Technical Explanation PDF

1
maximum
rate which
is intended to
ensure
that the tax
may
be
fully
cred-
ited
against
the
residence
country
tax.
Our income tax
conventions are
not
designed
to alter the U.
S. tax liability
of U. S. residents, corporations
or
citi-
zens. U. S.
taxpayers
continue
to be
taxed
according
to our law. The
con-
ventions
are
designed
to obtain tax
benefits for U. S. corporations
and
resi-
dents from our
treaty
partners
in
ex-
change
for similar benefits which
we
grant
to
their
taxpayers.
The
conventions also
typically
guar-
antee that
taxpayers
from one
country
will
not
be
subject
to discriminatory
taxes in the other
country.
And
they
provide
for administrative cooperation
in
avoiding
double taxation
and
in
preventing
fiscal evasion.
[10]
Convention with
Romania
Let
me
turn
now to the convention
with Romania.
Although
state
enter-
prises
play
a
large
role in the
Ro-
manian
economy,
there is also
a
sub-
stantial
private
sector
in
which
foreign
capital
is invited to
participate.
It is
possible
for
a foreign
investor
to
estab-
lish a
jointly
owned Romanian
cor-
poration
with
local
capital,
provided
that the
foreign investor owns
less
than
50
percent
of
the
equity.
A tax of 30
percent
is
imposed
on
the
profits
of such
corporations,
and
dividends
remitted
to the
foreign
shareholders
are
subject
to a 10
per-
cent
withholding tax. In
many
respects
Romanian tax
principles
are similar
to
our
own
and to those of Western
Europe.
The
convention reflects
this
common
ground
and
differs
very
little
from the convention
with Iceland.
Business income.
—
For
example,
the
Romanian convention
contains the
usual rule
that a
resident
of one
coun-
try
may
be taxed
by
the other
country
on business income
only
to the extent
that the income is
attributable
to a
permanent
establishment in
the
taxing
country.
The convention with
Ro-
mania
introduces an
explicit rule
which
we
think is
implicit
in
most of
our existing conventions; it
specifically
permits
items
displayed
at a trade fair
in
the host
country
to be sold off at
the
close
of the fair without
incurring
tax liability
to the host
country.
Passive income.
—
The
reciprocal
withholding
rates
agreed
on for the
maximum tax at source on
dividends,
interest and
royalties are within the
usual
agreed
limits.
The dividend
withholding
rate
may
not exceed 10
percent,
the rate
on interest
may
also
not exceed 10
percent
and in some
cases
is set
at
zero, and
the
maximum
rate
on
royalties
is 10
percent
in some
cases
and
15
percent
in
others.
Personal service
income.
—
Personal
service income
may
be
taxed
by
the
source
country
if the
recipient
stays
there
longer
than
six
months,
or in the
case of
a
self
employed
person
if he
maintains
a fixed
place
of business
("fixed base")
there
to which the
in-
come is attributable.
Although
not in
the Iceland convention
the
"fixed
base"
concept
is
found
in
the OECD
model
and
in
some other
U, S.
con-
ventions.
Although
not
defined, the
"fixed
base"
is the same
as the
"per-
manent
establishment"
concept
but
applied
to
independent
personal
serv-
ice income rather
than industrial or
commercial
profits.
Teachers and students
may
remain
longer than six months
—
from one to
five
years depending
on
the
purpose
of
the
visit
—
and continue
to be
ex-
empt
from
tax
on
certain amounts of
income. Entertainers
become
subject
to tax
after three
months
or if their
earnings
exceed
$3,
000, except
that
entertainers whose visit
is
pursuant
to
an
agreement between the two
coun-
tries
enjoy
the
longer
six-month
ex-
emption.
The convention includes
the
stand-
ard
rule
that each
country
will
exempt
employees
of the other sent to
perform
governmental functions, but
for
activi-
ties to
qualify
as governmental
func-
tions
they
must be
so regarded
by
both
countries. This
qualification
condition
is
not
necessarily
intended
to produce
a
different result
from that of
our
other
conventions, but
simply
to avoid
misunderstanding in a situation
where
the role
of
the
state
in the
two
econo-
mies
differs
substantially.
nondiscrimination.
—
The
nondis-
crimination
article
in
the
Romanian
convention
is
different
from
the
typical
nondiscrimination
article.
U.
S,
citizens
resident
in
Romania
may
not be
more
heavily
taxed
than
resident
Romanian
citizens.
This
is a
standard
provision
in our income
tax
conventions.
How-
ever,
the
taxes
imposed
by
Romania
on resident
U. S.
citizens,
or on
perma-
nent
establishments
or
subsidiaries
owned
by
U. S.
residents
may
not
be
more burdensome
than
the
taxes
im-
posed
on third
country citizens
or busi-
nesses
in
Romania,
subject
to differ-
ences in treatment
under
special
agree-
ments,
such
as tax treaties.
The com-
parison
with
other
foreign businesses
was
thought
more
appropriate
than
with
domestic
businesses
given the
large
role
of state
enterprises
which
are
subject
to different
and
frequently
heavier taxation
than
private
firms.
Administrative
cooperation.
—
Guidelines for
administrative coopera-
tion
are
also
provided
along
lines
similar
to those in the Iceland
conven-
tion.
[13]
TEXTS
OF RESOLUTIONS
OF
RATIFICATION
[14]
Resolved,
(Two-thirds
of
the
Senators
present concurring
therein),
That the Senate advise and
consent
to
the ratification of the
Convention
be-
tween the Government of
the
United
States
of
America and
the
Government
of the Socialist Republic
of
Romania
with
respect
to
Taxes
on
Income,
signed
at Washington
on
December 4,
1975
(Ex.
B,
93-2).
Technical
Explanation'
of
the
Convention
Between
the
United
'
It is the practice
of
the
Treasury
De-
partment
to
prepare
for
the
use
of
the
Senate and
other
interested
persons
a
Tech-
nical Explanation
of
the
tax
conventions
which
are
submitted
to the
Senate
for
its
advice and
consent
io
ratification.
An
Income
Tax
Convention
with
Ro'
mania was signed
December 4,
1973,
and
504

States
of America
and
the Socialist
Republic
of Romania
with
Respect
to
Taxes on
Income,
Signed
at
Washington
On December
4,
1973*
ARTICLE
1.
TAxES COVERED
Paragraph
(1)
designates
the
taxes
of
the
Contracting
States
which are
the
subject
of the Convention.
With
respect
to
the United
States,
the
sub-
ject
taxes are the
Federal income
taxes
imposed
by
the Internal Revenue Code
(" Code"
),
including
the taxes
im-
posed
under
section
531 (accumulated
earnings
tax)
and
section 541
(per-
sonal holding
company
tax).
How-
ever,
the
Convention does not
apply
to
the
taxes
imposed
by
chapters
2
(tax
on
self-employment income)
and
21 (federal
insurance contributions
act)
of the
Code.
These
taxes
are
de-
scribed as social insurance taxes to
facilitate translation into Romanian.
In the case of Romania,
paragraph
(1)
provides
that the Convention
ap-
plies
to income taxes
imposed
under
Romanian
law,
and in particular
to
the income taxes
imposed on
wages,
salaries,
fees,
copyrights,
and income
from
any
other
source received
by
in-
dividuals, on the
profits
of mixed
com-
panies,
on
enterprises
other than
mixed
companies
or state
enterprises,
on
agricultural
activities,
on rentals,
and
on nonresidents.
Pursuant
to
paragraph
(2),
the
Convention
will
also
apply
to taxes
substantially similar
to those covered
by paragraph
(1)
which are
imposed
in
addition
to,
or in
place of,
existing
taxes, after
the date of
signature
of
the
Convention
(December
4,
1973)
.
For
purposes
of
paragraph
(5)
of
Article
7
(Business
Profits)
which
deals
with
insurance
and
reinsurance
submitted
by
the
President
to the
Senate
on
March
11,
1974.
On November
7,
1975,
the
Senate
Committee
on
Foreign Relations
held
hearings
and
this
Technical Explana-
tion
was
presented. The
Senate voted
its
advice
and
consent
on November
18,
1975,
and
instruments
of
ratification were
ex-
changed
on
January
26,
1976,
the
conven-
uon
thereby
entering
into force on
Febru-
ary
26, 1976.
'Page
49'2;
pertinent excerpts
from
Sen-
ate
Executive
Report
No.
94-15,
page
502;
Senate
Executive B is not published.
premiums,
the
Convention
also
ap-
plies
to taxes other than
income
taxes
.
imposed at the
national
level of a
Contracting State on
such premiums
paid
to a resident of the
other
Con-
tracting State. The
efFect
of
this
pro-
vision is
discussed under Article 7
(Business
Profits) .
Pursuant
to
paragraph
(3),
for
pur-
poses
of Article
22
(Nondiscrimina-
tion),
the Convention
applies
to taxes
of
every
kind
which
are
imposed
at
the national,
state,
or
local level.
Paragraph
(4)
provides
that the
competent authority
of each
Contract-
ing
State will
notify
the competent
authority of the other Contracting
State
of
any
amendment of the
tax
laiis referred to
in
paragraph
(1),
or
of the
adoption of substantially
similar
taxes
imposed in
addition
to,
or
in
place of,
those taxes. The texts of such
amendments
or
new
statutes
are to
be
transmitted between
the
competent
authorities
at least once a
year,
ART. 2. GENERAL DEFINITIONS
Paragraph
(1)
sets out definitions
of certain basic
terms
used
in the
Convention. A number
of important
terms,
however, are
defined elsewhere
in
the
Convention.
The
term
"Romania"
means
the
Socialist
Republic
of Romania. The
term
"United
States"
means the
United
States of America.
When used
in
a
geographical sense,
the term
"United States"
means
the states of
the
United States
and the District
of
Columbia.
Thus, the Convention does
not
apply
to the
possessions of the
United
States
or the Commonwealth
of Puerto
Rico.
When
used in a geo-
graphical
sense
Romania
and the
United
States
also include their
respec-
tive
territorial
seas
and continental
shelves,
generally
in
accordance
with
the
principles
of
section
638
of the
Code.
The
term
"Contracting
State"
is
defined
to
mean
the
United States
or
Romania
as
the
context
requires.
Al-
though not
specifically defined
in the
Convention,
the
term
"State"
means
the
United States,
Romania, or
any
other national
State.
The
term
"person"
is
defined as
in-
cluding
an individual, a
partnership,
a corporation,
an estate or
a
trust.
The
term
"United
States corpora-
tion"
is
defined as a
corporation,
or
any
entity
(whether
or
not incorpor-
ated)
treated
as a
corporation
for
United States
tax
purposes,
which is
created or
organized under
the laws
of
the United
States,
any
state
thereof,
or
the District of
Colombia.
