Article 25 · Methods of Elimination of Double Taxation

#### Article 25. Methods of Elimination of Double Taxation

- 1 Notwithstanding the provisions of [paragraph 2 of Article 24](#Verdrag_2_Verdragtekst_1_HoofdstukIV_Artikel24) (Basis of Taxation), the Netherlands may include in the basis of taxation the items of income which under [paragraph 4 of Article 19](#Verdrag_2_Verdragtekst_1_HoofdstukIII_Artikel19) (Pensions, Annuities, Alimony) and [Article 20](#Verdrag_2_Verdragtekst_1_HoofdstukIII_Artikel20) (Government Service) are taxable only in the United States.

- 2 Where a resident or national of the Netherlands derives items of income which according to [Article 6](#Verdrag_2_Verdragtekst_1_HoofdstukIII_Artikel6) (Income from Real Property), [Article 7](#Verdrag_2_Verdragtekst_1_HoofdstukIII_Artikel7) (Business Profits) insofar as such income is subject to United States tax, [paragraph 7 of Article 10](#Verdrag_2_Verdragtekst_1_HoofdstukIII_Artikel10) (Dividends), [paragraph 3 of Article 12](#Verdrag_2_Verdragtekst_1_HoofdstukIII_Artikel12) (Interest), [paragraph 3 of Article 13](#Verdrag_2_Verdragtekst_1_HoofdstukIII_Artikel13) (Royalties), [paragraphs 1 and 3 of Article 14](#Verdrag_2_Verdragtekst_1_HoofdstukIII_Artikel14) (Capital Gains), [Article 15](#Verdrag_2_Verdragtekst_1_HoofdstukIII_Artikel15) (Independent Personal Services) insofar as such income is subject to United States tax, [paragraph 1 of Article 16](#Verdrag_2_Verdragtekst_1_HoofdstukIII_Artikel16) (Dependent Personal Services), [paragraph 4 of Article 19](#Verdrag_2_Verdragtekst_1_HoofdstukIII_Artikel19) (Pensions, Annuities, Alimony), Article 20 (Government Service), and [paragraph 2 of Article 23](#Verdrag_2_Verdragtekst_1_HoofdstukIII_Artikel23) (Other Income) of this Convention are taxable in the United States and are included in the basis of taxation, the Netherlands shall exempt such items by allowing a reduction of its tax. This reduction shall be computed in conformity with the provisions of Netherlands law for the avoidance of double taxation. For that purpose the said items of income shall be deemed to be included in the total amount of the items of income which are exempt from Netherlands tax under those provisions.

- 3 Further, the Netherlands shall allow a deduction from the Netherlands tax for the items of income which according to [paragraph 2 of Article 10](#Verdrag_2_Verdragtekst_1_HoofdstukIII_Artikel10) (Dividends), [Article 17](#Verdrag_2_Verdragtekst_1_HoofdstukIII_Artikel17) (Directors' Fees), and [Article 18](#Verdrag_2_Verdragtekst_1_HoofdstukIII_Artikel18) (Artistes and Athletes) of the Convention may be taxed in the United States to the extent that these items are included in the basis of the taxation.

The amount of this deduction shall be equal to

- a) in the case of dividends which may be taxed in the United States according to [paragraph 2, subparagraph (a) of Article 10](#Verdrag_2_Verdragtekst_1_HoofdstukIII_Artikel10) (Dividends), 5 percent of such dividends;

- b) in the case of dividends which may be taxed in the United States according to [paragraph 2, subparagraph (b) of Article 10](#Verdrag_2_Verdragtekst_1_HoofdstukIII_Artikel10) (Dividends), 15 percent of such dividends;

- c) in the case of other dividends, which may be taxed in the United States according to [paragraph 4 of Article 10](#Verdrag_2_Verdragtekst_1_HoofdstukIII_Artikel10) (Dividends), 15 percent of such dividends; and,

- d) in the case of other items of income mentioned in this paragraph, the tax paid in the United States on such other items of income,

but shall in no case exceed the amount of the reduction which would be allowed if the items of income so included were the sole items of income which are exempt from Netherlands tax under the provisions of Netherlands law for the avoidance of double taxation.

- 4 In accordance with the provisions and subject to the limitations of the law of the United States (as it may be amended from time to time without changing the general principle hereof), the United States shall allow to a resident or national of the United States as a credit against the United States tax on income:

- a) the appropriate amount of income tax paid or accrued to the Netherlands by or on behalf of such resident or national, except the income tax paid to the Netherlands in the cases referred to in [paragraph 9 of Article 14](#Verdrag_2_Verdragtekst_1_HoofdstukIII_Artikel14) (Capital Gains) or in [paragraph 2 of Article 19](#Verdrag_2_Verdragtekst_1_HoofdstukIII_Artikel19) (Pensions, Annuities, Alimony); and

- b) in the case of a United States company owning at least 10 percent of the voting stock of a company which is a resident of the Netherlands and from which the United States company receives dividends, the appropriate amount of income tax paid or accrued to the Netherlands by or on behalf of the distributing company with respect to the profits out of which the dividends are paid.

Such appropriate amount shall be based upon the amount of income tax paid or accrued to the Netherlands, but the credit shall not exceed the limitations (for the purpose of limiting the credit to the United States tax on income from sources outside the United States) provided by United States law for the taxable year.

