belonging to the enterprise;

b) the maintenance of a stock of goods or merchandise belonging to the

enterprise solely for the purpose of storage, display or delivery;

c) the maintenance of a stock of goods or merchandise belonging to the

enterprise solely for the purpose of processing by another enterprise;

d) the maintenance of a fixed place of business solely for the purpose of

purchasing goods or merchandise, or of collecting information, for the enterprise;

e) the maintenance of a fixed place of business solely for the purpose of carrying

on, for the enterprise, any other activity of a preparatory or auxiliary character;

f) the maintenance of a fixed place of business solely for any combination of the

activities mentioned in subparagraphs (a) through (e) of this paragraph, provided that

the overall activity of the fixed place of business resulting from this combination is of

a preparatory or auxiliary character.

5. Notwithstanding the provisions of paragraphs 1 and 2 of this Article, where a person -

other than an agent of an independent status to whom paragraph 6 of this Article applies - is

acting on behalf of an enterprise and has and habitually exercises in a Contracting State an
authority to conclude contracts that are binding on the enterprise, that enterprise shall be

deemed to have a permanent establishment in that Contracting State in respect of any

activities that the person undertakes for the enterprise, unless the activities of such person are

limited to those mentioned in paragraph 4 that, if exercised through a fixed place of business,

would not make this fixed place of business a permanent establishment under the provisions

of that paragraph.

6. An enterprise shall not be deemed to have a permanent establishment in a Contracting 

State merely because it carries on business in that Contracting State through a broker, general 

commission agent, or any other agent of an independent status, provided that such persons are 

acting in the ordinary course of their business as independent agents.

7. The fact that a company that is a resident of a Contracting State controls or is

controlled by a company that is a resident of the other Contracting State, or that carries on

business in that other Contracting State (whether through a permanent establishment or

otherwise), shall not be taken into account in determining whether either company has a 

permanent establishment in that other Contracting State.

Article 6

INCOME FROM REAL PROPERTY (IMMOVABLE PROPERTY)

1. Income derived by a resident of aContracting State from real property (immovable

property), including income from agriculture or forestry, situated in the other Contracting State

may be taxed in that other Contracting State.

2. The term "real property" or "immovable property" shall have the meaning which it has

under the law of the Contracting State in which the property in question is situated. The term shall

in any case include property accessory to real property (immovable property), livestock and

equipment used in agriculture and forestry, rights to which the provisions of general law

respecting landed property apply, usufruct of real property (immovable property) and rights to 

variable or fixed payments as consideration for the working of, or the right to work, mineral

deposits, sources and other natural resources. Ships and aircraft shall not be regarded asreal

property (immovable property). 

3. The provisions of paragraph 1 ofthis Article shall apply to income derived from the

direct use, letting, or use in any other form of real property (immovable property).

4. The provisions of paragraphs 1 and 3 of this Article shall also apply to the income from

real property (immovable property) of an enterprise.

5. A resident of a Contracting State that is liable to tax in the other Contracting State on

income from real property (immovable property) situated in the other Contracting Statemay elect

for any taxable year to compute the tax on such income on a net basis asif such income were

business profits attributable to a permanent establishment in such other Contracting State. Any

such election shall be binding for the taxable year of the election and all subsequent taxable years

unless the competent authority of the Contracting State in which the property issituated agreesto

terminate the election.
Article 7

BUSINESS PROFITS

1. Profits of an enterprise of a Contracting State shall be taxable only in that

Contracting State unless the enterprise carries on business in the other Contracting State

through a permanent establishment situated therein. If the enterprise carries on business as

aforesaid, the profits that are attributable to the permanent establishment in accordance with

the provisions of paragraph 2 of this Article may be taxed in that other Contracting State.

2. For the purposes of this Article, the profits that are attributable in each Contracting

State to the permanent establishment referred to in paragraph 1 of this Article are the profits it

might be expected to make, in particular in its dealings with other parts of the enterprise, if it

were a separate and independent enterprise engaged in the same or similar activities under the

same or similar conditions, taking into account the functions performed, assets used and risks

assumed by the enterprise through the permanent establishment and through the other parts of

the enterprise.

3. Where, in accordance with paragraph 2 of this Article, a Contracting State adjusts the

profits that are attributable to a permanent establishment of an enterprise of one of the 

Contracting States and taxes accordingly profits of the enterprise that have been charged to

tax in the other Contracting State, the other Contracting State shall, to the extent necessary to

eliminate double taxation, make an appropriate adjustment if it agrees with the adjustment

made by the first-mentioned Contracting State; if the other Contracting State does not so

agree, the Contracting States shall eliminate any double taxation resulting therefrom by

mutual agreement.

4. Where profits include items of income that are dealt with separately in other Articles

of this Convention, then the provisions of those Articles shall not be affected by the

provisions of this Article.

5. In applying this Article, paragraph 8 of Article 10 (Dividends), paragraph 5 of

Article 11 (Interest), paragraph 5 of Article 12 (Royalties), paragraph 3 of Article 13 (Gains)

and paragraph 3 of Article 21 (Other Income), any income, profit or gain attributable to a

permanent establishment during its existence is taxable in the Contracting State where such

permanent establishment is situated even if the payments are deferred until such permanent

establishment has ceased to exist.

Article 8

SHIPPING AND AIR TRANSPORT

1. Profits of an enterprise of a Contracting State from the operation of ships or aircraft in

international traffic shall be taxable only in that Contracting State.

2. For purposes of this Article, profits from the operation of ships or aircraft include, but

are not limited to:

a) profits from the rental of ships or aircraft on a full (time or voyage) basis;

b) profits from the rental on a bareboat basis ofships or aircraft if the rental income

is incidental to profits from the operation of ships or aircraft in international traffic; and
c) profits from the rental on a bareboat basis ofships or aircraft ifsuch ships or

aircraft are operated in international traffic by the lessee.

Profits derived by an enterprise from the inland transport of property or passengers within either

Contracting State shall be treated as profits from the operation of ships or aircraft in international

traffic if such transport is undertaken as part of international traffic.

3. Profits of an enterprise of a Contracting State from the use, maintenance, or rental of

containers (including trailers, barges, and related equipment for the transport of containers) shall

be taxable only in that Contracting State, except to the extent that those containers are used for 

transport solely between places within the other Contracting State.

4. The provisions of paragraphs 1 and 3 of this Article shall also apply to profits from

participation in a pool, ajoint business, or an international operating agency.

Article 9

ASSOCIATED ENTERPRISES

1. Where:

a) an enterprise of a Contracting State participates directly or indirectly in the

management, control or capital of an enterprise of the other Contracting State; or

b) the same persons participate directly or indirectly in the management, control,

or capital of an enterprise of a Contracting State and an enterprise of the other

Contracting State;

and in either case conditions are made or imposed between the two enterprises in their

commercial or financial relations that differ from those that would be made between

independent enterprises, then any profits that, but for those conditions, would have accrued to

one of the enterprises, but by reason of those conditions have not so accrued, may be included

in the profits of that enterprise and taxed accordingly.

2. Where a Contracting State includes in the profits of an enterprise of that Contracting

State, and taxes accordingly, profits on which an enterprise of the other Contracting State has

been charged to tax in that other Contracting State, and the other Contracting State agrees that

the profits so included are profits that would have accrued to the enterprise of the firstmentioned Contracting State if the conditions made between the two enterprises had been

those that would have been made between independent enterprises, then that other

Contracting State shall make an appropriate adjustment to the amount of the tax charged

therein on those profits. In determining such adjustment, due regard shall be had to the other

provisions of this Convention and the competent authorities of the Contracting States shall if

necessary consult each other.

Article 10

DIVIDENDS

1. Dividends paid by a company that is a resident of a Contracting State to a resident of the

other Contracting State may be taxed in that other Contracting State.
2. However, such dividends may also be taxed in the Contracting State of which the

company paying the dividends is a resident and according to the laws of that Contracting State, 

but if the beneficial owner of the dividends is a resident of the other Contracting State, except as

otherwise provided, the tax so charged shall not exceed:

a) 5 percent of the gross amount of the dividends if, for the twelve-month period

ending on the date on which the entitlement to the dividends is determined:

i) the beneficial owner has been a company that was a resident of the other

Contracting State or of a qualifying third state. The term "qualifying third state"

means a state that has in effect a comprehensive convention for the avoidance of

double taxation with the Contracting State of the company paying the dividends

that would have allowed the beneficial owner to benefit from a rate of tax on 

dividends that is less than or equal to 5 percent; and

ii) at least 10percent of the aggregate vote and value of the shares of the

company paying the dividends was owned directly by the beneficial owner or a 

qualifying predecessor owner. The term "qualifying predecessor owner" means a 

company from which the beneficial owner acquired the shares of the company

paying the dividends, but only if the company from which the shares were

acquired was, at the time of the acquisition, a connected person with respect to

the beneficial owner of the dividend, and such company would have benefited

from a rate of tax on dividends that is less than or equal to 5 percent either as a

resident of the same Contracting State of which the beneficial owner of the

dividends is a resident or of a state that has in effect a comprehensive convention

for the avoidance of double taxation with the Contracting State of the company

paying the dividends; and

b) 15 percent of the gross amount of the dividends in all other cases.

This paragraph shall not affect the taxation of the company in respect of the profits out of which

the dividends are paid.

3. Notwithstanding the provisions of paragraph 2 of this Article: 

a) dividends shall not be taxed in the Contracting State of which the company paying

the dividends is a resident if:

i) the beneficial owner of the dividends is a pension fund that is a resident

of the other Contracting State; and

ii) such dividends are not derived from the carrying on of a trade or

business by the pension fund or through a person that is a connected person

with respect to the pension fund; and

b) dividends paid by a company that is a resident of the United States shall not be 

taxed in the United States if:

i) the beneficial owner of the dividends is a resident of Croatia that is a 

voluntary pension insurance scheme based on individual capitalized savings 

established under the “Act on Voluntary Pension Funds” as such law existed on 

the date of signature of this Convention; and
ii) such dividends are not derived from the carrying on of a trade or business 

by such resident or through a person that is a connected person with respect to 

such resident.

4. a) Subparagraph (a) of paragraph 2 of this Article shall not apply in the case of

dividends paid by a U.S. Regulated Investment Company (RIC) or a U.S. Real Estate

Investment Trust (REIT). In the case of dividends paid by a RIC, subparagraph (b)

of paragraph 2 and paragraph 3 of this Article shall apply. In the case of dividends

paid by a REIT, subparagraph (b) of paragraph 2 and paragraph 3 of this Article shall

apply only if:

i) the beneficial owner of the dividends is an individual or pension fund,

in either case holding an interest of not more than 10 percent in the REIT;

ii) the dividends are paid with respect to a class of shares that is publicly

traded and the beneficial owner of the dividends is a person holding an

interest of not more than 5 percent of any class of the REIT's shares; or

iii) the beneficial owner of the dividends is a person holding an interest of

not more than 10 percent in the REIT and the REIT is diversified.

b) For purposes of this paragraph, a REIT shall be "diversified" if the value of

no single interest in real property (immovable property) exceeds 10 percent of its

total interests in real property (immovable property). For the purposes of this rule,

foreclosure property shall not be considered an interest in real property (immovable

property). Where a REIT holds an interest in a partnership, it shall be treated as

owning directly a proportion of the partnership's interests in real property

(immovable property) corresponding to its interest in the partnership.

5. In the case of the United States, notwithstanding the provisions of paragraph 2 of

this Article, dividends paid by an expatriated entity, as defined in Section 7874(a)(2)(A) of

the Internal Revenue Code on the date of signature of this Convention and in the regulations

that are or may be promulgated under Section 7874 with respect to that definition, and

beneficially owned by a company resident in Croatia that is a connected person with respect

to such expatriated entity may be taxed in accordance with the law of the United States for a 

period of ten years beginning on the date on which the acquisition of the domestic entity is

completed. For purposes of applying this paragraph, no entity shall be treated as an

expatriated entity if

a) it is a connected person with respect to the domestic entity immediately after

the date on which the acquisition of the domestic entity is completed; and

b) prior to that date, it was never a connected person with respect to the domestic

entity.