A
"Romanian
corporation"
is defined as
any
juridical
person,
including a
mixed
corporation, which
is incorpor-
ated
and
organized under
Romanian
law
or
any
other
legal entity
which
is
created
under
Romanian
law
and
which
is treated
under its tax
laws as
a
juridical
person.
With
respect
to
the United
States,
the
term "competent
authority"
means
the
Secretary of the
Treasury
or
his
delegate.
With
respect to
Romania,
it means
the Minister
of Finance
or
his
delegate. The
term
"tax"
means
those
taxes
imposed
by
the United
States or Romania
to which
the
Con-
vention
applies
by
virtue
of Article
1
(Taxes Covered)
.
The term "international traffic"
is
defined
as
any
voyage
of
a
ship
or
aircraft
operated
by
a resident
of
one
of the
Contracting States
except
where
such
voyage
is
confined
solely to
places
iiithin
a
Contracting
State.
Thus,
for
example,
coastal
shipping along
the
Atlantic
coast
of
the United States
is
not
a
voyage
in
international
traffic.
However,
if
a
ship operated
by
a
resi-
dent of
Romania
transports
goods
from
Canada
to the
United
States,
leaving some
of the
goods
in
New
York
and
the
remainder
in
Norfolk,
the
portion of
the
voyage
between
New
York
and Norfolk
is
international
traffic.
Paragraph
(2)
provides that
any
term
used in
the Convention
which
is
not
defined
therein
shall, unless
the
context
otherwise
requires,
have the
meaning which
it
has under
the laws
of
the
Contracting State
whose
tax is
being
determined.
However, where
a
505

ter»| has a different Ineaning
under
the laws of
Romania and
the
United
States
or
where the meaning
under
the laws of one of the
Contracting
States
is not
readily
determinable,
the
competent
authorities
may
for
pur-
poses
of
the Convention
establish
a
common
definition in order to
prevent
double
taxation or
to further
any
other
purpose
of the
Convention.
ART.
3. FISCAL
RESIDENCE
This
article sets forth
rules for
de-
termining
the
residence of
individuals,
corporations,
and
other
persons
for
purposes
of
the
Convention.
Residence
is important
because,
in general,
only
a
resident of one of the
Contracting
States
may qualify
for the
benefits of
the
Convention.
Under
paragraph
(1),
the
term
"resident
of
Romania"
means a
Romanian
corporation as
defined
in
Article
2
(General
Definitions) or
any
other
person
who is
resident
in
Ro-
mania
for
purposes
of its tax.
Simi-
larly,
"resident
of
the United
States"
means
a
United States corporation
as
defined
in
Article
2
(General
Defini-
tions)
and
any
other
person
resident
in the United States for
purposes
of
its tax.
Thus,
a
resident
of
the United
States includes a resident alien
indi-
vidual
and a
resident citizen
but
not
a foreign corporaiton. A
citizen
of
the United States or Romania is
not
automatically a
resident of the
United
States or Romania for
purposes
of
this
Convention.
Similarly,
even
if
a
for-
eign
corporation,
or other
foreign
entity
treated as
a foreign
corpora-
tion,
is treated
as a
resident
(see,
e.
g.
,
26 CFR
$
301.
7701-5
of the U.
S.
Treasury
Regulations)
or
a
domestic
corporation for certain
purposes
of
a
Contracting
State's
income tax
law,
such
corporation or
entity
will
not
be
treated
as
a resident
of that
Con-
tracting
State for
purposes
of the
Convention.
Thus,
for
example,
even
though
a foreign corporation is
taxed
by
the United States on
its trade or
business income from sources within
the United
States,
or a
foreign
cor-
poration
is referred to as a resident of
506
of
one
Contracting
State
may
be
taxed
by
the
other
Contracting
State
only
on
income from
sources
within
that
other
Contracting
State,
subject
to
the
limitations
set forth
in the
Conven-
tion.
For this
purpose,
the
source
rules contained
in various
articles
articles
throughout
the
Convention
are to be
applied. However,
if
the
resident
is a citizen
of
the
other
Con-
tracting State, that
Contracting
State
may
tax
the resident
without
regard
to
this
paragraph
because
of
the
sav-
ing
clause of
paragraph
(3)
of this
article.
t'le
United States
in
the source rules
in section
861
of
the
Code,
such
cor-
poration
is
not
a
resident of the United
States for
purposes
of the Convention.
The Convention
provides
that a
partnership,
estate, or trust
is
a
resi-
dent of
a
Contracting State
only
to
the extent that the income derived
by
such
person
is
subject
to tax
in
such
Contracting State. For
example,
under
United States
law,
a
partnership
is
never,
and an estate or trust is often
not,
taxed as such. Under
the
Con-
vention,
income received
by
a part-
nership,
estate,
or trust
will not
be
treated for
purposes
of
the Convention
as
income received
by
a
resident of
the United States unless
such
income
is
subject
to tax
by
the United States
as
the income of a
resident.
Thus,
the
treatment of
income received
by
a
partnership
will
be
determined
by
the
residence and taxation of its partners
with
respect
to that
income.
To the
extent the
partners
are
subject
to
United States tax
as
residents of
the
United
States,
the
partnership
will be
treated as a resident of the United
States.
Similarly,
the
treatment
of
income
received
by
a trust or
estate
will
be
determined
by
the
residence
and taxation of the
persons subject
to
tax on such
income,
which
may
be
the
grantor,
the
beneficiaries
or
the
trust or estate
itself,
as the
case
may
be.
Under
paragraph
(2),
an
individual
who is a
resident
of both
Contracting
States
under
their domestic laws will,
for
purposes
of
the Convention,
be
deemed
to be
a
resident
of
the
Con-
tracting
State in which
he has
his
permanent
home,
his center
of
vital
Interests
(closest
economic and per-
sonal
relations),
a
habitual
abode,
or
his
citizenship,
in
the
order listed.
If
the issue is
not settled
by
these
tests,
the
competent
authorities
will decide
by
mutual
agreement
the
one
Con-
tracting State
of which he will be
con-
sidered
to
be
a
resident.
ART. 4. GENERAL RULES OF
TAXATION
Under
paragraph
(1),
a
resident
Paragraph
(2)
contains
the cus-
tomary
rule that
the Convention
will
not restrict in
any
manner
any
exclu-
sion, exemption, deduction,
credit, or
other
allowance now
or hereafter
ac-
corded
by
the laws
of a
Contracting
State in the determination
of
a
tax
imposed
by
it,
or
by
any
other
agree-
ment between
the Contracting States.
This rule reflects the
principle
that
a
convention should not increase the
tax burden on
residents
of the
Con-
tracting States.
Paragraph
(3)
contains the
tradi-
tional
saving
clause under
which the
United States reserves the
right
to
tax
its citizens and
residents as if the
Con-
vention had not come into
effect.
How-
ever,
the saving
clause
does not ap-
ply
in several cases
in which
its
ap-
plication
would
contravene
policies
reflected in the
Convention.
Thus,
the
saving
clause does
not affect
the
pro-
visions with
respect
to
social
security
payments,
rehef from
double
taxatton,
nondiscrimination,
or
the
mutual
agreement
procedure.
Moreover,
the
saving
clause does not
affect
the
bene-
fits of the
Convention
to
individuals
performing
governmental
functions,
teachers,
students,
trainees,
and
mem-
bers of diplomatic
missions
and
con-
sular
offices
who
become
resident
in
one of
the
Contracting
States
unless
such
individuals
are
citizens
of
or
have
immigrant
status in
the
Contracting
State imposing
the
tax.
In
the
case
of
the
United
States,
"immigrant
status"
means
the
individual
has
been
ad-
mitted to
the
United
States
for
perm&.

gent
residence.
The
saving clause
is
reciprocal.
Paragraph
(5)
authorizes
the
com-
petent
authorities of
the Contracting
States
to prescribe regulations
neces-
sary
to
carry
out the
provisions of
the
Convention.
On the United States
side,
this authority is also
provided
by
section
7805 of the Code.
ART.
5.
PERMANENT
ESTABLISHMENT
This
article defines the term
"per-
manent
establishment.
"
The existence
of a
permanent
establishment
is
rele-
vant
under Article
7 (Business
Profits)
to the
taxation of industrial
or
com-
mercial
profits
and in
determining the
applicability
of other
provisions of the
Convention, such as Articles 10 (Divi-
dends),
11
(Interest),
12
(Royalties),
and 13
(Capital
Gains).
Under
paragraph
(1),
the term
"permanent establishment"
means
a
fixed
place of
business
through
which
the business of
a
resident
of one of the
Contracting States
is
wholly
or
partly
carried
on. Illustrations
in
paragraph
(2)
of
a
permanent
establishment
in-
clude a
branch,
an office, a
factory;
a
workshop; a warehouse;
a
mine,
quarry
or other
place
of extraction of
natural
resources;
and a construction
or
installation
project
which exists for
more
than
12 months.
As
a general
rule,
any
fixed
facility or
premises
through
which
a resident
conducts
industrial
or commercial
activity for
an
indefinite
or
substantial
period
of
time
will
be treated
as a
permanent
establishment
unless
it is used
for one
or
more
of the
activities
described
in
paragraph
(3).
The
term "construction
or
installa-
tion
project"
includes
a
building site.
Under
the
construction
or
installation
project
rule the
twelve
month
period
begins
only when work
physically
com-
mences
in
the
other
Contracting
State.
A
series
of
contracts
or
projects
which
are
interdependent
both commercially
and
geographically
is to be
treated
as
a
single
project
for
the
purpose
of
applying
the
twelve
months'
test.
Paragraph
(3)
specifically
provides
that a permanent
establishment
does
not include a fixed
place
of
business
if
it is used
only
for
one or more of
the
following:
"(a) The
use of facilities for the
purpose
of
storage,
display,
or delivery
pursuant to a
sales
contract, of goods
or merchandise
belonging
to the
resi-
dent;
"(b) The
maintenance of
a
stock
of
goods
or merchandise
belonging
to
the resident
for the
purpose
of proc-
essing
by
another
person;
"(c)
The
maintenance
of a fixed
place
of business for the
purpose
of
purchasing goods
or
merchandise, or
for
collecting
information,
for
the
resident;
"(d)
The maintenance
of a fixed
place
of business for the
purpose
of
advertising, for the
supply
of
informa-
tion,
for scientific
research, or for
similar activities
which
have
a
prepara-
tory
or
auxiliary
character, for
the
resident; or
"(e) The
maintenance
of a
con-
struction
or installation
project
which
does
not exist for
more than 12
months.
"
These
exceptions are
cumulative
and a
fixed
place
of business
used
solely for one
or more
of these
pur-
poses
will
not
be considered
a
per-
manent
establishment
under the
Con-
vention.
