CONVENTION BETWEEN
THE GOVERNMENT OF THE UNITED STATES OF AMERICA
AND THE GOVERNMENT OF THE REPUBLIC OF CROATIA
FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE
PREVENTION OF TAX EVASION WITH RESPECT TO TAXES ON INCOME
The Government of the United States of America and the Government of the Republic
of Croatia, intending to conclude a Convention for the avoidance of double taxation with respect
to taxes on income without creating opportunities for non-taxation or reduced taxation through
tax evasion or avoidance (including through treaty-shopping arrangements aimed at obtaining
reliefs provided in this Convention for the indirect benefit of residents of third states), have
agreed as follows:
Article 1
GENERAL SCOPE
1.
This Convention shall apply only to persons who are residents of one or both of
the Contracting States, except as otherwise provided in this Convention.
2.
This Convention shall not restrict in any manner any benefit now or hereafter
accorded:
a)
by the laws of either Contracting State; or
b)
by any other agreement to which both Contracting States are parties.
3.
a) Notwithstanding the provisions of subparagraph (b) of paragraph 2 of this
Article:
i)
for purposes of paragraph 3 of Article XXII (Consultation) of the
General Agreement on Trade in Services, the Contracting States agree that
any question
arising as to the interpretation or application of this
Convention and, in particular, whether a taxation measure is within the
scope of this Convention, shall be
determined exclusively in accordance
with the provisions of Article 25 (Mutual Agreement Procedure) of this
Convention; and
ii)
the provisions of Article XVII (National Treatment) of the General
Agreement on Trade in Services shall not apply to a taxation measure
unless the
competent authorities agree that the measure is not within the
scope of Article 24
(Non-Discrimination) of this Convention.
b) For the purposes of this paragraph, a "measure" is a law, regulation, rule,
procedure, decision, administrative action or any similar provision or action.
4.
Except to the extent provided in paragraph 5 of this Article, this Convention shall
not
affect the taxation by a Contracting State of its residents (as determined under Article
4 (Resident)) and its citizens. Notwithstanding the other provisions of this Convention, a
former citizen or former long-term resident of a Contracting State may be taxed in
accordance with the
laws of that Contracting State.
5.
The provisions of paragraph 4 of this Article shall not affect:
a)
the benefits conferred by a Contracting State under paragraph 3 of Article
7 (Business Profits), paragraph 2 of Article 9 (Associated Enterprises), paragraph
7 of
Article 13 (Gains), subparagraph (b) of paragraph 1, paragraphs 2, 3 and 6 of
Article 17
(Pensions, Social Security, Annuities, Alimony and Child Support),
paragraph 3 of
Article 18 (Contributions to Pension Funds), and Articles 23 (Relief
From Double Taxation), 24 (Non-Discrimination) and 25 (Mutual Agreement
Procedure); and
b)
the benefits conferred by a Contracting State under paragraph 1 of Article 18
(Contributions to Pension Funds), and Articles 19 (Government Service), 20
(Students and Trainees) and 27 (Members of Diplomatic Missions and Consular
Posts), upon individuals who are neither citizens of, nor have been admitted for
permanent residence in, that Contracting State.
6.
For the purposes of this Convention, an item of income, profit or gain derived by or
through an entity that is treated as wholly or partly fiscally transparent under the taxation laws
of either Contracting State shall be considered to be derived by a resident of a Contracting
State, but only to the extent that the item is treated for purposes of the taxation laws of such
Contracting State as the income, profit or gain of a resident.
7.
Where an item of income, profit or gain arising in one of the Contracting States
otherwise would be entitled to the benefits of this Convention in that Contracting State and,
under the law
of the other Contracting State, a person's tax in respect of such item is
determined by reference to the amount thereof that is remitted to or received in that other
Contracting State and not by
reference to the full amount thereof, then the relief to be allowed
under this Convention in the first-mentioned Contracting State shall apply only to so much of
the amount as is taxed in the other Contracting State.
8.
Where an enterprise of a Contracting State derives income from the other Contracting
State, and the first-mentioned Contracting State treats that income as profits attributable to a
permanent establishment situated outside of that Contracting State, the benefits of this
Convention shall not apply to that income if:
a)
the income that is treated as profits attributable to the permanent establishment
is subject to a combined aggregate effective rate of tax in the first-mentioned
Contracting State and the state in which the permanent establishment is situated that is
less than the lesser of (i) 15 percent or (ii) 60 percent of the highest general statutory
rate of company tax
applicable in the first-mentioned Contracting State; or
b)
the permanent establishment is situated in a third state that does not have a
comprehensive convention for the avoidance of double taxation in force with the
Contracting State from which the benefits of this Convention are being claimed,
unless the first-mentioned Contracting State includes the income treated as profits
attributable to the permanent establishment in its tax base.
However, if a resident of a Contracting State is denied the benefits of this Convention
pursuant to subparagraph (a) of this paragraph, the competent authority of the other
Contracting State may, nevertheless, grant the benefits of this Convention with respect to a
specific item of income
if such competent authority determines that such grant of benefits is
justified in light of the
reasons such resident did not satisfy the requirements of subparagraph
(a) of this paragraph (such
as the existence of losses). The competent authority of the
Contracting State to which a request has been made shall consult with the competent authority
of the other Contracting State before either granting or denying the request made under this
paragraph by a resident of that other Contracting State.
9. Nothing in this Convention shall be construed as preventing the United States from
imposing a tax under section 59A, entitled the “Tax on Base Erosion Payments of Taxpayers
with Substantial Gross Receipts,” of the Internal Revenue Code (as it may be amended from
time to time) on a company that is a resident of the United States or on the profits of a
company that is a resident of Croatia that are attributable to a
permanent establishment in the
United States.
Article 2
TAXES COVERED
1.
This Convention shall apply to taxes on income imposed on behalf of a Contracting
State
irrespective of the manner in which they are levied.
2.
There shall be regarded as taxes on income all taxes imposed on total income, or on
elements of income, including taxes on gains from the alienation of property.
3.
The existing taxes to which this Convention shall apply are:
a) in the case of Croatia;
i)
the profit tax;
ii)
the income tax; and
iii)
the local income tax.
b) in the case of the United States: the Federal income taxes imposed by the
Internal
Revenue Code (which do not include social security and unemployment taxes)
and the Federal taxes imposed on the investment income of foreign private foundations.
4.
This Convention also shall apply to any identical or substantially similar taxes that are
imposed after the date of signature of this Convention in addition to, or in place of, the existing
taxes. The competent authorities of the Contracting States shall notify each other of any
significant changes that have been made in their taxation laws or other laws that relate to the
application of this Convention.
Article 3
GENERAL DEFINITIONS
1. For the purposes of this Convention, unless the context otherwise requires:
a) the term "person" includes an individual, an estate, a trust, a partnership, a
company, and any other body of persons;
b) the term "company" means any body corporate or any entity that is treated as
a
body corporate for tax purposes according to the laws of the Contracting State in
which it
is resident;
c) the terms "enterprise of a Contracting State" and "enterprise of the other
Contracting State" mean, respectively, an enterprise carried on by a resident of a
Contracting State, and an enterprise carried on by a resident of the other Contracting
State; the terms also include an enterprise carried on by a resident of a Contracting
State
through an entity that is treated as fiscally transparent in that Contracting State;
d)
the term "enterprise" applies to the carrying on of any business;
e) the term "business" includes the performance of professional services and of
other
activities of an independent character;
f)
the term "international traffic" means any transport by a ship or aircraft,
except when such transport is solely between places in a Contracting State;
g)
the term "competent authority" means:
i) in Croatia: the Minister of Finance or his authorized representative;
and
ii) in the United States: the Secretary of the Treasury or his delegate;
h)
the term "Croatia" means
the territory of the Republic of Croatia as well as
those maritime areas adjacent to the outer limit of territorial sea, including the sea bed
and subsoil thereof, over which the Republic of Croatia in accordance with international
law and the laws of the Republic of Croatia exercises its sovereign rights and
jurisdiction
;
i)
the term "United States" means the United States of America, and includes
the states thereof and the District of Columbia; such term also includes the territorial
sea
thereof and the sea bed and subsoil of the submarine areas adjacent to that
territorial sea, over which the United States exercises sovereign rights in accordance
with international
law; the term, however, does not include Puerto Rico, the U.S.
Virgin Islands, Guam or
any other United States possession or territory;
j)
the term "national" of a Contracting State means:
i) any individual possessing the nationality or citizenship of that
Contracting State; and
ii) any legal person, partnership or association deriving its status as such
from the laws in force in that Contracting State;
k) the term “pension fund” means any person established in a Contracting State that
satisfies the following requirements imposed under the laws of that State:
i) is generally exempt from income taxation in that Contracting State;
ii) operates exclusively or almost exclusively:
A) to administer or provide retirement benefits to individuals in
consideration of their current or past employment (including self-
employment), and benefits that are incidental or ancillary to such
retirement benefits; or
B) to earn income for the benefit of one or more persons established
in the same Contracting State that are generally exempt from income
taxation in that Contracting State and that are operated exclusively or
almost exclusively to administer or provide retirement benefits to
individuals in consideration of their current or past employment (including
self-employment), and benefits that are incidental or ancillary to such
retirement benefits;
iii) other than in the case of a transfer from another pension fund established
in the same Contracting State that qualifies as a tax-deferred transfer:
A) imposes contribution limits determined by reference to the amount
of income earned by individual participants or the participant’s spouse
from current or past employment (including self-employment); and
B) allows contributions by individual participants only in the form of
cash; and
iv) is subject to periodic information reporting requirements to the
government of the Contracting State in which it is established.
l) the term "special tax regime" means any statute, regulation or administrative
practice in a Contracting State with respect to a tax described in Article 2 (Taxes
Covered) that meets all of the following conditions:
i) results in one or more of the following:
A) a preferential rate of taxation for interest, royalties, guarantee
fees
or any combination thereof, as compared to income from sales of
goods or
services;
B) a permanent reduction in the tax base with respect to interest,
royalties, guarantee fees or any combination thereof, without a comparable
reduction for income from sales of goods or services, by allowing:
1) an exclusion from gross receipts;
2) a deduction without regard to any corresponding payment
or obligation to make a payment;
3) a deduction for dividends paid or accrued; or
4) taxation that is inconsistent with the principles of Article
7
(Business Profits) or Article 9 (Associated Enterprises); or
C) a preferential rate of taxation or a permanent reduction in the tax
base of the type described in part (1), (2), (3) or (4) of subclause (B) of
this clause with respect to substantially all of a company's income or
substantially all of a company's foreign source income, for companies
that
do not engage in the active conduct of a trade or business in that
Contracting State;
ii) in the case of any preferential rate of taxation or permanent reduction in
the tax base for royalties, does not condition such benefits on the extent of
research and development activities that take place in the Contracting State;
iii) is generally expected to result in a rate of taxation that is less than the
lesser of either:
A)
15 percent; or
B)
60 percent of the highest general statutory rate of company tax
applicable in the other Contracting State;
iv) does not apply principally to:
A) pension funds;
B) organizations that are established and maintained exclusively for
religious, charitable, scientific, artistic, cultural or educational purposes;
C) persons the taxation of which achieves a single level of taxation
either in the hands of the person or the person's shareholders (with at most
one year of deferral), that hold a diversified portfolio of securities, that are
subject to investor-protection regulation in the Contracting State and the
interests in which are marketed primarily to retail investors; or
D) persons the taxation of which achieves a single level of taxation
either in the hands of the person or the person's shareholders (with at most
one year of deferral) and that hold predominantly real estate assets; and
v) after consultation with the first-mentioned Contracting State, has been
identified by the other Contracting State through diplomatic channels to the
first- mentioned Contracting State as satisfying clauses (i) through (iv) of this
subparagraph.
No statute, regulation or administrative practice shall be treated as a special tax
regime until 30 days after the date when the other Contracting State issues a written
public notification identifying the regime as satisfying clauses (i) through (v) of this
subparagraph; and
m) two persons shall be "connected persons" if one owns, directly or indirectly,
at least 50 percent of the beneficial interest in the other (or, in the case of a
company, at least 50 percent of the aggregate vote and value of the company's
shares) or another person owns, directly or indirectly, at least 50 percent of the
beneficial interest (or, in the case of a company, at least 50 percent of the aggregate
vote and value of the company's shares) in each person. In any case, a person shall
be connected to another if, based on all the relevant facts and circumstances, one
has control of the other or both are under the control of the same person or persons.
2. As regards the application of this Convention at any time by a Contracting State, any
term not defined herein shall, unless the context otherwise requires, or the competent
authorities
agree to a common meaning pursuant to the provisions of Article 25 (Mutual
Agreement Procedure), have the meaning that it has at that time under the law of that
Contracting State for the purposes of the taxes to which this Convention applies, any meaning
under the applicable tax
laws of that Contracting State prevailing over a meaning given to the
term under other laws of
that Contracting State.
Article 4
RESIDENT
1.
For the purposes of this Convention, the term "resident of a Contracting State" means
any
person who, under the laws of that Contracting State, is liable to tax therein by reason of his
domicile, residence, citizenship, place of management, place of incorporation, or any other
criterion of a similar nature, and also includes that Contracting State and any political subdivision
or local authority thereof. This term does not include any person whose tax is
determined in that
Contracting State, in whole or in part, on a fixed-fee, "forfait" or similar basis,
or who is liable to
tax in respect only of income from sources in that Contracting State or of
profits attributable to a
permanent establishment in that Contracting State.
2.
The term "resident of a Contracting State" includes:
a) a pension fund established in that Contracting State; and
b) an organization that is established and maintained in that Contracting State
exclusively for religious, charitable, scientific, artistic, cultural, or educational purposes;
notwithstanding that all or part of its income or gains may be exempt from tax under the
domestic law of that Contracting State.
3.