However, an entity described in the preceding sentence shall become an expatriated entity if,

subsequent to the date on which the acquisition of the domestic entity is completed, the entity

joins in filing a U.S. consolidated return with either the domestic entity or another entity that

was a connected person with respect to the domestic entity immediately prior to the date on

which the acquisition of the domestic entity was completed.

6. In the case of a company that otherwise satisfies the requirements of paragraph 2 of

this Article, but fails to satisfy the requirements of paragraph 4 of Article 22 (Limitation on

Benefits) regarding a dividend solely by reason of:
a) the requirement in subclause (B) of clause (i) of subparagraph (e) of paragraph

7 of Article 22 (Limitation on Benefits) of this Convention; or

b) the requirement in clause (ii) of subparagraph (e) of paragraph 7 of Article 22

(Limitation on Benefits) that a person entitled to benefits under paragraph 5 of

Article 22 (Limitation on Benefits) would be entitled to a rate of tax with respect to

the dividend that is less than or equal to the rate applicable under paragraph 2 of this

Article;

such company may be taxed in the Contracting State of which the company paying the

dividends is a resident and according to the laws of that Contracting State. In these cases,

however, the tax so charged shall not exceed the highest rate among the rates of tax to which

persons described in subparagraph (e) of paragraph 7 of Article 22 (Limitation on Benefits)

of this Convention (notwithstanding the requirements referred to in subparagraphs (a) and (b)

of this paragraph) would have been entitled if such persons had received the dividend directly. 

For purposes of this paragraph, (i) such persons' indirect ownership of the shares of the

company paying the dividends shall be treated as direct ownership, and (ii) a person described

in clause (iii) of subparagraph (e) of paragraph 7 of Article 22 (Limitation on Benefits) shall

be treated as entitled to the limitation of tax to which such person would be entitled if such

person were a resident of the same Contracting State as the company receiving the dividends.

7. For purposes of this Convention, the term "dividends" means income from shares or

other rights, not being debt-claims, participating in profits, as well as income that is subject to

the same taxation treatment as income from shares under the laws of the Contracting State of

which the company making the distribution is a resident. The term does not include

distributions that are treated as gain under the laws of the Contracting State of which the

company making the distribution is a resident. In such case, the provisions of Article 13

(Gains) shall apply.

8. The provisions of paragraphs 1 through 6 of this Article shall not apply if the

beneficial owner of the dividends, being a resident of a Contracting State, carries on business

in the other Contracting State, of which the company paying the dividends is a resident,

through a permanent establishment situated therein, and the holding in respect of which the

dividends are paid is effectively connected with such permanent establishment. In such case

the provisions of Article 7 (Business Profits) shall apply.

9. A Contracting State may not impose any tax on dividends paid by a resident of the

other Contracting State, except insofar as the dividends are paid to a resident of the firstmentioned Contracting State or the dividends are attributable to a permanent establishment

situated therein, nor may it impose tax on a corporation's undistributed profits, except as

provided in paragraph 10 of this Article, even if the dividends paid or the undistributed profits

consist wholly or partly of profits or income arising in that Contracting State.

10. a) A company that is a resident of one of the Contracting States and that has a

permanent establishment in the other Contracting State or that is subject to tax in the

other Contracting State on a net basis on its income that may be taxed in the other

Contracting State under Article 6 (Income from Real Property (Immovable Property))

or under paragraph 1 of Article 13 (Gains) may be subject in that other Contracting

State to a tax in addition to the tax allowable under the other provisions of this

Convention.

b) Such tax, however, may be imposed:
i) on only the portion of the business profits of the company attributable

to the permanent establishment and the portion of the income referred to in

subparagraph (a) of this paragraph that is subject to tax under Article 6

(Income from Real Property (Immovable Property)) or under paragraph 1 of

Article 13 (Gains) that, in the case of the United States, represents the

dividend equivalent amount of such profits or income and, in the case of

Croatia, is an amount that is analogous to the dividend equivalent amount; and

ii) at a rate not in excess of the rate specified in subparagraph (a) of

paragraph 2 or paragraph 6 of this Article, but only if for the twelve-month

period ending on the date on which the entitlement to the dividend equivalent

amount is determined, the company has been a resident of the other

Contracting State or of a qualifying third state. The term "qualifying third

state" has the same meaning as in clause (i) of subparagraph (a) of paragraph

2 of this Article.

11. For the purposes of this Article, a company that is a resident of a Contracting State

shall be considered to own directly the shares owned by an entity that:

a) is considered fiscally transparent under the laws of that Contracting State; and

b) is not a resident of the other Contracting State of which the company paying

the dividends is a resident;

in proportion to the company's ownership interest in that entity.

Article 11

INTEREST

1. Interest arising in a Contracting State and beneficially owned by a resident of the

other Contracting State shall be taxable only in that other Contracting State.

2. Notwithstanding the provisions of paragraph 1 of this Article:

a) interest arising in Croatia that is determined with reference to receipts, sales,

income, profits or other cash flow of the debtor or a connected person with respect to

the debtor, to any change in the value of any property of the debtor or a connected

person with respect to the debtor or to any dividend, partnership distribution or

similar payment made by the debtor or a connected person with respect to the debtor

may be taxed in Croatia, and according to the laws of Croatia, but if the beneficial

owner is a resident of the United States, the interest may be taxed at a rate not

exceeding 15 percent of the gross amount of the interest;

b) interest arising in the United States that is contingent interest of a type that does 

not qualify as portfolio interest under the law of the United States may be taxed by the 

United States, but if the beneficial owner is a resident of Croatia the interest may be taxed at 

a rate not exceeding 15 percent of the gross amount of the interest;

c) interest arising in a Contracting State and beneficially owned by a resident of

the other Contracting State that is a connected person with respect to the payor of the

interest may be taxed in the first-mentioned Contracting State in accordance with
domestic law if such resident benefits from a special tax regime with respect to the

interest in its Contracting State of residence;

d) in the case of the United States, interest paid by an expatriated entity, as

defined in Section 7874(a)(2)(A) of the Internal Revenue Code on the date of

signature of this Convention and in the regulations that are or may be promulgated

under Section 7874 with respect to that definition, and beneficially owned by a 

company resident in Croatia that is a connected person with respect to such

expatriated entity may be taxed in accordance with the law of the United States for a

period of ten years beginning on the date on which the acquisition of the domestic

entity is completed. For purposes of applying this paragraph no entity shall be

treated as an expatriated entity if:

i) it is a connected person with respect to the domestic entity

immediately after the date on which the acquisition of the domestic entity is

completed; and

ii) prior to that date, it was never a connected person with respect to the

domestic entity.

However, an entity described in the preceding sentence shall become an expatriated

entity if, subsequent to the date on which the acquisition of the domestic entity is

completed, the entity joins in filing a U.S. consolidated return with either the

domestic entity or another entity that was a connected person with respect to the

domestic entity immediately prior to the date on which the acquisition of the

domestic entity was completed.

e) interest arising in a Contracting State and beneficially owned by a resident of

the other Contracting State that is a connected person with respect to the payor of the

interest may be taxed in the first-mentioned Contracting State in accordance with

domestic law if such resident benefits, at any time during the taxable year in which

the interest is paid, from notional deductions with respect to amounts that the

Contracting State of which the beneficial owner is resident treats as equity;

f) interest arising in a Contracting State and beneficially owned by a resident of

the other Contracting State that is entitled to the benefits of this Article only by

reason of paragraph 5 of Article 22 (Limitation on Benefits) may be taxed in the

first-mentioned Contracting State, but the tax so charged shall not exceed 10 percent of 

the gross amount of the interest; and

g) interest that is an excess inclusion with respect to a residual interest in a real 

estate mortgage investment conduit may be taxed by each Contracting State in

accordance with its domestic law.

3. Notwithstanding the provisions of paragraph 1 of this Article, in the case of a

company seeking to satisfy the requirements of paragraph 4 of Article 22 (Limitation on

Benefits) of this Convention regarding a payment of interest, if such company fails to satisfy

the criteria of that paragraph solely by reason of:

a) the requirement in subclause (B) of clause (i) of subparagraph (e) of

paragraph 7 of Article 22 (Limitation on Benefits) of this Convention; or

b) the requirement in clause (ii) of subparagraph (e) of paragraph 7 of Article 22

(Limitation on Benefits) that a person entitled to benefits under paragraph 5 of
Article 22 (Limitation on Benefits) would be entitled to a rate of tax with respect to

the interest that is less than or equal to the rate applicable under paragraph 2 of this

Article;

such company may be taxed by the Contracting State in which the interest arises according to

the laws of that Contracting State. In these cases, however, the tax so charged shall not

exceed the highest rate among the rates of tax to which persons described in subparagraph (e)

of paragraph 7 of Article 22 (Limitation on Benefits) of this Convention (notwithstanding the

requirements referred to in subparagraphs (a) and (b) of this paragraph) would have been

entitled if such persons had received the interest directly. For purposes of this paragraph, a

person described in clause (iii) of subparagraph (e) of paragraph 7 of Article 22 (Limitation

on Benefits) shall be treated as entitled to the limitation of tax to which such person would be

entitled if such person were a resident of the same Contracting State as the company receiving

the interest.

4. The term "interest" as used in this Convention means income from debt-claims of

every kind, whether or not secured by mortgage, and whether or not carrying a right to

participate in the debtor's profits, and in particular, income from government securities and

income from bonds or debentures, including premiums or prizes attaching to such securities,

bonds or debentures, and all other income that is subjected to the same taxation treatment as

income from money lent under the law of the Contracting State in which the income arises. 

Income dealt with in Article 10 (Dividends) and penalty charges for late payment shall not be

regarded as interest for the purposes of this Convention.

5. The provisions of paragraphs 1 through 3 of this Article shall not apply if the

beneficial owner of the interest, being a resident of a Contracting State, carries on business in

the other Contracting State in which the interest arises through a permanent establishment

situated therein, and the debt-claim in respect of which the interest is paid is effectively

connected with such permanent establishment. In such case the provisions of Article 7

(Business Profits) shall apply.

6. For purposes of this Article, interest shall be deemed to arise in a Contracting State

when the payor is a resident of that Contracting State. Where, however, the person paying the

interest, whether a resident of a Contracting State or not, has in a Contracting State a

permanent establishment or derives profits that are taxable on a net basis in a Contracting

State under paragraph 5 of Article 6 (Income from Real Property (Immovable Property)) or

paragraph 1 of Article 13 (Gains), and such interest is borne by such permanent establishment

or allocable to such profits, then such interest shall be deemed to arise in the Contracting State

in which the permanent establishment is situated or from which such profits are derived.

7. The excess, if any, of the amount of interest allocable to the profits of a company

resident in a Contracting State that are:

a) attributable to a permanent establishment in the other Contracting State

(including gains under paragraph 3 of Article 13 (Gains)); or

b) subject to tax in the other Contracting State under Article 6 (Income from

Real Property (Immovable Property)) or paragraph 1 of Article 13 (Gains);

over the interest paid by that permanent establishment, or in the case of profits subject to tax

under Article 6 (Income from Real Property (Immovable Property)) or paragraph 1 of Article

13 (Gains), over the interest paid by that company, shall be deemed to arise in that other

Contracting State and to be beneficially owned by a resident of the first-mentioned
Contracting State. The tax imposed under this Article on such interest shall not exceed the

rates provided in paragraphs 1 through 3 of this Article.

