Under this article, one country may tax an entertainer who is a resident of the other country on the income from his or her personal services as an entertainer in the first country during any year in which the gross receipts derived by him from such activities, including his reimbursed expenses, exceed $10,000 or its Dutch guilder equivalent. (As discussed below, the competent authorities may under certain circumstances adjust this threshold.) Thus, if a Dutch entertainer maintained no fixed base in the United States and performed (as an independent contractor) for one day of a taxable year in the United States for gross receipts of $2,000, the United States could not tax that income. If, however, that entertainer's gross receipts were $30,000, the full $30,000 (less appropriate deductions) would be subject to U.S. tax. This provision does not bar the country of residence from also taxing that income (subject to a foreign tax credit. (See Article 25 (Methods of Elimination of Double Taxation), below.)

The proposed treaty provides that if an entertainer or athlete is exempt under the treaty from tax in the source country because gross receipts do not exceed $10,000, the exemption can be applied by means of a refund of tax which may have been levied at the source. The refund application much be lodged after the end of the calendar year concerned, and within 3 years after that year.

The proposed treaty provides that where income in respect of activities exercised by an entertainer or athlete in his or her capacity as such accrues not to the entertainer or athlete, but to another person, that income may be taxed by the country in which the activities are exercised unless it is established that neither the entertainer or athlete nor persons related to him or her participate directly or indirectly in the profits of that other person in any manner, including the accrual or receipt of deferred remuneration, bonuses, fees, dividends, partnership income, or other income distributions. (This provision applies notwithstanding the business profits and independent personal service articles (Articles 7 and 15).) This provision prevents certain performers and athletes from avoiding tax in the country in which they perform by, for example, routing the compensation for their services through a third entity such as a personal holding company or a trust located in a country that would not tax the income.

The foregoing provisions are similar to provisions in the U.S. and OECD model treaty articles dealing with entertainers and athletes. Article 19. Pensions, Annuities, Alimony

Under the proposed treaty, pensions and other similar remuneration beneficially derived by a resident of either country in consideration of past employment generally are subject to tax only in the recipient's country of residence. This rule is subject to the provisions of Article 20 (Government Service). Thus it generally does not apply, for example, in the case of pensions paid to a resident of one country attributable to services performed for government entities of the other, unless the resident of the first country is also a citizen of the first country.

Unlike the U.S. and OECD models, the proposed treaty allows source country taxation of a pension or similar remuneration in limited circumstances. That is, the nonresidence country may tax

remuneration paid in consideration of employment exercised in that country, if several conditions are met. First, the individual deriving this remuneration must have been a resident of the source country at some time during the 5-year period preceding the date of payment. Second, the remuneration must be paid in a form other than periodic payments, or paid as a lump sum in lieu of the right to receive an annuity. Third, the source country may not tax the portion of the remuneration or lump sum that is contributed to a pension plan or retirement account under such circumstances that, had the amount been received from a payer in the recipient's residence country, the imposition of tax on the payment by that country would be deferred until the amount of the payment was withdrawn from the pension plan or retirement account to which it was contributed.

Pensions and other payments under the provisions of a public social security system of a treaty country (and other public pensions 39) paid by one country to an individual who is a resident of the other country or to a U.S. citizen will be taxable only in the paying country. (This rule is also subject to the provisions of Article 20 (Government Service).) This rule, which is not subject to the saving clause, exempts U.S. citizens and residents from U.S. tax on Dutch social security payments. Under this rule, only the United States may tax U.S. social security payments to U.S. persons residing in the Netherlands. The rule thus safeguards the United States' right under the Social Security Amendments of 1983 to tax a portion of U.S. social security benefits received by nonresident individuals, while protecting any such individuals residing in the Netherlands from double taxation.

The proposed treaty provides that annuities may be taxed only in the country of residence of the person who beneficially derives them. (This rule is also subject to the provisions of Article 20 (Government Service).) An annuity is defined as a stated sum payable periodically at stated times during life or a specified or ascertainable period of time, under an obligation to make the payments in return for adequate and full consideration in money or money's worth.