Where, by reason of the provisions of paragraph 1 of this Article, an individual is a
resident of both Contracting States, then his status shall be determined as follows:
a) he shall be deemed to be a resident only of the Contracting State in which he has
a permanent home available to him; if he has a permanent home available to him in both
Contracting States, he shall be deemed to be a resident only of the Contracting State
with
which his personal and economic relations are closer (center of vital interests);
b) if the Contracting State in which he has his center of vital interests cannot be
determined, or if he does not have a permanent home available to him in either
Contracting State, he shall be deemed to be a resident only of the Contracting State in
which he has a habitual abode;
c) if he has a habitual abode in both Contracting States or in neither of them, he
shall
be deemed to be a resident only of the Contracting State of which he is a national;
d) if he is a national of both Contracting States or of neither of them, the competent
authorities of the Contracting States shall endeavor to settle the question by mutual
agreement.
4.
Where by reason of the provisions of paragraph 1 of this Article a company is a resident
of both Contracting States, such company shall not be treated as a resident of either Contracting
State for purposes of its claiming the benefits provided by this Convention.
5.
Where by reason of the provisions of paragraph 1 of this Article a person other than an
individual or a company is a resident of both Contracting States, the competent authorities of the
Contracting States shall by mutual agreement endeavor to determine the mode of application of
this Convention to that person.
Article 5
PERMANENT ESTABLISHMENT
1.
For the purposes of this Convention, the term "permanent establishment" means a fixed
place of business through which the business of an enterprise is wholly or partly carried on.
2.
The term "permanent establishment" includes especially:
a)
a place of management;
b)
a branch;
c)
an office;
d)
a factory;
e)
a workshop; and
f) a mine, an oil or gas well, a quarry, or any other place of extraction of natural
resources.
3.
A building site or construction or installation project, or an installation or drilling rig or
ship used for the exploration or exploitation of the sea bed and its subsoil and their natural
resources, situated in one of the Contracting States constitutes a permanent establishment only if
it lasts, or the activities of the rig or ship lasts, for more than twelve months. For the sole
purpose
of determining whether the twelve-month period referred to in this paragraph has been
exceeded:
a)
where an enterprise of a Contracting State carries on activities in the other
Contracting State at a place that constitutes a building site or construction or installation
project and these activities are carried on during periods of time that in the aggregate do
not last more than twelve months; and
b)
connected activities are carried on at the same building site or construction or
installation project during different periods of time, each exceeding thirty days, by one
or
more enterprises that are connected persons with respect to the first-mentioned
enterprise,
these different periods of time shall be added to the periods of time during which the first-
mentioned enterprise has carried on activities at that building site or construction or installation
project.
4. Notwithstanding the preceding provisions of this Article, the term "permanent
establishment" shall be deemed not to include:
a) the use of facilities solely for the purpose of storage, display or delivery of
goods
or merchandise belonging to the enterprise;
b) the maintenance of a stock of goods or merchandise belonging to the
enterprise solely for the purpose of storage, display or delivery;
c) the maintenance of a stock of goods or merchandise belonging to the
enterprise solely for the purpose of processing by another enterprise;
d) the maintenance of a fixed place of business solely for the purpose of
purchasing goods or merchandise, or of collecting information, for the enterprise;
e) the maintenance of a fixed place of business solely for the purpose of carrying
on,
for the enterprise, any other activity of a preparatory or auxiliary character;
f) the maintenance of a fixed place of business solely for any combination of the
activities mentioned in subparagraphs (a) through (e) of this paragraph, provided that
the
overall activity of the fixed place of business resulting from this combination is of
a
preparatory or auxiliary character.
5. Notwithstanding the provisions of paragraphs 1 and 2 of this Article, where a person -
other than an agent of an independent status to whom paragraph 6 of this Article applies - is
acting on behalf of an enterprise and has and habitually exercises in a Contracting State an
authority to conclude contracts that are binding on the enterprise, that enterprise shall be
deemed to have a permanent establishment in that Contracting State in respect of any
activities that the
person undertakes for the enterprise, unless the activities of such person are
limited to those mentioned in paragraph 4 that, if exercised through a fixed place of business,
would not make this fixed place of business a permanent establishment under the provisions
of that paragraph.
6. An enterprise shall not be deemed to have a permanent establishment in a Contracting
State merely because it carries on business in that Contracting State through a broker, general
commission agent, or any other agent of an independent status, provided that such persons are
acting in the ordinary course of their business as independent agents.
7. The fact that a company that is a resident of a Contracting State controls or is
controlled by a company that is a resident of the other Contracting State, or that carries on
business in that
other Contracting State (whether through a permanent establishment or
otherwise), shall not be taken into account in determining whether either company has a
permanent establishment in that other Contracting State.
Article 6
INCOME FROM REAL PROPERTY (IMMOVABLE PROPERTY)
1.
Income derived by a resident of a Contracting State from real property (immovable
property), including income from agriculture or forestry, situated in the other Contracting State
may be taxed in that other Contracting State.
2.
The term "real property" or "immovable property" shall have the meaning which it has
under the law of the Contracting State in which the property in question is situated. The term
shall
in any case include property accessory to real property (immovable property), livestock and
equipment used in agriculture and forestry, rights to which the provisions of general law
respecting landed property apply, usufruct of real property (immovable property) and rights to
variable or fixed payments as consideration for the working of, or the right to work, mineral
deposits, sources and other natural resources. Ships and aircraft shall not be regarded as real
property (immovable property).
3.
The provisions of paragraph 1 of this Article shall apply to income derived from the
direct use, letting, or use in any other form of real property (immovable property).
4.
The provisions of paragraphs 1 and 3 of this Article shall also apply to the income from
real property (immovable property) of an enterprise.
5.
A resident of a Contracting State that is liable to tax in the other Contracting State on
income from real property (immovable property) situated in the other Contracting State may
elect
for any taxable year to compute the tax on such income on a net basis as if such income
were
business profits attributable to a permanent establishment in such other Contracting State.
Any
such election shall be binding for the taxable year of the election and all subsequent taxable
years
unless the competent authority of the Contracting State in which the property is situated
agrees to
terminate the election.
Article 7
BUSINESS PROFITS
1.
Profits of an enterprise of a Contracting State shall be taxable only in that
Contracting State unless the enterprise carries on business in the other Contracting State
through a permanent establishment situated therein. If the enterprise carries on business as
aforesaid, the profits that
are attributable to the permanent establishment in accordance with
the provisions of paragraph 2
of this Article may be taxed in that other Contracting State.
2.
For the purposes of this Article, the profits that are attributable in each Contracting
State
to the permanent establishment referred to in paragraph 1 of this Article are the profits it
might be expected to make, in particular in its dealings with other parts of the enterprise, if it
were a
separate and independent enterprise engaged in the same or similar activities under the
same or similar conditions, taking into account the functions performed, assets used and risks
assumed by
the enterprise through the permanent establishment and through the other parts of
the enterprise.
3.
Where, in accordance with paragraph 2 of this Article, a Contracting State adjusts the
profits that are attributable to a permanent establishment of an enterprise of one of the
Contracting States and taxes accordingly profits of the enterprise that have been charged to
tax in the other Contracting State, the other Contracting State shall, to the extent necessary to
eliminate
double taxation, make an appropriate adjustment if it agrees with the adjustment
made by the first-mentioned Contracting State; if the other Contracting State does not so
agree, the
Contracting States shall eliminate any double taxation resulting therefrom by
mutual agreement.
4.
Where profits include items of income that are dealt with separately in other Articles
of
this Convention, then the provisions of those Articles shall not be affected by the
provisions of
this Article.
5.
In applying this Article, paragraph 8 of Article 10 (Dividends), paragraph 5 of
Article 11
(Interest), paragraph 5 of Article 12 (Royalties), paragraph 3 of Article 13 (Gains)
and paragraph 3 of Article 21 (Other Income), any income, profit or gain attributable to a
permanent establishment during its existence is taxable in the Contracting State where such
permanent establishment is situated even if the payments are deferred until such permanent
establishment has ceased to exist.
Article 8
SHIPPING AND AIR TRANSPORT
1. Profits of an enterprise of a Contracting State from the operation of ships or aircraft in
international traffic shall be taxable only in that Contracting State.
2. For purposes of this Article, profits from the operation of ships or aircraft include, but
are
not limited to:
a)
profits from the rental of ships or aircraft on a full (time or voyage) basis;
b)
profits from the rental on a bareboat basis of ships or aircraft if the rental income
is
incidental to profits from the operation of ships or aircraft in international traffic; and
c)
profits from the rental on a bareboat basis of ships or aircraft if such ships or
aircraft
are operated in international traffic by the lessee.
Profits derived by an enterprise from the inland transport of property or passengers within either
Contracting State shall be treated as profits from the operation of ships or aircraft in international
traffic if such transport is undertaken as part of international traffic.
3. Profits of an enterprise of a Contracting State from the use, maintenance, or rental of
containers (including trailers, barges, and related equipment for the transport of containers) shall
be taxable only in that Contracting State, except to the extent that those containers are used for
transport solely between places within the other Contracting State.
4. The provisions of paragraphs 1 and 3 of this Article shall also apply to profits from
participation in a pool, a joint business, or an international operating agency.
Article 9
ASSOCIATED ENTERPRISES
1. Where:
a) an enterprise of a Contracting State participates directly or indirectly in the
management, control or capital of an enterprise of the other Contracting State; or
b) the same persons participate directly or indirectly in the management, control,
or
capital of an enterprise of a Contracting State and an enterprise of the other
Contracting State;
and in either case conditions are made or imposed between the two enterprises in their
commercial or financial relations that differ from those that would be made between
independent enterprises, then any profits that, but for those conditions, would have accrued to
one of the
enterprises, but by reason of those conditions have not so accrued, may be included
in the profits
of that enterprise and taxed accordingly.
2. Where a Contracting State includes in the profits of an enterprise of that Contracting
State, and taxes accordingly, profits on which an enterprise of the other Contracting State has
been charged to tax in that other Contracting State, and the other Contracting State agrees that
the profits so included are profits that would have accrued to the enterprise of the first-
mentioned Contracting State if the conditions made between the two enterprises had been
those that would have been made between independent enterprises, then that other
Contracting State shall make an
appropriate adjustment to the amount of the tax charged
therein on those profits. In determining such adjustment, due regard shall be had to the other
provisions of this Convention and the
competent authorities of the Contracting States shall if
necessary consult each other.
Article 10
DIVIDENDS
1.
Dividends paid by a company that is a resident of a Contracting State to a resident of the
other Contracting State may be taxed in that other Contracting State.
2.
However, such dividends may also be taxed in the Contracting State of which the
company paying the dividends is a resident and according to the laws of that Contracting State,
but if the beneficial owner of the dividends is a resident of the other Contracting State, except as
otherwise provided, the tax so charged shall not exceed:
a)
5 percent of the gross amount of the dividends if, for the twelve-month period
ending on the date on which the entitlement to the dividends is determined:
i)
the beneficial owner has been a company that was a resident of the other
Contracting State or of a qualifying third state. The term "qualifying third state"
means a state that has in effect a comprehensive convention for the avoidance of
double taxation with the Contracting State of the company paying the dividends
that would have allowed the beneficial owner to benefit from a rate of tax on
dividends that is less than or equal to 5 percent; and
ii)
at least 10 percent of the aggregate vote and value of the shares of the
company paying the dividends was owned directly by the beneficial owner or a
qualifying predecessor owner. The term "qualifying predecessor owner" means a
company from which the beneficial owner acquired the shares of the company
paying the dividends, but only if the company from which the shares were
acquired was, at the time of the acquisition, a connected person with respect to
the
beneficial owner of the dividend, and such company would have benefited
from a
rate of tax on dividends that is less than or equal to 5 percent either as a
resident of the same Contracting State of which the beneficial owner of the
dividends is a
resident or of a state that has in effect a comprehensive convention
for the
avoidance of double taxation with the Contracting State of the company
paying
the dividends; and
b)
15 percent of the gross amount of the dividends in all other cases.
This paragraph shall not affect the taxation of the company in respect of the profits out of which
the dividends are paid.
3.
Notwithstanding the provisions of paragraph 2 of this Article:
a) dividends shall not be
taxed in the Contracting State of which the company paying
the dividends is a resident if:
i) the beneficial owner of the dividends is a pension fund that is a resident
of the
other Contracting State; and
ii) such dividends are not derived from the carrying on of a trade or
business by the
pension fund or through a person that is a connected person
with respect to the pension fund; and
b) dividends paid by a company that is a resident of the United States shall not be
taxed in the United States if:
i) the beneficial owner of the dividends is a resident of Croatia that is a
voluntary pension insurance scheme based on individual capitalized savings
established under the “Act on Voluntary Pension Funds” as such law existed on
the date of signature of this Convention; and
ii) such dividends are not derived from the carrying on of a trade or business
by such resident or through a person that is a connected person with respect to
such resident.
4.
a) Subparagraph (a) of paragraph 2 of this Article shall not apply in the case of
dividends paid by a U.S. Regulated Investment Company (RIC) or a U.S. Real Estate
Investment Trust (REIT). In the case of dividends paid by a RIC, subparagraph (b)
of
paragraph 2 and paragraph 3 of this Article shall apply. In the case of dividends
paid by
a REIT, subparagraph (b) of paragraph 2 and paragraph 3 of this Article shall
apply only if:
i) the beneficial owner of the dividends is an individual or pension fund,
in either case holding an interest of not more than 10 percent in the REIT;
ii) the dividends are paid with respect to a class of shares that is publicly
traded and the beneficial owner of the dividends is a person holding an
interest of not more than 5 percent of any class of the REIT' s shares; or
iii) the beneficial owner of the dividends is a person holding an interest of
not more than 10 percent in the REIT and the REIT is diversified.
b) For purposes of this paragraph, a REIT shall be "diversified" if the value of
no
single interest in real property (immovable property) exceeds 10 percent of its
total
interests in real property (immovable property). For the purposes of this rule,
foreclosure
property shall not be considered an interest in real property (immovable
property). Where a REIT holds an interest in a partnership, it shall be treated as
owning directly a
proportion of the partnership's interests in real property
(immovable property)
corresponding to its interest in the partnership.