8. Where, by reason of a special relationship between the payor and the beneficial

owner or between both of them and some other person, the amount of the interest, having

regard to the debt-claim for which it is paid, exceeds the amount that would have been agreed

upon by the payor and the beneficial owner in the absence of such relationship, the provisions

of this Article shall apply only to the last-mentioned amount. In such case the excess part of

the payments shall remain taxable according to the laws of each Contracting State, due regard

being had to the other provisions of this Convention.

Article 12

ROYALTIES

1. Royalties arising in a Contracting State and paid to a resident of the other Contracting

State may be taxed in that other Contracting State.

2. However, such royalties may also be taxed in the Contracting State in which they arise 

and according to the laws of that State, but if the beneficial owner of the royalties is a resident of 

the other Contracting State, the tax so charged shall not exceed 5 percent of the gross amount of 

the royalties.

3. Notwithstanding the provisions of paragraph 1 of this Article:

a) a royalty arising in a Contracting State and beneficially owned by a resident

of the other Contracting State that is a connected person with respect to the payor of

the royalty may be taxed in the first-mentioned Contracting State in accordance with

domestic law if such resident benefits from a special tax regime with respect to the

royalty in its Contracting State of residence; and

b) in the case of the United States, royalties paid by an expatriated entity, as 

defined in Section 7874(a)(2)(A) of the Internal Revenue Code on the date of signature 

of this Convention and in the regulations that are or may be promulgated under Section 

7874 with respect to that definition, and beneficially owned by a company resident in 

Croatia that is a connected person with respect to such expatriated entity may be taxed 

in accordance with the law of the United States for a period of ten years beginning on

the date on which the acquisition of the domestic entity is completed. For purposes of 

applying this paragraph, no entity shall be treated as an expatriated entity if:

i) it is a connected person with respect to the domestic entity immediately

after the date on which the acquisition of the domestic entity is completed;

and

ii) prior to that date, it was never a connected person with respect to the

domestic entity.

However, an entity described in the preceding sentence shall become an expatriated

entity if, subsequent to the date on which the acquisition of the domestic entity is

completed, the entity joins in filing a U.S. consolidated return with either the

domestic entity or another entity that was a connected person with respect to the

domestic entity immediately prior to the date on which the acquisition of the domestic

entity was completed.
4. Notwithstanding paragraph 1 of this Article, in the case of a company seeking to

satisfy the requirements of paragraph 4 of Article 22 (Limitation on Benefits) of this

Convention regarding a royalty, if such company fails to satisfy the criteria of that paragraph

solely by reason of the requirement in subclause (B) of clause (i) of subparagraph (e) of

paragraph 7 of Article 22 (Limitation on Benefits) of this Convention, such company may be

taxed in the Contracting State in which the royalty arises and according to the laws of that

Contracting State, except that the tax so charged shall not exceed the highest rate among the

rates of tax to which persons described in subparagraph (e) of paragraph 7 of Article 22

(Limitation on Benefits) of this Convention (notwithstanding the requirement of subclause (B)

of clause (i) of subparagraph (e) of paragraph 7 of Article 22 (Limitation on Benefits)) would

have been entitled if such persons had received the royalty directly. For purposes of this

paragraph, a person described in clause (iii) of subparagraph (e) of paragraph 7 of Article 22

(Limitation on Benefits) shall be treated as entitled to the limitation of tax to which such

person would be entitled if such person were a resident of the same Contracting State as the

company receiving the royalties.

5. The term "royalty" as used in this Convention means payments of any kind received

as consideration for the use of, or the right to use, any copyright of literary, artistic, scientific

or other work (including cinematographic films), any patent, trademark, design or model,

plan, secret formula or process, or for information concerning industrial, commercial or

scientific experience.

6. The provisions of paragraphs 1 through 4 of this Article shall not apply if the

beneficial owner of the royalties, being a resident of a Contracting State, carries on business

in the other Contracting State in which the royalties arise through a permanent establishment

situated therein and the right or property in respect of which the royalties are paid is

effectively connected with such permanent establishment. In such case the provisions of

Article 7 (Business Profits) shall apply.

7. Royalties shall be deemed to arise in a Contracting State when they are in

consideration for the use of, or the right to use, property, information or experience in that

Contracting State.

8. Where, by reason of a special relationship between the payor and the beneficial

owner or between both of them and some other person, the amount of the royalties, having

regard to the use, right, or information for which they are paid, exceeds the amount that

would have been agreed upon by the payor and the beneficial owner in the absence of such

relationship, the provisions of this Article shall apply only to the last-mentioned amount. In

such case the excess part of the payments shall remain taxable according to the laws of each

Contracting State, due regard being had to the other provisions of this Convention.

Article 13

GAINS

1. Gains derived by a resident of a Contracting State from the alienation of real property

(immovable property) situated in the other Contracting State may be taxed in that other

ContractingState.

2. For the purposes of this Article the term "real property (immovable property) situated in

the other Contracting State" shall include:
a) real property (immovable property) referred to in Article 6 (Income from Real

Property(ImmovableProperty));

b) where that other Contracting State isthe United States, a United Statesreal

property interest; and

c) where that other Contracting State is Croatia,

i) shares, including rights to acquire shares, other than shares in which there

isregular trading on a stock exchange, deriving 50 percent or more of their value

directly or indirectly from real property referred to in subparagraph (a) of this

paragraph situated in Croatia; and

ii) an interest in a partnership or trust to the extent that the assets of the

partnership or trust consist of real property situated in Croatia, or of shares

referred to in clause (i) of this subparagraph.

3. Gains from the alienation of movable property forming part of the business property of a 

permanent establishment that an enterprise of a Contracting State has in the other Contracting

State, including such gains from the alienation of such a permanent establishment (alone or with

the whole enterprise), may be taxed in that other Contracting State.

4. Gains derived by an enterprise of a Contracting State from the alienation of ships or

aircraft operated or used in international traffic or personal property pertaining to the operation or

use of such ships or aircraft shall be taxable only in that Contracting State.

5. Gains derived by an enterprise of a Contracting State from the alienation of containers

(including trailers, barges and related equipment for the transport of containers) used for the

transport of goods or merchandise shall be taxable only in that Contracting State, unless those

containers are used for transport solely between places within the other Contracting State.

6. Gains from the alienation of any property other than property referred to in paragraphs 1

through 5 of this Article shall be taxable only in the Contracting State of which the alienator is a

resident.

7. Where an individual who, upon ceasing to be a resident (as determined under paragraph

1 of Article 4 (Resident)) of one of the Contracting States, istreated under the taxation law of that 

Contracting State as having alienated property for itsfair market value and istaxed in that

Contracting State by reason thereof, the individual may elect to be treated for purposes of 

taxation in the other Contracting State asif the individual had, immediately before ceasing to be a

resident of the first-mentioned Contracting State, alienated and reacquired such property for an

amount equal to its fair market value at such time.

Article 14

INCOME FROM EMPLOYMENT

1. Subject to the provisions of Articles 15 (Directors' Fees), 17 (Pensions, Social Security,

Annuities, Alimony, and Child Support) and 19 (Government Service), salaries, wages and other

similar remuneration derived by a resident of a Contracting State in respect of an employment

shall be taxable only in that Contracting State unless the employment is exercised in the other

Contracting State. If the employment is so exercised, such remuneration as is derived therefrom

may be taxed in that other Contracting State.
2. Notwithstanding the provisions of paragraph 1 of this Article, remuneration derived by a 

resident of a Contracting State in respect of an employment exercised in the other Contracting

State shall be taxable only in the first-mentioned Contracting State if:

a) the recipient is present in the other Contracting State for a period or periods not

exceeding in the aggregate 183 daysfor any twelve-month period commencing or ending

in the taxable year concerned;

b) the remuneration is paid by, or on behalf of, an employer who is not a resident of 

the other Contracting State; and

c) the remuneration is not borne by a permanent establishment that the employer

has in the other Contracting State.

3. Notwithstanding the preceding provisions of this Article, remuneration described in

paragraph 1 of this Article that is derived by a resident of a Contracting State in respect of an

employment as a member of the regular complement of a ship or aircraft operated in international

traffic shall be taxable only in that Contracting State.

Article 15

DIRECTORS' FEES

Directors' fees and other similar payments derived by a resident of a Contracting

State for services rendered in the other Contracting State in his capacity as a member of the

board of directors of a company that is a resident of the other Contracting State may be taxed

in that other Contracting State.

Article 16

ENTERTAINERS AND SPORTSMEN

1. Notwithstanding the provisions of Article 14 (Income from Employment), income

derived by a resident of a Contracting State as an entertainer, such as a theater, motion

picture, radio, or television artiste, or a musician, or as a sportsman, from his personal

activities as such exercised in the other Contracting State, may be taxed in that other

Contracting State, except where the amount of the gross receipts derived by such entertainer

or sportsman, including expenses reimbursed to him or borne on his behalf, from such

activities does not exceed thirty thousand United States dollars (30,000) or its equivalent in

Croatia for the taxable year of the payment.

2. Where income in respect of activities exercised by an entertainer or a sportsman in

his capacity as such accrues not to the entertainer or sportsman himself but to another person,

that income, notwithstanding the provisions of Article 14 (Income from Employment), may

be taxed in the Contracting State in which the activities of the entertainer or sportsman are

exercised unless the contract pursuant to which the personal activities are performed allows

that other person to designate the individual who is to perform the personal activities.
Article 17

PENSIONS, SOCIAL SECURITY, ANNUITIES,

ALIMONY, AND CHILD SUPPORT

1. a) Pensions and other similar remuneration paid by a pension fund established in a 

Contracting State to an individual resident of the other Contracting State may be taxed in 

that other Contracting State. However, such pensions and other similar remuneration 

may also be taxed in the Contracting State in which the pension fund is established and 

according to the laws of that State, but if the beneficial owner of the pensions and other 

similar remuneration is a resident of the other Contracting State, the tax so charged shall 

not exceed 10 percent of the gross amount of the payment.

b) Notwithstanding subparagraph (a) of this paragraph, the amount of any such 

pension or other similar remuneration when paid by a pension fund shall be exempt 

from taxation in the Contracting State of which the beneficial owner is a resident if such 

pension or other similar remuneration would have been exempt from taxation in the 

Contracting State in which the pension fund is established if the beneficial owner were a 

resident thereof. This subparagraph shall apply only if the beneficial owner was a 

resident of the Contracting State in which the pension fund is established when such 

beneficial owner first contributed to or participated in the pension fund, or in the case of 

a beneficial owner who obtained an interest in the pension fund or similar remuneration 

by reason of the death of the individual who first participated in the pension fund, such 

deceased individual was a resident of the Contracting State in which the pension fund is 

established when such individual first contributed to or participated in the pension fund.

2. a) Where an individual who is a resident of a Contracting State is a member or

beneficiary of, or participant in, a pension fund established in the other Contracting State,

income earned by the pension fund may not be taxed asincome of that individual, unless,

and then only to the extent that, it is paid to, or for the benefit of, that individual from the

pension fund (and not transferred to another pension fund established in that other

Contracting State in a transfer that qualifies as a tax-deferred transfer under the laws of

that other Contracting State). In such case, the provisions of paragraph 1 of this Article

shallapply. This subparagraph shall apply only if the individual was a resident of the 

Contracting State in which the pension fund is established when such individual first 

contributed to or participated in the pension fund, or in the case of a beneficiary who 

obtained an interest in the pension fund or similar remuneration by reason of the death 

of the individual who first participated in the pension fund, such deceased individual 

was a resident of the Contracting State in which the pension fund is established when 

such deceased individual first contributed to or participated in the pension fund.

b) Where a citizen of the United States who is a resident of Croatia is a member or

beneficiary of, or participant in, a pension fund established in Croatia the United States

may not tax the income earned by the pension fund as income of the individual unless,

and then only to the extent that, it is paid to, or for the benefit of, that individual from the

pension fund (and not transferred to another pension fund established in Croatia ina

transferthatqualifies asatax-deferred transferunderthelawsof Croatia).

