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RULES AND REGULATIONS

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tracting States, any term which is not de fined in the present Convention shall, unless the context otherwise requires, have the meaning which that term has under the laws of such Contracting State relating to the taxes which are the subject of the present Convention.

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Income of whatever nature derived from real property and interest from mortgages secured by real property shall be taxable only in the Contracting State in which the real property is situated.

Article VII

1 The rate of United States tax on divi dends derived from a United States corporatin by a resident or corporation of the Netherlands not engaged in trade or business in the United States through a permanent establishment shall not exceed 15 percent:
Provided that such rate of tax shall not exceed 5 percent if such Netherlands corpora tion controls, directly or indirectly, at least 95 percent of the entire voting power in the corporation paying the dividend, and not more than 25 percent of the gross income of such paying corporation is derived from in terest and dividends, other than interest and dividends from its own subsidiary corpora tion. Such reduction of the rate to 5 percent shall not apply if the relationship of the two corporations has been arranged or is main tained primarily with the intention of secur ing such reduced rate.
2 Dividends derived from sources within the Netherlands by a resident or corporation of the United States not engaged in trade or business in the Netherlands through a permanent establishment shall be exempt from Netherlands tax.
3 Either of the Contracting States may terminate this Article, by giving written notice of termination to the other Contract ing State through diplomatic channels, on or before the thirtieth day of June in any year after the first year for wTiich the present Convention becomes effective. In such event this Article shall cease to be effective on and, after the first day of January in the year next following that in which such notice is given.
A rticle VIII
1 Interest on bonds, securities, notes, debentures, or on any other form of indebted ness , other than interest referred to in Arti cle V of the present Convention, derived from sources within the United States by a resi dent or corporation of the Netherlands not engaged in trade or business in the United States through a permanent establishment, shall be exempt from United States tax; but such exemption shall not apply to such in terest pid by a United States corporation to a Netherlands corporation controlling, directly or indirectly, more than 50 percent of the entire voting power in the paying corporation.
2 Interest on bonds, securities, notes, debentures, or on any other form of indebted ness , other than interest referred to in Arti cle V of the present Convention, derived from sources within the Netherlands by a resident or corporatifin of the United States not engaged in trade or business in the Netherlands through a permanent establish ment, shall be exempt from Netherlands tax;
but such exemption shall not apply to such interest paid by a Netherlands corporation to a United States corporation controlling, di rectly or indirectly, more than 50 percent of the entire voting power in the paying corpo ration.
A rticle IX
Royalties for the right to use copyrights, patents, designs, secret processes and formu lae,, trade marks, and other analogous prop-

erty, and royalties, including rentals, in re spect of motion picture films or for the use of industrial, commercial or scientific equip ment, derived from sources within one of the Contracting States by a resident or corpora tion of the other Contracting State not en gaged in trade or business in the former State through a permanent establishment, shall be exempt from tax imposed by the former State.

Article XII

Dividends and interest paid by a Nether lands corporation shall be exempt from United States tax except where the recipient is a citizen, resident, or corporation of the United States.

Article XV

2 Private pensions and life annuities de rived from within one of the Contracting States and paid to individuals in the other Contracting State shall be exempt from tax ation in the former State.
3 The term pensions as used in this Article means periodic payments made in consideration for services rendered or by way of compensation for injuries received.
4 The term life annuities as used in this Article means a stated sum payable periodically at stated times during life, or during a specified number of years, under an obligation to make the payments in return for adequate and full consideration in money or moneys worth.

Article XXVI

1 The authorities of each of the Con tracting States, in accordance with the prac tices of that State, may prescribe regula tions necessary to carry out the provisions of the present Convention.
2 With respect to the provisions of the present Convention relating to exchange of information and mutual assistance in the collection of taxes, the competent authori ties may, by common agreement, prescribe rules concerning matters of procedure, forms of application and replies thereto, conver sion of currency, disposition of amounts col lected, minimum amounts subject to col lection, and related matters.

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Article XXVIII

2 The present Convention shall become effective on the first day of January in the year last preceding the year in which the exchange of instruments of ratification takes place. It shall continue effective for a period of five years beginning with that date and indefinitely after that period, but may be terminated by either of the Contracting States at the end of the five-year period or at any time thereafter, provided that at least six months prior notice of termina tion has been given, the termination to be come effective on the first day of January following the expiration of tne six-month period.

As used in this subpart, unless the con text otherwise requires, the terms defined in the above articles of the convention shall have the meanings so assigned to them.
7.801 Dividends .a General. The rate of tax imposed by section 211 a of the Internal Revenue Code relating to nonresident alien individuals not en gaged in trade or business within the United States and by section 231 a of the Internal Revenue Code relating to foreign corporations not engaged in trade
or business within the United States is 30 percent. Such rate is reduced under Article VII of the convention to 15 per cent in the case of dividends received on or after January 1, 1947, from sources within the United States by a nonresi dent alien including a nonresident alien individual, fiduciary, and partnership who is a resident of the Netherlands or a Netherlands corporation, if such alien or Netherlands corporation is at no time during the taxable year engaged in trade or business, through a permanent estab lishment, within the United States. _As to what is a Netherlands corporation, see Article II 1 d of the convention.
Thus, if a nonresident alien who is a res ident of the Netherlands, performs per sonal services, within the United States during the calendar year 1948, but has at no time during such year a permanent establishment within the United States, he is entitled to the reduced rate of tax with respect to such dividend, as pro vided in Article VII of the convention, even though, by reason of his having ren dered personal services within the United States, he is engaged in trade or business therein in that year within the meaning of section 211 b of the Inter nal Revenue Code. As to what consti tutes a permanent establishment, see Ar ticle II 1 i of the convention.
In the case of dividends paid on or after January 1, 1947, by a Netherlands corporation no withholding of United States tax is required irrespective of the citizenship or residence of the owner of the stock. See Article XU of the con vention.
b Dividends paid by a United States subsidiary corporation. Under the pro visions of Article VU 1 of the con vention, dividends paid by a domestic corporation to a Netherlands corpora tion, controlling, directly or indirectly, at the time the dividend is paid, 95 per cent or more of the entire voting power in such domestic corporation, are sub ject to tax at the rate of only 5 percent, if 1 not more than 25 percent of the gross income of such paying corpora tion for the three-year period imme diately preceding the taxable year in which the dividend is paid consists of dividends and interest other than divi dends and interest paid to such domestic corporation by its own subsidiary cor porations, if any and 2 the relation ship between such domestic corporation and such Netherlands corporation has not been arranged or maintained pri marily with the intention of securing such reduced rate of 5 percent.
Any domestic corporation which claims or contemplates claiming that dividends paid or to be paid by it on or after January 1, 1947, are subject only to the 5 percent rate shall file, as soon as prac ticable, with the Commissioner of In ternal Revenue, the following informa tion: 1 the date and place of its or ganization; 2 the number of outstand ing shares of stock of the domestic cor poration having voting power and the voting power thereof; 3 the person or persons beneficially owning such stock of the domestic corporation and their relationship to the Netherlands corpo ration; 4 the amount of gross income, by years, of the paying corporation for