5.
In the case of the United States, notwithstanding the provisions of paragraph 2 of
this
Article, dividends paid by an expatriated entity, as defined in Section 7874(a)(2)(A) of
the
Internal Revenue Code on the date of signature of this Convention and in the regulations
that are or may be promulgated under Section 7874 with respect to that definition, and
beneficially owned by a company resident in Croatia that is a connected person with respect
to such
expatriated entity may be taxed in accordance with the law of the United States for a
period of ten years beginning on the date on which the acquisition of the domestic entity is
completed. For purposes of applying this paragraph, no entity shall be treated as an
expatriated entity if
a)
it is a connected person with respect to the domestic entity immediately after
the date on which the acquisition of the domestic entity is completed; and
b)
prior to that date, it was never a connected person with respect to the domestic
entity.
However, an entity described in the preceding sentence shall become an expatriated entity if,
subsequent to the date on which the acquisition of the domestic entity is completed, the entity
joins in filing a U.S. consolidated return with either the domestic entity or another entity that
was a connected person with respect to the domestic entity immediately prior to the date on
which the acquisition of the domestic entity was completed.
6.
In the case of a company that otherwise satisfies the requirements of paragraph 2 of
this
Article, but fails to satisfy the requirements of paragraph 4 of Article 22 (Limitation on
Benefits)
regarding a dividend solely by reason of:
a)
the requirement in subclause (B) of clause (i) of subparagraph (e) of paragraph
7 of Article 22 (Limitation on Benefits) of this Convention; or
b)
the requirement in clause (ii) of subparagraph (e) of paragraph 7 of Article 22
(Limitation on Benefits) that a person entitled to benefits under paragraph 5 of
Article 22 (Limitation on Benefits) would be entitled to a rate of tax with respect to
the dividend that is less than or equal to the rate applicable under paragraph 2 of this
Article;
such company may be taxed in the Contracting State of which the company paying the
dividends is a resident and according to the laws of that Contracting State. In these cases,
however, the tax so charged shall not exceed the highest rate among the rates of tax to which
persons described in
subparagraph (e) of paragraph 7 of Article 22 (Limitation on Benefits)
of this Convention (notwithstanding the requirements referred to in subparagraphs (a) and (b)
of this paragraph) would have been entitled if such persons had received the dividend directly.
For purposes of this paragraph, (i) such persons' indirect ownership of the shares of the
company paying the dividends shall be treated as direct ownership, and (ii) a person described
in clause (iii) of subparagraph (e) of paragraph 7 of Article 22 (Limitation on Benefits) shall
be treated as entitled to the limitation of tax to which such person would be entitled if such
person were a resident of
the same Contracting State as the company receiving the dividends.
7.
For purposes of this Convention, the term "dividends" means income from shares or
other rights, not being debt-claims, participating in profits, as well as income that is subject to
the same taxation treatment as income from shares under the laws of the Contracting State of
which the company making the distribution is a resident. The term does not include
distributions that are treated as gain under the laws of the Contracting State of which the
company making the distribution is a resident. In such case, the provisions of Article 13
(Gains) shall apply.
8.
The provisions of paragraphs 1 through 6 of this Article shall not apply if the
beneficial owner of the dividends, being a resident of a Contracting State, carries on business
in the other
Contracting State, of which the company paying the dividends is a resident,
through a permanent establishment situated therein, and the holding in respect of which the
dividends are paid is
effectively connected with such permanent establishment. In such case
the provisions of Article 7 (Business Profits) shall apply.
9.
A Contracting State may not impose any tax on dividends paid by a resident of the
other
Contracting State, except insofar as the dividends are paid to a resident of the first-
mentioned Contracting State or the dividends are attributable to a permanent establishment
situated therein, nor may it impose tax on a corporation's undistributed profits, except as
provided in paragraph 10 of this Article, even if the dividends paid or the undistributed profits
consist wholly or partly of profits or income arising in that Contracting State.
10.
a) A company that is a resident of one of the Contracting States and that has a
permanent establishment in the other Contracting State or that is subject to tax in the
other Contracting State on a net basis on its income that may be taxed in the other
Contracting State under Article 6 (Income from Real Property (Immovable Property))
or under paragraph 1 of Article 13 (Gains) may be subject in that other Contracting
State to a tax in addition to the tax allowable under the other provisions of this
Convention.
b) Such tax, however, may be imposed:
i)
on only the portion of the business profits of the company attributable
to the permanent establishment and the portion of the income referred to in
subparagraph (a) of this paragraph that is subject to tax under Article 6
(Income from Real Property (Immovable Property)) or under paragraph 1 of
Article 13
(Gains) that, in the case of the United States, represents the
dividend equivalent
amount of such profits or income and, in the case of
Croatia, is an amount
that is analogous to the dividend equivalent amount; and
ii)
at a rate not in excess of the rate specified in subparagraph (a) of
paragraph 2 or paragraph 6 of this Article, but only if for the twelve-month
period ending on the date on which the entitlement to the dividend equivalent
amount is determined, the company has been a resident of the other
Contracting State or of a
qualifying third state. The term "qualifying third
state" has the same meaning as
in clause (i) of subparagraph (a) of paragraph
2 of this Article.
11.
For the purposes of this Article, a company that is a resident of a Contracting State
shall be considered to own directly the shares owned by an entity that:
a)
is considered fiscally transparent under the laws of that Contracting State; and
b)
is not a resident of the other Contracting State of which the company paying
the
dividends is a resident;
in proportion to the company's ownership interest in that entity.
Article 11
INTEREST
1.
Interest arising in a Contracting State and beneficially owned by a resident of the
other
Contracting State shall be taxable only in that other Contracting State.
2.
Notwithstanding the provisions of paragraph 1 of this Article:
a) interest arising in Croatia that is determined with reference to receipts, sales,
income, profits or other cash flow of the debtor or a connected person with respect to
the
debtor, to any change in the value of any property of the debtor or a connected
person with respect to the debtor or to any dividend, partnership distribution or
similar payment made by the debtor or a connected person with respect to the debtor
may be taxed in Croatia,
and according to the laws of Croatia, but if the beneficial
owner is a
resident of the United States, the interest may be taxed at a rate not
exceeding
15 percent
of the gross amount of the interest;
b) interest arising in the United States that is contingent interest of a type that does
not qualify as portfolio interest under the law of the United States may be taxed by the
United States, but if the beneficial owner is a resident of Croatia the interest may be taxed at
a rate not exceeding 15 percent of the gross amount of the interest;
c) interest arising in a Contracting State and beneficially owned by a resident of
the
other Contracting State that is a connected person with respect to the payor of the
interest may be taxed in the first-mentioned Contracting State in accordance with
domestic law if such resident benefits from a special tax regime with respect to the
interest in its
Contracting State of residence;
d) in the case of the United States, interest paid by an expatriated entity, as
defined in Section 7874(a)(2)(A) of the Internal Revenue Code on the date of
signature of this
Convention and in the regulations that are or may be promulgated
under Section 7874
with respect to that definition, and beneficially owned by a
company resident in Croatia that is a connected person with respect to such
expatriated entity may be
taxed in accordance with the law of the United States for a
period of ten years beginning on the date on which the acquisition of the domestic
entity is completed. For purposes of applying this paragraph no entity shall be
treated as an expatriated entity if:
i)
it is a connected person with respect to the domestic entity
immediately after
the date on which the acquisition of the domestic entity is
completed; and
ii)
prior to that date, it was never a connected person with respect to the
domestic entity.
However, an entity described in the preceding sentence shall become an expatriated
entity if, subsequent to the date on which the acquisition of the domestic entity is
completed, the entity joins in filing a U.S. consolidated return with either the
domestic entity or another entity that was a connected person with respect to the
domestic entity immediately prior to the date on which the acquisition of the
domestic entity was completed.
e) interest arising in a Contracting State and beneficially owned by a resident of
the
other Contracting State that is a connected person with respect to the payor of the
interest may be taxed in the first-mentioned Contracting State in accordance with
domestic law if such resident benefits, at any time during the taxable year in which
the interest is paid, from notional deductions with respect to amounts that the
Contracting State of which the
beneficial owner is resident treats as equity;
f) interest arising in a Contracting State and beneficially owned by a resident of
the
other Contracting State that is entitled to the benefits of this Article only by
reason of paragraph 5 of Article 22 (Limitation on Benefits) may be taxed in the
first-mentioned Contracting State, but the tax so charged shall not exceed 10 percent of
the gross amount of the interest; and
g) interest that is an excess inclusion with respect to a residual interest in a real
estate mortgage investment conduit may be taxed by each Contracting State in
accordance with its domestic law.
3.
Notwithstanding the provisions of paragraph 1 of this Article, in the case of a
company seeking to satisfy the requirements of paragraph 4 of Article 22 (Limitation on
Benefits) of this
Convention regarding a payment of interest, if such company fails to satisfy
the criteria of that paragraph solely by reason of:
a) the requirement in subclause (B) of clause (i) of subparagraph (e) of
paragraph 7
of Article 22 (Limitation on Benefits) of this Convention; or
b) the requirement in clause (ii) of subparagraph (e) of paragraph 7 of Article 22
(Limitation on Benefits) that a person entitled to benefits under paragraph 5 of
Article 22 (Limitation on Benefits) would be entitled to a rate of tax with respect to
the interest that is less than or equal to the rate applicable under paragraph 2 of this
Article;
such company may be taxed by the Contracting State in which the interest arises according to
the laws of that Contracting State. In these cases, however, the tax so charged shall not
exceed the highest rate among the rates of tax to which persons described in subparagraph (e)
of paragraph 7
of Article 22 (Limitation on Benefits) of this Convention (notwithstanding the
requirements referred to in subparagraphs (a) and (b) of this paragraph) would have been
entitled if such persons had received the interest directly. For purposes of this paragraph, a
person described in
clause (iii) of subparagraph (e) of paragraph 7 of Article 22 (Limitation
on Benefits) shall be
treated as entitled to the limitation of tax to which such person would be
entitled if such person were a resident of the same Contracting State as the company receiving
the interest.
4.
The term "interest" as used in this Convention means income from debt-claims of
every kind, whether or not secured by mortgage, and whether or not carrying a right to
participate in
the debtor's profits, and in particular, income from government securities and
income from bonds or debentures, including premiums or prizes attaching to such securities,
bonds or debentures, and all other income that is subjected to the same taxation treatment as
income from money lent under the law of the Contracting State in which the income arises.
Income dealt with
in Article 10 (Dividends) and penalty charges for late payment shall not be
regarded as interest for the purposes of this Convention.
5.
The provisions of paragraphs 1 through 3 of this Article shall not apply if the
beneficial owner of the interest, being a resident of a Contracting State, carries on business in
the other Contracting State in which the interest arises through a permanent establishment
situated therein,
and the debt-claim in respect of which the interest is paid is effectively
connected with such permanent establishment. In such case the provisions of Article 7
(Business Profits) shall apply.
6.
For purposes of this Article, interest shall be deemed to arise in a Contracting State
when the payor is a resident of that Contracting State. Where, however, the person paying the
interest, whether a resident of a Contracting State or not, has in a Contracting State a
permanent establishment or derives profits that are taxable on a net basis in a Contracting
State under paragraph 5 of Article 6 (Income from Real Property (Immovable Property)) or
paragraph 1 of
Article 13 (Gains), and such interest is borne by such permanent establishment
or allocable to
such profits, then such interest shall be deemed to arise in the Contracting State
in which the permanent establishment is situated or from which such profits are derived.
7.
The excess, if any, of the amount of interest allocable to the profits of a company
resident in a Contracting State that are:
a) attributable to a permanent establishment in the other Contracting State
(including gains under paragraph 3 of Article 13 (Gains)); or
b) subject to tax in the other Contracting State under Article 6 (Income from
Real Property (Immovable Property)) or paragraph 1 of Article 13 (Gains);
over the interest paid by that permanent establishment, or in the case of profits subject to tax
under Article 6 (Income from Real Property (Immovable Property)) or paragraph 1 of Article
13
(Gains), over the interest paid by that company, shall be deemed to arise in that other
Contracting State and to be beneficially owned by a resident of the first-mentioned
Contracting State. The tax imposed under this Article on such interest shall not exceed the
rates provided in paragraphs 1 through 3 of this Article.
8.
Where, by reason of a special relationship between the payor and the beneficial
owner or
between both of them and some other person, the amount of the interest, having
regard to the debt-claim for which it is paid, exceeds the amount that would have been agreed
upon by the payor and the beneficial owner in the absence of such relationship, the provisions
of this Article shall apply only to the last-mentioned amount. In such case the excess part of
the payments shall
remain taxable according to the laws of each Contracting State, due regard
being had to the other
provisions of this Convention.
Article 12
ROYALTIES
1.
Royalties arising in a Contracting State and paid to a resident of the other
Contracting
State may be taxed in that other Contracting State.
2.
However, such royalties may also be taxed in the Contracting State in which they arise
and according to the laws of that State, but if the beneficial owner of the royalties is a resident of
the other Contracting State, the tax so charged shall not exceed 5 percent of the gross amount of
the royalties.
3.
Notwithstanding the provisions of paragraph 1 of this Article:
a) a royalty arising in a Contracting State and beneficially owned by a resident
of the
other Contracting State that is a connected person with respect to the payor of
the royalty may be taxed in the first-mentioned Contracting State in accordance with
domestic law if such resident benefits from a special tax regime with respect to the
royalty in its
Contracting State of residence; and
b) in the case of the United States, royalties paid by an expatriated entity, as
defined in Section 7874(a)(2)(A) of the Internal Revenue Code on the date of signature
of this Convention and in the regulations that are or may be promulgated under Section
7874 with respect to that definition, and beneficially owned by a company resident in
Croatia that is a connected person with respect to such expatriated entity may be taxed
in accordance with the law of the United States for a period of ten years beginning on
the date on which the acquisition of the domestic entity is completed. For purposes of
applying this paragraph, no entity shall be treated as an expatriated entity if:
i)
it is a connected person with respect to the domestic entity immediately
after the date on which the acquisition of the domestic entity is completed;
and
ii)
prior to that date, it was never a connected person with respect to the
domestic entity.