For the purposes of this paragraph, the taxes referred to in [paragraphs l(a) and 2 of Article 2](#Verdrag_2_Verdragtekst_1_HoofdstukI_Artikel2) (Taxes Covered) shall be considered income taxes.

- 5 Notwithstanding the provisions of paragraph 4 of this Article, the United States shall allow to a resident or a national of the United States, as a credit against the United States tax on income, the appropriate amount of profit share paid by or on behalf of such resident or national to the Netherlands. The appropriate amount shall be the product of (i) the creditable profit share income base and (ii) the maximum statutory United States tax rate applicable to such resident or national for such taxable year. For purposes of determining the appropriate amount, the following terms shall have the following meanings:

- a) The creditable profit share income base is the excess of the income subject to the company income tax (excluding the income not subject to the profit share) that is derived from sources within the Netherlands (before deduction of the profit share due) over the creditable company income tax base.

- b) The creditable company income tax base is the effective company income tax rate divided by the maximum statutory United States tax rate applicable to such resident or national for such taxable year, multiplied by the income subject to the company income tax (excluding the income not subject to the profit share) that is derived from sources within the Netherlands (before deduction of the profit share due).

- c) The effective company income tax rate is the company income tax paid on the income subject to the company income tax (excluding the income not subject to the profit share) divided by the income subject to the company income tax, excluding the income not subject to the profit share and before deduction of the profit share due.

The appropriate amount is also subject to any other limitations imposed by the law of the United States, as it may be amended from time to time, which apply to taxes creditable under sections 901 or 903 of the Internal Revenue Code for persons claiming benefits under this Convention. In applying such limitations to the company tax, the creditable company income tax base (as defined in (b), above) must be used for purposes of those limitations. Any profit share paid in excess of the appropriate amount only may be used as a credit in another taxable year, and only against United States tax on the creditable profit share income base (as defined in (a), above). If a credit is claimed in respect of the profit share, the taxpayer may not claim a deduction for United States taxable income purposes with respect to any foreign taxes for which a credit against United States tax on income may be claimed under sections 901 or 903 of the Internal Revenue Code, or profit share, paid or accrued in such year. No credit shall be allowed under paragraph 4 of this Article for any Netherlands tax for which a credit is claimed under the provisions of this paragraph.

- 6 Where a United States citizen is a resident of the Netherlands:

- a) with respect to items of income not exempt from Netherlands tax under paragraph 2, nor dealt with in paragraph 7 of this Article, 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 the Netherlands who is not a United States citizen, the Netherlands shall allow as a credit against Netherlands tax, subject to the provisions of Netherlands tax law regarding credit for foreign 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 1 of Article 24](#Verdrag_2_Verdragtekst_1_HoofdstukIV_Artikel24) (Basis of Taxation);

- b) for purposes of computing United States tax under subparagraph (a), the United States shall allow as a credit against United States tax the income tax paid to the Netherlands after the credit referred to in subparagraph (a); the credit so allowed shall not reduce the portion of the United States tax that is creditable against the Netherlands tax in accordance with subparagraph (a); and

- c) for the exclusive purpose of relieving double taxation in the United States under subparagraph (b), items of income referred to in subparagraph (a) shall be deemed to arise in the Netherlands to the extent necessary to avoid double taxation of such income under subparagraph (b).

- 7 Where a resident of one of the States derives gains or a remuneration or a lump sum which may be taxed in the other State in accordance with [paragraph 9 of Article 14](#Verdrag_2_Verdragtekst_1_HoofdstukIII_Artikel14) (Capital Gains), or with [paragraph 2 of Article 19](#Verdrag_2_Verdragtekst_1_HoofdstukIII_Artikel19) (Pensions, Annuities, Alimony), that other State shall allow a deduction from its tax on such gains, remuneration or lump sum. The amount of this deduction shall be equal to the tax levied in the first-mentioned State on the said gains, remuneration or lump sum, but shall in no case exceed that part of the income tax, as computed before the deduction is given, which is attributable to the said gains, remuneration or lump sum. For the exclusive purpose of relieving double taxation in the United States under this paragraph, items of income referred to in this paragraph shall be deemed to arise in the Netherlands to the extent necessary to avoid double taxation of such income under this paragraph.

- 8 Finally, the Netherlands shall allow a deduction from the Netherlands tax for the items of income which according to [paragraph 8 of Article 12](#Verdrag_2_Verdragtekst_1_HoofdstukIII_Artikel12) (Interest) and [paragraph 6 of Article 13](#Verdrag_2_Verdragtekst_1_HoofdstukIII_Artikel13) (Royalties) may be taxed in the United States to the extent that these items are included in the basis of taxation and are not exempt from tax in the Netherlands as profits of a permanent establishment under the Netherlands national taxing regime or under any bilateral or multilateral provision for the avoidance of double taxation agreed to by the Netherlands.

The amount of this deduction shall be equal to:

- a) in the case of interest which may be taxed in the United States according to [paragraph 8 of Article 12](#Verdrag_2_Verdragtekst_1_HoofdstukIII_Artikel12) (Interest), 15 percent of such interest;

- b) in the case of royalties which may be taxed in the United States according to [paragraph 6 of Article 13](#Verdrag_2_Verdragtekst_1_HoofdstukIII_Artikel13) (Royalties), 15 percent of such royalties,

but shall in no case exceed the amount of the reduction which would be allowed if the items of income so included were the sole items of income which are exempt from Netherlands tax under the provisions of Netherlands law for the avoidance of double taxation.