The proposed treaty provides for the treatment of alimony, unlike the present treaty. Following the U.S. model treaty, the proposed treaty grants exclusing taxing rights with respect to alimony to the treaty country of residence of the recipient of the alimony. The term "alimony" as used in the article means periodic payments (made pursuant to a written separation agreement or a decree of divorce, separate maintenance, or compulsory support) that are taxable to the recipient under the laws of the country of which he is a resident. Unlike the U.S. model, child support payments are not covered in this article. Thus, to the extent that they are treated as income, they are covered only in Article 23 (Other Income). Article 20. Government Service

The proposed treaty contains the standard provision that generally exempts the wages of employees of one country from tax by

39 According to the Understanding, it is understood that the term "other public pensions" is intended to refer to U.S. tier 1 Railroad Retirement benefits.

the other country. Under the proposed treaty, remuneration, other than a pension, paid by a country or one of its political subdivisions or local authorities to an individual for services rendered to that country (or subdivision or authority) will generally be taxable in that country only. However, such remuneration will be taxable only in the other country (the country that is not the payor) if the services are rendered in that other country and the individual is a resident of that other country who either (1) is a national of that country or (2) did not become a resident of that country solely for the purpose of rendering the services. Thus, for example, the Netherlands would not tax the compensation of a U.S. citizen and resident who is in the Netherlands to perform services for the U.S. Government and the United States would not tax the compensation of a Dutch citizen and resident who performs services for the U.S. Government in the Netherlands.

Any pension paid by, or out of funds created by, a country or one of its political subdivisions or local authorities to an individual for services rendered to that country (or subdivision or authority) generally will be taxable only in that country. However, such pensions will be taxable only in the other country if the individual is both a resident and a national of that other country.

In the situations described above, the U.S. model treaty allows exclusive taxing jurisdiction to the paying country, but only in the case of payments to one of its citizens.

If a country or one of its political subdivisions or local authorities is carrying on a business (as opposed to functions of a governmental nature), the provisions of Articles 16 (Dependent Personal Services), 17 (Directors' Fees) and 19 (Pensions, Annuities, Alimony) will apply to remuneration and pensions for services rendered in connection with the business.

Article 21. Professors and Teachers

The treatment afforded professors and teachers under the proposed treaty, corresponds generally to the treatment afforded them under the present treaty. There is no corresponding language in the U.S. or OECD models, although other U.S. treaties provide similar benefits.

Under the proposed treaty, an individual who visits the other country (the host country) for a period not more than two years for the purposes of teaching or engaging in research at a university, college, or other recognized educational institution, and who was immediately before that visit a resident of the other treaty country will under certain circumstances be exempt from tax in the host country on remuneration for such work. Eligibility for this treaty benefit is contingent on the length of stay in the host country. It applies only for a period not more than two years from the date he first visits the host country for this purpose. Moreover, if the visit exceeds two years, the host country may tax the individual under its internal law for the entire period of the visit, unless in a particular case the competent authorities of the two countries agree otherwise.

A similar rule applies, for example, under Article 20 of the U.S.U.K. income tax treaty and Article 20 of the U.S.-German income tax treaty. Furthermore, under the former treaty, rules have been

prescribed that prevent an individual from avoiding the tax on income during the initial two years of the visit by exiting the host country briefly before the prescribed period expires, and then returning to continue work there. It is understood that similar rules would apply under the proposed treaty.

The exemption in this article does not apply to income from research if the research is undertaken not in the public interest but primarily for the private benefit of a specific person or persons. According to the Technical Explanation, the benefits of this article also will not be available to a person who during the immediately preceding period enjoyed the benefits of the other host country tax reductions described below, applicable to students and trainees.

Host country benefits are afforded by this article to any person who is neither a host-country citizen nor, where the United States is the host country, a lawful permanent resident of the United States, without regard to the saving clause.