However, an entity described in the preceding sentence shall become an expatriated
entity if, subsequent to the date on which the acquisition of the domestic entity is
completed, the entity joins in filing a U.S. consolidated return with either the
domestic entity or another entity that was a connected person with respect to the
domestic entity immediately prior to the date on which the acquisition of the domestic
entity was completed.
4.
Notwithstanding paragraph 1 of this Article, in the case of a company seeking to
satisfy the requirements of paragraph 4 of Article 22 (Limitation on Benefits) of this
Convention regarding a royalty, if such company fails to satisfy the criteria of that paragraph
solely by reason of the requirement in subclause (B) of clause (i) of subparagraph (e) of
paragraph 7 of Article 22 (Limitation on Benefits) of this Convention, such company may be
taxed in the Contracting State
in which the royalty arises and according to the laws of that
Contracting State, except that the tax
so charged shall not exceed the highest rate among the
rates of tax to which persons described in subparagraph (e) of paragraph 7 of Article 22
(Limitation on Benefits) of this Convention (notwithstanding the requirement of subclause (B)
of clause (i) of subparagraph (e) of paragraph 7 of Article 22 (Limitation on Benefits)) would
have been entitled if such persons had received the royalty directly. For purposes of this
paragraph, a person described in clause (iii) of subparagraph (e) of paragraph 7 of Article 22
(Limitation on Benefits) shall be treated as entitled to the limitation of tax to which such
person would be entitled if such person were a resident of
the same Contracting State as the
company receiving the royalties.
5.
The term "royalty" as used in this Convention means payments of any kind received
as
consideration for the use of, or the right to use, any copyright of literary, artistic, scientific
or
other work (including cinematographic films), any patent, trademark, design or model,
plan, secret formula or process, or for information concerning industrial, commercial or
scientific experience.
6.
The provisions of paragraphs 1 through 4 of this Article shall not apply if the
beneficial owner of the royalties, being a resident of a Contracting State, carries on business
in the other Contracting State in which the royalties arise through a permanent establishment
situated therein
and the right or property in respect of which the royalties are paid is
effectively connected with such permanent establishment. In such case the provisions of
Article 7 (Business Profits) shall apply.
7.
Royalties shall be deemed to arise in a Contracting State when they are in
consideration for the use of, or the right to use, property, information or experience in that
Contracting State.
8.
Where, by reason of a special relationship between the payor and the beneficial
owner or between both of them and some other person, the amount of the royalties, having
regard to the
use, right, or information for which they are paid, exceeds the amount that
would have been agreed upon by the payor and the beneficial owner in the absence of such
relationship, the
provisions of this Article shall apply only to the last-mentioned amount. In
such case the excess
part of the payments shall remain taxable according to the laws of each
Contracting State, due regard being had to the other provisions of this Convention.
Article 13
GAINS
1.
Gains derived by a resident of a Contracting State from the alienation of real property
(immovable property) situated in the other Contracting State may be taxed in that other
Contracting State.
2.
For the purposes of this Article the term "real property (immovable property) situated in
the other Contracting State" shall include:
a)
real property (immovable property) referred to in Article 6 (Income from Real
Property (Immovable Property));
b)
where that other Contracting State is the United States, a United States real
property interest; and
c)
where that other Contracting State is Croatia,
i) shares, including rights to acquire shares, other than shares in which there
is regular trading on a stock exchange, deriving 50 percent or more of their value
directly or indirectly from real property referred to in subparagraph (a) of this
paragraph situated in Croatia; and
ii) an interest in a partnership or trust to the extent that the assets of the
partnership or trust consist of real property situated in Croatia, or of shares
referred to in clause (i) of this subparagraph.
3.
Gains from the alienation of movable property forming part of the business property of a
permanent establishment that an enterprise of a Contracting State has in the other Contracting
State, including such gains from the alienation of such a permanent establishment (alone or with
the whole enterprise), may be taxed in that other Contracting State.
4.
Gains derived by an enterprise of a Contracting State from the alienation of ships or
aircraft operated or used in international traffic or personal property pertaining to the operation
or
use of such ships or aircraft shall be taxable only in that Contracting State.
5.
Gains derived by an enterprise of a Contracting State from the alienation of containers
(including trailers, barges and related equipment for the transport of containers) used for the
transport of goods or merchandise shall be taxable only in that Contracting State, unless those
containers are used for transport solely between places within the other Contracting State.
6.
Gains from the alienation of any property other than property referred to in paragraphs 1
through 5 of this Article shall be taxable only in the Contracting State of which the alienator is a
resident.
7.
Where an individual who, upon ceasing to be a resident (as determined under paragraph
1
of Article 4 (Resident)) of one of the Contracting States, is treated under the taxation law of that
Contracting State as having alienated property for its fair market value and is taxed in that
Contracting State by reason thereof, the individual may elect to be treated for purposes of
taxation in the other Contracting State as if the individual had, immediately before ceasing to be
a
resident of the first-mentioned Contracting State, alienated and reacquired such property for an
amount equal to its fair market value at such time.
Article 14
INCOME FROM EMPLOYMENT
1. Subject to the provisions of Articles 15 (Directors' Fees), 17 (Pensions, Social Security,
Annuities, Alimony, and Child Support) and 19 (Government Service), salaries, wages and other
similar remuneration derived by a resident of a Contracting State in respect of an employment
shall be taxable only in that Contracting State unless the employment is exercised in the other
Contracting State. If the employment is so exercised, such remuneration as is derived therefrom
may be taxed in that other Contracting State.
2.
Notwithstanding the provisions of paragraph 1 of this Article, remuneration derived by a
resident of a Contracting State in respect of an employment exercised in the other Contracting
State shall be taxable only in the first-mentioned Contracting State if:
a)
the recipient is present in the other Contracting State for a period or periods not
exceeding in the aggregate 183 days for any twelve-month period commencing or ending
in the taxable year concerned;
b)
the remuneration is paid by, or on behalf of, an employer who is not a resident of
the other Contracting State; and
c)
the remuneration is not borne by a permanent establishment that the employer
has
in the other Contracting State.
3.
Notwithstanding the preceding provisions of this Article, remuneration described in
paragraph 1 of this Article that is derived by a resident of a Contracting State in respect of an
employment as a member of the regular complement of a ship or aircraft operated in international
traffic shall be taxable only in that Contracting State.
Article 15
DIRECTORS' FEES
Directors' fees and other similar payments derived by a resident of a Contracting
State
for services rendered in the other Contracting State in his capacity as a member of the
board of
directors of a company that is a resident of the other Contracting State may be taxed
in that other
Contracting State.
Article 16
ENTERTAINERS AND SPORTSMEN
1. Notwithstanding the provisions of Article 14 (Income from Employment), income
derived by a resident of a Contracting State as an entertainer, such as a theater, motion
picture, radio, or television artiste, or a musician, or as a sportsman, from his personal
activities as such
exercised in the other Contracting State, may be taxed in that other
Contracting State, except where the amount of the gross receipts derived by such entertainer
or sportsman, including expenses reimbursed to him or borne on his behalf, from such
activities does not exceed thirty thousand United States dollars (30,000) or its equivalent in
Croatia for the taxable year of the
payment.
2. Where income in respect of activities exercised by an entertainer or a sportsman in
his
capacity as such accrues not to the entertainer or sportsman himself but to another person,
that
income, notwithstanding the provisions of Article 14 (Income from Employment), may
be taxed
in the Contracting State in which the activities of the entertainer or sportsman are
exercised unless the contract pursuant to which the personal activities are performed allows
that other person to designate the individual who is to perform the personal activities.
Article 17
PENSIONS, SOCIAL SECURITY, ANNUITIES,
ALIMONY, AND CHILD SUPPORT
1. a)
Pensions and other similar remuneration paid by a pension fund established in a
Contracting State to an individual resident of the other Contracting State may be taxed in
that other Contracting State. However, such pensions and other similar remuneration
may also be taxed in the Contracting State in which the pension fund is established and
according to the laws of that State, but if the beneficial owner of the pensions and other
similar remuneration is a resident of the other Contracting State, the tax so charged shall
not exceed 10 percent of the gross amount of the payment.
b)
Notwithstanding subparagraph (a) of this paragraph, the amount of any such
pension or other similar remuneration when paid by a pension fund shall be exempt
from taxation in the Contracting State of which the beneficial owner is a resident if such
pension or other similar remuneration would have been exempt from taxation in the
Contracting State in which the pension fund is established if the beneficial owner were a
resident thereof. This subparagraph shall apply only if the beneficial owner was a
resident of the Contracting State in which the pension fund is established when such
beneficial owner first contributed to or participated in the pension fund, or in the case of
a beneficial owner who obtained an interest in the pension fund or similar remuneration
by reason of the death of the individual who first participated in the pension fund, such
deceased individual was a resident of the Contracting State in which the pension fund is
established when such individual first contributed to or participated in the pension fund.
2. a)
Where an individual who is a resident of a Contracting State is a member or
beneficiary of, or participant in, a pension fund established in the other Contracting State,
income earned by the pension fund may not be taxed as income of that individual, unless,
and then only to the extent that, it is paid to, or for the benefit of, that individual from the
pension fund (and not transferred to another pension fund established in that other
Contracting State in a transfer that qualifies as a tax-deferred transfer under the laws of
that other Contracting State). In such case, the provisions of paragraph 1 of this Article
shall apply. This subparagraph shall apply only if the individual was a resident of the
Contracting State in which the pension fund is established when such individual first
contributed to or participated in the pension fund, or in the case of a beneficiary who
obtained an interest in the pension fund or similar remuneration by reason of the death
of the individual who first participated in the pension fund, such deceased individual
was a resident of the Contracting State in which the pension fund is established when
such deceased individual first contributed to or participated in the pension fund.
b)
Where a citizen of the United States who is a resident of Croatia is a member
or
beneficiary of, or participant in, a pension fund established in Croatia the United
States
may not tax the income earned by the pension fund as income of the individual
unless,
and then only to the extent that, it is paid to, or for the benefit of, that individual
from the
pension fund (and not transferred to another pension fund established in Croatia
in a
transfer that qualifies as a tax-deferred transfer under the laws of Croatia).
3. Notwithstanding the provisions of paragraph 1 of this Article, payments made by a
Contracting State under provisions of the social security or similar legislation of that Contracting
State to a resident of the other Contracting State or to a citizen of the United States shall be
taxable
only in the first-mentioned Contracting State.
4. Annuities derived and beneficially owned by an individual resident of a Contracting State
shall be taxable only in that Contracting State. The term "annuities" as used in this paragraph
means a stated sum paid periodically at stated times during a specified number of years, or for
life, under an obligation to make the payments in return for adequate and full consideration (other
than services rendered).
5. Alimony paid by a resident of a Contracting State to a resident of the other Contracting
State shall be exempt from tax in both Contracting States. Notwithstanding the preceding
sentence, if the payor is entitled to a deduction for the alimony, such alimony may only be taxed
in the Contracting State of which the recipient of the alimony is a resident. The term “alimony”
as used in this paragraph means periodic payments made pursuant to a written separation
agreement or a decree of divorce, separate maintenance, or compulsory support.
6. Periodic payments, not dealt with in paragraph 5 of this Article, for the support of a
child
made pursuant to a written separation agreement or a decree of divorce, separate
maintenance, or
compulsory support, paid by a resident of a Contracting State to a resident of
the other Contracting State, shall be exempt from tax in both Contracting States.
Article 18
CONTRIBUTIONS TO PENSION FUNDS
1. Where an individual is, or was immediately before exercising employment or self-
employment in a Contracting State, a resident of the other Contracting State and is a member or
beneficiary of, or participant in, a pension fund
established in the other Contracting State:
a) contributions paid by or on behalf of that individual to the pension fund
during the period that he exercises an employment or self-employment in the first-
mentioned Contracting State
shall be deductible (or excludible) in computing the
individual's taxable income in that
first-mentioned
Contracting State; and
b) any benefits accrued under the pension fund, or contributions made to the
pension fund by or on behalf of the individual's employer, during that period shall not
be treated as part of the employee's taxable income and any such contributions shall
be allowed as a
deduction in computing the taxable income of the individual's
employer in the first-mentioned Contracting State.
The relief available under this paragraph shall not exceed the lesser of the relief that is
available in either Contracting State to its residents for contributions to, or benefits
accrued under, a pension fund established in that Contracting State.
2. The provisions of paragraph 1 of this Article shall not apply unless:
a) contributions by or on behalf of the individual, or by or on behalf of the
individual's employer, to the pension fund (or to another similar pension fund
established in the same Contracting State for which the first-mentioned pension fund
was substituted)
were made before the individual began to exercise an employment or
self-employment in
the first-mentioned Contracting State in paragraph 1 of this
Article; and
b) the competent authority of the first-mentioned Contracting State in paragraph 1
of this Article has determined that the pension fund generally corresponds to a pension
fund established in that Contracting State.
3. a) Where a citizen of the United States who is a resident of Croatia exercises an
employment in Croatia, the income from which is taxable in Croatia, the contribution
is borne by an employer who is a resident of Croatia or by a permanent establishment
situated in Croatia, and the individual is a member or beneficiary of,
or participant in,
a pension fund established in Croatia:
i)
contributions paid by or on behalf of that individual to the pension fund
during the period that the individual exercises the employment in Croatia and
that are attributable to the employment, shall be deductible (or excludible) in
computing the individual's taxable income in the United States; and
ii)
any benefits accrued under the pension fund, or contributions made to
the
pension fund by or on behalf of the individual's employer, during that
period, and
that are attributable to the employment, shall not be included in
computing the
employee's taxable income in the United States.
b) The relief available under this paragraph shall not exceed the lesser of:
i) the relief that would be allowed by the United States to its residents for
contributions to, or benefits accrued under, a generally corresponding pension
fund established in the United States; and
ii) the amount of contributions or benefits that qualify for tax relief in
Croatia.
c) For purposes of determining an individual's eligibility to participate in and
receive tax benefits with respect to a pension fund established in the United States,
contributions made to, or benefits accrued under, a pension fund established in
Croatia s
hall be treated as contributions or benefits under a generally corresponding
pension fund established in the United States to the extent relief is available to the
individual under this paragraph.
d) This paragraph shall not apply unless the competent authority of the United
States
has agreed that the pension fund generally corresponds to a pension fund
established in
the United States.