Subparagraph
(a)
states
that
delivery must be
pursuant
to a sales
contract to
emphasize the
implicit
re-
striction
that
a
facility
used for
deliv-
ering
another person's
goods would
not
be included
within
the
exception.
Since the
subparagraph
excludes
the
use
of
facilities
for
storage,
display
or
delivery,
by
implication it
also
ex-
cludes
the
stock
of
goods
or
merchan-
dise
itself
from
being deemed
a
per-
manent
establishment.
The construc-
tion
or installation
project exception
in
subparagraph
(e)
is the
converse
of
the
rule
of
paragraph
(2)
that
such
a
project
which
exists
for
more
than 12
months
will
be
a
permanent establish-
ment.
Under
paragraph
(4)
a
person
act-
ing
in
one
Contracting
State
on behalf
of a resident of the other Contracting
State,
other
than
an
agent
of
an
inde-
pendent
status to whom
paragraph
(5)
applies,
will be deemed
to
give
rise
to
a permanent establishment
if
such
person
has,
and
habitually
exer-
cises in
the first-mentioned
Contract-
ing
State, an
authority to conclude
contracts
in
the name of
the resident,
unless
the exercise
of the
authority
is
limited
to the
purchase
of
goods
or
merchandise
for the resident.
On the
other
hand,
paragraph
(5)
provides
that
a
resident
of one
Con-
tracting State
will
not
be deemed to
have
a permanent
establishment
in
the other
Contracting
State
merely
be-
cause
such resident
engages
in
indus-
trial or
commercial
activity in such
other
Contracting State
through
a
broker,
general commission
agent,
or
any
other
agent of an
independent
status,
if such
agent
is
acting in the
ordinary course
of
its
business.
Paragraph
(6)
provides
that
a
resi-
dent
of one
Contracting
State
shall
not
be deemed to
have
a
permanent
establishment
in
the
other
Contracting
State
merely
because
such resident
sells
at the
termination
of
a
trade
fair
or
convention
in the
other
Contracting
State
goods
or
merchandise
which
were
displayed
by
such
resident
at the
trade
fair
or
convention.
This
excep-
tion
does
not
appear
in
existing
United
States
conventions,
but
a
similar
ex-
ception is
contained
in
the
pending
conventions
with
the
Soviet
Union
and Poland.
Under
paragraph
(7),
the
deter-
mination
of
whether
a
resident
of one
Contracting
State
has
a
permanent
establishment in
the
other Contract-
ing
State is
to
be made
without
regard
to the
fact that
such
resident
may
be
related to
a
resident
of the
other
Con-
tracting State
or
to
a
person who
en-
gages
in
business
in that
other
Con-
tracting State
(whether
through
a
permanent
establishment
or
other-
wise). As defined
in
Article
9 (Re-
lated
Persons), a
person is related
to
another
person if either
person
owns
or controls
directly or
indirectly
the
either,
or
if a third
person
or
persons
507

owIi
or
control
directly
or indirectly
both
such persons.
Paragraph
(8)
provides
that
the
principles
set forth in
this article
are
to be
applied
in
determining
whether
there is
a
permanent
establishment in
a
State
other
than one of the
Contract-
ing
States or
whether
a person
other
than
a
resident
of
one
of
the
Contract-
ing
States has a permanent
establish-
ment
in
one
of
the Contracting
States.
This is
necessary
for the
proper
ap-
plication
of
paragraph
(7)
of
Article
11
(Interest).
This
paragraph
is
not
intended to extend the
benefits of the
Convention
to persons
other than
resi-
dents
of
the two
Contracting
States.
ART. 6. INcoME FRoM
IMMovABLE
PROPERTY
Under
paragraph
(1),
income from
immovable
property,
including
royal-
ties and other
payments
in
respect
of
the
exploitation of
natural resources,
e.
g.
,
oil
wells,
and
gains
from the
sale,
exchange
or other disposition of such
property
or of the
right
giving
rise
to
such royalties or
other
payments, may
be
taxed
by
the Contracting
State
in
which the immovable
property
or
na-
tural
resources are
situated. However,
income
from
immovable
property
does
not include
interest on indebtedness
secured
by
immovable
property (e.
g.
,
mortgages)
or
by
a right
giving
rise
to
royalties
or other
payments
in
re-
spect
of the exploitation
of
natural
re-
sources. Such interest income
is
cov-
ered
by
Article
11
(Interest).
Paragraph
(1)
applies
to income
de-
rived from the
usufruct,
direct
use,
letting,
or use
in
any
other form of
immovable
property.
For
United
States
purposes,
the term
"immovable
property"
is intended
to have the same
meaning as the term
"real
property.
"
ART. 7, BUSINESS PROFITS
Paragraph
(1)
sets forth the general
rule that
industrial
or commercial
profits
of
a
resident of
one Contracting
State are
exempt
from
tax
by
the
other
Contracting
State
unless
the
resident
has
a
permanent establishment in the
other
Contracting
State. Where
there
is a
lii
»i|ann»t
establishment,
only
the
industrial or cominercial
profits
attri-
butable to the
permanent
establish-
ment can be taxed
by
that
other
Con-
tracting
State, unless the resident
is a
citizen of the other
Contracting State.
(See
the
saving
clause
in
paragraph
(3)
of
Article
4
(General Rules of
Taxation) .
)
It is intended
that,
for
purposes
of the
Convention,
including
paragraph
(1)
of Article 4
(General
Rules of
Taxation) and Article
21
(Relief
from Double
Taxation),
in-
dustrial or
commercial
profits
whether
from sources within
or without a
Con-
tracting State attributable
to
a
per-
manent establishment
which a
resi-
dent of one
Contracting State
has in
the other
Contracting State
will
be
considered
to be from sources within
that
other
Contracting
State.
Thus,
items
of income described
in
section
864(c)
(4) (B)
of
the
Code
attribut-
able to
a permanent establishment
situated in the United
States will be
subject
to tax
by
the
United States.
In
determining
the
proper
attribu-
tion of industrial or commercial
profits
under the
Convention,
paragraph
(2)
provides
that both Contracting
States
will attribute to the
permanent
estab-
lishment such
profits
as it
would
reasonably
be expected
to derive
if
it
were an
independent
entity engaged
in
the
same
or similar activities under
the same
or similar conditions and
dealing
at
arm's
length
with the
resi-
dent
of
which
it is
a permanent
estab-
lishment. Under
paragraph
(3),
ex-
penses,
wherever
incurred,
which are
reasonably
connected with
profits
at-
tributable
to the
permanent
establish-
ment, including executive and general
administrative
expenses,
will
be
al-
lowed as deductions
in determining
the industrial or commercial
profits
of
the
permanent establishment.
How-
ever,
in
determining
the
amount
of
the
deduction under
paragraph
(3)
for
expenses
incurred
by
the
head
office, the deduction
may
be
limited
to the
expense
incurred
without
in-
cluding
a
profit
element for the head
office.
Paragraph
(4)
provides that
no
~nofits
shall
be
attributed
to
a
per-
Uranent
establishment
merely
because
of
the
purchase of
goods
or
merchan-
dise
by
that
permanent
establishment,
or
by
the
resident
of
which
it
is
a
permanent
establishment,
for
the ac-
count
of
such resident.
Paragraph
(2)
of
the article
does
not
override
para-
graph
(4).
Thus,
where
a
permanent
establishment
purchases
goods for
its
head
office, the
industrial
and com-
mercial
profits attributed
under
para-
graph
(2)
to the
permanent
establish-
ment
with
respect
to
its
other
activities
will
not
be increased
by
adding
a
no-
tional
figure
for
profits from
purchas-
ing.
Under
paragraph
(5),
insurance
or
reinsurance
premiums derived
by
a
resident
of
one
Contracting
State
from
sources within
the
other
Contracting
State cannot
be
subjected
to an
income
tax
or
to
any
other tax
in
the
other
Contracting State
unless
the
premiums
are
effectively
connected with
a per-
manent establishment
in
the other
Contracting State. In
the case of the
United
States,
this includes the
stamp
tax
imposed
by
section
4371 of
the
Code on
foreign insurance policies
covering
risks
in the United
States.
Except
for the extension
of
the exemp-
tion
to include non-income taxes,
which has no
counterpart
in
existing
United
States conventions,
this
para-
graph
reaches
the
same
result as
would
be reached under
paragraphs
(1)
and
(6)
of the
article,
since premiums
are
industrial
or commercial profits
to
an
insurance
company.
Under
paragraph
(6),
the
term
"in-
dustrial
or
commercial
profits"
in-
cludes income
derived
from
manu-
facturing,
mercantile,
banking,
insur-
ance, agricultural,
fishing
or
mining
activities,
the
operation
of ships
or
aircraft, the furnishing
of
services,
and
the rental of tangible
personal
(mov-
able)
property.
The
term
does
not
include
income from
the
perfortn.
ance of
personal
services
derived
by
an
individual
either as an
employee
or
iii
an
independent capacity
(althoug"
such
income
may
be
effectively
con
nected
with
a
permanent
establis"-
508

ment
and therefore
taxable
under
paragraph
(2) (b)
of
Article 14 (In-
dependent
Personal
Services)
)
.
The
term
also
includes income
derived
from
real
property
and
natural
re-
sources,
dividends,
interest,
investment
income
on required
reserves from
in-
surance
activities,
cultural
and
indus-
trial
royalties
and
capital gains,
but
only
if
the
property
or
rights giving
rise
to
such
income
are
effectively
connected
with
a
permanent
establish-
ment.
See
paragraph
(3)
of
Article
10
(Dividends), paragraph
(4)
of
Article
11 (Interest),
paragraph
(4)
of
Article
12
(Royalties)
and
para-
graph (1)
(a)
of
Article 13
(Capital
Gains)
.
Paragraph
(7)
contains
criteria for
determining
whether
property
or rights
are
eff'ectively connected
with
a
per-
manent
establishment.
Factors
to be
taken
into account
include
whether
the rights
or
property
are used
in or
held
for use
in
carrying
on an
activity
giving
rise
to
industrial or
commercial
profits
through
a permanent
establish-
ment and whether the
activities
car-
ried
on
through
such permanent
estab-
lishment
were a
material factor in
the realization of the income
derived
from such
property
or rights.
For
this
purpose,
due
regard
shall
be
given
to
whether or not
such
property
or rights
or
such income were
accounted for
through
such permanent
establish-
ment. The
eff'ectively connected
con-
cept
in
this
paragraph
is
substantially
similar
to the
effectively
connected
concept
in section
864(c)
(2)
of
the
Code.
