IRS EXPLAINS APPLICATION OF PROVISION OF TAX TREATY WITH THE NETHERLANDS.

Notice 94-85

Application of New Treaty with the Netherlands

A new Income Tax Convention between the United States and the Netherlands entered into force on January 1, 1994. Article 26 (Limitation On Benefits) of the convention provides that a person resident in one of the States (other than an individual, state, political subdivision or local authority thereof) that derives income from the other State shall be entitled to all the benefits of the convention in the other State only if such person meets any of the tests enumerated in Article 26. Thus, a Dutch resident claiming the benefits of the convention (Taxpayer) may be required to demonstrate its entitlement to those benefits under one of the tests in Article 26.

To assist a Taxpayer in determining whether it is entitled to the benefits of the convention, the Competent Authorities of the United States and the Netherlands, in joint consultation, have developed a pilot certification procedure. Pursuant to this procedure, a Taxpayer may request, using Form IB 93 USA, that the Dutch tax authorities review evidence presented and certify that one of the tests in Article 26 is met.

The Dutch Competent Authority will send a copy of each completed Form IB 93 USA to the Internal Revenue Service along with the statements and documents prescribed in the instructions to the form. The Dutch Competent Authority, upon request, will furnish to the U.S. Competent Authority the documentary evidence relied on by the Dutch Tax Inspector. Absent material changes in a Taxpayer's facts and circumstances, a Form IB 93 USA is valid for the entire calendar year for which it is issued.

Following certification by the Dutch Tax Inspector, a Taxpayer may use a Form IB 93 USA as an attachment to each Form 1001 (Ownership, Exemption, or Reduced Rate Certificate) or other appropriate U.S. form as support for its position regarding entitlement to the benefits of the convention. Form IB 93 USA is an optional supplement to the U.S. forms and may not be used in lieu of such forms. Rather, Form IB 93 USA may only be used together with a Form 1001 (or other appropriate U.S. form).

Under current law, a withholding agent may rely on a properly completed and filed Form 1001 (or other appropriate U.S. form) with respect to a claim for treaty benefits in the absence of actual knowledge or reason to know otherwise. Rev. Rul. 85-4, 1985-1, C.B. 294 and Rev. Rul. 76-224, 1976-1, C.B. 268. Under this "actual knowledge or reason to know" standard, a withholding agent receiving a Form 1001 (or other appropriate U.S. form) from a Taxpayer may question whether a Taxpayer is entitled to the benefits of the convention. A Form IB 93 USA attached to the Form 1001 (or other appropriate U.S. form) will provide information helpful in determining the validity of a Taxpayer's claim. A withholding agent may rely on a properly completed and filed Form 1001 (or other appropriate U.S. form) to which a Form IB 93 U.S.A. signed by the taxpayer and the Dutch Tax Inspector is attached in the absence of actual knowledge or reason to know otherwise.

A Taxpayer that does not meet any of the tests in paragraphs one through six in Article 26 may request a written determination from the U.S. Competent Authority that it is nevertheless entitled to the benefits of the convention on the basis of Article 26(7). Prior to obtaining this determination from the U.S. Competent Authority, such a Taxpayer may not submit a Form IB 93 U.S.A. to a withholding agent or make any other use of that form.

Form IB 93 USA is not available through the Internal Revenue Service. It can be obtained by sending a request to: Belastingdienst/Logistiek Centrum, Postbus 9050, 7300 GM Apeldoorn, the Netherlands.

The principal author of this notice is Monique van Herksen of the Office of the Associate Chief Counsel (International). For further information regarding this notice contact Ms. van Herksen at (202) 622-3880 (not a toll-free call).

Form IB 93 USA is not suitable for online reproduction, but a copy may be obtained through the Tax Notes Access Service as Doc 94- 7309, 32 pages.