3. Notwithstanding the provisions of paragraph 1of this Article, payments made by a

Contracting State under provisions of the social security orsimilar legislation of that Contracting

State to a resident of the other Contracting State or to a citizen of the United States shall be taxable

only in the first-mentioned Contracting State.
4. Annuities derived and beneficially owned by an individual resident of a Contracting State

shall be taxable only in that Contracting State. The term "annuities" as used in this paragraph

means a stated sum paid periodically at stated times during a specified number of years, or for

life, under an obligation to make the payments in return for adequate and full consideration (other

than servicesrendered).

5. Alimony paid by a resident of a Contracting State to a resident of the other Contracting 

State shall be exempt from tax in both Contracting States. Notwithstanding the preceding 

sentence, if the payor is entitled to a deduction for the alimony, such alimony may only be taxed 

in the Contracting State of which the recipient of the alimony is a resident. The term “alimony” 

as used in this paragraph means periodic payments made pursuant to a written separation 

agreement or a decree of divorce, separate maintenance, or compulsory support.

6. Periodic payments, not dealt with in paragraph 5 of this Article, for the support of a

child made pursuant to a written separation agreement or a decree of divorce, separate

maintenance, or compulsory support, paid by a resident of a Contracting State to a resident of

the other Contracting State, shall be exempt from tax in both Contracting States.

Article 18

CONTRIBUTIONS TO PENSION FUNDS

1. Where an individual is, or was immediately before exercising employment or selfemployment in a Contracting State, a resident of the other Contracting State and is a member or

beneficiary of, or participant in, a pension fund established in the other Contracting State:

a) contributions paid by or on behalf of that individual to the pension fund

during the period that he exercises an employment or self-employment in the firstmentioned Contracting State shall be deductible (or excludible) in computing the

individual's taxable income in that first-mentioned Contracting State; and

b) any benefits accrued under the pension fund, or contributions made to the

pension fund by or on behalf of the individual's employer, during that period shall not

be treated as part of the employee's taxable income and any such contributions shall

be allowed as a deduction in computing the taxable income of the individual's

employer in the first-mentioned Contracting State.

The relief available under this paragraph shall not exceed the lesser of the relief that is 

available in either Contracting State to its residents for contributions to, or benefits

accrued under, a pension fund established in that Contracting State.

2. The provisions of paragraph 1 of this Article shall not apply unless:

a) contributions by or on behalf of the individual, or by or on behalf of the

individual's employer, to the pension fund (or to another similar pension fund

established in the same Contracting State for which the first-mentioned pension fund

was substituted) were made before the individual began to exercise an employment or

self-employment in the first-mentioned Contracting State in paragraph 1 of this 

Article; and

b) the competent authority of the first-mentioned Contracting State in paragraph 1

of this Article has determined that the pension fund generally corresponds to a pension

fund established in that Contracting State.
3. a) Where a citizen of the United States who is a resident of Croatia exercises an

employment in Croatia, the income from which is taxable in Croatia, the contribution

is borne by an employer who is a resident of Croatia or by a permanent establishment

situated in Croatia, and the individual is a member or beneficiary of, or participant in,

a pension fund established in Croatia:

i) contributions paid by or on behalf of that individual to the pension fund

during the period that the individual exercises the employment in Croatia and

that are attributable to the employment, shall be deductible (or excludible) in

computing the individual's taxable income in the United States; and

ii) any benefits accrued under the pension fund, or contributions made to

the pension fund by or on behalf of the individual's employer, during that

period, and that are attributable to the employment, shall not be included in

computing the employee's taxable income in the United States.

b) The relief available under this paragraph shall not exceed the lesser of:

i) the relief that would be allowed by the United States to its residents for

contributions to, or benefits accrued under, a generally corresponding pension

fund established in the United States; and

ii) the amount of contributions or benefits that qualify for tax relief in

Croatia.

c) For purposes of determining an individual's eligibility to participate in and

receive tax benefits with respect to a pension fund established in the United States,

contributions made to, or benefits accrued under, a pension fund established in

Croatia shall be treated as contributions or benefits under a generally corresponding

pension fund established in the United Statesto the extent relief is available to the

individual underthis paragraph.

d) This paragraph shall not apply unless the competent authority of the United

States has agreed that the pension fund generally corresponds to a pension fund

established in the United States.

Article 19

GOVERNMENT SERVICE

1. Notwithstanding the provisions of Articles 14 (Income from Employment), 15

(Directors' Fees), 16(Entertainers and Sportsmen) and 20 (Students and Trainees):

a) salaries, wages and other remuneration, other than a pension, paid to an

individual in respect of services rendered to a Contracting State or a political subdivision

or local authority thereof shall,subject to the provisions of subparagraph (b) of this

paragraph, be taxable only in that Contracting State;

b) such remuneration, however, shall be taxable only in the other Contracting State

if the services are rendered in that Contracting State and the individual is a resident of

that Contracting State who:
i) is a national of that Contracting State; or

ii) did not become a resident of that Contracting State solely for the purpose

ofrendering the services.

2. Notwithstanding the provisions of paragraph 1 of Article 17 (Pensions, Social Security,

Annuities, Alimony, and Child Support):

a) any pension and other similar remuneration paid by, or out of funds created by, a 

Contracting State or a political subdivision or a local authority thereof to an individual in

respect of services rendered to that Contracting State or subdivision or authority (other

than a payment to which paragraph 3 of Article 17 (Pensions, Social Security, Annuities,

Alimony, and Child Support) applies) shall, subject to the provisions of subparagraph (b)

of this paragraph, be taxable only in that Contracting State;

b) such pension and other similar remuneration, however, shall be taxable only in

the other Contracting State if the individual is a resident of, and a national of, that

Contracting State.

3. The provisions of Articles 14 (Income from Employment), 15 (Directors' Fees), 16

(Entertainers and Sportsmen) and 17(Pensions, Social Security, Annuities, Alimony, and Child

Support) shall apply to salaries, wages and other similar remuneration, and to pensions and other

similar remuneration, in respect ofservices rendered in connection with a business carried on by a

Contracting State or a political subdivision or a local authority thereof.

Article 20

STUDENTS AND TRAINEES

1. Payments, other than remuneration for personal services, received by a student or

business trainee who is, or was immediately before visiting a Contracting State, a resident of

the other Contracting State, and who is present in the first-mentioned Contracting State for the

purpose of his full-time education or for his full-time training, shall not be taxed in that

Contracting State, provided that such payments arise outside that Contracting State, and are

for the purpose of his maintenance, education or training. The exemption from tax provided

by this paragraph shall apply to a business trainee only for a period of time not exceeding

twelve months from the date the business trainee first arrives in the first-mentioned

Contracting State for the purpose of training.

2. A student or business trainee described in paragraph 1 of this Article shall be exempt

from tax by the Contracting State in which the individual is temporarily present with respect

to income from personal services in an aggregate amount equal to ten thousand United States

dollars (10,000) or its equivalent in Croatia for the taxable year of the payment. The

competent authorities of the Contracting States may adjust the amount provided in this

paragraph to the extent necessary to take into account changes in the personal exemption,

standard deduction or filing thresholds in the domestic laws of either Contracting State.

3. For purposes of this Article, a business trainee is an individual:

a) who is temporarily in a Contracting State for the purpose of securing training

required to qualify the individual to practice a profession or professional specialty; or
b) who is temporarily in a Contracting State as an employee of, or under contract

with, a resident of the other Contracting State, for the primary purpose of acquiring

technical, professional or business experience from a person other than that resident

of the other Contracting State (or a connected person with respect to such resident of

the other Contracting State).

Article 21

OTHER INCOME

1. Items of income beneficially owned by a resident of aContracting State, wherever

arising, not dealt with in the foregoing Articles of this Convention shall be taxable only in that

Contracting State.

2. Notwithstanding paragraph 1 of this Article:

a) a guarantee fee arising in a Contracting State and characterized as other income

by that Contracting State and beneficially owned by a resident of the other Contracting

State that is a connected person with respect to the payor of the guarantee fee may be

taxed in the first-mentioned Contracting State in accordance with domestic law if such

resident benefits from a special tax regime with respect to the guarantee fee in its

Contracting State ofresidence; and

b) in the case of the United States, a guarantee fee characterized as other income 

paid by an expatriated entity, as defined in Section 7874(a)(2)(A) of the Internal 

Revenue Code on the date of signature of this Convention and in the regulations that are 

or may be promulgated under Section 7874, and beneficially owned by a company 

resident in Croatia that is a connected person with respect to such expatriated entity may 

be taxed in accordance with the law of the United States for a period of ten years 

beginning on the date on which the acquisition of the domestic entity is completed. For 

purposes of applying this paragraph, no entity shall be treated as an expatriated entity if:

i) it is a connected person with respect to the domestic entity immediately

after the date on which the acquisition of the domestic entity is completed; and

ii) prior to that date, it was never a connected person with respect to the

domestic entity.

However, an entity described in the preceding sentence shall become an expatriated

entity if, subsequent to the date on which the acquisition of the domestic entity is 

completed, the entity joins in filing a U.S. consolidated return with either the domestic

entity or another entity that was a connected person with respect to the domestic entity

immediately prior to the date on which the acquisition of the domestic entity was

completed.

3. The provisions of paragraphs 1 and 2 of this Article shall not apply to income, other

than income from real property (immovable property) as defined in paragraph 2 of Article 6

(Income from Real Property (Immovable Property)), if the beneficial owner of the income, being 

a resident of a Contracting State, carries on business in the other Contracting State through a 

permanent establishment situated therein and the right or property in respect of which the 

income is paid is effectively connected with such permanent establishment. In such case the 

provisions of Article 7 (Business Profits) shall apply.
Article 22

LIMITATION ON BENEFITS

1. Except as otherwise provided in this Article and in paragraph 6 of Article 10

(Dividends), paragraph 3 of Article 11 (Interest) and paragraph 3 of Article 12 (Royalties), a

resident of a Contracting State shall not be entitled to the benefits of this Convention

otherwise accorded to residents of a Contracting State (other than a benefit under paragraph 2

of Article 9 (Associated Enterprises) or Article 25 (Mutual Agreement Procedure) unless such

resident is a "qualified person" as defined in paragraph 2 of this Article at the time when the

benefit would be accorded.

