Article 26 · Limitation on benefits

#### Article 26. Limitation on benefits

- 1 Except as otherwise provided in this Article, a resident of one of the States that derives income from the other State shall be entitled to all the benefits of this Convention otherwise accorded to residents of a State only if such resident is a “qualified person” as defined in paragraph 2 of this Article and satisfies any other specified conditions for the obtaining of such benefits.

- 2 A resident of one of the States is a qualified person for a taxable year only if such resident is either:

- a) an individual;

- b) a State, or a political subdivision or local authority thereof;

- c) a company, if

- (i) the principal class of its shares (and any disproportionate class of shares) is listed on a recognized stock exchange specified in clauses i) or ii) of subparagraph a) of paragraph 8 of this Article and is regularly traded on one or more recognized stock exchanges, unless the company has no substantial presence in the State of which it is a resident; or

- (ii) shares representing at least 50 percent of the aggregate voting power and value (and at least 50 percent of any disproportionate class of shares) of the company are owned directly or indirectly by five or fewer companies entitled to benefits under clause i) of this subparagraph, provided that, in the case of indirect ownership, each intermediate owner is a resident of either State;

- d) a person described in [Article 35](#Verdrag_2_Verdragtekst_1_HoofdstukV_Artikel35) (Exempt Pension Trusts) of this Convention, provided that:

- (i) more than 50 percent of the person's beneficiaries, members or participants are individuals who are residents of either State; or

- (ii) the organization sponsoring such person is entitled to the benefits of the Convention pursuant to this Article;

- e) a not-for-profit organization not described in subparagraph d) that, by virtue of such status, is generally exempt from income taxation in its State of residence; or

- f) a person, other than an individual or a company that would qualify for benefits under clause i) of subparagraph c) but for the fact that it has no substantial presence in the State of which it is a resident, if:

- (i) on at least half the days of the taxable year persons that are qualified persons by reason of subparagraphs a), b), clause i) of subparagraph c), or subparagraphs d) or e) of this paragraph own, directly or indirectly, shares or other beneficial interests representing at least 50 percent of the aggregate voting power and value (and at least 50 percent of any disproportionate class of shares) of the person, and

- (ii) less than 50 percent of the person's gross income for that taxable year is paid or accrued, directly or indirectly, to persons who are not residents of either State in the form of payments that are deductible for the purposes of the taxes covered by this Convention in the State of which the person is a resident (but not including arm's length payments in the ordinary course of business for services or tangible property and payments in respect of financial obligations to a bank, provided that where such a bank is not a resident of a State such payment is attributable to a permanent establishment of that bank located in one of the States).

- 3 Notwithstanding that a company that is a resident of a State may not be a qualified person, it shall be entitled to all the benefits of this Convention otherwise accorded to residents of a State with respect to an item of income if it satisfies any other specified conditions for the obtaining of such benefits and:

- a) shares representing at least 95 percent of the aggregate voting power and value (and at least 50 percent of any disproportionate class of shares) of the company are owned, directly or indirectly, by seven or fewer persons who are equivalent beneficiaries; and

- b) less than 50 percent of the company's gross income for the taxable year in which the item of income arises is paid or accrued, directly or indirectly, to persons who are not equivalent beneficiaries, in the form of payments that are deductible for the purposes of the taxes covered by this Convention in the State of which the company is a resident (but not including arm's length payments in the ordinary course of business for services or tangible property and payments in respect of financial obligations to a bank, provided that where such a bank is not a resident of a State such payment is attributable to a permanent establishment of that bank located in one of the States).

- 4

- a) Notwithstanding that a resident of a State may not be a qualified person, it shall be entitled to all the benefits of this Convention otherwise accorded to residents of a State with respect to an item of income derived from the other State, if the resident is engaged in the active conduct of a trade or business in the first-mentioned State (other than the activities of making or managing investments for the resident's own account, unless these activities are banking, insurance or securities dealing carried on by a bank, insurance company or registered securities dealer), the income derived from the other State is derived in connection with, or is incidental to, that trade or business and that resident satisfies any other specified conditions for the obtaining of such benefits.

- b) If a resident of one of the States or any of its associated enterprises carries on a trade or business activity in the other State which gives rise to an item of income, subparagraph a) of this paragraph shall apply to such item only if the trade or business activity in the first-mentioned State is substantial in relation to the trade or business activity in the other State.