Under
paragraph
(8),
where
in-
dustrial
or
commercial
profits
include
items
of income
which are dealt with
separately in other articles of the
Con-
vention,
the
provisions of
those articles
will,
except
as
otherwise
provided
therein,
supersede the
provisions of
this
article.
Thus,
for
example,
taxa-
tion
of
income
from
copyrights
of
motion
picture films
or films or
tapes
used
for
radio or
television
broad-
casting will
be
controlled
by
Article
12
(Royalties)
and
not
by
this article
unless
the
copyright
is effectively
con-
nected
with a permanent
establish-
ment.
ART.
8.
SHIPPING
AND
AIR
TRANSPORT
Paragraph
(1)
provides that,
not-
withstanding
Article 7
(Business
Profits)
and
Article 13 (Capital
Gains),
income
derived
by
a
resident
of one
Contracting
State
from
the
operation
in international
traffic
of
ships
or aircraft
registered
in
that
Con-
tracting State,
and
gains
derived
from
the sale,
exchange
or
other disposition
of such
ships
or
aircraft,
shall
be
exempt
from tax
by
the
other
Con-
tracting
State.
This
article also
applies
to
income
derived
from the rental of
ships
or
aircraft
under a full
or bareboat
char-
ter if the lessor is
engaged
in the opera-
tion of
ships
or
aircraft in
interna-
tional
traffic
and
the
rental
income is
incidental to such operations.
For
ex-
ample,
if
an airline
which
is
a
resident
of one Contracting
State has
excess
equipment
in
the
winter months
and
leases
several of its
aircraft which
are
not required
by
it
during
that
period
to an
airline which
is
a
resident of
the
other Contracting
State,
that
rental
income
of the
lessor is not subject
to
tax
by
that other Contracting State,
whether or not the lessee uses
the
air-
craft in
international traffic.
Paragraph
(2)
makes
clear
that
the
article also
applies
to
income
derived
by
a
resident of one Contracting
State
from the
use,
maintenance, and
lease of containers and
other related
equipment
in
connection
with
the
operation
in international
traffic
by
the
resident
of
ships
or aircraft regis-
tered in such Contracting State, An
example
of such other related
equip-
ment
is
a
trailer for
the inland
trans-
portation of containers in connection
with such
operations.
This article
is
subject
to the
saving
clause
of
paragraph
(3)
of Article 4
(General Rules of
Taxation).
There-
fore,
the other
Contracting State
may
tax
the
resident
without
regard
to this
article
if such
resident
is a citizen of
that
other
Contracting
State.
ART.
9.
RELATED
PERSONS
Where a person
subject
to the
tax-
ing
jurisdiction of a
Contracting
State
(whether
or not a
resident thereof)
and
any
other
related
person
make
arrangements
or
impose
conditions
be-
tween
themselves
which are
different
from
those
which would
be made
be-
tween independent persons,
under
par-
agraph
(1)
any
income,
deductions,
credits or
allowances which would,
but
for those
arrangements
or conditions,
have been
taken
into account in
com-
puting
the income or loss
of,
or
the
tax
payable
by,
one of such
persons,
may
be
taken into account in
comput-
ing
the amount of
the income
subject
to tax and the
taxes
payable
by
such
person
in
that Contracting
State.
Paragraph
(2)
sets forth
an
explicit
formulation of the consequence
of an
adjustment
made in accordance with
paragraph
(1)
by
a Contracting
State
to
the
income of one
of its
residents.
In
such event,
the other Contracting
State
must,
if
it agrees
with
such
redetermi-
nation,
make
a corresponding
adjust-
ment to the income of
a person
in
such
other
Contracting
State related to such
resident. If
the other
Contracting
State
disagrees
with
the redetermination, the
two Contracting
States must endeavor
to reach agreement
in accordance
with the
mutual
agreement procedure
in
paragraph
(2) (b)
of
Article
23
(
Mutual
Agreement
Procedure) .
Paragraph
(3)
provides
that for
purposes
of the Convention a
person
is related to another
person
if
either
person
owns
or controls
directly
or
indirectly the
other,
or if a third
per-
son
or
persons
own or control
directly
or indirectly both.
"Control"
includes
any
kind of
control,
whether or not
legally
enforceable,
and
however
ex-
ercised or exercisable.
ART. 10. DIVIDENDS
Paragraph
(1)
provides that
divi-
dends
paid
by
a
corporation of one
Contracting State to
a
resident of the
other
Contracting State
may
be taxed
by
both
Contracting States. However,
paragraph
(2)
limits
the rate of tax
in
the former
Contracting State to a
50a

rate
not in
excess of 10 percent
of
the
gross
amount
of
the
dividend.
This
limitation
does
not affect the
taxation
of profits
of the
corporation
which
pays
the
dividend.
The ten percent
limitation
does
not
apply
if
the recipient, being
a
resi-
dent of the
other
Contracting
State
has
a
permanent
esablishment
in
the
former
Contracting
State
and
the
shares
with
respect
to
which
the
divi-
dends are
paid
are
effectively
con-
nected with such permanent
estab-
lishment. In such a
case,
under para-
graph
(6)
of
Article 7 (Business
Profits)
the
dividends are
treated as
industrial
or
commercial
profits.
If
the recipient
is
a
citizen of
the
Con-
tracting
State
of
which the corpora-
tion
paying
the
dividend is a resident,
that Contracting
State
may
tax the
recipient
without
regard
to this
aricle
because of the
saving
clause of para-
graph
(3)
of
Article 4
(General
Rules
of Taxation) .
It is intended
that,
for
purposes
of
Article
21 (Relief
from
Double
Taxation),
dividends
paid
by
a
corporation
of a Contracting
State
are from
sources
within
that
Contract-
ing
State.
ART. 11. INTEREST
Paragraph
(1)
provides
that
inter-
est derived
by
a
resident of one
Con-
tracting
State from
sources
within
the
other Contracting State
may
be taxed
by
both Contracting
States.
However,
paragraph
(2)
limits the rate of tax
in
that other
Contracting State to a
rate not in excess of ten
percent
of the
gross
amount
of the
interest.
Paragraph
(3)
provides
that
inter-
est beneficially derived
by
one
of
the
Contracting
States, or
by
an
instru-
mentality
of
that Contracting State not
subject
to
tax
by
that Contracting
State
on
its
income,
will
be
exempt
from tax
by
the other
Contracting
State.
Under
this
rule,
interest income
derived
by
the
Export-Import Bank
of the
United
States and the
Over-
seas
Private Investment
Corporation
(OPIC)
on loans made to
Romanian
residents
will
be exempt from tax in
Romania. The
exemption also
applies
u liere a
resident of
a
Contracting
State
receives interest income with
respect
to indebtedness, i. e.
,
debt
obli-
gations,
guaranteed,
insured,
or
in-
directly
financed
by
that Contracting
State
or an instrumentality
thereof.
An
example
of
indirect
financing is
where an instrumentality of
a
Con-
tracting
State
provides
funds in the
form of
an export
credit
or
import
credit to a resident thereof for
purpose
of permitting
that resident
to
extend
credit to a resident of the other
Con-
tracting
State.
This
concept
of
indirect
financing
is also
found in
the exchange
of
notes
accompanying
our
recent
Japanese
Convention.
Paragraph
(4)
provides
that the
rate
limitation in
paragraph
(2)
does
not
apply
if the
recipient
of
the
inter-
est, being
a
resident of one
Contract-
ing
State,
has a permanent
establish-
ment in the other Contracting
State
and
the indebtedness
giving
rise
to the
interest
is
effectively
connected
with
such permanent
establishment. In
such a case,
under
paragraph
(6)
of
Article 7
(Business Profits)
the
inter-
est
will be
treated as
industrial or
commercial
profits
of
the
recipient.
If excessive interest is
paid
to a
related
person, paragraph
(5)
pro-
vides that the rate
limitations
of
the
article
do
not
apply
to the
excessive
portion
of the
payment.
The
exces-
sive
portion
may
be
taxed
by
each
Contracting
State
according
to its
own
laws, including
the
Convention
where
applicable.
In
the case
of the
United
States,
the excessive
portion
may,
for
example,
be
taxed as
a
divi-
dend,
in which case the provisions
of
Article 10
(Dividends)
may
apply.
Paragraph
(6)
defines interest
for
purposes
of the
Convention
as
income
from
bonds,
Government securities,
notes
or other evidences of
indebted-
ness,
whether or
not secured
and
whether
or not
carrying
a
right
to
par-
ticipate
in
profits,
and
debt-claims
of
every
kind,
as well
as
all
other income
which,
under the
taxation
law
of
the
Contracting
State in which
the
income
has its source,
is assimilated
to income
from
money
lent.
Paragraph
(7)
sets forth
the
source
rules
for
interest.
With
two
excep-
tions,
interest
will
be treated
as in-
come
from
sources
within
a
Contract-
ing
State
only
if
paid
by
that
Con-
tracting
State,
or
a
political
subdivi-
sion or local
authority
thereof,
of
resi-
dent of
that
Contracting
State.
Under
the first
exception,
if the
person
pay-
ing
the interest
(whether or not
such
person
is a resident
of
one
of
the
Contracting
States) has
a
permanent
establishment
in one of
the Contract-
ing
States in connection
with
which
the indebtedness
on which
the
interest
is
paid
was
incurred
and such
interest
is
borne
by
the
permanent
establish-
ment,
the interest will
be deemed
to
be
from sources within
the
Contracting
State in which the
permanent
estab-
lishment
is
situated.
This
exception
permits a Contracting
State,
under
the
proper
circumstances,
to
impose
a
tax on
interest
paid
by
a permanent
establishment
therein
including a per-
manent establishment
in Romania
which borrows
money
from
a
resident
of the United States and
bears the
interest, the
interest will be
deemed
to be from
Romanian sources.
Thus,
Romania
may
tax such income,
sub-
ject
to the limitations of
this
article.
As
provided
in
paragraph
(8)
of
Article
5 (Permanent
Establishment),
the rules of
Article
5
will be applied
to
determine whether
the
resident
of
France
has
a permanent
establish-
ment in Romania. The
United
States
will
not,
because
of
section
861(a) (1)
of the
Code,
impose
a
tax
on
interest
received
by
nonresident
alien
individu-
als
or
foreign
corporations
from
a
Romanian
corporation
having
a
per-
manent establishment
in
the
United
States unless 50 percent
or
more
of
the
gross
income of
such
corporation
from
all
sources for
the
three-year
period
ending
with the
close
of
its
taxable
year
preceding
the
payment
of the
interest
was
effectively
con-
nected
with
conduct
of
a
trade
or
business
within
the
United
States.
