Exchange of Notes

   

Exchange of Notes

I

3 April 1996

Excellency,

I have the honour to refer to the Convention between the Government of the United States of America and the Government of the Grand Duchy of Luxembourg for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to taxes on Income and Capital (the “Convention”) and to propose on behalf of the Government of the United States the following:

In the course of the negotiations leading to the conclusion of the Convention, the negotiators developed and agreed upon a common understanding and interpretation of the following provisions. These understandings and interpretations are intended to give guidance both to the taxpayers and the authorities of our two countries in interpreting various provisions contained in the Convention.

  1. With reference to Article 11 (Branch tax):

The term “dividend equivalent amount” shall have the meaning it has under the law of the United States, as it may be amended from time to time without changing the general principle thereof.

  1. With reference to Article 19 (Pensions, social security, and annuities)

It is understood that the term “other similar legislation” as used in Article 19 (Pensions, social security, and annuities) is intended to refer to United States tier 1 Railroad Retirement benefits.

III. With reference to Article 24 (Limitation on benefits)

  1. It is understood that the term “any other securities exchange” includes the principal stock exchanges of Amsterdam, Brussels, Frankfurt, Hamburg, London, Madrid, Milan, Paris, Sydney, Tokyo and Toronto.
  2. It is understood that the term “such other companies which enjoy a similar special fiscal treatment by virtue of the laws of Luxembourg” includes investment companies within the meaning of the Act dated 30 March 1988.
  3. For purposes of determining under subparagraph 4(c) if a comprehensive income tax Convention between one of the Contracting States and a third State provides with respect to dividends a rate of tax that is equal to or less than the rate of tax provided under the Convention, it is understood that the following two tax rates must be compared:

(a) the rate of tax to which each of the persons described in subparagraph 4(a) would be entitled if they directly held their proportionate share of the shares that gave rise to the dividends; and

(b) the rate of tax to which the same persons, if they would be residents of the Contracting State of which the recipient is a resident, would be entitled if they directly held their proportionate share of the shares that gave rise to the dividends.

  1. With respect to subparagraphs 2(c) and 2(d) and paragraph 4, it is understood that a Contracting State may consider a person not to be a qualified resident, unless such person demonstrates that a percentage of its shares (including shares not issued in registered form) necessary to satisfy the ownership threshold specified in subparagraphs 2(c) and 2(d) or paragraph 4 is beneficially owned by qualified residents, or, where relevant, residents of a member State of the European Union or a State that is a party to NAFTA.
  2. With reference to Article 28 (Exchange of information)

Paragraph 1 of Article 28 requires that each Contracting State provide to the other the broadest possible measure of assistance with respect to matters covered by the Convention. The Contracting States expect that the authorities in each State, including judicial authorities to the extent that they become involved in executing a request, will use their best efforts to provide the assistance requested.

Also, under paragraph 3, upon request the competent authority of a Contracting State will obtain and provide information, other than information of financial institutions, for any matter relating to the assessment, collection, or administration of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxes covered by the Convention, but only in the same manner and to the same extent as if the competent authority of the requested State were obtaining the information for an investigation or a public court proceeding under its laws and practices. Thus, upon request the competent authority of the requested State shall obtain and provide authenticated copies of third-party books and records located in the requested State for any tax investigation or proceeding in the requesting State, so long as the laws and practices of the requested State would allow its tax authorities to obtain such information for an investigation or a public court proceeding under its laws.
  

Finally, it is understood that certain information of financial institutions may be obtained and provided to certain U.S. authorities only in accordance with the terms of the Treaty between the United States of America and the Grand Duchy of Luxembourg on Mutual Legal Assistance in Criminal Matters. The scope of this obligation is set forth in that agreement. Further, if the laws and practices in Luxembourg change in a way that permits the Luxembourg competent authority to obtain such information for purposes of enforcing and administering its tax laws or the tax laws of member States of the European Union, it is understood that such information will be obtained and provided to the U.S. competent authority to the same extent that it is obtained and provided for the enforcement and administration of such tax laws.

If the foregoing understandings and interpretations of the various provisions meet with the approval of the Government of the Grand Duchy of Luxembourg, this Note and your Note in reply thereto will constitute a common and binding understanding by our Governments of the Convention.

Accept, Your Excellency, the expression of my highest considerations.

Clay Constantinou

Ambassador

II

Excellency,

I have the honour to acknowledge the receipt of Your Excellency’s Note of April 3rd, which reads as follows:

[see I]

I have further the honour to confirm the understandings and interpretations contained in Your Excellency’s Note, on behalf of the Government of the Grand Duchy of Luxembourg.

Accept, Your Excellency, the expression of my highest considerations.

Jacques F. Poos

Minister of Foreign Affairs

Foreign Trade and Cooperation of

the Grand Duchy of Luxembourg