2. A resident of a Contracting State shall be a qualified person at the time when a

benefit otherwise would be accorded by this Convention if, at that time and, with respect to

clause (i) of subparagraph (f) of this paragraph, on at least half of the days of any twelvemonth period that includes the date when the benefit otherwise would be accorded, the

resident is:

a) an individual;

b) a Contracting State, political subdivision or local authority thereof, or an

agency or instrumentality of that Contracting State, political subdivision or local

authority;

c) a company, if the principal class of its shares (and any disproportionate class

of shares) is regularly traded on one or more recognized stock exchanges, and either:

i) its principal class of shares is primarily traded on one or more

recognized stock exchanges located in the Contracting State of which the

company is a resident; or

ii) the company's primary place of management and control is in the

Contracting State of which it is a resident;

d) a company, if:

i) at least 50 percent of the aggregate vote and value of the shares (and at

least 50 percent of the aggregate vote and value of any disproportionate class

of shares) in the company is owned directly or indirectly by five or fewer

companies entitled to benefits under subparagraph (c) of this paragraph,

provided that, in the case of indirect ownership, each intermediate owner is a

resident of the Contracting State from which a benefit under this Convention

is being sought or is a qualifying intermediate owner; and

ii) with respect to benefits under this Convention other than under Article 10

(Dividends), less than 50 percent of the company's gross income, and less than 

50 percent of the tested group's gross income, is paid or accrued, directly or 

indirectly, in the form of payments that are deductible for purposes of the taxes 

covered by this Convention in the company's Contracting State of residence (but 

not including arm's length payments in the ordinary course of business for

services or tangible property, and in the case of a tested group, not including 

intra- group transactions): (A) to persons that are not residents of either 

Contracting State entitled to the benefits of this Convention under subparagraph 
(a), (b), (c) or (e) of this paragraph; (B) to persons that are connected

persons with respect to the company described in this subparagraph and

that benefit from a special tax regime with respect to the deductible

payment; or (C) with respect to a payment of interest, to persons that are

connected persons with respect to the company described in this

subparagraph and that benefit from notional deductions described in

subparagraph (e) of paragraph 2 of Article 11 (Interest);

e) a person described in paragraph 2 of Article 4 (Resident) of this Convention, 

provided that:

i) in the case of a person described in subclause (A) of clause (ii) of 

subparagraph (k) of paragraph 1 of Article 3 (General Definitions), more than 50 

percent of the person's beneficiaries, members or participants are individuals 

resident in either Contracting State; and

ii) in the case of a person described in subclause (B) of clause (ii) of

subparagraph (k) of paragraph 1 of Article 3 (General Definitions), the

earnings of such person benefit exclusively, or almost exclusively, pension

funds that satisfy the requirements of clause (i) of this subparagraph;

f) a person other than an individual or person described in subparagraph (g), if:

i) persons that are residents of that Contracting State entitled to the

benefits of this Convention under subparagraph (a), (b), (c) or (e) of this

paragraph own, directly or indirectly, shares or other beneficial interests

representing at least 50 percent of the aggregate vote and value (and at

least 50 percent of the aggregate vote and value of any disproportionate

class of shares) of the shares or other beneficial interests of such person,

provided that, in the case of indirect ownership, each intermediate owner is

a qualifying intermediate owner; and

ii) less than 50 percent of the person's gross income, and less than 50

percent of the tested group's gross income, is paid or accrued, directly or

indirectly, in the form of payments that are deductible for purposes of the

taxes covered by this Convention in the person's Contracting State of

residence (but not including arm's length payments in the ordinary course of 

business for services or tangible property, and in the case of a tested group, 

not including intra-group transactions): (A) to persons that are not residents 

of either Contracting State entitled to the benefits of this Convention under 

subparagraph (a), (b), (c) or (e) of this paragraph; (B) to persons that are 

connected persons with respect to the person described in this subparagraph 

and that benefit from a special tax regime with respect to the deductible 

payment; or (C) with respect to a payment of interest, to persons that are 

connected persons with respect to the person described in this subparagraph 

and that benefit from notional deductions described in subparagraph (e) of 

paragraph 2 of Article 11 (Interest); or

g) a person that is a voluntary pension insurance scheme based on individual 

capitalized savings established under the “Act on Voluntary Pension Funds” as such 

law existed on the date of signature of this Convention, provided that at least 90 

percent of the person’s members are individuals resident in Croatia.
3. a) A resident of a Contracting State shall be entitled to benefits under this

Convention with respect to an item of income derived from the other Contracting

State, regardless of whether the resident is a qualified person, if the resident is

engaged in the active conduct of a trade or business in the first-mentioned Contracting

State, and the income derived from the other Contracting State emanates from, or is

incidental to, that trade or business. For purposes of this Article, the term "active

conduct of a trade or business" shall not include the following activities or any

combination thereof:

i) operating as a holding company;

ii) providing overall supervision or administration of a group of

companies;

iii) providing group financing (including cash pooling); or

iv) making or managing investments, unless these activities are carried on by

a bank, insurance company or registered securities dealer in the ordinary 

course of its business as such.

b) If a resident of a Contracting State derives an item of income from a trade or

business activity conducted by that resident in the other Contracting State, or derives

an item of income arising in the other Contracting State from a connected person, the

conditions described in subparagraph (a) of this paragraph shall be considered to be

satisfied with respect to such item only if the trade or business activity conducted by

the resident in the first-mentioned Contracting State to which the item isrelated is

substantial in relation to the same or complementary trade or business activity

carried on by the resident or such connected person in the other Contracting State.

Whether a trade or business activity issubstantial forthe purposes of this paragraph

shall be determined based on all the facts and circumstances.

c) For purposes of applying this paragraph, activities conducted by connected

persons with respect to a resident of a Contracting State shall be deemed to be

conducted by such resident.

4. A company that is a resident of a Contracting State shall be entitled to a benefit

under this Convention, regardless of whether the resident is a qualified person if, at the time

when the benefit would be accorded, and with respect to subparagraph (a) of this paragraph,

on at least half of the days of any twelve-month period that includes the date when the benefit

otherwise would be accorded:

a) at least 95 percent of the aggregate vote and value of its shares (and at least

50 percent of any disproportionate class of shares) is owned, directly or indirectly,

by seven or fewer persons that are equivalent beneficiaries, provided that, in the case

of indirect ownership, each intermediate owner is a qualifying intermediate owner;

and

b) less than 50 percent of the company's gross income, and less than 50 percent

of the tested group's gross income, is paid or accrued, directly or indirectly, in the

form of payments that are deductible for purposes of the taxes covered by this

Convention in the company's Contracting State of residence (but not including arm's

length payments in the ordinary course of business for services or tangible property,

and in the case of a tested group, not including intra-group transactions): (i) to

persons that are not equivalent beneficiaries; (ii) to persons that are equivalent
beneficiaries only by reason of paragraph 5 of this Article or of a substantially

similar provision in the relevant comprehensive convention for the avoidance of

double taxation; (iii) to persons that are equivalent beneficiaries that are connected

persons with respect to the company described in this paragraph and that benefit

from a special tax regime with respect to the deductible payment, provided that if the

relevant comprehensive convention for the avoidance of double taxation does not

contain a definition of a special tax regime analogous to the definition in

subparagraph (1) of paragraph 1 of Article 3 (General Definitions), the principles of

the definition provided in this Convention shall apply, but without regard to the

requirement in clause (v) of that definition; or (iv) with respect to a payment of

interest, to persons that are equivalent beneficiaries that are connected persons with

respect to the company described in this paragraph and that benefit from notional

deductions of the type described in subparagraph (e) of paragraph 2 of Article 11

(Interest).

5. A company that is a resident of a Contracting State that functions as a headquarters

company for a multinational corporate group consisting of such company and its direct and

indirect subsidiaries shall be entitled to benefits under this Convention with respect to

dividends and interest paid by members of its multinational corporate group, regardless of

whether the resident is a qualified person. A company shall be considered a headquarters

company for this purpose only if:

a) such company's primary place of management and control is in the

Contracting State of which it is a resident;

b) the multinational corporate group consists of companies resident in, and

engaged in the active conduct of a trade or business in, at least four states, and the

trades or businesses carried on in each of the four states (or four groupings of states)

generate at least 10 percent of the gross income of the group;

c) the trades or businesses of the multinational corporate group that are carried

on in any one state other than the Contracting State of residence of such company

generate less than 50 percent of the gross income of the group;

d) no more than 25 percent of such company's gross income is derived from the

other Contracting State;

e) such company is subject to the same income taxation rules in its Contracting

State of residence as persons described in paragraph 3 of this Article; and

f) less than 50 percent of such company's gross income, and less than 50 percent

of the tested group's gross income, is paid or accrued, directly or indirectly, in the

form of payments that are deductible for purposes of the taxes covered by this

Convention in the company's Contracting State of residence (but not including arm's

length payments in the ordinary course of business for services or tangible property

or payments in respect of financial obligations to a bank that is not a connected

person with respect to such company, and in the case of a tested group, not including

intra-group transactions): (i) to persons that are not residents of either Contracting

State entitled to the benefits of this Convention under subparagraph (a), (b), (c) or (e)

of paragraph 2 of this Article; (ii) to persons that are connected persons with respect

to such company and that benefit from a special tax regime with respect to the

deductible payment; or (iii) with respect to a payment of interest, to persons that are

connected persons with respect to such company and that benefit from notional

deductions described in subparagraph (e) of paragraph 2 of Article 11 (Interest).
If the requirements of subparagraph (b), (c) or (d) of this paragraph are not fulfilled for the

relevant taxable year, they shall be deemed to be fulfilled if the required ratios are met when

averaging the gross income of the preceding four taxable years.

6. If a resident of a Contracting State is neither a qualified person pursuant to the

provisions of paragraph 2 of this Article, nor entitled to benefits under paragraph 3, 4 or 5 of

this Article, the competent authority of the other Contracting State may, nevertheless, grant

the benefits of this Convention, or benefits with respect to a specific item of income, taking

into account the object and purpose of this Convention, but only if such resident demonstrates

to the satisfaction of such competent authority a substantial nontax nexus to its Contracting

State of residence and that neither its establishment, acquisition or maintenance, nor the

conduct of its operations had as one of its principal purposes the obtaining of benefits under

this Convention. The competent authority of the Contracting State to which a request has been

made shall consult with the competent authority of the other Contracting State before either

granting or denying the request made under this paragraph by a resident of that other

Contracting State.

7. For the purposes of this Article:

a) the term "recognized stock exchange" means:

i) any stock exchange registered with the U.S. Securities and Exchange

Commission as a national securities exchange under the U.S. Securities

Exchange Act of 1934;

ii) the Zagreb Stock Exchange; and

iii) any other stock exchange agreed upon by the competent authorities of

the Contracting States;

b) the term "principal class of shares" means the ordinary or common shares of

the company, provided that such class of shares represents the majority of the

aggregate vote and value of the company. If no single class of ordinary or common

shares represents the majority of the aggregate vote and value of the company, the

"principal class of shares" are those classes that in the aggregate represent a majority

of the aggregate vote and value of the company;

c) the term "disproportionate class of shares" means any class of shares of a

company, or in the case of a trust, any class of beneficial interests in such trust,

resident in one of the Contracting States that entitles the shareholder or interest holder

to disproportionately higher participation, through dividends, redemption payments

or otherwise, in the earnings generated in the other Contracting State;

d) a company's "primary place of management and control" is in the

Contracting State of which it is a resident only if:

i) the executive officers and senior management employees of the

company exercise day-to-day responsibility for more of the strategic, financial

and operational policy decision-making for the company and its direct and

indirect subsidiaries in that Contracting State, and the staff of such persons

conduct more of the day-to-day activities necessary for preparing and making

those decisions in that Contracting State, than in any other state; and
ii) such executive officers and senior management employees exercise dayto-day responsibility for more of the strategic, financial and operational policy 

decision-making for the company and its direct and indirect subsidiaries, and the 

staff of such persons conduct more of the day-to-day activities necessary for

preparing and making those decisions, than the officers or employees of any 

other company;

e) the term "equivalent beneficiary" means:

i) a resident of any state, provided that:

A) the resident is entitled to all the benefits of a comprehensive

convention for the avoidance of double taxation between that state and

the Contracting State from which the benefits of this Convention are

sought, under provisions substantially similar to subparagraph (a), (b),

(c) or (e) of paragraph 2 of this Article or, when the benefit being

sought is with respect to interest or dividends paid by a member of the

resident's multinational corporate group, the resident is entitled to

benefits under provisions substantially similar to paragraph 5 of this

Article, provided that, if such convention does not contain a

comprehensive limitation on benefits article, the provisions of this

Article were contained in such convention. Notwithstanding the

preceding sentence, an individual (1) who is liable to tax in his or her

state of residence with respect to foreign source income or gains only

on a remittance or similar basis, or (2) whose tax is determined in that

state, in whole or in part, on a fixed-fee, "forfait" or similar basis, shall

not be considered an equivalent beneficiary; and

B) 1) with respect to income referred to in Article 10 

(Dividends), 11 (Interest) or 12 (Royalties) of this Convention, if the 

resident had received such income directly, the resident would be entitled 

under such convention, a provision of domestic law or any other

international agreement, to a rate of tax with respect to such income for

which benefits are being sought under this Convention that is less than

or equal to the rate applicable under this Convention. Regarding a

company seeking benefits under paragraph 4 of this Article with

respect to Article 10 (Dividends), for purposes of this subclause:

I) if the resident is an individual, and the company is

engaged in the active conduct of a trade or business in its

Contracting State of residence that is substantial in relation,

and similar or complementary, to the trade or business that

generated the earnings from which the income is paid, such

individual shall be treated as if he or she were a company

described in subparagraph (c) of paragraph 2 of this Article.