Article 19
GOVERNMENT SERVICE
1.
Notwithstanding the provisions of Articles 14 (Income from Employment), 15
(Directors'
Fees), 16 (Entertainers and Sportsmen) and 20 (Students and Trainees):
a)
salaries, wages and other remuneration, other than a pension, paid to an
individual
in respect of services rendered to a Contracting State or a political subdivision
or local
authority thereof shall, subject to the provisions of subparagraph (b) of this
paragraph, be
taxable only in that Contracting State;
b)
such remuneration, however, shall be taxable only in the other Contracting State
if
the services are rendered in that Contracting State and the individual is a resident of
that
Contracting State who :
i)
is a national of that Contracting State; or
ii)
did not become a resident of that Contracting State solely for the purpose
of rendering the services.
2.
Notwithstanding the provisions of paragraph 1 of Article 17 (Pensions, Social Security,
Annuities, Alimony, and Child Support):
a)
any pension and other similar remuneration paid by, or out of funds created by, a
Contracting State or a political subdivision or a local authority thereof to an individual in
respect of services rendered to that Contracting State or subdivision or authority (other
than a payment to which paragraph 3 of Article 17 (Pensions, Social Security, Annuities,
Alimony, and Child Support) applies) shall, subject to the provisions of subparagraph (b)
of this paragraph, be taxable only in that Contracting State;
b)
such pension and other similar remuneration, however, shall be taxable only in
the
other Contracting State if the individual is a resident of, and a national of, that
Contracting State.
3.
The provisions of Articles 14 (Income from Employment), 15 (Directors' Fees), 16
(Entertainers and Sportsmen) and 17 (Pensions, Social Security, Annuities, Alimony, and Child
Support) shall apply to salaries, wages and other similar remuneration, and to pensions and other
similar remuneration, in respect of services rendered in connection with a business carried on by
a
Contracting State or a political subdivision or a local authority thereof.
Article 20
STUDENTS AND TRAINEES
1. Payments, other than remuneration for personal services, received by a student or
business trainee who is, or was immediately before visiting a Contracting State, a resident of
the
other Contracting State, and who is present in the first-mentioned Contracting State for the
purpose of his full-time education or for his full-time training, shall not be taxed in that
Contracting State, provided that such payments arise outside that Contracting State, and are
for
the purpose of his maintenance, education or training. The exemption from tax provided
by this paragraph shall apply to a business trainee only for a period of time not exceeding
twelve months
from the date the business trainee first arrives in the first-mentioned
Contracting State for the
purpose of training.
2. A student or business trainee described in paragraph 1 of this Article shall be exempt
from tax by the Contracting State in which the individual is temporarily present with respect
to
income from personal services in an aggregate amount equal to ten thousand United States
dollars (10,000) or its equivalent in Croatia for the taxable year of the payment. The
competent authorities of the Contracting States may adjust the amount provided in this
paragraph to the
extent necessary to take into account changes in the personal exemption,
standard deduction or
filing thresholds in the domestic laws of either Contracting State.
3. For purposes of this Article, a business trainee is an individual:
a) who is temporarily in a Contracting State for the purpose of securing training
required to qualify the individual to practice a profession or professional specialty; or
b) who is temporarily in a Contracting State as an employee of, or under contract
with, a resident of the other Contracting State, for the primary purpose of acquiring
technical, professional or business experience from a person other than that resident
of
the other Contracting State (or a connected person with respect to such resident of
the
other Contracting State).
Article 21
OTHER INCOME
1. Items of income beneficially owned by a resident of a Contracting State, wherever
arising, not dealt with in the foregoing Articles of this Convention shall be taxable only in that
Contracting State.
2. Notwithstanding paragraph 1 of this Article:
a)
a guarantee fee arising in a Contracting State and characterized as other income
by that Contracting State and beneficially owned by a resident of the other Contracting
State that is a connected person with respect to the payor of the guarantee fee may be
taxed in the first-mentioned Contracting State in accordance with domestic law if such
resident benefits from a special tax regime with respect to the guarantee fee in its
Contracting State of residence; and
b)
in the case of the United States, a guarantee fee characterized as other income
paid by an expatriated entity, as defined in Section 7874(a)(2)(A) of the Internal
Revenue Code on the date of signature of this Convention and in the regulations that are
or may be promulgated under Section 7874, and beneficially owned by a company
resident in Croatia that is a connected person with respect to such expatriated entity may
be taxed in accordance with the law of the United States for a period of ten years
beginning on the date on which the acquisition of the domestic entity is completed. For
purposes of applying this paragraph, no entity shall be treated as an expatriated entity if:
i)
it is a connected person with respect to the domestic entity immediately
after
the date on which the acquisition of the domestic entity is completed; and
ii)
prior to that date, it was never a connected person with respect to the
domestic entity.
However, an entity described in the preceding sentence shall become an expatriated
entity if, subsequent to the date on which the acquisition of the domestic entity is
completed, the entity joins in filing a U.S. consolidated return with either the domestic
entity or another entity that was a connected person with respect to the domestic entity
immediately prior to the date on which the acquisition of the domestic entity was
completed.
3. The provisions of paragraphs 1 and 2 of this Article shall not apply to income, other
than
income from real property (immovable property) as defined in paragraph 2 of Article 6
(Income
from Real Property (Immovable Property)), if the beneficial owner of the income, being
a resident of a Contracting State, carries on business in the other Contracting State through a
permanent establishment situated therein and the right or property in respect of which the
income is paid is effectively connected with such permanent establishment. In such case the
provisions of Article 7 (Business Profits) shall apply.
Article 22
LIMITATION ON BENEFITS
1.
Except as otherwise provided in this Article and in paragraph 6 of Article 10
(Dividends),
paragraph 3 of Article 11 (Interest) and paragraph 3 of Article 12 (Royalties), a
resident of a
Contracting State shall not be entitled to the benefits of this Convention
otherwise accorded to
residents of a Contracting State (other than a benefit under paragraph 2
of Article 9 (Associated Enterprises) or Article 25 (Mutual Agreement Procedure) unless such
resident is a "qualified person" as defined in paragraph 2 of this Article at the time when the
benefit would be accorded.
2.
A resident of a Contracting State shall be a qualified person at the time when a
benefit otherwise would be accorded by this Convention if, at that time and, with respect to
clause (i) of subparagraph (f) of this paragraph, on at least half of the days of any twelve-
month period that
includes the date when the benefit otherwise would be accorded, the
resident is:
a) an individual;
b) a Contracting State, political subdivision or local authority thereof, or an
agency or instrumentality of that Contracting State, political subdivision or local
authority;
c) a company, if the principal class of its shares (and any disproportionate class
of
shares) is regularly traded on one or more recognized stock exchanges, and either:
i)
its principal class of shares is primarily traded on one or more
recognized stock exchanges located in the Contracting State of which the
company is a
resident; or
ii)
the company's primary place of management and control is in the
Contracting State of which it is a resident;
d) a company, if:
i)
at least 50 percent of the aggregate vote and value of the shares (and at
least 50 percent of the aggregate vote and value of any disproportionate class
of shares) in the company is owned directly or indirectly by five or fewer
companies
entitled to benefits under subparagraph (c) of this paragraph,
provided that, in the case of indirect ownership, each intermediate owner is a
resident of the
Contracting State from which a benefit under this Convention
is being sought or is a qualifying intermediate owner; and
ii)
with respect to benefits under this Convention other than under Article 10
(Dividends), less than 50 percent of the company's gross income, and less than
50 percent of the tested group's gross income, is paid or accrued, directly or
indirectly, in the form of payments that are deductible for purposes of the taxes
covered by this Convention in the company's Contracting State of residence (but
not including arm's length payments in the ordinary course of business for
services or tangible property, and in the case of a tested group, not including
intra- group transactions): (A) to persons that are not residents of either
Contracting State entitled to the benefits of this Convention under subparagraph
(a), (b), (c) or
(e) of this paragraph; (B) to persons that are connected
persons with respect to the company described in this subparagraph and
that benefit from a special tax regime with respect to the deductible
payment; or (C) with respect to a payment of interest, to persons that are
connected persons with respect to the company described in this
subparagraph and that benefit from notional deductions described in
subparagraph (e) of paragraph 2 of Article 11 (Interest);
e) a person described in paragraph 2 of Article 4 (Resident) of this Convention,
provided that:
i)
in the case of a person described in subclause (A) of clause (ii) of
subparagraph (k) of paragraph 1 of Article 3 (General Definitions), more than 50
percent of the person's beneficiaries, members or participants are individuals
resident in either Contracting State; and
ii)
in the case of a person described in subclause (B) of clause (ii) of
subparagraph (k) of paragraph 1 of Article 3 (General Definitions), the
earnings of such person benefit exclusively, or almost exclusively, pension
funds that satisfy the requirements of clause (i) of this subparagraph;
f) a person other than an individual or person described in subparagraph (g), if:
i)
persons that are residents of that Contracting State entitled to the
benefits of this Convention under subparagraph (a), (b), (c) or (e) of this
paragraph own,
directly or indirectly, shares or other beneficial interests
representing at least 50 percent of the aggregate vote and value (and at
least 50 percent of the aggregate vote and value of any disproportionate
class of shares) of the shares or other beneficial interests of such person,
provided that, in the case of indirect ownership, each intermediate owner is
a qualifying intermediate owner; and
ii)
less than 50 percent of the person's gross income, and less than 50
percent of the tested group's gross income, is paid or accrued, directly or
indirectly, in the form of payments that are deductible for purposes of the
taxes covered by this Convention in the person's Contracting State of
residence (but not including arm's length payments in the ordinary course of
business for services or tangible property, and in the case of a tested group,
not including intra-group transactions): (A) to persons that are not residents
of either Contracting State entitled to the benefits of this Convention under
subparagraph (a), (b), (c) or (e) of this paragraph; (B) to persons that are
connected persons with respect to the person described in this subparagraph
and that benefit from a special tax regime with respect to the deductible
payment; or (C) with respect to a payment of interest, to persons that are
connected persons with respect to the person described in this subparagraph
and that benefit from notional deductions described in subparagraph (e) of
paragraph 2 of Article 11 (Interest); or
g) a person that is a voluntary pension insurance scheme based on individual
capitalized savings established under the “Act on Voluntary Pension Funds” as such
law existed on the date of signature of this Convention, provided that at least 90
percent of the person’s members are individuals resident in Croatia.
3.
a) A resident of a Contracting State shall be entitled to benefits under this
Convention with respect to an item of income derived from the other Contracting
State,
regardless of whether the resident is a qualified person, if the resident is
engaged in the active conduct of a trade or business in the first-mentioned Contracting
State, and the
income derived from the other Contracting State emanates from, or is
incidental to, that
trade or business. For purposes of this Article, the term "active
conduct of a trade or
business" shall not include the following activities or any
combination thereof:
i)
operating as a holding company;
ii)
providing overall supervision or administration of a group of
companies;
iii)
providing group financing (including cash pooling); or
iv)
making or managing investments, unless these activities are carried on by
a bank, insurance company or registered securities dealer in the ordinary
course of its business as such.
b)
If a resident of a Contracting State derives an item of income from a trade or
business activity conducted by that resident in the other Contracting State, or derives
an item of income arising in the other Contracting State from a connected person, the
conditions described in subparagraph (a) of this paragraph shall be considered to be
satisfied with respect to such item only if the trade or business activity conducted by
the
resident in the first-mentioned Contracting State to which the item is related is
substantial
in relation to the same or complementary trade or business activity
carried on by the
resident or such connected person in the other Contracting State.
Whether a trade or
business activity is substantial for the purposes of this paragraph
shall be determined
based on all the facts and circumstances.
c) For purposes of applying this paragraph, activities conducted by connected
persons with respect to a resident of a Contracting State shall be deemed to be
conducted by such resident.
4.
A company that is a resident of a Contracting State shall be entitled to a benefit
under this
Convention, regardless of whether the resident is a qualified person if, at the time
when the
benefit would be accorded, and with respect to subparagraph (a) of this paragraph,
on at least half of the days of any twelve-month period that includes the date when the benefit
otherwise would be accorded:
a) at least 95 percent of the aggregate vote and value of its shares (and at least
50
percent of any disproportionate class of shares) is owned, directly or indirectly,
by seven
or fewer persons that are equivalent beneficiaries, provided that, in the case
of indirect ownership, each intermediate owner is a qualifying intermediate owner;
and
b) less than 50 percent of the company's gross income, and less than 50 percent
of
the tested group's gross income, is paid or accrued, directly or indirectly, in the
form of
payments that are deductible for purposes of the taxes covered by this
Convention in the
company's Contracting State of residence (but not including arm's
length payments in the
ordinary course of business for services or tangible property,
and in the case of a tested
group, not including intra-group transactions): (i) to
persons that are not equivalent beneficiaries; (ii) to persons that are equivalent
beneficiaries only by reason of paragraph 5 of this Article or of a substantially
similar provision in the relevant comprehensive convention for the avoidance of
double taxation; (iii) to persons that are equivalent beneficiaries that are connected
persons with respect to the company described in this
paragraph and that benefit
from a special tax regime with respect to the deductible
payment, provided that if the
relevant comprehensive convention for the avoidance of double taxation does not
contain a definition of a special tax regime analogous to the
definition in
subparagraph (1) of paragraph 1 of Article 3 (General Definitions), the
principles of
the definition provided in this Convention shall apply, but without regard to
the
requirement in clause (v) of that definition; or (iv) with respect to a payment of
interest, to persons that are equivalent beneficiaries that are connected persons with
respect to the company described in this paragraph and that benefit from notional
deductions of the type described in subparagraph (e) of paragraph 2 of Article 11
(Interest).
