SERVICE EXPLAINS EFFECT OF THE 1987 PARTIAL TERMINATION OF U.S.- NETHERLANDS TAX TREATY AS EXTENDED TO THE NETHERLANDS ANTILLES.

Rev. Proc. 89-53

SECTION 1. PURPOSE

This revenue procedure involves the effect of the partial termination of the United States-Netherlands Income Tax Convention, T.D. 5778, 1950-1 C.B. 92, as supplemented by the Protocol of June 15, 1955, and extended on November 10, 1955, to the Netherlands Antilles /1/, 1956-2 C.B. 1116, and as modified and supplemented by the Protocol of October 23, 1963, 1965-1 C.B. 624 (the treaty), on Rev. Proc. 79-40, 1979-2 C.B. 504. The Department of Treasury announced that notices of termination of the treaty were delivered to the Netherlands on June 29, 1987. A note delivered on July 10, 1987, modified the notice of termination to exclude Article VIII and certain ancillary provisions of the treaty from its scope. The termination, as modified, was effective on January 1, 1988.

Rev. Proc. 79-40 provides rules that supplement the treaty withholding regulations set forth in T.D. 6153, 1955-2 C.B. 777, (26 CFR sections 505.301 through 505.310, as renumbered). These regulations govern the withholding of United States tax at the source from dividends, interest, and royalties paid to a Netherlands Antilles corporation (an Antilles corporation). As a result of the partial termination of the treaty, Rev. Proc. 79-40 is no longer applicable to payments of dividends and royalties made after December 31, 1987. To this extent Rev. Proc. 79-40 will continue to apply to payments of interest as long as Article VIII and the ancillary provisions of the treaty remain in effect.

In addition, pursuant to section 4.01.12 of Rev. Proc. 89-6, 1989-9 I.R.B. 37, the Internal Revenue Service is not ordinarily issuing rulings under section 3.01(1)(c) of Rev. Proc. 79-40, with respect to the withholding of United States tax at source on interest payments.

SEC. 2. EFFECTIVE DATE

This revenue procedure is effective January 1, 1988.

SEC. 3. EFFECT ON OTHER REVENUE PROCEDURES

Rev. Proc. 79-40, 1979-2 C.B. 504, is modified and clarified.

SEC. 4. DRAFTING INFORMATION

The principal author of this revenue procedure is Patricia C. Bray of the Office of Associate Chief Counsel (International). For further information, call Ms. Bray at (202) 566-6645 (not a toll-free call).

¹ Aruba was formerly a part of the Netherlands Antilles until January 1, 1986, when it became a separate country member of the Kingdom of the Netherlands and, thus, a separate partner to the treaty. For purposes of this revenue ruling the term "Netherlands Antilles" will also include Aruba.