Activities conducted by a person that is a connected person

with respect to the company seeking benefits shall be

deemed to be conducted by such company. Whether a trade

or business activity is substantial shall be determined based

on all the facts and circumstances; and

II) if the resident is a company (including an individual

treated as a company), to determine whether the resident is

entitled to a rate of tax that is less than or equal to the rate
applicable under this Convention, the resident's indirect

ownership of the shares of the company paying the dividends

shall be treated as direct ownership; or

2) with respect to an item of income, profit or gain referred to

in Article 7 (Business Profits), 13 (Gains) or 21 (Other Income) of

this Convention, the resident is entitled to benefits under such

convention that are at least as favorable as the benefits that are

being sought under this Convention; and

C) notwithstanding that a resident may satisfy the requirements of

subclauses (A) and (B) of this clause, where the item of income, profit or

gain has been derived through an entity that is treated as wholly or partly 

fiscally transparent under the laws of the Contracting State of the company

seeking benefits, if the item of income, profit or gain would not be treated

as the income, profit or gain of the resident under a provision analogous to

paragraph 6 of Article 1 (General Scope) of this Convention had the

resident, and not the company seeking benefits under paragraph 4 of this

Article, itself owned the entity through which the income, profit or gain

was derived by the company, such resident shall not be considered an 

equivalent beneficiary with respect to the item of income;

ii) a resident of the same Contracting State as the company seeking benefits

under paragraph 4 of this Article that is entitled to all the benefits of this

Convention by reason of subparagraph (a), (b), (c) or (e) of paragraph 2 of this

Article or, when the benefit being sought is with respect to interest or dividends

paid by a member of the resident's multinational corporate group, the resident is

entitled to benefits under paragraph 5 of this Article, provided that, in the case of a

resident described in paragraph 5 of this Article, if the resident had received such

interest or dividends directly, the resident would be entitled to a rate of tax with

respect to such income that is less than or equal to the rate applicable under this

Convention to the company seeking benefits under paragraph 4 of this Article; or

iii) a resident of the Contracting State from which the benefits of this

Convention are sought that is entitled to all the benefits of this Convention by

reason of subparagraph (a), (b), (c) or (e) of paragraph 2 of this Article, provided

that all such residents' ownership of the aggregate vote and value of the shares

(and any disproportionate class of shares) of the company seeking benefits under

paragraph 4 of this Article does not exceed 25 percent of the total vote and value

of the shares (and any disproportionate class of shares) of the company.

f) the term "qualifying intermediate owner" means an intermediate owner that is

either:

i) a resident of a state that has in effect with the Contracting State from which

a benefit under this Convention is being sought a comprehensive convention for

the avoidance of double taxation and that does not benefit from either (A) a special

tax regime, provided that if the relevant comprehensive convention for the

avoidance of double taxation does not contain a definition of a special tax regime

analogous to the definition in subparagraph (1) of paragraph 1 of Article 3

(General Definitions), the principles of the definition provided in this Convention

shall apply, but without regard to the requirement in clause (v) of that definition;

or (B) notional interest deductions of the type described in subparagraph (e) of

paragraph 2 of Article 11 (Interest); or
ii) a resident of the same Contracting State as the company applying the test

under subparagraph (d) or (f) of paragraph 2 or paragraph 4 of this Article to

determine whether it is eligible for benefits under the Convention;

g) the term "tested group" means the resident of a Contracting State that is applying

the test under subparagraph (d) or (f) of paragraph 2 of this Article or paragraph 4 or 5 of

this Article to determine whether it is eligible for benefits under the Convention (the 

"tested resident"), and any company or permanent establishment that:

i) participates as a member with the tested resident in a tax consolidation,

fiscal unity or similar regime that requires members of the group to share profits or

losses; or

ii) shares losses with the tested resident pursuant to a group relief or other loss

sharing regime in the taxable year; and

h) the term "gross income" means gross receipts as determined in the person's

Contracting State of residence for the taxable year that includes the time when the benefit

would be accorded, except that where a person is engaged in a business that includes the

manufacture, production or sale of goods, "gross income" means such gross receipts

reduced by the cost of goods sold, and where a person is engaged in a business of

providing non-financial services, "gross income" means such gross receipts reduced by 

the direct costs of generating such receipts, provided that:

i) except when relevant for determining benefits under Article 10 (Dividends)

of this Convention, gross income shall not include the portion of any dividends

that are effectively exempt from tax in the person's Contracting State of residence,

whether through deductions or otherwise; and

ii) except with respect to the portion of any dividend that is taxable, a tested

group's gross income shall not take into account transactions between companies

within the tested group.

Article 23

RELIEF FROM DOUBLE TAXATION

1. In the case of Croatia, double taxation will be relieved as follows:

Where a resident of Croatia derives income that, in accordance with the provisions of this 

Convention, may be taxed in the United States, Croatia shall allow as a deduction from the tax 

on the income of that resident, an amount equal to the income tax paid in the United States.

Such deduction shall not, however, exceed that part of the income tax, as computed before the 

deduction is given, which is attributable to the income which may be taxed in the United 

States.

2. In the case of the United States, to the extent allowed under the law of the United States 

(as it may be amended from time to time): 

a) the United States shall allow to a resident or citizen of the United States as a 

credit against the United States tax on income applicable to residents and citizens the 

income tax paid or accrued to Croatia by or on behalf of such resident or citizen; and
b) in the case of a United States company owning at least 10 percent of the 

aggregate vote or value of the shares of a company that is a resident of Croatia and from 

which the United States company receives dividends, the United States shall allow a 

deduction in the amount of such dividends in computing the taxable income of the 

United States company.

3. For the purposes of applying subparagraph (a) of paragraph 2 of this Article:

a) the taxes paid or accrued to Croatia that are referred to in subparagraph (a) of 

paragraph 3 of Article 2 (Taxes Covered) shall be considered income taxes; and 

b) an item of gross income, as determined under the law of the United States, 

derived by a resident or citizen of the United States that, under this Convention, may be 

taxed in Croatia shall be deemed to arise in Croatia.

4. Where a United States citizen is a resident of Croatia:

a) with respect to items of income, profit or gain that under the provisions of this

Convention are exempt from United States tax or that are subject to a reduced rate of

United States tax when derived by a resident of Croatia who is not a United States

citizen, Croatia shall allow as a credit against Croatia tax only the tax paid, if any, that

the United States may impose under the provisions of this Convention other than

taxes that may be imposed solely by reason of citizenship under paragraph 4 of

Article 1 (General Scope);

b) for purposes of applying subparagraph (a) of paragraph 2 of this Article to 

compute United States tax on those items of income, profit or gain referred to in 

subparagraph (a) of this paragraph, the United States shall allow as a credit against 

United States tax the income tax paid to Croatia after the credit referred to in

subparagraph (a) of this paragraph; the credit so allowed shall not reduce the portion 

of the United Statestax that is creditable against the Croatia tax in accordance with

subparagraph (a) of this paragraph; and

c) for the exclusive purpose of relieving double taxation in the United States

under subparagraph (b) of this paragraph, items of income, profit or gain referred to

in subparagraph (a) of this paragraph shall be deemed to arise in Croatia to the extent

necessary to avoid double taxation of such income under subparagraph (b) of this

paragraph.

Article 24

NON-DISCRIMINATION

1. Nationals of a Contracting State shall not be subjected in the other Contracting State to 

any taxation or any requirement connected therewith that is more burdensome than the taxation

and connected requirements to which nationals ofthat other Contracting State in the same

circumstances, in particular with respect to residence, are or may be subjected. This provision 

shall also apply to persons who are not residents of one or both of the Contracting States. 

However, for the purposes of United States taxation, United States nationals who are subject to 

tax on a worldwide basis are not in the same circumstances as nationals of Croatia who are not 

residents of the United States.
2. The taxation on a permanent establishment that an enterprise of a Contracting State has

in the other Contracting State shall not be lessfavorably levied in that other Contracting State

than the taxation levied on enterprises of that other Contracting State carrying on the same

activities.

3. The provisions of paragraphs 1and 2 of this Article shall not be construed as obliging a 

Contracting State to grant to residents of the other Contracting State any personal allowances,

reliefs, and reductions for taxation purposes on account of civil status or family responsibilities

that it grants to its own residents.

4. Except where the provisions of paragraph 1 of Article 9 (Associated Enterprises),

paragraph 8 of Article 11 (Interest), or paragraph 7 of Article 12 (Royalties) apply, interest,

royalties, and other disbursements paid by an enterprise of a Contracting State to a resident of the

other Contracting State shall, for the purpose of determining the taxable profits of such enterprise,

be deductible under the same conditions as if they had been paid to a resident of the firstmentioned Contracting State. Similarly, any debts of an enterprise of a Contracting State to a

resident of the other Contracting State shall, for the purpose of determining the taxable capital of

the first-mentioned resident, be deductible under the same conditions asif they had been

contracted to a resident of the first-mentioned Contracting State.

5. Enterprises of a Contracting State, the capital of which is wholly or partly owned or

controlled, directly or indirectly, by one or more residents of the other Contracting State, shall not

be subjected in the first-mentioned Contracting State to any taxation or any requirement

connected therewith that is more burdensome than the taxation and connected requirements to 

which other similar enterprises ofthe first-mentioned Contracting State are or may be subjected.

6. Nothing in this Article shall be construed as preventing either Contracting State from

imposing a tax as described in paragraph 10 of Article 10 (Dividends) or paragraph 7 of Article

11 (Interest).

7. The provisions of this Article shall, notwithstanding the provisions of Article 2 (Taxes

Covered), apply to taxes of every kind and description.

Article 25

MUTUAL AGREEMENT PROCEDURE

1. Where a person considers that the actions of one or both of the Contracting Statesresult

or will result forsuch person in taxation not in accordance with the provisions of this Convention,

it may, irrespective of the remedies provided by the domestic law of those Contracting States, and

the time limits prescribed in such laws for presenting claims for refund, present its case to the

competent authority of one or both of the Contracting States. The case must be presented within 

six years from the first notification of the action resulting in taxation not in accordance with the 

provisions of this Convention.

2. The competent authority shall endeavor, if the objection appears to it to be justified and

if it is not itself able to arrive at a satisfactory solution, to resolve the case by mutual agreement

with the competent authority of the other Contracting State, with a view to the avoidance of

taxation that is not in accordance with this Convention. Any agreement reached shall be

implemented notwithstanding any time limits or other procedural limitations in the domestic law

ofthe Contracting States. Assessment and collection procedures shall be suspended during the

period that any mutual agreement proceeding is pending.
3. The competent authorities of the Contracting Statesshall endeavor to resolve by mutual

agreement any difficulties or doubts arising asto the interpretation or application of this

Convention. They also may consult together for the elimination of double taxation in cases not

provided for in this Convention. In particular, the competent authorities of the Contracting States

may agree:

a) to the same attribution of income, deductions, credits, or allowances of an

enterprise of aContracting State to its permanent establishment situated in the other

Contracting State;

b) to the same allocation of income, deductions, credits, or allowances between

persons;

c) to the settlement of conflicting applications of this Convention, including

conflicts regarding:

i) the characterization of particular items of income;

ii) the characterization of persons;

iii) the application of source rules with respect to particular items of income;

iv) the meaning of any term used in this Convention;

v) the timing of particular items of income;

d) to advance pricing arrangements; and

e) to the application of the provisions of domestic law regarding penalties, fines,

and interest in a manner consistent with the purposes of this Convention.

4. The competent authorities of the Contracting States may agree to increase any specific

monetary amounts referred to in this Convention to reflect economic or monetary developments.