5.
A company that is a resident of a Contracting State that functions as a headquarters
company for a multinational corporate group consisting of such company and its direct and
indirect subsidiaries shall be entitled to benefits under this Convention with respect to
dividends and interest paid by members of its multinational corporate group, regardless of
whether the
resident is a qualified person. A company shall be considered a headquarters
company for this
purpose only if:
a) such company's primary place of management and control is in the
Contracting State of which it is a resident;
b) the multinational corporate group consists of companies resident in, and
engaged in the active conduct of a trade or business in, at least four states, and the
trades or
businesses carried on in each of the four states (or four groupings of states)
generate at
least 10 percent of the gross income of the group;
c) the trades or businesses of the multinational corporate group that are carried
on in
any one state other than the Contracting State of residence of such company
generate less
than 50 percent of the gross income of the group;
d) no more than 25 percent of such company's gross income is derived from the
other Contracting State;
e) such company is subject to the same income taxation rules in its Contracting
State
of residence as persons described in paragraph 3 of this Article; and
f) less than 50 percent of such company's gross income, and less than 50 percent
of
the tested group's gross income, is paid or accrued, directly or indirectly, in the
form of
payments that are deductible for purposes of the taxes covered by this
Convention in the
company's Contracting State of residence (but not including arm's
length payments in the ordinary course of business for services or tangible property
or payments in respect of
financial obligations to a bank that is not a connected
person with respect to such company, and in the case of a tested group, not including
intra-group transactions): (i) to persons that are not residents of either Contracting
State entitled to the benefits of this
Convention under subparagraph (a), (b), (c) or (e)
of paragraph 2 of this Article; (ii) to
persons that are connected persons with respect
to such company and that benefit from a
special tax regime with respect to the
deductible payment; or (iii) with respect to a
payment of interest, to persons that are
connected persons with respect to such company and that benefit from notional
deductions described in subparagraph (e) of paragraph 2 of Article 11 (Interest).
If the requirements of subparagraph (b), (c) or (d) of this paragraph are not fulfilled for the
relevant taxable year, they shall be deemed to be fulfilled if the required ratios are met when
averaging the gross income of the preceding four taxable years.
6.
If a resident of a Contracting State is neither a qualified person pursuant to the
provisions of paragraph 2 of this Article, nor entitled to benefits under paragraph 3, 4 or 5 of
this Article, the competent authority of the other Contracting State may, nevertheless, grant
the benefits of
this Convention, or benefits with respect to a specific item of income, taking
into account the
object and purpose of this Convention, but only if such resident demonstrates
to the satisfaction of such competent authority a substantial nontax nexus to its Contracting
State of residence and that neither its establishment, acquisition or maintenance, nor the
conduct of its operations had as
one of its principal purposes the obtaining of benefits under
this Convention. The competent authority of the Contracting State to which a request has been
made shall consult with the competent authority of the other Contracting State before either
granting or denying the request made under this paragraph by a resident of that other
Contracting State.
7.
For the purposes of this Article:
a) the term "recognized stock exchange" means:
i)
any stock exchange registered with the U.S. Securities and Exchange
Commission as a national securities exchange under the U.S. Securities
Exchange Act of 1934;
ii)
the Zagreb Stock Exchange; and
iii)
any other stock exchange agreed upon by the competent authorities of
the Contracting States;
b) the term "principal class of shares" means the ordinary or common shares of
the
company, provided that such class of shares represents the majority of the
aggregate vote
and value of the company. If no single class of ordinary or common
shares represents the
majority of the aggregate vote and value of the company, the
"principal class of shares"
are those classes that in the aggregate represent a majority
of the aggregate vote and value of the company;
c) the term "disproportionate class of shares" means any class of shares of a
company, or in the case of a trust, any class of beneficial interests in such trust,
resident in one of the Contracting States that entitles the shareholder or interest holder
to disproportionately higher participation, through dividends, redemption payments
or otherwise, in the earnings generated in the other Contracting State;
d) a company's "primary place of management and control" is in the
Contracting State of which it is a resident only if:
i)
the executive officers and senior management employees of the
company exercise day-to-day responsibility for more of the strategic, financial
and operational policy decision-making for the company and its direct and
indirect subsidiaries in that Contracting State, and the staff of such persons
conduct more of the day-to-day activities necessary for preparing and making
those decisions in
that Contracting State, than in any other state; and
ii)
such executive officers and senior management employees exercise day-
to-day responsibility for more of the strategic, financial and operational policy
decision-making for the company and its direct and indirect subsidiaries, and the
staff of such persons conduct more of the day-to-day activities necessary for
preparing and making those decisions, than the officers or employees of any
other company;
e) the term "equivalent beneficiary" means:
i)
a resident of any state, provided that:
A) the resident is entitled to all the benefits of a comprehensive
convention for the avoidance of double taxation between that state and
the Contracting State from which the benefits of this Convention are
sought,
under provisions substantially similar to subparagraph (a), (b),
(c) or (e) of
paragraph 2 of this Article or, when the benefit being
sought is with respect to interest or dividends paid by a member of the
resident's
multinational corporate group, the resident is entitled to
benefits under provisions substantially similar to paragraph 5 of this
Article, provided that, if such convention does not contain a
comprehensive limitation on
benefits article, the provisions of this
Article were contained in such convention. Notwithstanding the
preceding sentence, an individual (1)
who is liable to tax in his or her
state of residence with respect to foreign
source income or gains only
on a remittance or similar basis, or (2) whose tax is determined in that
state, in whole or in part, on a fixed-fee, "forfait"
or similar basis, shall
not be considered an equivalent beneficiary; and
B) 1) with respect to income referred to in Article 10
(Dividends), 11 (Interest) or 12 (Royalties) of this Convention, if the
resident had received such income directly, the resident would be entitled
under such convention, a provision of domestic law or any other
international agreement, to a rate of tax with respect to
such income for
which benefits are being sought under this Convention that is less than
or equal to the rate applicable under this Convention. Regarding a
company seeking benefits under paragraph 4 of this Article with
respect to Article 10 (Dividends), for purposes of this subclause:
I)
if the resident is an individual, and the company is
engaged in the active conduct of a trade or business in its
Contracting State of residence that is substantial in relation,
and similar or complementary, to the trade or business that
generated the earnings from which the income is paid, such
individual shall be treated as if he or she were a company
described in subparagraph (c) of paragraph 2 of this Article.
Activities conducted by a person that is a connected person
with respect to the company seeking benefits shall be
deemed to be conducted by such company. Whether a trade
or business activity is substantial shall be determined based
on all the facts and circumstances; and
II)
if the resident is a company (including an individual
treated as a company), to determine whether the resident is
entitled to a rate of tax that is less than or equal to the rate
applicable under this Convention, the resident's indirect
ownership of the shares of the company paying the dividends
shall be treated as direct ownership; or
2)
with respect to an item of income, profit or gain referred to
in Article 7 (Business Profits), 13 (Gains) or 21 (Other Income) of
this Convention, the resident is entitled to benefits under such
convention that are at least as favorable as the benefits that are
being sought under this Convention; and
C) notwithstanding that a resident may satisfy the requirements of
subclauses (A) and (B) of this clause, where the item of income, profit or
gain has been derived through an entity that is treated as wholly or partly
fiscally transparent under the laws of the Contracting State of the company
seeking benefits, if the item of income, profit or gain would not be treated
as the income, profit or gain of the resident under a provision analogous to
paragraph 6 of Article 1 (General Scope) of this Convention had the
resident, and not the company seeking benefits under paragraph 4 of this
Article, itself owned the entity through which the income, profit or gain
was derived by the company, such resident shall not be considered an
equivalent beneficiary with respect to the item of income;
ii)
a resident of the same Contracting State as the company seeking benefits
under paragraph 4 of this Article that is entitled to all the benefits of this
Convention by reason of subparagraph (a), (b), (c) or (e) of paragraph 2 of this
Article or, when the benefit being sought is with respect to interest or dividends
paid by a member of the resident's multinational corporate group, the resident is
entitled to benefits under paragraph 5 of this Article, provided that, in the case of a
resident described in paragraph 5 of this Article, if the resident had received such
interest or dividends directly, the resident would be entitled to a rate of tax with
respect to such income that is less than or equal to the rate applicable under this
Convention to the company seeking benefits under paragraph 4 of this Article; or
iii)
a resident of the Contracting State from which the benefits of this
Convention are sought that is entitled to all the benefits of this Convention by
reason of subparagraph (a), (b), (c) or (e) of paragraph 2 of this Article, provided
that all such residents' ownership of the aggregate vote and value of the shares
(and any disproportionate class of shares) of the company seeking benefits under
paragraph 4 of this Article does not exceed 25 percent of the total vote and value
of the shares (and any disproportionate class of shares) of the company.
f) the term "qualifying intermediate owner" means an intermediate owner that is
either:
i)
a resident of a state that has in effect with the Contracting State from which
a benefit under this Convention is being sought a comprehensive convention for
the avoidance of double taxation and that does not benefit from either (A) a special
tax regime, provided that if the relevant comprehensive convention for the
avoidance of double taxation does not contain a definition of a
special tax regime
analogous to the definition in subparagraph (1) of paragraph 1
of Article 3
(General Definitions), the principles of the definition provided in this
Convention
shall apply, but without regard to the requirement in clause (v) of that
definition;
or (B) notional interest deductions of the type described in subparagraph (e) of
paragraph 2 of Article 11 (Interest); or
ii)
a resident of the same Contracting State as the company applying the test
under subparagraph (d) or (f) of paragraph 2 or paragraph 4 of this Article to
determine whether it is eligible for benefits under the Convention;
g) the term "tested group" means the resident of a Contracting State that is applying
the test under subparagraph (d) or (f) of paragraph 2 of this Article or paragraph 4 or 5 of
this Article to determine whether it is eligible for benefits under the Convention (the
"tested resident"), and any company or permanent establishment that:
i)
participates as a member with the tested resident in a tax consolidation,
fiscal unity or similar regime that requires members of the group to share profits or
losses; or
ii)
shares losses with the tested resident pursuant to a group relief or other loss
sharing regime in the taxable year; and
h) the term "gross income" means gross receipts as determined in the person's
Contracting State of residence for the taxable year that includes the time when the benefit
would be accorded, except that where a person is engaged in a business that includes the
manufacture, production or sale of goods, "gross income" means such gross receipts
reduced by the cost of goods sold, and where a person is engaged in a business of
providing non-financial services, "gross income" means such gross receipts reduced by
the direct costs of generating such receipts, provided that:
i)
except when relevant for determining benefits under Article 10
(Dividends)
of this Convention, gross income shall not include the portion of any dividends
that are effectively exempt from tax in the person's Contracting State of residence,
whether through deductions or otherwise; and
ii)
except with respect to the portion of any dividend that is taxable, a tested
group's gross income shall not take into account transactions between companies
within the tested group.
Article 23
RELIEF FROM DOUBLE TAXATION
1.
In the case of Croatia, double taxation will be relieved as follows:
Where a resident of Croatia derives income that, in accordance with the provisions of this
Convention, may be taxed in the United States, Croatia shall allow as a deduction from the tax
on the income of that resident, an amount equal to the income tax paid in the United States.
Such deduction shall not, however, exceed that part of the income tax, as computed before the
deduction is given, which is attributable to the income which may be taxed in the United
States.
2. In the case of the United States, to the extent allowed under the law of the United States
(as it may be amended from time to time):
a) the United States shall allow to a resident or citizen of the United States as a
credit against the United States tax on income applicable to residents and citizens the
income tax paid or accrued to Croatia by or on behalf of such resident or citizen; and
b) in the case of a United States company owning at least 10 percent of the
aggregate vote or value of the shares of a company that is a resident of Croatia and from
which the United States company receives dividends, the United States shall allow a
deduction in the amount of such dividends in computing the taxable income of the
United States company.
3. For the purposes of applying subparagraph (a) of paragraph 2 of this Article:
a) the taxes paid or accrued to Croatia that are referred to in subparagraph (a) of
paragraph 3 of Article 2 (Taxes Covered) shall be considered income taxes; and
b) an item of gross income, as determined under the law of the United States,
derived by a resident or citizen of the United States that, under this Convention, may be
taxed in Croatia shall be deemed to arise in Croatia.
4. Where a United States citizen is a resident of Croatia:
a)
with respect to items of income, profit or gain that under the provisions of this
Convention are exempt from United States tax or that are subject to a reduced rate of
United States tax when derived by a resident of Croatia who is not a United States
citizen, Croatia shall allow as a credit against Croatia tax only the tax paid, if
any, that
the United States may impose under the provisions of this Convention other than
taxes that may be imposed solely by reason of citizenship under paragraph 4 of
Article 1 (General Scope);
b)
for
purposes of applying subparagraph (a) of paragraph 2 of this Article to
compute United States tax on those items of income, profit or gain referred to in
subparagraph (a) of this paragraph, the United States shall allow as a credit against
United States tax the income tax paid to Croatia after the
credit referred to in
subparagraph (a) of this paragraph; the credit so allowed
shall not reduce the portion
of the United States tax that is creditable
against the Croatia tax in accordance with
subparagraph (a) of this paragraph; and
c)
for the exclusive purpose of relieving double taxation in the United States
under subparagraph (b) of this paragraph, items of income, profit or gain referred to
in subparagraph (a) of this paragraph shall be deemed to arise in Croatia to the extent
necessary to avoid double taxation of such income under subparagraph (b) of this
paragraph.