Under the
second
exception
the
person
paying
the
interest
is
a
resident of
one
of
the
Contracting
510

States and
has
a
permanent
establish-
ment in a State
other
than
a
Con-
tracting
State
in connection
with
which the indebtedness
on
which
the
interest is
paid
was
incurred
and
such
interest is
paid
to
a
resident of
the
other Contracting
State, and such
interest
is borne
by
such
permanent
establishment,
the
interest will
be
deemed
to be from sources within
the
State in which the
permanent
establishment is situated.
Interest
de-
scribed
in
the second
exception
will
be exempt
from tax
in
the
Contracting
State where the
payor
is
a
resident
because,
under Article
4
(General
Rules of
Taxation),
a resident
of one
Contracting State
not
a
citizen
of the
other Contracting
State
may
be taxed
by
that other
Contracting State
only
on
income
from
sources within that
other
Contracting State. For
example,
if a
resident of the United States has
a
permanent
establishment in France
which borrows
money
from a
resi-
dent of Romania
and
bears the
inter-
est,
the
interest will
be deemed to
be
from French sources.
Thus,
the United
States
may
not tax
such
income
if
the
recipient resident of Romania is not
a citizens
of the United
States.
As
pro-
vided
in
paragraph
(8)
of
Article
5
(Permanent
Establishment), the
rules
of
Article
5
will
be
applied
to
deter-
mine
whether the resident
of
the
United
States has
a permanent
estab-
lishment
in France.
This article
is
subject
to the
saving
clause
of
paragraph
(3)
of
Article 4
(General Rules
of
Taxation).
There-
fore, interest
derived
by
a
citizen
of
the
source
Contracting State
may
be
taxed
by
that
Contracting State
with-
out
regard
to
this article.
ART.
12.
RoYALTIES
Paragraph
(1)
provides
that
royal-
ties
derived
by
a resident
of one
Con-
tracting
State
from sources
within
the
other
Contracting
State
may
be
taxed
by
both
Contracting
States.
However,
paragraph
(2)
limits the tax
in
that
other Contracting
State to
a
rate
not
to
exceed
10 percent
of the
gross amount
of
cultural royalties
or
15 percent
of the
gross
amount of
in-
dustrial
royalties.
The term
"cultural royalties"
is
de-
fined
as
payments
of
any
kind made as
consideration
for the
use
of,
or the
right
to
use,
copyrights
of
literary,
artistic, or scientific
works, including
copyrights
of motion
picture
films
or
films or
tapes
used
for
radio or
tele-
vision
broadcasting. The term
"indus-
trial royalties" is
defined
as
payments
of
any
kind
made as
consideration
for
the use
of,
or the
right
to
use,
patents, designs, models,
plans,
secret
processes or formulae,
trademarks,
or
other
like
property
or
rights,
or
for
knowledge, experience or skill (know-
how)
.
Cultural
royalties
and industrial
royalties
include
gains
derived from
the
sale,
exchange,
or
other
disposition
of
such
property
or
rights
to the extent
the
amounts realized
on such
sale,
ex-
change
or other
disposition
for
con-
sideration
are
contingent on the
pro-
ductivity,
use,
or
disposition
of
the
property
or
rights. If
the
amounts
realized
are not
so
contingent,
the
provisions
of Article 13
(Capital
Gains)
may
apply.
Paragraph
(4)
provides that tax
rate
limitations
of
paragraph
(2)
shall not
apply
if the
recipient
of
the
royalty,
being a
resident
of one
Con-
tracting
State,
has
a permanent
estab-
lishment
in
the
other
Contracting
State and
the
property
or
right
giving
rise to
the
royalty
is
effectively
con-
nected
with the
permanent
establish-
ment.
In such
a
case,
under
paragraph
(6)
of Article
7
(Business
Profits),
the
royalties will
be treated
as
indus-
trial
or
commercial
profits.
If
excessive
royalties are
paid
to
a
related
person,
paragraph
(5)
pro-
vides that
the
provisions
of the article
do
not
apply
to the
excessive
portion
of the
royalty.
The
excessive
portion
may
be taxed
by
each
Contracting
State
according
to its
own
laws,
in-
cluding
the
Convention
where
ap-
plicable.
Thus,
the excessive
portion
may
be
treated
as a dividend
or inter-
est,
or
in
whatever
other
manner
is
appropriate.
Paragraph
(6)
provides
that
royal-
ties will be treated as income from
sources
within
a Contracting State
only
to
the
extent
they
are
payments
made
as consideration for the use
of,
or
the
right
to
use,
property
or
rights
de-
scribed
in
paragraph
(3)
within
that
Contracting State
or
gains
from
the
sale,
exchange,
or
other
disposition of
such
property
or
rights. This source
rule is
similar
to the
source rule
in
section
861(a)
(4)
of the Code.
This
article
is
subject
to the
saving
clause of
paragraph
(3)
of Article 4
(General Rules of
Taxation).
There-
fore, royalties
derived
by
a citizen of
the source
Contracting State
may
be
taxed
by
that
Contracting
State
with-
out
regard
to this article.
ART. 13. CAPITAL
GAINS
Under
paragraph
(1),
a resident
of
one
Contracting State will
be
exempt
from tax
by
the
other
Contracting
State on
gains
from
the
sale,
exchange,
or
other
disposition of
capital
assets,
e.
g.
,
stock
or
securities, whether
such
capital assets were
acquired
by
inheri-
tance,
gift
or
any
other
manner.
How-
ever,
the
exemption does
not
apply
if
(1)
the
recipient of
the
gain, being
a
resident
of one
Contracting
State, has
a
permanent
establishment
in the
other
Contracting State
and
the
prop-
erty
giving
rise
to the
gain
is effective-
ly
connected
with
the
permanent
es-
tablishment,
or
(2)
the
recipient
of
the
gain,
being
an
individual
resident
of one
Contracting
State, is
present
in
the
other
Contracting State
for
a
period
or
periods
aggregating
183
days
or more
during the
taxable
year.
If
the
recipient of the
gain
is
a citizen
of
the other
Contracting
State, that
Contracting
State
may
tax
the
recip-
ient
without
regard to this
article
be-
cause
of the
saving clause
of
paragraph
(3)
of
Article
4
(General Rules
of
Taxation).
The term
"day"
for
pur-
poses
of
this
article
and
the
other
physical
presence tests
contained
in
the
Convention
with
regard
to an individ-
ual
means
a
calendar
day during
any
portion of
which
the
individual
is
physically
present
in
the relevant
Con-
tracting
State.
Where
Articles
6
(In-
511

coine froni linniovable
Propertl
),
8
(Shipping
and
Air
Transport)
or 12
(Royalties)
apply
to
gains
derived
from the
sale, exchange,
or other
dis-
position
of
rights
or
property
which
are
covered
by
those articles,
this article
does
not
apply
to such gains.
Paragraph
(2)
provides
that
gains
which
are effectively
connected
with
a permanent
establishment
which the
recipient
has in the other Contracting
State will be
treated as
industrial or
commercial
profits
under
paragraph
(6)
of Article 7
(Business Profits).
ART. 14. INDEPENDENT PERSONAL
SERVICES
In
dealing
with the taxation of
in-
come from
personal
services
the
Con-
vention
distinguishes
between
"inde-
pendent"
and
"dependent"
personal
services.
The Convention
also
provides
special
treatment for individuals who
are
"entertainers.
"
Independent personal
services are
services
performed
by
an
individual in
an independent
capacity (for
his own
account)
where he receives the income
and bears the
losses
arising
from
such
services. If an individual is an
inde-
pendent
contractor
he
is considered as
rendering
independent
personal
serv-
ices.
Generally,
services rendered
by
physicians, lawyers,
engineers,
archi-
tects,
dentists and accountants
per-
forming personal
services as sole
pro-
prietors
or
partners
are
independent
personal
services.
Under
paragraph
(1),
income
de-
rived
by
an
individual
resident of one
Contracting
State from the perform-
ance of personal
services in an
inde-
pendent
capacity may
be taxed
by
that
Contracting State. However,
under
paragraph
(2)
such income
derived
from
services
performed
in the other
Contracting
State
may
also be
subject
to tax
in that other
Contracting
State
if:
(a)
the individual is
present
there-
in for
a period
or
periods
aggregating
183
days
or
more in the taxable
year;
(b)
the
individual maintains a
perina-
nent
establishment therein with which
the
income is effectively connected; or
(c)
the
individual is an
entertainer,
such
as a theater,
motion
picture,
radio or
television artist,
a
inusician,
or an
athlete,
who is
present therein
for a
period
or
periods
aggregating
more
than 90
days
in the
taxable
year
or the
gross
income derived
from
his
personal
services as an
entertainer
in
an independent
capacity
therein
ex-
ceeds in the
aggregate
$3,
000 or its
equivalent
in Romanian lei
during
the
taxable
year.
Under
the
saving
clause
of
paragraph
(3)
of Article
4
(Gen-
eral Rules of
Taxation), the other
Contracting
State
may
also
tax
any
individual who is
a
citizen of
that
Con-
tracting
State without
regard
to this
article.
Under
paragraph
(3),
the
exemp-
tion
of
an entertainer is
determined
without reference
to the
90
day
or
$3,
000 test
of
paragraph
2(c)
if the
entertainer is
a
resident
of one
Con-
tracting
State and is
present
in the
other
Contracting State
pursuant
to
a
specific arrangement
agreed
to
by
the
Contracting States. It is
contemplated
that
such
a specific arrangement
would
be
agreed
to
by
the
Contracting
States
under the Cultural
Relations Agree-
ment
between the United States
and
Romania
signed
on
December
15,
1972
(23
U. S. T.
3741,
T. I. A. S. No.
7524) .
It
is
not
contemplated that an
exchange
of
artists that was
merely
encouraged
by
both
Governments, or
a
visit
by
a Romanian
performer
to
the United
States that
was
merely
en-
couraged
by
an
agency
of the United
States
Government, would
qualify
as
such a
specific arrangement. However,
a specific arrangement need
not name
the individual
performer
if
he is a
member
of
a
group
that
is
clearly
iden-
tified
by
the
arrangement, such
as,
for
example,
a
city
orchestra.
ART.
15. DEPENDENT PERSONAL
SERVICES
Under
paragraph
(1),
wages,
sal-
aries,
and
similar remuneration
de-
rived
by
an individual who is
a
resi-
dent
of one
Contracting
State from
labor or
personal
services performed
as an
employee,
including income
from
services
performed
by
an
officer of
a
corporation or
company,
may
be
taxed
by
that
Contracting
State
except
as
provided in
Articles
18
(Governmental
Functions), 19
(Teachers), and
20
(Students
and
Trainees)
.