5. The competent authorities of the Contracting States may communicate with each other

directly, including through ajoint commission, for the purpose of reaching an agreement in the 

sense ofthe preceding paragraphs.

6. Where a person has presented a case to the competent authority of one or both of the

Contracting States either:

a) pursuant to paragraph 1 of this Article on the basis that the actions of one or both

of the Contracting States resulted or will result for that person in taxation not in

accordance with the provisions of this Convention; or

b) on a taxpayer-specific case regarding a matter described in paragraph 3 of this

Article;

and the competent authorities are unable to reach agreement to resolve that case, and the 

conditions described in paragraph 7 of this Article are met, the case shall be resolved through

arbitration conducted in the manner prescribed by paragraphs 7 through 9 of this Article and

according to any rules or procedures agreed upon by the competent authorities of the Contracting

States pursuant to paragraph 10 of this Article.
7. A case shall be submitted to arbitration on the earliest date on which all of the following

conditions have been satisfied:

a) at least two years have passed since the commencement date of such case, unless

the competent authorities of the Contracting States have agreed to a different date and

notified the presenter of the case of such agreement;

b) the presenter of the case has submitted a written request to the competent

authority to which the case was presented for a resolution of the case through arbitration;

and

c) all concerned persons and their authorized representatives or agents have

submitted to the competent authorities of both Contracting States written agreements not

to disclose to any other person any information received during the course of the

arbitration proceeding from either Contracting State orthe arbitration panel, other than

the determination of the panel.

A case shall not, however, be submitted to arbitration if a decision with respect to such case has

already been rendered by a court or administrative tribunal of either Contracting State, or if the 

competent authorities of the Contracting States have agreed prior to the date on which the

arbitration otherwise would be submitted that the particular case is not suitable for resolution

through arbitration.

8. For the purposes ofthis Article, the following definitions shall apply:

a) the term "presenter" means the person that has presented a case to the competent

authority of one or both of the Contracting States either:

i) pursuant to paragraph 1 of this Article on the basis that the actions of one

or both of the Contracting Statesresult or will result for that person in taxation

not in accordance with the provisions of this Convention; or

ii) on a taxpayer-specific case regarding a matter described in paragraph 3 of

this Article;

b) the term "concerned person" means the presenter and all other persons, if any,

whose tax liability to either Contracting Statemay be directly affected by a mutual

agreement to resolve a case submitted to arbitration pursuant to paragraph 7 of this

Article; and

c) the "commencement date" for a case means the earliest date on which the

information necessary to undertake substantive consideration for a mutual agreement has

been received by both competent authorities.

9. For the purposes of arbitrations under this Article, the following rules shall apply:

a) The arbitration panel shall consist of three individual members. The competent

authority of each Contracting State shall select one member of the arbitration panel. In

the event that the competent authority of a Contracting State fails to select a member for 

the arbitration panel in the manner and within the time periods agreed by the competent 

authorities of the Contracting States pursuant to paragraph 10 of this Article, the

competent authority of the other Contracting State shall select a second member. The 

two members of the arbitration panel who have been selected shall select the third 
member, who shall serve as Chair of the arbitration panel. If the two initial members of 

the arbitration panel fail to select the Chair in the manner and within the time periods 

agreed by the competent authorities of the Contracting States pursuant to paragraph 10 

of this Article, these members shall be dismissed, and each competent authority of the

Contracting States shall select a new member of the arbitration panel. The Chair shall 

not be a national or lawful permanent resident of either Contracting State. The 

members appointed shall not be employees, nor have been employees within the 

twelve-month period prior to the date on which a case is submitted to arbitration, of the 

tax administration or the treasury department of the Contracting State that identified 

them. Furthermore, the members appointed shall not have any prior involvement with 

the specific matters at issue in the arbitration proceeding for which they are being 

considered as arbitrators.

b) The members of the arbitration panel and their staff shall be considered to be

"persons or authorities" to whom information may be disclosed under Article 26

(Exchange of Information and Administrative Assistance) of this Convention.

c) All material received by a competent authority of a Contracting State in the

course of, or relating to, an arbitration proceeding (including the arbitration panel's

determination) shall be considered to be information exchanged between the

Contracting States. Accordingly, no such information relating to an arbitration

proceeding may be disclosed by the competent authorities of the Contracting States,

except as permitted under Article 26 (Exchange of Information and Administrative

Assistance). The competent authorities of the Contracting States shall ensure that

members of the arbitration panel and their staff agree in writing to treat any

information relating to the arbitration proceeding consistent with the confidentiality

and nondisclosure provisions of Article 26 (Exchange of Information and

Administrative Assistance) of this Convention and the applicable domestic laws of

the Contracting States.

d) If at any time before the arbitration panel delivers a determination to the

competent authorities of the Contracting States:

i) the competent authorities of the Contracting States reach a mutual

agreement to resolve the case pursuant to this Article;

ii) the presenter of the case withdraws the request for arbitration;

iii) a decision concerning the case is rendered by a court or administrative

tribunal of one of the Contracting States during the arbitration proceeding; or

iv) if any concerned person or their authorized representatives or agents

violates the written nondisclosure statement required by subparagraph (c) of

paragraph 7 of this Article, and the competent authorities of both Contracting

States agree that such violation should result in the termination of the

arbitration proceeding;

the mutual agreement procedure, including the arbitration proceeding, with respect to

the case shall terminate.

e) After a case is submitted to arbitration, the presenter shall be permitted to

submit to the competent authorities of both Contracting States for submission to the

arbitration panel a paper setting forth the presenter's analysis and views of the case

for consideration by the arbitration panel. Such submission must be submitted before
the date on which the competent authorities of the Contracting States are required to

submit their position papers to the arbitration panel, and shall not include any

information not previously provided to the competent authorities before the case was

submitted to arbitration.

f) After a case is submitted to arbitration, the competent authority of each of the

Contracting States shall be permitted to submit to the arbitration panel a position

paper with a proposed resolution addressing each adjustment or similar issue raised

in the case and shall simultaneously provide a copy of such position paper to the

other competent authority. Such proposed resolution shall be a resolution of the

entire case and shall reflect all agreements previously reached between the

competent authorities of the Contracting States with respect to any adjustment or

similar issue raised in the case. Such proposed resolution shall be limited to a

disposition of specific monetary amounts (for example, of income, profit, gain or

expense) or, where specified, the maximum rate of tax charged pursuant to the

Convention for each adjustment or similar issue in the case. The competent authority

of each of the Contracting States shall also be permitted to submit additional

supporting papers for consideration by the arbitration panel, and shall simultaneously

provide a copy of such supporting papers to the other competent authority. Neither a

position paper nor an additional supporting paper shall contain information not

previously disclosed by a competent authority during the negotiation of the case

being submitted to arbitration.

g) Notwithstanding the provisions of subparagraph (f) of this paragraph, it is

understood that, in the case of an arbitration proceeding concerning:

i) the tax liability of an individual for which the competent authorities

have been unable to reach agreement with respect to the individual's

Contracting State of residence;

ii) the taxation of the business profits of an enterprise with respect to which

the competent authorities have been unable to reach an agreement on whether a 

permanent establishment exists; or

iii) such other issues the determination of which are contingent on

resolution of similar threshold questions;

the position paper may include positions regarding clause (i), (ii) or (iii) of this

subparagraph, in addition to proposed resolutions limited to specific monetary

amounts (for example, of income, profit, gain or expense) or, where specified, the

maximum rate of tax charged pursuant to this Convention due as a consequence of

the arbitration panel's determination regarding residency, the existence of a

permanent establishment or other threshold questions.

h) Where an arbitration proceeding concerns a case comprising multiple

adjustments or issues each requiring a disposition of specific monetary amounts of

income, profit, gain or expense or, where specified, the maximum rate of tax charged

pursuant to this Convention, the position paper may propose a separate disposition

for each adjustment or similar issue.

i) Each competent authority shall be permitted to submit a reply to a position

paper submitted by the other competent authority to the arbitration panel, and shall

simultaneously provide the other competent authority with a copy of any such reply

submitted to the arbitration panel.
j) The arbitration panel shall deliver a determination in writing to the competent

authorities of the Contracting States. The determination reached by the arbitration

panel in the arbitration proceeding shall be limited to one of the proposed resolutions

for the case submitted by one of the competent authorities of the Contracting States

for each adjustment or similar issue and any threshold questions, and shall not

include a rationale or any other explanation of the determination. The determination

of the arbitration panel shall have no precedential value with respect to the

application of this Convention in any other case.

k) The determination of the arbitration panel with respect to a case submitted to

arbitration shall constitute a resolution by mutual agreement under this Article and

shall be binding on the Contracting States if it is accepted by all of the concerned

persons. Unless the competent authorities of both Contracting States agree to a longer

time period, the concerned persons shall have 45 days from the date they receive the

determination of the arbitration panel to notify, in writing, the competent authority of

the Contracting State to whom the case was presented of their acceptance of

determination. In the event the case is pending in litigation, each concerned person

that is a party to such litigation must also advise, within the same time frame, the

relevant court of its acceptance of the determination of the arbitration panel and its

intention to withdraw from the consideration of the court the issues resolved through the

proceeding. Ifany concerned person fails to so advise the relevant competent authority

and relevant court within thistime frame, the determination ofthe arbitration panel shall

be considered not to have been accepted by the concerned persons. Where the

determination of the arbitration panel is not accepted, the case shall not be eligible for

any subsequent further consideration by the competent authorities.

1) The fees and expenses of the members of the arbitration panel, as well as any

costs incurred in connection with the proceeding by the Contracting States,shall be borne

equitably by the competent authorities ofthe Contracting States.

10. The competent authorities of the Contracting States shall agree in writing, before the

first case issubmitted to arbitration, on time periods and procedures that are consistent with

paragraphs 6 through 9 of this Article for:

a) establishing when information necessary to undertake substantive consideration

for a mutual agreement has been received by both competent authorities for purposes of

determining the commencement date, and for notifying each other when such

requirement has been satisfied;

b) notifying the presenter of any agreements that a case is not suitable for resolution

through arbitration, or to change the date on which a case shall be submitted to 

arbitration;

c) the appropriate application of arbitration in the context of a request for an

advanced pricing arrangement, including rules concerning the date on which a case may

be submitted to arbitration;

d) obtaining the agreements of all concerned persons and their authorized

representatives or agents not to disclose any information received during the course of

the arbitration proceeding from the competent authority of either Contracting State or the

arbitration panel, other than the determination of such panel pursuant to subparagraph (c)

of paragraph 7 of this Article, and the agreements of the members of the arbitration panel

and their staff to treat any information relating to the arbitration proceeding consistent
with the confidentiality and nondisclosure provisions of Article 26 (Exchange of

Information and Administrative Assistance), asrequired by subparagraph (c) of

paragraph 9 of this Article;

e) the appointment of the members of the arbitration panel;

f) the submission of position papers, supporting papers and reply submissions by

the competent authorities of the Contracting Statesto the arbitration panel;

g) the submission to the competent authorities of both Contracting States by the

presenter of a paper setting forth the presenter's views and analysis of the case for

consideration by the arbitration panel;

h) the delivery by the arbitration panel of its determination to the competent

authorities ofthe Contracting States;

i) the acceptance or rejection by the concerned persons of the determination of the 

arbitration panel; and

j) the adoption by the arbitration panel of any additional procedures necessary for 

the conduct of its business.

The competent authorities of the Contracting States may mutually agree in writing to modify their

agreement concerning these time periods and procedures, as needed, and may further agree in

writing on such other rules, time periods and procedures as may be necessary for the effective

and timely implementation of an arbitration proceeding.