Article 24
NON-DISCRIMINATION
1. Nationals of a Contracting State shall not be subjected in the other Contracting State to
any taxation or any requirement connected therewith that is more burdensome than the taxation
and connected requirements to which nationals of that other Contracting State in the same
circumstances, in particular with respect to residence, are or may be subjected. This provision
shall also apply to persons who are not residents of one or both of the Contracting States.
However, for the purposes of United States taxation, United States nationals who are subject to
tax on a worldwide basis are not in the same circumstances as nationals of Croatia who are not
residents of the United States.
2. The taxation on a permanent establishment that an enterprise of a Contracting State has
in
the other Contracting State shall not be less favorably levied in that other Contracting State
than
the taxation levied on enterprises of that other Contracting State carrying on the same
activities.
3. The provisions of paragraphs 1 and 2 of this Article shall not be construed as obliging a
Contracting State to grant to residents of the other Contracting State any personal allowances,
reliefs, and reductions for taxation purposes on account of civil status or family responsibilities
that it grants to its own residents.
4. Except where the provisions of paragraph 1 of Article 9 (Associated Enterprises),
paragraph 8 of Article 11 (Interest), or paragraph 7 of Article 12 (Royalties) apply, interest,
royalties, and other disbursements paid by an enterprise of a Contracting State to a resident of the
other Contracting State shall, for the purpose of determining the taxable profits of such enterprise,
be deductible under the same conditions as if they had been paid to a resident of the first-
mentioned Contracting State. Similarly, any debts of an enterprise of a Contracting State to a
resident of the other Contracting State shall, for the purpose of determining the taxable capital
of
the first-mentioned resident, be deductible under the same conditions as if they had been
contracted to a resident of the first-mentioned Contracting State.
5. Enterprises of a Contracting State, the capital of which is wholly or partly owned or
controlled, directly or indirectly, by one or more residents of the other Contracting State, shall
not
be subjected in the first-mentioned Contracting State to any taxation or any requirement
connected therewith that is more burdensome than the taxation and connected requirements to
which other similar enterprises of the first-mentioned Contracting State are or may be subjected.
6. Nothing in this Article shall be construed as preventing either Contracting State from
imposing a tax as described in paragraph 10 of Article 10 (Dividends) or paragraph 7 of Article
11 (Interest).
7. The provisions of this Article shall, notwithstanding the provisions of Article 2 (Taxes
Covered), apply to taxes of every kind and description.
Article 25
MUTUAL AGREEMENT PROCEDURE
1. Where a person considers that the actions of one or both of the Contracting States result
or will result for such person in taxation not in accordance with the provisions of this
Convention,
it may, irrespective of the remedies provided by the domestic law of those
Contracting States, and
the time limits prescribed in such laws for presenting claims for refund,
present its case to the
competent authority of one or both of the Contracting States. The case must be presented within
six years from the first notification of the action resulting in taxation not in accordance with the
provisions of this Convention.
2. The competent authority shall endeavor, if the objection appears to it to be justified and
if
it is not itself able to arrive at a satisfactory solution, to resolve the case by mutual agreement
with the competent authority of the other Contracting State, with a view to the avoidance of
taxation that is not in accordance with this Convention. Any agreement reached shall be
implemented notwithstanding any time limits or other procedural limitations in the domestic law
of the Contracting States. Assessment and collection procedures shall be suspended during the
period that any mutual agreement proceeding is pending.
3. The competent authorities of the Contracting States shall endeavor to resolve by mutual
agreement any difficulties or doubts arising as to the interpretation or application of this
Convention. They also may consult together for the elimination of double taxation in cases not
provided for in this Convention. In particular, the competent authorities of the Contracting States
may agree:
a)
to the same attribution of income, deductions, credits, or allowances of an
enterprise of a Contracting State to its permanent establishment situated in the other
Contracting State;
b)
to the same allocation of income, deductions, credits, or allowances between
persons;
c)
to the settlement of conflicting applications of this Convention, including
conflicts regarding:
i) the characterization of particular items of income;
ii) the characterization of persons;
iii) the application of source rules with respect to particular items of income;
iv) the meaning of any term used in this Convention;
v) the timing of particular items of income;
d)
to advance pricing arrangements; and
e)
to the application of the provisions of domestic law regarding penalties, fines,
and
interest in a manner consistent with the purposes of this Convention.
4. The competent authorities of the Contracting States may agree to increase any specific
monetary amounts referred to in this Convention to reflect economic or monetary developments.
5. The competent authorities of the Contracting States may communicate with each other
directly, including through a joint commission, for the purpose of reaching an agreement in the
sense of the preceding paragraphs.
6. Where a person has presented a case to the competent authority of one or both of the
Contracting States either:
a)
pursuant to paragraph 1 of this Article on the basis that the actions of one or both
of the Contracting States resulted or will result for that person in taxation not in
accordance with the provisions of this Convention; or
b)
on a taxpayer-specific case regarding a matter described in paragraph 3 of this
Article;
and the competent authorities are unable to reach agreement to resolve that case, and the
conditions described in paragraph 7 of this Article are met, the case shall be resolved through
arbitration conducted in the manner prescribed by paragraphs 7 through 9 of this Article and
according to any rules or procedures agreed upon by the competent authorities of the Contracting
States pursuant to paragraph 10 of this Article.
7. A case shall be submitted to arbitration on the earliest date on which all of the following
conditions have been satisfied:
a)
at least two years have passed since the commencement date of such case, unless
the competent authorities of the Contracting States have agreed to a different date and
notified the presenter of the case of such agreement;
b)
the presenter of the case has submitted a written request to the competent
authority to which the case was presented for a resolution of the case through arbitration;
and
c)
all concerned persons and their authorized representatives or agents have
submitted to the competent authorities of both Contracting States written agreements not
to disclose to any other person any information received during the course of the
arbitration proceeding from either Contracting State or the arbitration panel, other than
the determination of the panel.
A case shall not, however, be submitted to arbitration if a decision with respect to such case has
already been rendered by a court or administrative tribunal of either Contracting State, or if the
competent authorities of the Contracting States have agreed prior to the date on which the
arbitration otherwise would be submitted that the particular case is not suitable for resolution
through arbitration.
8. For the purposes of this Article, the following definitions shall apply:
a)
the term "presenter" means the person that has presented a case to the competent
authority of one or both of the Contracting States either:
i) pursuant to paragraph 1 of this Article on the basis that the actions of one
or both of the Contracting States result or will result for that person in taxation
not
in accordance with the provisions of this Convention; or
ii) on a taxpayer-specific case regarding a matter described in paragraph 3 of
this Article;
b)
the term "concerned person" means the presenter and all other persons, if any,
whose tax liability to either Contracting State may be directly affected by a mutual
agreement to resolve a case submitted to arbitration pursuant to paragraph 7 of this
Article; and
c)
the "commencement date" for a case means the earliest date on which the
information necessary to undertake substantive consideration for a mutual agreement has
been received by both competent authorities.
9. For the purposes of arbitrations under this Article, the following rules shall apply:
a)
The arbitration panel shall consist of three individual members. The competent
authority of each Contracting State shall select one member of the arbitration panel. In
the event that the competent authority of a Contracting State fails to select a member for
the arbitration panel in the manner and within the time periods agreed by the competent
authorities of the Contracting States pursuant to paragraph 10 of this Article, the
competent authority of the other Contracting State shall select a second member. The
two members of the arbitration panel who have been selected shall select the third
member, who shall serve as Chair of the arbitration panel. If the two initial members of
the arbitration panel fail to select the Chair in the manner and within the time periods
agreed by the competent authorities of the Contracting States pursuant to paragraph 10
of this Article, these members shall be dismissed, and each competent authority of the
Contracting States shall select a new member of the arbitration panel. The Chair shall
not be a national or lawful permanent resident of either Contracting State. The
members appointed shall not be employees, nor have been employees within the
twelve-month period prior to the date on which a case is submitted to arbitration, of the
tax administration or the treasury department of the Contracting State that identified
them. Furthermore, the members appointed shall not have any prior involvement with
the specific matters at issue in the arbitration proceeding for which they are being
considered as arbitrators.
b) The members of the arbitration panel and their staff shall be considered to be
"persons or authorities" to whom information may be disclosed under Article 26
(Exchange of Information and Administrative Assistance) of this Convention.
c) All material received by a competent authority of a Contracting State in the
course of, or relating to, an arbitration proceeding (including the arbitration panel's
determination) shall be considered to be information exchanged between the
Contracting States. Accordingly, no such information relating to an arbitration
proceeding may be disclosed by the competent authorities of the Contracting States,
except as permitted under Article 26 (Exchange of Information and Administrative
Assistance). The competent authorities of the Contracting States shall ensure that
members of the arbitration panel and their staff agree in writing to treat any
information relating to the arbitration proceeding consistent with the confidentiality
and nondisclosure provisions of
Article 26 (Exchange of Information and
Administrative Assistance) of this Convention and the applicable domestic laws of
the Contracting States.
d) If at any time before the arbitration panel delivers a determination to the
competent authorities of the Contracting States:
i) the competent authorities of the Contracting States reach a mutual
agreement to resolve the case pursuant to this Article;
ii) the presenter of the case withdraws the request for arbitration;
iii) a decision concerning the case is rendered by a court or administrative
tribunal of one of the Contracting States during the arbitration proceeding; or
iv) if any concerned person or their authorized representatives or agents
violates the written nondisclosure statement required by subparagraph (c) of
paragraph 7 of this Article, and the competent authorities of both Contracting
States agree that such violation should result in the termination of the
arbitration proceeding;
the mutual agreement procedure, including the arbitration proceeding, with respect to
the case shall terminate.
e) After a case is submitted to arbitration, the presenter shall be permitted to
submit
to the competent authorities of both Contracting States for submission to the
arbitration panel a paper setting forth the presenter's analysis and views of the case
for consideration by the arbitration panel. Such submission must be submitted before
the date on which the competent authorities of the Contracting States are required to
submit their position papers to the arbitration panel, and shall not include any
information not previously provided to the competent authorities before the case was
submitted to arbitration.
f) After a case is submitted to arbitration, the competent authority of each of the
Contracting States shall be permitted to submit to the arbitration panel a position
paper with a proposed resolution addressing each adjustment or similar issue raised
in the case
and shall simultaneously provide a copy of such position paper to the
other competent authority. Such proposed resolution shall be a resolution of the
entire case and shall reflect all agreements previously reached between the
competent authorities of the Contracting States with respect to any adjustment or
similar issue raised in the case. Such proposed resolution shall be limited to a
disposition of specific monetary amounts (for example, of income, profit, gain or
expense) or, where specified, the maximum rate of tax charged pursuant to the
Convention for each adjustment or similar issue in the case. The competent authority
of each of the Contracting States shall also be permitted to
submit additional
supporting papers for consideration by the arbitration panel, and shall simultaneously
provide a copy of such supporting papers to the other competent authority. Neither a
position paper nor an additional supporting paper shall contain information not
previously disclosed by a competent authority during the negotiation of the case
being submitted to arbitration.
g) Notwithstanding the provisions of subparagraph (f) of this paragraph, it is
understood that, in the case of an arbitration proceeding concerning:
i) the tax liability of an individual for which the competent authorities
have been unable to reach agreement with respect to the individual's
Contracting State of residence;
ii) the taxation of the business profits of an enterprise with respect to which
the competent authorities have been unable to reach an agreement on whether a
permanent establishment exists; or
iii) such other issues the determination of which are contingent on
resolution of similar threshold questions;
the position paper may include positions regarding clause (i), (ii) or (iii) of this
subparagraph, in addition to proposed resolutions limited to specific monetary
amounts
(for example, of income, profit, gain or expense) or, where specified, the
maximum rate
of tax charged pursuant to this Convention due as a consequence of
the arbitration panel's
determination regarding residency, the existence of a
permanent establishment or other threshold questions.
h) Where an arbitration proceeding concerns a case comprising multiple
adjustments or issues each requiring a disposition of specific monetary amounts of
income, profit, gain or expense or, where specified, the maximum rate of tax charged
pursuant to this Convention, the position paper may propose a separate disposition
for each adjustment or similar issue.
i) Each competent authority shall be permitted to submit a reply to a position
paper
submitted by the other competent authority to the arbitration panel, and shall
simultaneously provide the other competent authority with a copy of any such reply
submitted to the arbitration panel.
j) The arbitration panel shall deliver a determination in writing to the competent
authorities of the Contracting States. The determination reached by the arbitration
panel in the arbitration proceeding shall be limited to one of the proposed resolutions
for the
case submitted by one of the competent authorities of the Contracting States
for each adjustment or similar issue and any threshold questions, and shall not
include a rationale or any other explanation of the determination. The determination
of the arbitration panel shall have no precedential value with respect to the
application of this Convention in any other case.
k) The determination of the arbitration panel with respect to a case submitted to
arbitration shall constitute a resolution by mutual agreement under this Article and
shall be binding on the Contracting States if it is accepted by all of the concerned
persons. Unless the competent authorities of both Contracting States agree to a longer
time period, the concerned persons shall have 45 days from the date they receive the
determination of the arbitration panel to notify, in writing, the competent authority of
the Contracting State
to whom the case was presented of their acceptance of
determination. In the event the
case is pending in litigation, each concerned person
that is a party to such litigation must also advise, within the same time frame, the
relevant court of its acceptance of the determination of the arbitration panel and its
intention to withdraw from the consideration
of the court the issues resolved through the
proceeding.
If
any concerned person fails to so advise the relevant competent authority
and relevant court within this time frame, the determination of the arbitration panel shall
be considered not to have been accepted by the concerned persons. Where the
determination of the arbitration panel is not accepted,
the case shall not be eligible for
any subsequent further consideration by the competent
authorities.
1)
The fees and expenses of the members of the arbitration panel, as well as any
costs incurred in connection with the proceeding by the Contracting States, shall be borne
equitably by the competent authorities of the Contracting States.