- c) In determining whether a person is engaged in the active conduct of a trade or business in a State under subparagraph a) of this paragraph, activities conducted by a partnership in which that person is a partner and activities conducted by persons connected to such person shall be deemed to be conducted by such person. A person shall be connected to another if one possesses at least 50 percent of the beneficial interest in the other (or, in the case of a company, shares representing at least 50 percent of the aggregate voting power and value of the company or of the beneficial equity interest in the company) or another person possesses, directly or indirectly, at least 50 percent of the beneficial interest (or, in the case of a company, shares representing at least 50 percent of the aggregate voting power and value of the company or of the beneficial equity interest in the company) in each person. In any case, a person shall be considered to be connected to another if, on the basis of all the facts and circumstances, one has control of the other or both are under the control of the same person or persons.

- 5 A person that is a resident of a State shall also be entitled to all the benefits of this Convention otherwise accorded to residents of a State if that person functions as a headquarters company for a multinational corporate group and that resident satisfies any other specified conditions for the obtaining of such benefits. A person shall be considered a headquarters company for this purpose only if:

- a) it provides a substantial portion of the overall supervision and administration of the group, which may include, but cannot be principally, group financing;

- b) the corporate group consists of corporations resident in, and engaged in an active business in, at least five countries, and the business activities carried on in each of the five countries (or five groupings of countries) generate at least 10 percent of the gross income of the group;

- c) the business activities carried on in any one country other than the State of residence of the headquarters company generate less than 50 percent of the gross income of the group;

- d) no more than 25 percent of its gross income is derived from the other State;

- e) it has, and exercises, independent discretionary authority to carry out the functions referred to in subparagraph a);

- f) it is subject to the same income taxation rules in its country of residence as persons described in paragraph 4; and

- g) the income derived in the other State either is derived in connection with, or is incidental to, the active business referred to in subparagraph b).

If the gross income requirements of subparagraphs b), c), or d) of this paragraph are not fulfilled, they will be deemed to be fulfilled if the required ratios are met when averaging the gross income of the preceding four years.

- 6 A person, resident of one of the States, which derives from the other State income mentioned in [Article 8](#Verdrag_2_Verdragtekst_1_HoofdstukIII_Artikel8) (Shipping and Air Transport) and which is not entitled to the benefits of this Convention because of the foregoing paragraphs, shall nevertheless be entitled to the benefits of this Convention with respect to such income if:

- a) more than 50 percent of the beneficial interest in such person (or in the case of a company, more than 50 percent of the value of the stock of such company) is owned, directly or indirectly, by qualified persons or individuals who are residents of a third state; or

- b) in the case of a company, the stock of such company is primarily and regularly traded on an established securities market in a third state, provided that such third state grants an exemption under similar terms for profits as mentioned in [Article 8](#Verdrag_2_Verdragtekst_1_HoofdstukIII_Artikel8) of this Convention to citizens and corporations of the other State either under its national law or in common agreement with that other State or under a Convention between that third state and the other State.

- 7 A person resident of one of the States, who is not entitled to some or all of the benefits of this Convention because of the foregoing paragraphs, may, nevertheless, be granted benefits of this Convention if the competent authority of the State in which the income in question arises so determines. In making such determination, the competent authority shall take into account as its guidelines whether the establishment, acquisition or maintenance of such person or the conduct of its operations has or had as one of its principal purposes the obtaining of benefits under this Convention. The competent authority of the State in which the income arises will consult with the competent authority of the other State before denying benefits of the Convention under this paragraph.

- 8 For the purposes of this Article the following rules and definitions shall apply:

- a) the term ``recognized stock exchange” means:

- (i) the NASDAQ System and 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 Amsterdam Stock Exchange and any other stock exchange subject to regulation by the Authority for the Financial Markets (or its successor) in the Netherlands;

- (iii) the Irish Stock Exchange, the Swiss Stock Exchange and the stock exchanges of Brussels, Frankfurt, Hamburg, Johannesburg, London, Madrid, Milan, Paris, Stockholm, Sydney, Tokyo, Toronto and Vienna; and

- (iv) any other stock exchange which the competent authorities agree to recognize for the purposes of this Article;

- b)

- (i) 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 voting power and value of the company. If no single class of ordinary or common shares represents the majority of the aggregate voting power and value of the company, the “principal class of shares” is that class or those classes that in the aggregate represent a majority of the aggregate voting power and value of the company;

- (ii) the term “shares” shall include depository receipts thereof or trust certificates thereof;

- c) the term “disproportionate class of shares” means any class of shares of a company resident in one of the States that entitles the shareholder to disproportionately higher participation, through dividends, redemption payments or otherwise, in the earnings generated in the other State by particular assets or activities of the company;

- d) a company has no substantial presence in the State of which it is a resident if:

- (i)

- A) the aggregate volume of trading in such company's stock on recognized stock exchanges located in the other State is greater than the aggregate volume of trading in its stock on recognized stock exchanges in its primary economic zone, or

- B) the company is not traded on any recognized stock exchange located in the primary economic zone of the State of which the company is a resident, or trading on such exchange or exchanges constitutes less than 10 percent of total worldwide trading in such company's stock; and

- (ii) the company's primary place of management and control is not in the State of which it is a resident;

- e) in making the determinations in subparagraph d),

- (i) for purposes of clause i) thereof, the company may make the determination using average trading volumes for the three preceding taxable years;

- (ii) the primary economic zone of the Netherlands includes the member states of the European Union or the European Economic Area. The primary economic zone of the United States includes the states party to the North American Free Trade Agreement; and

- (iii) the company's primary place of management and control will be in the State of which it is a resident only if executive officers and senior management employees exercise day-to-day responsibility for more of the strategic, financial and operational policy decision making for the company (including its direct and indirect subsidiaries) in that State than in any other state and the staffs conduct more of the day-to-day activities necessary for preparing and making those decisions in that State than in any other state.

- f) an equivalent beneficiary is a resident of a member state of the European Union or of a European Economic Area state or of a party to the North American Free Trade Agreement but only if that resident:

- (i)

- A) would be entitled to all the benefits of a comprehensive convention for the avoidance of double taxation between any member state of the European Union or a European Economic Area state or any party to the North American Free Trade Agreement and the State from which the benefits of this Convention are claimed under provisions analogous to subparagraph a), b), clause i) of subparagraph c) or subparagraph d) or e) of paragraph 2 of this Article, provided that if such convention does not contain a comprehensive limitation on benefits article, the person would be a qualified person under subparagraph a), b), clause i) of subparagraph c) or subparagraph d) or e) of paragraph 2 of this Article if such person were a resident of one of the States under [Article 4](#Verdrag_2_Verdragtekst_1_HoofdstukII_Artikel4) (Resident) of this Convention; and

- B) with respect to income referred to in [Article 10](#Verdrag_2_Verdragtekst_1_HoofdstukIII_Artikel10) (Dividends), [11](#Verdrag_2_Verdragtekst_1_HoofdstukIII_Artikel11) (Branch Tax), [12](#Verdrag_2_Verdragtekst_1_HoofdstukIII_Artikel12) (Interest) or [13](#Verdrag_2_Verdragtekst_1_HoofdstukIII_Artikel13) (Royalties) of this Convention, would be entitled under such convention to a rate of tax with respect to the particular class of income for which benefits are being claimed under this Convention that is at least as low as the rate applicable under this Convention; or

- (ii) is a resident of a State that is a qualified person by reason of subparagraph a), b), clause i) of subparagraph c) or subparagraph d) or e) of paragraph 2 of this Article.

For the purposes of applying paragraph 3 of [Article 10](#Verdrag_2_Verdragtekst_1_HoofdstukIII_Artikel10) (Dividends) in order to determine whether a person, owning shares, directly or indirectly, in the company claiming the benefits of this Convention, is an equivalent beneficiary, such person shall be deemed to hold the same voting power in the company paying the dividend as the company claiming the benefits holds in such company;

- g) with respect to dividends, interest or royalties arising in the Netherlands and beneficially owned by a company that is a resident of the United States, a company that is a resident of a member state of the European Union will be treated as satisfying the requirements of subparagraph f) i) B) for purposes of determining whether such United States resident is entitled to benefits under this paragraph if a payment of dividends, interest or royalties arising in the Netherlands and paid directly to such resident of a member state of the European Union would have been exempt from tax pursuant to any directive of the European Union, notwithstanding that the income tax convention between the Netherlands and that other member state of the European Union would provide for a higher rate of tax with respect to such payment than the rate of tax applicable to such United States company under [Article 10](#Verdrag_2_Verdragtekst_1_HoofdstukIII_Artikel10) (Dividends), [12](#Verdrag_2_Verdragtekst_1_HoofdstukIII_Artikel12) (Interest), or [13](#Verdrag_2_Verdragtekst_1_HoofdstukIII_Artikel13) (Royalties) of this Convention;

- h) for the purposes of paragraph 2 of this Article, the shares in a class of shares are considered to be regularly traded on one or more recognized stock exchanges in a taxable year if the aggregate number of shares of that class traded on such stock exchange or exchanges during the twelve months ending on the day before the beginning of that taxable year is at least six percent of the average number of shares outstanding in that class during that twelve-month period.