Article 22. Students and Trainees

Like Article XVIII of the present treaty, the proposed treaty provides host country tax exemptions for temporarily visiting students, researchers, and trainees, with respect to certain amounts they receive that are either remittances from abroad, grants, or compensation for services they perform. The U.S. and OECD models also provide for some host-country exemptions for students and trainees, but the proposed treaty is more restrictive of host-country tax jurisdiction.

Under the proposed treaty, an individual temporarily present in a treaty country for full-time study at a recognized university, college, or school, or for training as a business apprentice, and who, immediately before visiting the host country, is a resident of the other treaty country, is exempt from host country tax on certain payments he or she receives for such time as may be reasonable or customarily required to effectuate the purpose of the visit. Where this rule applies, the host country may not tax remittances from abroad for the purpose of the individual's maintenance, education, or training. Nor may the host country tax any remuneration for personal services performed in the host country for any taxable year in an amount that does not exceed $2000 or its Dutch guilder equivalent. (As discussed below, the competent authorities may under certain circumstances adjust this threshold.)

A host country exemption is also available for temporary visitors engaged in study, research, or training solely as the recipient of a non-profit-sector grant, allowance, or award. The exemption applies, as above, only if immediately before visiting the host country the individual is a resident of the other treaty country. It applies only if the individual is present in the host country for not more than three years for the purposes of study, research, or training solely as a recipient of a grant, allowance, or award from a scientific, educational, religious or charitable organization or under a technical assistance program entered into by one of the countries, or one of their political subdivisions, or local authorities.40

40 In contrast to the time limit under Article 21, if the visitor exceeds this time limit, his or her eligibility for benefits with respect to the first three years is not thereby eliminated.

Where this rule applies, the host country may not tax the amount of the grant, allowance or award. Nor may the host country tax any remuneration for personal services performed in the host country for any taxable year, provided that the services are in connection with the study, research or training or are incidental thereto, in an amount that does not exceed $2000 or its Dutch guilder equivalent.

Benefits under this article will not be available to a person who during the immediately preceding period enjoyed the benefits of the host country tax reductions, described above in connection with article 21, applicable to professors and teachers.

Host country benefits are afforded by this article to any person who is neither a host-country citizen nor, where the United States is the host country, a lawful permanent resident of the United States, without regard to the saving clause.

Article 23. Other Income

This article is a catch-all provision intended to cover items of income not specifically covered in other articles, and to assign the right to tax income from third countries to either the United States or the Netherlands. This article is substantially identical to the corresponding article in the U.S. model treaty.

As a general rule, items of income not otherwise dealt with in the proposed treaty which are derived by residents of either country will be taxable only in the country of residence. This rule, for example, gives the United States the sole right under the treaty to tax income derived from sources in a third country and paid to a resident of the United States. This article is subject to the saving clause, so U.S. citizens who are Dutch residents would continue to be taxable by the United States on their third-country income, with a foreign tax credit provided for income taxes paid to the Netherlands.

The general rule just stated does not apply to income (other than income from real property (as defined in Article 6)) if the recipient of the income is a resident of one country and carries on business in the other country through a permanent establishment or a fixed base, and the income is attributable to the permanent establishment or fixed base. In such a case, the provisions of Article 7 (Business Profits) or Article 15 (Independent Personal Services), as the case may be, will apply. The effect of the deferred payment rules and the deferred gain rules for determining U.S.-effectively connected income under the Code (sec. 864(c)(6) and (7)) on Dutch residents eligible for treaty benefits are dealt with in Article 24 (Basis of Taxation) of the proposed treaty. The prohibition on taxation by the country other than the residence country does apply, however, to income from real property that such country is not given permission to tax under Article 6. An example of such income is income from real property located in a third country.

Article 24. Basis of Taxation

This article contains the "saving clause" and the rules relating to deferred payments or gains. It also requires the countries to reach (absent the enactment of new Dutch legislation) an addi