Article 26

EXCHANGE OF INFORMATION AND ADMINISTRATIVE ASSISTANCE

1. The competent authorities of the Contracting States shall exchange such information

as is foreseeably relevant for carrying out the provisions of this Convention or the domestic

laws of the Contracting States concerning taxes of every kind imposed by a Contracting State 

to the extent that the taxation thereunder is not contrary to the Convention, including

information relating to the assessment or collection, or administration of, the enforcement or

prosecution in respect of, or the determination of appeals in relation to, such taxes. The

exchange of information is not restricted by paragraph 1 of Article 1 (General Scope) or Article 

2 (Taxes Covered).

2. Any information received under this Article by a Contracting State shall be treated as

secret in the same manner as information obtained under the domestic law of that Contracting

State and shall be disclosed only to persons or authorities (including courts and administrative

bodies) involved in the assessment, collection, or administration of, the enforcement or

prosecution in respect of, or the determination of appeals in relation to, the taxes referred to

in paragraph 1 of this Article, or the oversight of such functions. Such persons or authorities

shall use the information only for such purposes. They may disclose the information in public

court proceedings or in judicial decisions. Notwithstanding the preceding sentences of this

paragraph:

(a) the competent authority of the Contracting State that receives information

under the provisions of this Article may, with the written consent of the competent
authority of the Contracting State that provided the information, also make available

that information for:

(i) counter-terrorism purposes, but only if the information may be

disclosed for such purposes under the domestic laws of the Contracting State

that received the information;

(ii) purposes permitted under the provisions of an international agreement

governing legal assistance in criminal matters that is in force between the

Contracting States that allows for the exchange of tax information; or

(iii) other purposes, but only when the information may be used for the

same or similar such purposes under the laws of both Contracting States; and

(b) the competent authority of a Contracting State may disclose information not

relating to a particular person received under this Convention if it has determined,

after consultation with the competent authority of the other Contracting State, that

such disclosure would not impair tax administration (including the administration of

this Convention).

3. In no case shall the provisions of paragraphs 1 and 2 of this Article be construed so asto

impose on aContracting State the obligation:

a) to carry out administrative measures at variance with the laws and administrative

practice of that or of the other Contracting State;

b) to supply information that is not obtainable under the laws or in the normal

course of the administration of that or of the other Contracting State; or

c) to supply information that would disclose any trade, business, industrial,

commercial, or professional secret ortrade process, or information the disclosure of

which would be contrary to public policy.

4. If information isrequested by a Contracting State in accordance with this Article, the

other Contracting State shall use itsinformation gathering measures to obtain the requested

information, even though that other Contracting State may not need such information for its own

tax purposes. The obligation contained in the preceding sentence issubject to the limitations of

paragraph 3 of this Article but in no case shall such limitations be construed to permit a

Contracting State to decline to supply information solely because it has no domestic interest in

such information.

5. In no case shall the provisions of paragraph 3 of this Article be construed to permit a

Contracting State to decline to supply information solely because the information is held by a

bank, other financial institution, nominee or person acting in an agency or a fiduciary capacity or

because it relates to ownership interests in a person.

6. Ifspecifically requested by the competent authority of a Contracting State, the

competent authority of the other Contracting State shall provide information under this Article in

the form of depositions of witnesses and authenticated copies of unedited original documents

(including books, papers, statements, records, accounts, and writings).

7. Each of the Contracting Statesshall endeavor to collect on behalf of the other

Contracting State such amounts as may be necessary to ensure that relief granted by the

Convention from taxation imposed by that other Contracting State does not inure to the benefit of
persons not entitled thereto. This paragraph shall not impose upon either of the Contracting

Statesthe obligation to carry out administrative measures that would be contrary to its

sovereignty, security, or public policy.

8. The requested Contracting State shall allow representatives of the requesting Contracting

State to interview individuals and examine books and records in the requested Contracting State 

with the consent of the persons subject to examination.

9. The competent authorities of the Contracting States may develop an agreement or

arrangement on the mode of application of this Article, including an agreement or arrangement to

ensure comparable levels of assistance to each of the Contracting States, but in no case shall the

lack of such agreement relieve a Contracting State of its obligations under this Article.

Article 27

MEMBERS OF DIPLOMATIC MISSIONS AND CONSULAR POSTS

Nothing in this Convention shall affect the fiscal privileges of members of diplomatic

missions or consular posts under the general rules of international law or under the provisions

of special agreements.

Article 28

SUBSEQUENT CHANGES IN LAW

1. If at any time after the signing of this Convention, a Contracting State reduces the

general statutory rate of company tax that applies with respect to substantially all of the

income of resident companies with the result that such rate falls below the lesser of either (a)

15 percent or (b) 60 percent of the highest general statutory rate of company tax applicable

in the other Contracting State, or the first-mentioned Contracting State provides an exemption

from taxation to resident companies for substantially all foreign source income (including

interest and royalties), the Contracting States shall consult with a view to amending this

Convention to restore an appropriate allocation of taxing rights between the Contracting

States. Ifsuch consultations do not progress, the other Contracting State may notify the firstmentioned Contracting State through diplomatic channels that it shall cease to apply the

provisions of Articles 10 (Dividends), 11 (Interest), 12 (Royalties) and 21 (Other Income). In

such case, the provisions of such Articles shall cease to have effect in both Contracting States

with respect to payments to resident companies six months after the date that the other

Contracting State issues a written public notification stating that it shall cease to apply the

provisions of Articles 10 (Dividends), 11 (Interest), 12 (Royalties) and 21 (Other Income).

2. For the purposes of determining the highest general statutory rate of company tax:

a) the allowance of generally available deductions based on a percentage of what

otherwise would be taxable income, and other similar mechanisms to achieve a

reduction in the overall rate of tax, shall be taken into account; and

b) the following shall not be taken into account:

i) a tax that applies to a company only upon a distribution by such

company, or that applies to shareholders; and
ii) the amount of a tax that is refundable upon the distribution by a

company of a dividend.

Article 29

ENTRY INTO FORCE

1. This Convention shall be subject to ratification in accordance with the applicable

procedures of each Contracting State. The Contracting States shall notify each other in writing,

through diplomatic channels when their respective applicable procedures have been satisfied.

2. This Convention shall enter into force on the date of the later of the notifications 

referred to in paragraph 1 of this Article. This Convention shall have effect:

a) in respect of taxes withheld at source, for amounts paid or credited on or after the 

first day of the second month next following the date on which this Convention enters

into force; and

b) in respect of other taxes, for taxable years beginning on or after the first day of 

January next following the date on which this Convention enters into force.

3. Notwithstanding paragraph 2 ofthis Article:

a) the provisions of paragraphs 6 through 10 of Article 25 (Mutual Agreement

Procedure) of this Convention shall have effect with respect to:

i) cases that are under consideration by the competent authorities as of the

date on which this Convention enters into force. For such cases, the

commencement date shall be the date on which this Convention enters into force;

and

ii) cases that come under consideration after the date on which this

Convention entersinto force; and

b) the provisions of Article 26 (Exchange of Information and Administrative

Assistance) shall have effect from the date of entry into force of this Convention,

without regard to the taxable year to which the matter relates.

Article 30 

TERMINATION

This Convention shall remain in force until terminated by a Contracting State. Either

Contracting State may terminate the Convention by giving notice of termination to the other

Contracting State through diplomatic channels. In such event, this Convention shall terminate

on the date of such notification. Notwithstanding such termination, this Convention shall

cease to have effect:

a) in respect of taxes withheld at source, for amounts paid or credited after the

expiration of the six-month period beginning on the date on which notice of

termination was given; and
b) in respect of other taxes, for taxable years beginning on or after the expiration

of the six-month period beginning on the date on which notice oftermination was

given.

IN WITNESS WHEREOF, the undersigned, being duly authorized thereto by their

respective Governments, have signed this Convention.

DONE at in duplicate, in the English and Croatian languages, both

texts being equally authentic, this _ day of , 20__.

FOR THE GOVERNMENT OF FOR THE GOVERNMENT OF

THE UNITED STATES OF AMERICA THE REPUBLIC OF CROATIA
PROTOCOL TO THE CONVENTION BETWEEN

THE GOVERNMENT OF THE UNITED STATES OF AMERICA

AND

THEGOVERNMENT OFTHE REPUBLIC OF CROATIA

FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF

TAX EVASION

WITH RESPECT TO TAXES ON INCOME

On signing the Convention between the Government of the United States of

America and the Government of the Republic of Croatia for the Avoidance of Double

Taxation and the Prevention of Tax Evasion with respect to Taxes on Income (the

"Convention"), the two Governments have agreed to the following:

1. With reference to subparagraph (k) of paragraph 1 of Article 3 (General

Definitions) of the Convention:

a) In the case of the United States, the term "pension fund" includes the

following: a trust providing pension or retirement benefits under an Internal

Revenue Code section 401(a) qualified pension plan (which includes a Code

section 401(k) plan) and a profit sharing or stock bonus plan, a Code section

403(a) qualified annuity plan, a Code section 403(b) plan, a trust that is an

individual retirement account under Code section 408, a Roth individual

retirement account under Code section 408A, a simple retirement account under

Code section 408(p), a trust providing pension or retirement benefits under a

simplified employee pension plan under Code section 408(k), a trust described

in section 457(g) providing pension or retirement benefits under a Code section

457(b) plan, and the Thrift Savings Fund (section 7701(j)). A group trust

described in Revenue Ruling 81- 100, as amended by Revenue Ruling 2014-24

and Revenue Ruling 2011-1, qualifies as a pension fund only if it is operated

exclusively or almost exclusively to earn income for the benefit of pension funds

that are themselves entitled to benefits under the Convention as a resident of the

United States.

b) In the case of Croatia, the term "pension fund" includes a fund operating as a 

mandatory pension insurance scheme based on individual capitalized savings 

established under the “Act on Mandatory Pension Funds”.

2. With reference to subparagraph (l) of paragraph 1 of Article 3 (General

Definitions) of the Convention:

Except as provided below, the rate of taxation shall be determined based on the income tax 

principles of the Contracting State that has implemented the regime in question. In the case of a 

regime that provides only for a preferential rate of taxation, the generally expected rate of 

taxation under the regime shall equal such preferential rate. In the case of a regime that provides 

only for a permanent reduction in the tax base, the rate of taxation shall equal the statutory rate 

of company tax generally applicable in the Contracting State to companies subject to the regime 

in question less the product of such rate and the percentage reduction in the tax base (with the 

baseline tax base determined under the principles of the Contracting State, but without regard to 

any permanent reductions in the tax base described in subparagraph (l)(i)(B)) that the regime is 

generally expected to provide. For example, a regime that generally provides for a 20 percent 

permanent reduction in a company's tax base would have a rate of taxation equal to the 

applicable statutory rate of company tax reduced by 20 percent of such statutory rate. In the case 

of a regime that provides for both a preferential rate of taxation and a permanent reduction in the 
tax base, the rate of taxation would be based on the preferential rate of taxation reduced by the 

product of such rate and the percentage reduction in the tax base.

3. If Croatia enacts legislation similar to section 59A or section 7874 of the U.S. Internal 

Revenue Code, or legislation establishing entities similar to a U.S. Regulated Investment 

Company (RIC) or a U.S. Real Estate Investment Trust (REIT), the Contracting States shall, at 

Croatia’s request, consult to consider possible amendments to the Convention. 

4. With respect to paragraph 1 of Article 4 (Resident), a voluntary pension insurance 

scheme based on individual capitalized savings established under the “Act on Voluntary Pension 

Funds” as such law existed on the date of signature of the Convention shall be deemed to be a 

person that is a resident of Croatia for the purposes of applying the Convention. 

This Protocol shall enter into force on the date of entry into force of the Convention and shall 

form an integral part of the Convention.

IN WITNESS WHEREOF, the undersigned, being duly authorized thereto by their

respective Governments, have signed this Protocol.

DONE at in duplicate, in the English and Croatian languages, both texts

being equally authentic, this _day of , 20__.

FOR THE GOVERNMENT OF FOR THE GOVERNMENT OF

THE UNITED STATES OF AMERICA THE REPUBLIC OF CROATIA