Such income
derived
from
labor
or
personal
services
performed
in
the
other
Contracting
State
may
also
be
taxed
in that
other
Contracting
State
unless:
(a)
the
individual
is
present
in
that other
Contracting
State
for
a
period
or
periods
aggregating
less
than
183
days
during
the
taxable
year;
(b)
the individual
is
an
employee of
a
resident
of
the first-mentioned
Con-
tracting
State or
of
a
permanent es-
tablishment
maintained
in
the first-
mentioned
Contracting
State
by
a
resi-
dent
of the other
Contracting
State;
(c)
the remuneration
is
not
borne
as
such
by
a
permanent
establishment
which the
employer
has in
the
other
Contracting
State;
and
(d)
in the
case
of
an entertainer,
such as
a
theater,
motion
picture,
radio or television
artist,
a
musician, or an
athlete, he is
present
in
the other
Contracting State
for a
period
or
periods
aggregating
less
than 90
days
in
the taxable
year
and
the
gross
income he derives as an
em-
ployee
in the
other Contracting
State
aggregates
less than
$3,
000
or its
equivalent
in Romanian lei
during
the
taxable
year.
Such
income
may
also
be
taxed
by
that
other Contracting
State
without
regard
to this
article
if
the individual
is
a citizen of
that
Con-
tracting
State,
because of
the saving
clause
of
paragraph
(3)
of
Article
4
(General
Rules of Taxation),
Under
paragraph
(3),
the
exemp-
tion of an
entertainer
is
determined
without
reference
to the 90
day
and
$3,
000
test of
paragraph
2(d)
if
the
entertainer is a
resident
of
one
Con-
tracting
State
and
is present
in
the
other
Contracting
State
pursuant
to
a
specific
arrangement
agreed
to
by
the Contracting
States.
See
the
dis-
cussion under
Article
14
(Independent
Personal Services)
for
the
require
ments
of
a
specific
arrangement.
Under
paragraph
(4),
remunera-
tion
derived
by
an
individual
from
the
performance
of
labor or
personal
serv-
512

ices
performed
as
an
employee
aboard
ships
or
aircraft
operated
by
a
resident
of
one
Contracting State in
interna-
tional
traffic will, notwithstanding
paragraph
(2),
be
exempt from
tax
by
the
other Contracting
State
if
such
individual (even
if
a
resident of a
State
other
than
a Contracting State)
is a
member
of the regular
comple-
ment
of
the
ship
or
aircraft.
ART.
16.
PRIVATE
PENSIONS
AND
ANNUITIES
Except
as
provided
in
Article 18
(Governmental
Functions),
pensions
and
other
similar
remuneration
paid
to
an
individual
in
consideration
of
past
employment
will be taxable
under
paragraph
(1)
only
in
the Contracting
State of
which he is a
resident.
Thus,
private
pensions
and
similar
remunera-
tion
derived from
sources
within one
Contracting
State
by
an
individual
resident
of the
other Contracting
State
in
consideration of
past
employment
are
exempt
from
tax in the first
Con-
tracting
State.
The term
"pensions and
other similar
remuneration"
is defined
in
paragraph
(4)
as periodic payments
(other
than
social
security
payments
in
Article 17
(
Social
Security
Pay-
ments)
)
made
by
reason of
retirement
or death in
consideration for services
rendered, or
by
way
of
compensation
for
injuries
received
in connection
with
past
employment.
Paragraph
(2)
provides
that
ali-
mony
and annuities
paid
to an
individ-
ual resident
of a Contracting State
will
be
taxable
only
in
that Contracting
State. The
term
"annuities"
is defined
in
paragraph
(5)
as a
stated sum
paid
periodically
at stated times
during life,
or
during a specified
number of
years,
under
an obligation to make the
pay-
ments
in return for
adequate and
full
consideration
(other
than for services
rendered) .
The
term
"alimony"
is defined in
paragraph
(6)
as periodic
payments
made
pursuant
to a
decree of
divorce
or
compulsory
support,
separate
main-
tenance
agreement,
or
support
or sep-
aration
agreement
which are
taxable
to
the
recipient
under
the
internal
laws
of
the
Contracting
State
of
which
he
is
a
resident.
Thus,
the
term
"ali-
mony" would
not
include
a
payment
which
would not be
taxable
to the
re-
cipient
under
the laws of the
Contract-
ing
State
in
which
he is a
resident
even though
such
payment
is made
pursuant
to
a
decree of
divorce
or of
separate
maintenance.
The explicit
ref-
erence to a
decree
of compulsory
sup-
port
does
not
appear
in
prior
United
States conventions,
but is
consistent
with
section 71 of the
Code.
Paragraph
(3)
provides
that
a
resi-
dent of
one
Contracting State
who
re-
ceives
child
support
payments
from a
resident
of the other
Contracting
State
will be exempt
from tax on such
pay-
ments in
both Contracting
States.
The
term
"child
support
payments"
is
de-
fined
in
paragraph
(7)
as
periodic
payments
for
the
support
of a
minor
child made pursuant
to
a
decree of
divorce,
separate
maintenance agree-
ment,
or
support
or separation
agree-
ment.
The exemptions
provided
by
this
article
for
pensions
and other
similar
remuneration, alimony,
annuities and
child
support
payments
are
subject
to
the
saving
clause
of
paragraph
(3)
of
Article 4
(General
Rules of
Taxation)
.
Therefore,
individuals who are
citizens
or
residents of a Contracting
State
may
be
taxed
by
that Contracting
State
without
regard
to this
article.
ART. 17.
SOCIAL SECURITY
PAYMENTS
This article
provides
that
social
se-
curity
payments
and
other
public
pen-
sions,
e.
g.
,
railroad
retirement benefits,
paid
by
one Contracting
State
to
an
individual
who is
a
resident
of the
other Contracting
State
will be
ex-
empt
from
tax in both Contracting
States.
Payments
described
in
Article
18 (Governmental Functions)
are
not
covered
by
this
article.
Under
paragraph
(2)
of
Article
28
(Termination),
this article
may
be
terminated
by
either Contracting
State
at
any
time
after the
Convention
en-
ters
into
force.
ART. 18.
GOVERNMENTAL FUNCTIONS
Under
this article,
wages,
salaries,
and
similar
remuneration,
including
annuities
or similar benefits,
paid
from
public
funds of
one
Contracting
State
to
a
citizen
of that Contracting
State
for
labor
or personal
services per-
formed
as an
employee
of the
national
government
of
that Contracting State,
or
any
agency
thereof,
in the discharge
of
functions
of
a
governmental
nature
will be exempt
from tax
by
the other
Contracting
State.
In order
to avoid a potential
con-
flict as to what
constitutes
governmen-
tal functions,
the
second
sentence of
this
article
provides
that
labor
or per-
sonal
services performed
by
a
citizen
of one Contracting
State
shall be
treated
by
the
other Contracting
State
as performed
in
the discharge
of gov-
ernmental functions if such
labor or
personal
services would be
treated
under the internal laws of
both
Con-
tracting
State
as
so
performed. Thus,
compensation
paid
in connection with
industrial or commercial
activity
is
treated
the same
as compensation
re-
ceived from
a private employer.
This
article
does
not include remuneration
paid
by
a political
subdivision or
a
local
authority
thereof within the
ex-
emption.
If the
citizen
becomes
a
citizen
of,
or
acquires immigrant
status
in,
the
other
Contracting State, that
other
Contracting State
may
tax the
individ-
ual
without
regard
to this article. See
paragraphs
(3)
and
(4) (b)
of Article
4
(General
Rules of Taxation).
ART. 19. TEACHERS
Paragraph
(1)
provides
that,
if
a
resident of
one Contracting State is
in-
vited
by
the
other Contracting
State, a
political
subdivision
or local
authority
thereof, or
by
a university or
other
rec-
ognized educational institution in that
other
Contracting State to come to
that other
Contracting
State for a
pe-
riod not
expected to
exceed
two
years
for the
purpose
of
teaching
or
engag-
ing
in research,
or
both,
at a university
or
other
recognized
educational
insti-
513

tution, and
if
such
resident comes
to
that
other
Contracting
State
primarily
for such
purpose,
his income
from per-
sonal services for teaching
or
research
at the university
or educational
institu-
tion will be
exempt
from
tax
by
that
other
Contracting
State for
a
period
not
exceeding
two
years
from
the
date
of
his arrival
in
that
other Contracting
State.
Since
a
temporary
visit
may
be of
such
a
duration
that an
individual
may
lose his status as
a
resident
of the
Con-
tracting
State of
which
he was
a
resi-
dent at
the
time he became eligible
for
the
benefits of
this
article,
the
individ-
ual need
only
be a resident of such
Contracting
State at
the
beginning
of
his visit.
However,
if the
individual
be-
comes
a
citizen
of,
or
acquires
immi-
grant
status
in,
the
other Contracting
State,
that other
Contracting
State
may
tax the individual
without
regard
to this article. See
paragraphs
(3)
and
(4) (b)
of Article 4
(General
Rules of
Taxation)
.
If the
individual's
visit
ex-
ceeds a
period of
two
years
from the
date of his arrival, the
exemption ap-
plies only
to the income received
by
the individual before
the expiration
of
such two
year
period.
The
article does not
apply
to
income
from research undertaken not
in the
public
interest but
primarily
for the
private
benefit of a
specific person
or
persons.
ART. 20. STUDENTS AND TRAINEES
Paragraph
(1)
provides
that an
in-
dividual who is
a
resident
of
one
Con-
tracting
State at the time
he becomes
temporarily
present in the other
Con-
tracting
State
and who is
temporarily
present
therein
for the
primary
pur-
pose
of
studying
at
a university
or
other
recognized
educational institu-
tion,
securing
training required
to
qualify
him
to
practice a profession
or
professional
specialty,
or
studying
or
doing
research
as
a
recipient
of a
grant,
allowance, or
award
from
a
gov-
ernmental, religious, charitable,
scien-
tific, literary,
or educational
organiza-
tion,
will be
exempt
from
tax
by
that
other Contracting
State for a
period
not exceeding
five taxable
years
from
the date of his
arrival
in that other
Contracting
State on:
(1)
Gifts from abroad
for
the
pur-
pose
of his
maintenance,
education,
study,
research,
or
training;
(2)
The
grant,
allowance, or
award;
and
(3)
Income from
personal
services
performed
in the other
Contracting
State
not in
excess of
$2,
000
or
its
equivalent
in Romanian lei
for
any
taxable
year.