10. The competent authorities of the Contracting States shall agree in writing, before the
first
case is submitted to arbitration, on time periods and procedures that are consistent with
paragraphs 6 through 9 of this Article for:
a)
establishing when information necessary to undertake substantive consideration
for a mutual agreement has been received by both competent authorities for purposes of
determining the commencement date, and for notifying each other when such
requirement has been satisfied;
b)
notifying the presenter of any agreements that a case is not suitable for resolution
through arbitration, or to change the date on which a case shall be submitted to
arbitration;
c)
the appropriate application of arbitration in the context of a request for an
advanced pricing arrangement, including rules concerning the date on which a case may
be submitted to arbitration;
d)
obtaining the agreements of all concerned persons and their authorized
representatives or agents not to disclose any information received during the course of
the
arbitration proceeding from the competent authority of either Contracting State or the
arbitration panel, other than the determination of such panel pursuant to subparagraph (c)
of paragraph 7 of this Article, and the agreements of the members of the arbitration panel
and their staff to treat any information relating to the arbitration proceeding consistent
with the confidentiality and nondisclosure provisions of Article 26 (Exchange of
Information and Administrative Assistance), as required by subparagraph (c) of
paragraph 9 of this Article;
e)
the appointment of the members of the arbitration panel;
f) the submission of position papers, supporting papers and reply submissions by
the competent authorities of the Contracting States to the arbitration panel;
g)
the submission to the competent authorities of both Contracting States by the
presenter of a paper setting forth the presenter's views and analysis of the case for
consideration by the arbitration panel;
h)
the delivery by the arbitration panel of its determination to the competent
authorities of the Contracting States;
i)
the acceptance or rejection by the concerned persons of the determination of the
arbitration panel; and
j)
the adoption by the arbitration panel of any additional procedures necessary for
the conduct of its business.
The competent authorities of the Contracting States may mutually agree in writing to modify
their
agreement concerning these time periods and procedures, as needed, and may further agree
in
writing on such other rules, time periods and procedures as may be necessary for the effective
and timely implementation of an arbitration proceeding.
Article 26
EXCHANGE OF INFORMATION AND ADMINISTRATIVE ASSISTANCE
1. The competent authorities of the Contracting States shall exchange such information
as is foreseeably relevant for carrying out the provisions of this Convention or the domestic
laws of
the Contracting States concerning taxes of every kind imposed by a Contracting State
to the
extent that the taxation thereunder is not contrary to the Convention, including
information relating to the assessment or collection, or administration of, the enforcement or
prosecution in
respect of, or the determination of appeals in relation to, such taxes. The
exchange of information is not restricted by paragraph 1 of Article 1 (General Scope) or Article
2 (Taxes Covered).
2. Any information received under this Article by a Contracting State shall be treated as
secret in the same manner as information obtained under the domestic law of that Contracting
State and shall be disclosed only to persons or authorities (including courts and administrative
bodies) involved in the assessment, collection, or administration of, the enforcement or
prosecution in respect of, or the determination of appeals in relation to, the taxes referred to
in
paragraph 1 of this Article, or the oversight of such functions. Such persons or authorities
shall use the information only for such purposes. They may disclose the information in public
court
proceedings or in judicial decisions. Notwithstanding the preceding sentences of this
paragraph:
(a)
the competent authority of the Contracting State that receives information
under the provisions of this Article may, with the written consent of the competent
authority of the Contracting State that provided the information, also make available
that information
for:
(i)
counter-terrorism purposes, but only if the information may be
disclosed for
such purposes under the domestic laws of the Contracting State
that received the
information;
(ii)
purposes permitted under the provisions of an international agreement
governing legal assistance in criminal matters that is in force between the
Contracting States that allows for the exchange of tax information; or
(iii)
other purposes, but only when the information may be used for the
same
or similar such purposes under the laws of both Contracting States; and
(b)
the competent authority of a Contracting State may disclose information not
relating to a particular person received under this Convention if it has determined,
after consultation with the competent authority of the other Contracting State, that
such disclosure would not impair tax administration (including the administration of
this Convention).
3. In no case shall the provisions of paragraphs 1 and 2 of this Article be construed so as to
impose on a Contracting State the obligation:
a)
to carry out administrative measures at variance with the laws and administrative
practice of that or of the other Contracting State;
b)
to supply information that is not obtainable under the laws or in the normal
course
of the administration of that or of the other Contracting State; or
c)
to supply information that would disclose any trade, business, industrial,
commercial, or professional secret or trade process, or information the disclosure of
which would be contrary to public policy.
4. If information is requested by a Contracting State in accordance with this Article, the
other Contracting State shall use its information gathering measures to obtain the requested
information, even though that other Contracting State may not need such information for its own
tax purposes. The obligation contained in the preceding sentence is subject to the limitations of
paragraph 3 of this Article but in no case shall such limitations be construed to permit a
Contracting State to decline to supply information solely because it has no domestic interest in
such information.
5. In no case shall the provisions of paragraph 3 of this Article be construed to permit a
Contracting State to decline to supply information solely because the information is held by a
bank, other financial institution, nominee or person acting in an agency or a fiduciary capacity or
because it relates to ownership interests in a person.
6.
If
specifically requested by the competent authority of a Contracting State, the
competent
authority of the other Contracting State shall provide information under this Article in
the form
of depositions of witnesses and authenticated copies of unedited original documents
(including
books, papers, statements, records, accounts, and writings).
7. Each of the Contracting States shall endeavor to collect on behalf of the other
Contracting
State such amounts as may be necessary to ensure that relief granted by the
Convention from
taxation imposed by that other Contracting State does not inure to the benefit of
persons not
entitled thereto. This paragraph shall not impose upon either of the Contracting
States the
obligation to carry out administrative measures that would be contrary to its
sovereignty, security, or public policy.
8. The requested Contracting State shall allow representatives of the requesting Contracting
State to interview individuals and examine books and records in the requested Contracting State
with the consent of the persons subject to examination.
9. The competent authorities of the Contracting States may develop an agreement or
arrangement on the mode of application of this Article, including an agreement or arrangement
to
ensure comparable levels of assistance to each of the Contracting States, but in no case shall the
lack of such agreement relieve a Contracting State of its obligations under this Article.
Article 27
MEMBERS OF DIPLOMATIC MISSIONS AND CONSULAR POSTS
Nothing in this Convention shall affect the fiscal privileges of members of diplomatic
missions or consular posts under the general rules of international law or under the provisions
of
special agreements.
Article 28
SUBSEQUENT CHANGES IN LAW
1. If at any time after the signing of this Convention, a Contracting State reduces the
general
statutory rate of company tax that applies with respect to substantially all of the
income of resident companies with the result that such rate falls below the lesser of either (a)
15 percent or (b) 60 percent of the highest general statutory rate of company tax applicable
in the other Contracting State, or the first-mentioned Contracting State provides an exemption
from taxation to resident
companies for substantially all foreign source income (including
interest and royalties), the
Contracting States shall consult with a view to amending this
Convention to restore an appropriate allocation of taxing rights between the Contracting
States.
If
such consultations do not progress, the other Contracting State may notify the first-
mentioned Contracting State
through diplomatic channels that it shall cease to apply the
provisions of Articles 10 (Dividends),
11 (Interest), 12 (Royalties) and 21 (Other Income). In
such case, the provisions of such Articles
shall cease to have effect in both Contracting States
with respect to payments to resident companies six months after the date that the other
Contracting State issues a written public notification stating that it shall cease to apply the
provisions of Articles 10 (Dividends), 11 (Interest), 12 (Royalties) and 21 (Other Income).
2. For the purposes of determining the highest general statutory rate of company tax:
a) the allowance of generally available deductions based on a percentage of what
otherwise would be taxable income, and other similar mechanisms to achieve a
reduction
in the overall rate of tax, shall be taken into account; and
b) the following shall not be taken into account:
i)
a tax that applies to a company only upon a distribution by such
company,
or that applies to shareholders; and
ii)
the amount of a tax that is refundable upon the distribution by a
company of a dividend.
Article 29
ENTRY INTO FORCE
1.
This Convention shall be subject to ratification in accordance with the applicable
procedures of each Contracting State. The Contracting States shall notify each other in writing,
through diplomatic channels when their respective applicable procedures have been satisfied.
2.
This Convention shall enter into force on the date of the later of the
notifications
referred to in paragraph 1 of this Article. This Convention shall have effect:
a) in respect of taxes withheld at source, for amounts paid or credited on or after the
first day of the second month next following the date on which this Convention enters
into force; and
b) in respect of other taxes, for taxable years beginning on or after the first day of
January next following the date on which this Convention enters into force.
3.
Notwithstanding paragraph 2 of this Article:
a) the provisions of paragraphs 6 through 10 of Article 25 (Mutual Agreement
Procedure) of this Convention shall have effect with respect to:
i) cases that are under consideration by the competent authorities as of the
date on which this Convention enters into force. For such cases, the
commencement date shall be the date on which this Convention enters into force;
and
ii) cases that come under consideration after the date on which this
Convention enters into force; and
b) the provisions of Article 26 (Exchange of Information and Administrative
Assistance) shall have effect from the date of entry into force of this Convention,
without
regard to the taxable year to which the matter relates.
Article 30
TERMINATION
This Convention shall remain in force until terminated by a Contracting State. Either
Contracting State may terminate the Convention by giving notice of termination to the other
Contracting State through diplomatic channels. In such event, this Convention shall terminate
on
the date of such notification. Notwithstanding such termination, this Convention shall
cease to have effect:
a) in respect of taxes withheld at source, for amounts paid or credited after the
expiration of the six-month period beginning on the date on which notice of
termination
was given; and
b)
in respect of other taxes, for taxable years beginning on or after the expiration
of the six-month period beginning on the date on which notice of termination was
given.
IN WITNESS WHEREOF, the undersigned, being duly authorized thereto by their
respective Governments, have signed this Convention.
DONE at in duplicate, in the English and Croatian languages, both
texts being equally authentic, this
_
day of ,
20
__
.
FOR THE GOVERNMENT OF
FOR THE GOVERNMENT OF
THE UNITED STATES OF AMERICA
THE REPUBLIC OF CROATIA
PROTOCOL TO THE CONVENTION BETWEEN
THE GOVERNMENT OF THE UNITED STATES OF AMERICA
AND
THE GOVERNMENT OF THE REPUBLIC OF CROATIA
FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF
TAX
EVASION
WITH RESPECT TO TAXES ON INCOME
On signing the Convention between the Government of the United States of
America and the Government of the Republic of Croatia for the Avoidance of Double
Taxation and the Prevention of Tax Evasion with respect to Taxes on Income (the
"Convention"), the two Governments have agreed to the following:
1.
With reference to subparagraph (k) of paragraph 1
of Article 3 (General
Definitions) of
the Convention:
a)
In the case of the United States, the term "pension fund" includes the
following: a
trust providing pension or retirement benefits under an Internal
Revenue Code section
401(a) qualified pension plan (which includes a Code
section 401 (k) plan) and a profit sharing or stock bonus plan, a Code section
403(a) qualified annuity plan, a Code section
403(b) plan, a trust that is an
individual retirement account under Code section 408, a
Roth individual
retirement account under Code section 408A, a simple retirement account under
Code section 408(p), a trust providing pension or retirement benefits under a
simplified employee pension plan under Code section 408(k), a trust described
in section
457(g) providing pension or retirement benefits under a Code section
457(b) plan, and the Thrift Savings Fund (section 7701(j)). A group trust
described in Revenue Ruling 81-
100, as amended by Revenue Ruling 2014-24
and Revenue Ruling 2011-1, qualifies as a
pension fund only if it is operated
exclusively or almost exclusively to earn income for the benefit of pension funds
that are themselves entitled to benefits under the Convention as a resident of the
United States.
b)
In the case of Croatia, the term "pension fund" includes
a fund operating as a
mandatory pension insurance scheme based on individual capitalized savings
established under the “Act on Mandatory Pension Funds”.
2.
With reference to subparagraph (l) of paragraph 1
of Article 3 (General
Definitions) of
the Convention:
Except as provided below, the rate of taxation shall be determined based on the income tax
principles of the Contracting State that has implemented the regime in question. In the case of a
regime that provides only for a preferential rate of taxation, the generally expected rate of
taxation under the regime shall equal such preferential rate. In the case of a regime that provides
only for a permanent reduction in the tax base, the rate of taxation shall equal the statutory rate
of company tax generally applicable in the Contracting State to companies subject to the regime
in question less the product of such rate and the percentage reduction in the tax base (with the
baseline tax base determined under the principles of the Contracting State, but without regard to
any permanent reductions in the tax base described in subparagraph (l)(i)(B)) that the regime is
generally expected to provide. For example, a regime that generally provides for a 20 percent
permanent reduction in a company's tax base would have a rate of taxation equal to the
applicable statutory rate of company tax reduced by 20 percent of such statutory rate. In the case
of a regime that provides for both a preferential rate of taxation and a permanent reduction in the
tax base, the rate of taxation would be based on the preferential rate of taxation reduced by the
product of such rate and the percentage reduction in the tax base.
3. If Croatia enacts legislation similar to section 59A or section 7874 of the U.S. Internal
Revenue Code, or legislation establishing entities similar to a U.S. Regulated Investment
Company (RIC) or a U.S. Real Estate Investment Trust (REIT), the Contracting States shall, at
Croatia’s request, consult to consider possible amendments to the Convention.
4. With respect to paragraph 1 of Article 4 (Resident), a voluntary pension insurance
scheme based on individual capitalized savings established under the “Act on Voluntary Pension
Funds” as such law existed on the date of signature of the Convention shall be deemed to be a
person that is a resident of Croatia for the purposes of applying the Convention.
This Protocol shall enter into force on the date of entry into force of the Convention and shall
form an integral part of the Convention.
IN WITNESS WHEREOF, the undersigned, being duly authorized thereto by their
respective Governments, have signed this Protocol.
DONE at in duplicate, in the English and Croatian languages,
both
texts
being equally authentic, this
_
day of
, 20__.
FOR THE GOVERNMENT OF
FOR THE GOVERNMENT OF
THE UNITED STATES OF AMERICA
THE REPUBLIC OF CROATIA