Under
paragraph
(2),
an
individual
who is a resident of one
Contracting
State
at
the time he becomes
tempo-
rarily present
in the other
Contracting
State and who is
temporarily present
therein
as an
employee of,
or under
contract
with,
a
resident
of the
first-
mentioned Contracting
State,
for the
primary purpose
of
acquiring
techni-
cal, professional,
or
business experi-
ence from
a
person
other
than that
resident of the
first-mentioned
Con-
tracting
State or other than
a person
related to such
resident,
or
studying
at
a university or other recognized
edu-
cational institution
in that other
Con-
tracting
State,
will be
exempt
from
tax
by
that other
Contracting State on
in-
come from
personal
services not in
ex-
cess of
$5,
000
or
its
equivalent
in
Ro-
manian lei
for a
period
not
exceeding
one
year.
Under
paragraph
(3),
an
individ-
ual who is a resident of one
Contract-
ing
State at the time he becomes
tem-
porarily present
in the other
Contract-
ing
State and who is
temporarily
pres-
ent therein for a
period
not exceeding
one
year,
as
a participant
in
a
program
sponsored
by
the other Contracting
State,
for the
primary
purpose
of
train-
ing,
research,
or
study,
will
be
exempt
from tax
by
the other Contracting
State
with
respect
to his
income from
personal
services
in
respect
of such
training,
research,
or
study
performed
in that other
Contracting
State
in
an
aggregate
amount not in excess of
$10,
000
or
its
equivalent in
Romanian
lei.
The first sentence of
paragraph
(4)
provides that the benefits provided
in
paragraph
(1)
and
the
benefits
pro-
vided
under
Article
19
(Teachers),
when
taken
together,
may
extend
only
for such
period of
time, not
to
exceed
five taxable
years
from
the
date
of
the
individual's
arrival,
as
may reasonably
or
customarily
be
required
to
effect-
uate the
purpose
of
the
visit.
The
sec-
ond sentence
of
paragraph
(4)
makes
it
clear
that
the benefits
provided
by
Article 19
(Teachers) will
not
be
available
to an individual
if, during
the
immediately
preceding
period, the
individual
enjoyed
the
benefits
pro-
vided
by
paragraph
(1)
.
If
an individual
qualifies for
the
benefits of more
than
one
of the
pro-
visions of
Articles
19
(Teachers)
and
20 (Students and
Trainees), such
in-
dividual
may
choose
the
most favor-
able
provision but
may
not
claim
the
benefits of
more than
one
provision in
any
taxable
year
as
a means of
avoid-
ing
the limitations
provided.
Thus,
for
example,
an
individual
who
comes to
the other
Contracting State for the
pri-
mary
purpose
of
studying
may
be able
to
qualify
under either
paragraph
(2)
or
(3)
.
However, he cannot combine
the
maximum exclusion limits in those
two
paragraphs
to
exclude
$15,
000
during
the taxable
year.
If the
indi-
vidual becomes
a
citizen
of,
or
ac-
quires immigrant
status
in,
the
other
Contracting
State,
that other
Con-
tracting
State
may
tax the
individual
without
regard
to this
article. See
par-
agraphs
(3)
and
(4) (b)
of
Article
4
(General Rules
of Taxation).
ART. 21.
RELIEF FRQM
DoUBLE
TAx-
ATION
In order
to avoid
double
taxation
each Contracting
State agrees
in
this
article to
provide
to
its
citizens
or
resi-
dents a
credit against
its
taxes
for
taxes
paid
by
such
persons
to
the
other
Contracting
State. The
United
States
agrees
to allow
a
United
States
citizen
or
resident as a
credit against
United
States
tax an
appropriate
amount
of
Romanian
tax in
accordance
with
the
provisions
and
subject
to
the
limita-
tions of
the
law of
the
United
States
(as
it
mav
be
amended
from
time
to

time
without
changing
the
principles
of paragraph
(1) ).
The credit
will
not
exceed the portion of United States
tax
which
such
citizen's
or
resident's
net
income
(i.
e.
,
taxable
income)
from
sources
within
Romania or
on his
in-
come
from
sources
outside
of
the
United
States
bears
to his entire net
income
for
the
same
taxable
year.
This
provision
does
not require
the United
States
to
maintain a
per-country
and
overall
limitation in the
future
so
long
as
the
general principle
of a
foreign
tax
credit
remains in effect.
In computing
the
credit
for U. S.
purposes,
the Romanian
taxes
referred
to
in
paragraph
(1) (a)
of
Article
1
(Taxes
Covered)
will be
considered
to
be
income
taxes. Thus,
for
example,
among
the
creditable
Romanian
taxes
is
the
tax
on enterprises
other
than
mixed
companies
or state
enterprises,
including
the tax on foreign
commer-
cial
representatives
—
even
though
the
tax
applies
to
income
imputed
to the
representative
under a
schedule based
on the number
of
employees
in the
representative's
office,
and thus
might
not be
creditable under section 901 of
the Code. It
is intended that
any
in-
come
of
a
resident of the United States
which
has
been
subject
to
such
a
tax
by
Romania in accordance
with
the
Convention will be
treated as income
from Romanian sources.
This article also
provides
that
Ro-
mania will
allow its
citizens and
resi-
dents
a
credit,
under
its
law,
as it
may
be
amended
from time to
time, against
their
Romanian
tax
for taxes
paid
to
the
United States. The
language
as to
the
tax
credit
to
be allowed
by
Ro-
mania is
generally
parallel
to the
lan-
guage
with
respect
to the United
States.
ART.
22.
NONDISCRIMINATION
Paragraph
(1)
provides
that a
citi-
zen
of one
Contracting
State
who is a
resident
of the other Contracting
State
shall not
be
subjected
in
that other
Contracting
State to
more
burdensome
taxes
than
a
citizen
of
that
other
Con-
tracting State
who
is a
resident
there-
of.
The
determination
whether there
is
more
burdensome
taxation
is
to be
made
by
comparing
the
treatment
of
individuals
who
are in
comparable
po-
sitions. Thus,
for example,
a
citizen
of
Romania
who
is
a
resident of
the
United
States
and
who
otherwise
meets
the
requirements
specified
in
section 911 of
the
Code
would under
this article
be
eligible
for the
benefits
of
section 911
even though
not a
citi-
zen of the
United States.
On
the
other
hand, just
as
a United
States
citizen
who
becomes
a
nonresident alien at
any
time
during
a
taxable
year
or
whose
spouse
is
a
nonresident
alien at
any
time
during
a
taxable
year
cannot
file
a
joint
return for that
year,
a
Ro-
'manian
citizen
would not
be
entitled
to
joint
return with
his
spouse
if
either
is a
nonresident alien at
any
time
dur-
the
taxable
year.
Paragraph
(2)
provides
that one
Contracting
State
may
not
impose
more burdensome taxes on
residents
who are citizens of
the other
Contract-
ing
State or on permanent
establish-
ments
of residents of the
other
Con-
tracting
State than
it
generally
imposes
on citizens or permanent
establish-
ments of
residents
of
third States
car-
rying
on
the same activities.
Paragraph
(3)
prohibits
one
Con-
tracting
State from
subjecting
a
corpo-
ration of
such
Contracting
State the
capital
of which is
wholly
or
partly
owned or controlled, directly
or
indi-
rectly,
by
one
or more residents of the
other
Contracting
State to
any
taxa-
tion or
any
requirement
connected
with taxation
which
is other
or
more
burdensome
than those
applicable
to
corporations
of the
first-mentioned
Contracting State
carrying
on
the
same activities, the
capital
of
which is
wholly
or
partly
owned or controlled
by
one or more residents of
a
third
State.
The criterion in
paragraphs
(2)
and
(3)
is
in
terms
of
residents
of
third
States,
or
permanent
establishments of
and
corporations owned or controlled
by,
residents
of third
States,
rather
than
to
citizens
or
residents of that
Contracting
State, because
the
Ro-
manian
taxation
of other
foreign
busi-
nesses
is a
more
relevant comparison
than
Romanian
taxation of domestic
businesses
which
are
frequently
state
enterprises.
However,
paragraphs
(2)
and
(3)
do
not require a
Contracting
State
to
grant
to citizens or permanent
establishments
of
residents of
the other
Contracting
State,
or to corporations
owned or
controlled
by
such residents,
tax
benefits
granted
by
special
agree-
ments,
e.
g.
,
bilateral income tax
con-
ventions,
to
citizens or
residents
of
a
third State
or
corporations
owned
or
controlled
by
such
residents.
Under
paragraph
(3)
of Article 1
(Taxes Covered),
the
provisions
of
this article
extend to
all taxes of
every
kind whether
imposed
at
the
national,
state,
or local level.
ART.
23.
MUTUAL AGREEMENT
PRO-
CEDURE
When
a
resident
of
one Contracting
State
considers that
action of one or
both
Contracting
States results or will
result
for him in taxation
not in
ac-
cordance with the Convention, such
resident
may,
notwithstanding
the
remedies
provided
by
the national laws
of
the
Contracting States, present
his
case to
the competent authority
of the
Contracting
State
of
which
he
is
a
resident or
citizen.
A
resident of
a
Contracting State need
not,
although
it is
anticipated that
in the normal
situation he
will,
exhaust his other
ad-
ministrative or
judicial
remedies
prior
to
resorting to the
use
of the mutual
agreement
procedure. If the claim is
considered
to have merit
by
the
com-
petent
authority,
that
competent
au-
thority
must
endeavor to come to
an
agreement
with
the
competent
author-
ity
of the other
Contracting State
with
a
view
to the avoidance
of taxation
not
in
accordance with the
Conven-
tion.
Paragraph
(2)
requires the compe-
tent authorities of
the two
Contracting
States to endeavor to resolve
by
mu-
tual
agreement
any
difficulties or
doubts
arising
as to the
application of
the Convention.
In
particular,
the
competent authorities
may
agree
to the
same
attribution of industrial or
com-
515

mercial
profits
to
a
resident
of on=
Contracting
State and its permanent
establishment situated in the
other
Contracting
State;
the same
allocation
of
income, deductions, credits,
or
allowances between a
resident of one
Contracting State
and
a
related per-
son
and
to the readjustment of
taxes
imposed
by
each Contracting
State
to
reflect such
allocation;
the same
deter-
mination of the
source of particular
items
of income;
and the same
charac-
terization of
particular
items of
in-
come.
Under
paragraph
(3),
in imple-
menting
the
provisions
of
this
article,
the
competent
authorities
may
com-
municate with
each other directly
and,
when
advisable,
meet
together
for an
exchange
of
opinions.
Under
paragraph
(4),
in cases
in
which
the
competent
authorities reach
an
agreement,
taxes
will
be imposed
on such income,
and refund
or
credit
of taxes
allowed,
by
the Contracting
States
in
accordance with such
agree-
ment. This
permits
the
issuance
of
a
refund
or credit
notwithstanding
pro-
cedural barriers otherwise
existing
under
a Contracting
State's
law,
such
as the statute
of
limitations.
ART. 24. ExcHANGE OF
INFORMA
TION
Paragraph
(1)
provides
for a sys-
tem of administrative cooperation
be-
tween the
competent
authorities of the
two
Contracting
States
by
requiring
an
exchange
of
information
necessary
for
carrying
out the
provisions
of the
Convention or for
the prevention of
fraud or for the administration
of
statutory
provisions
concerning
taxes
to
which
the
Convention
applies.
The
competent
authorities
may
exchange
information in
connection with tax
compliance
generally,
not
merely
ille-
gal
acts or crimes.
Under
paragraph
(2)
information
exchanged
must be treated
as secret
except
that it
may
be disclosed to
any
person charged
with,
or
made
part
of
a
public
record
with
respect
to,
the
assessment,
collection,
enforcement
of,
or
litigation
with
respect
to,
the
taxes
516
to
which the
Convention
applies.
Thus,
disclosure is not prohibited as
a
part
of
a public
proceeding
before
a
court or
administrative
body.
The article
provides
two limitations
on what kind of information
can be
exchanget.
'.
Under
paragraph
(1),
the
information
must be of a class that
can be obtained under the
laws and
administrative
practices
of each
Con-
tracting
State with
respect
to its own
taxes.
Thus,
a Contracting State
re-
quested
to furnish information will
use
the standard
it
uses
in the
enforce-
ment
of
its own laws
by
its
adminis-
trative
and judicial
authorities,
treat-
ing
the tax of the
Contracting
State
with
respect
to which the
request
re-
lates
as
if
it
were
a tax of the
Con-
tracting
State
requested to furnish the
information
and were
being imposed
by
such
Contracting State. Under
paragraph
(3),
no information will
be
exchanged
which would
be
contrary
to
public
policy.
Under
paragraph
(4),
depositions
of witnesses and
copies
of unedited
original documents
(including books,
papers,
statements, records,
accounts,
or
writings)
shall be
provided
by
the
competent
authority
of a
Contracting
State if
specifically requested
by
the
competent
authority
of the other
Con-
tracting
State to the
same extent that
such
depositions and
documents
can
be obtained under
the laws and
ad-
ministrative
practices of each
Con-
tracting State with
respect
to
its own
taxes. The
standard to be used
by
a
Contracting
State, when
requested
to
provide
such
depositions and
docu-
ments,
is
the same
standard
as
de-
scribed
above under
paragraph
(1)
.
Although implicit in
any
tax
conven-
tion
providing
for
exchange
of
infor-
mation,
paragraph
(5)
provides
that
any
depositions
and evidence which
may
be
furnished in
accordance
with
this article shall not be withheld
by
reason of
any
doctrine of law under
which
international
judicial
assistance
is not
accorded in
tax
matters.
Paragraph
(6)
provides
for the
ex-
change
of information
on
either a
rou-
tine
basis
or on
request
with
reference
to
particular
cases.
The
competent
au-
thorities
may agree on
the
list
of in-
formation
to
be
furnished
on
a
routine
basis.
ART.
25.
%EMBERS
OF
DIPLOMATIC
MISSIONS
AND
CONSULAR
OFFICES
This
article
provides
that
nothing
in
the
Convention
will
affect
the
fiscal
privileges of
members
of
diplomatic
missions
and
consular
offices
under
the
general rules
and
norms
of
interna-
tional law or
under
the
provisions
of
special
agreements.
This
is
merely a
special case of the
general
rule
pro-
vided
in
paragraph
(2)
of
Article
4
(General Rules
of
Taxation) .
ART.
26. As sIsTANGE
IN
CQLLEGTION
This article
provides
for
mutual
as-
sistance
in
the
collection
of
taxes
where
required
to insure
that
the
bene-
fits of
the
Convention
will
only
be
ex-
tended to
persons
entitled
to such
ben-
efits. It
does
not in
any way
affect
rights of residents of
the
Contracting
States
under
the Convention.
Paragraph
(1)
provides that each
Contracting State will endeavor
to
col-
lect on behalf
of the other
Contracting
State such
taxes
imposed
by
that other
Contracting State as will ensure
that
any
exemption or reduced rate of
tax
granted
under
the
Convention will not
be
enjoyed
by
persons
not entitled
to
those benefits.
However,
paragraph
(2)
makes
clear that
this does
not
im-
pose
on a Contracting
State
the
obli-
gation
to
carry
out measures
at
vari-
ance with the laws
or
administrative
practices
of either
Contracting
State
with
respect
to
collection
of
its
own
taxes.
ART. 27. ENTRY
INTo
FoRGE
This article
provides
that the
Con-
vention is
subject
to
ratification
and
for
the
exchange
of
instruments
of
ratification. The
Convention
will
enter
into force one
month
after
the
date
of
exchange
of
such
instruments
of
ratifi-
cation, The provisions
of
the
Conven-
tion
shall first
have
effect
with
respect
to income of
calendar
years
or
taxable
years
beginning
(or
in
the
case
of

taxes payable
at
source,
payments
made)
on
or
after
January
1,
1974. It
is
intended
for
purposes
of this article
and
Article 28
(Termination)
that the
reference
to calendar
years
applies
only
to
cases
where the taxable
year
is
the
calendar year.
ART.
28.
TERMINATION
Paragraph
(1)
provides
that the
Convention
will
continue
in effect
in-
definitely,
but
that it
may
be
termi-
nated
by
either Contracting
State at
any
time after
five
years
from the date
it
enters
into force.
A Contracting
State seeking
to
terminate the
Conven-
tion
must
give
notice at
least six
months
before the
end of the
calendar
year
through
diplomatic
channels. If
the
Convention
is terminated, such
termination
will be
effective with
re-
spect
to
income of
calendar
years
or
taxable
years
beginning
(or,
in the case
of taxes
payable
at
source, payments
made)
on
or after
January
1
next
fol-
lowing
the
expiration
of
the six month
period.
Under
paragraph
(2),
the provi-
sions
of
Article 17
(Social Security
Payments)
may
be terminated
by
either Contracting State at
any
time
after the Convention enters
into force
by
prior
notice
given through
diplo-
matic
channels.
United
States
—
United Kingdom
Income
Tax Convention Not
Applicable
to Southern Rhodesia
or
to Yemen
In
response to inquiries the Treasury
Department
announced that
the
in-
come
tax convention
between the
United
States
and the United King-
dom, as extended
in 1959
to
Southern
Rhodesia
(then
part
of
the Federation
of
Rhodesia
and
Nyasaland)
[1960-2
C.
B.
653]
has not
applied
to Southern
Rhodesia
since
January
1,
1974. The
extension
of
the U.
S.
-U.
K. tax
treaty
to
Southern
Rhodesia was
terminated
by
the
United
States,
effective Janu-
ary
1, 1974,
by
diplomatic
note to the
Government
of the
United
Kingdom
in
accordance
with
the procedure
es-
tablished
in
the
convention.
The
Treasury
also
announced that
the
income
tax
convention
between
the
United
States and
the United
Kingdom
as
extended in 1959 to the
Peoples
Democratic Republic
of
Yemen
(then part
of
Aden)
has been
inapplicable
to the
People's
Demo-
cratic Republic of
Yemen since
that
country
became
independent
on
No-
vember
30,
1967. The
government
of
Yemen did not take the
necessary
steps
to
affirm
that
it
was
assuming
the
obligation
of the income tax
con-
vention. The convention is therefore
considered
inapplicable to
the
People'
s
Democratic
Republic of Yemen
by
the
United States.
(Filed
by
the Office of the Federal
Register
on
July
28,
1976,
8:45 a. m.
,
and pub-
lished in the issue of
the Federal Regis-
ter
for
July
29,
1976,
41 F.
R. 31578)
Subpart
B.
—
Legislation and
Related
Committee
Reports
Public Law
94-273
94th
Congress, S.
2445
'
April
21,
1976
An
Act to
provide permanent
changes
in laws
necessary
because of
the October-September fiscal
year.
Be
it
enacted
by
the Senate and
House
of
Representatives
of
the
United States
of
America
in Congress
assembled,
that this Act
may
be cited
as the
"Fiscal
Year
Adjustment Act.
"
SEc.
2. The
following
provisions
of
law are
amended
by
deleting
"June,
"
wherever
it
appears,
and
in-
serting
"September"
in lieu
thereof:
(7)
section
2 of the Land and
Water Conservation
Fund
Act,
as
amended
(16
U.
S. C. 4601-5)
[Pub.
L.
88-578, 1964-2
C. B.
654];
(17)
section
402 of
the
Act of
No-
vember
13,
1966
(31
U. S.
C.
757f)
t
This
publication
oi
the tsw
is restricted
to
excerpts
involving
t'ax
tnatters;
Senate
Report
No.
94-469
and
House
Report
No.
94-1000
are
not
published.
[Pub.
L.
89-809,
1966-2
C. B,
656],
ex-
cept
for the
reference to
June 30,
1967;
SEc. 3. The
following provisions
of law
are
amended
by
deleting
"July,
"
wherever it
appears,
and
in-
serting
"October"
in lieu
thereof—
(4)
sections
5(b)
and
201(b)
of the
Land and
Water Conservation
Fund
Act
(16
U. S. C.
4601-7(b)
and
4601-
11(b))
[Pub. L.
88-578,
1964-2
C.
B.
654];
SEc.
5. The
following provisions
of
law are amended
by
deleting
"Decem-
ber,
"
wherever
it
appears,
and
insert-
ing
"March"
in lieu thereof—
(4)
section
103(a)
of
the Act of
June
6,
1972
(31
U.
S. C.
1203(a)
)
[Pub.
L. 92-310, 1972-2
C. B.
670];
SEc.
12.
The
following
provisions
of law are
amended
by
deleting
"March"
and
inserting
"June"
in lieu
thereof—
(2)
section
105(a)
(2)
of
the Act
of
October
20,
1972
(31
U. S. C. 1224
(a)
(2)
)
[Pub.
L.
92-512,
1972-2
C. B.
684];
and
SEc.
18. Section
209(e)
(1)
of the
Highway
Revenue
Act of 1956
(23
U.
S. C. 120
note)
[Pub.
L.
627,
1956-2
C.
B.
1150],
is
amended
by
deleting
"March"
and "June
30"
and
inserting
"June"
and "September
30,
"
respec-
tively,
in lieu
thereof.
SEc.
38.
Sections
6(a)
(1)
(D)
and
(E)
of
the
Alaska
Native
Claims
Set-
tlement
Act
(43
U. S. C.
1605)
[Pub.
L.
92-203, 1972-1
C. B.
490]
are
amended
to
read
as follows:
"(D)
$40,
000,
000
during the
period
beginning
July
1,
1976,
and
ending
September
30,
1976;
and
"(E)
$30,
000,
000
during each of
the
517