Technical Explanation PDF

TECHNICAL EXPLANATION OF THE CONVENTION BETWEEN
THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND
THE GOVERNMENT OF THE ARAB REPUBLIC OF EGYPT
FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE
PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME
SIGNED AT CAIRO ON AUGUST 24, 1980
GENERAL EFFECTIVE DATE UNDER ARTICLE 31: 1 JANUARY 1982
INTRODUCTION
This is a technical explanation of the Convention between the United States and Egypt,
signed on August 24, 1980 ("the Convention"). This explanation is an official guide to the
Convention. It reflects policies behind particular Convention provisions, as well as
understandings reached with respect to the interpretation and application of the Convention.
TABLE OF ARTICLES
Article 1---------------------------------Taxes Covered
Article 2---------------------------------General Definitions
Article 3---------------------------------Fiscal Residence
Article 4---------------------------------Source of Income
Article 5---------------------------------Permanent Establishment
Article 6---------------------------------General Rules of Taxation
Article 7---------------------------------Income from Real Property
Article 8---------------------------------Business Profits
Article 9---------------------------------Shipping and Air Transport
Article 10--------------------------------Related Persons
Article 11--------------------------------Dividends
Article 12--------------------------------Interest
Article 13--------------------------------Royalties
Article 14--------------------------------Capital Gains
Article 15--------------------------------Independent Personal Services
Article 16--------------------------------Dependent Personal Services
Article 17--------------------------------Public Entertainers
Article 18--------------------------------Amounts Received for Furnishing
Personal Services of Others
Article 19--------------------------------Private Pensions and Annuities
Article 20--------------------------------Social Security Payments
Article 21--------------------------------Governmental Functions
Article 22--------------------------------Teachers
Article 23--------------------------------Students and Trainees
Article 24--------------------------------Investment or Holding Companies
Article 25--------------------------------Relief from Double Taxation
Article 26--------------------------------Nondiscrimination

Article 27--------------------------------Mutual Agreement Procedure
Article 28--------------------------------Exchange of Information
Article 29--------------------------------Assistance in Collection
Article 30--------------------------------Diplomatic and Consular Officers
Article 31--------------------------------Entry into Force
Article 32--------------------------------Termination
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 subject taxes are the Federal income taxes
imposed by the Internal Revenue Code ("Code"). The United States taxes imposed under Code
sections 531 (accumulated earnings tax) and 541 (personal holding company tax) are excluded,
thus preserving for the United States the right to impose these taxes.
United States taxes not generally covered by the Convention include the estate, gift, and
generation skipping transfer taxes, the Windfall Profits Tax, Federal unemployment taxes and
social security taxes imposed under sections 1401, 3101 and 3111 of the Code.
In the case of Egypt, paragraph (1) provides that the Convention applies to the tax on
income derived from immovable property (including the land tax, the building tax and the ghaffir
tax); the tax on income from movable capital; the tax on commercial and industrial profits; the
tax on wages, salaries, indemnities and pensions; the tax on profits from liberal professions and
all other noncommercial professions; the general income tax; the defense tax; the national
security tax; the war tax; and all supplementary taxes imposed as a percentage of any of the
previously mentioned taxes.
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 income
taxes, after August 24, 1980, (the date of signature of the Convention).
Under paragraph (3), for purposes of Article 26 (Nondiscrimination), the Convention
applies to taxes of every kind imposed at the national, state, or local level; and for purposes of
Article 28 (Exchange of Information), the Convention applies to taxes of every kind imposed at
the national level.
Paragraph (4) provides that the competent authority of each Contracting State will
promptly notify the competent authority of the other Contracting State of any amendment of the
tax laws referred to in paragraph (1), or of the adoption of substantially similar taxes imposed in
addition to, or in place of, those taxes by transmitting the texts of such amendments or statutes.
Paragraph (5) provides for a similar exchange with respect to the publication of official material
concerning the application of the Convention, whether in the form of regulations, rulings or
judicial decisions

ARTICLE 2
General Definitions
Paragraph (1) sets out definitions of certain basic terms used in the Convention. Unless
the context otherwise requires, a term defined in this paragraph has a uniform meaning
throughout the Convention. A number of important terms, however, are defined elsewhere in the
Convention.
The term "United States" means the United States of America. When used in a
geographical sense, the term 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. The term "Egypt" means the Arab Republic of Egypt.
When used in a geographical sense, the terms "United States" and "Egypt" also include
their respective territorial seas, and in general accord with the principles of section 638 of the
Code, their respective continental shelves.
The term "Contracting State" is defined to mean the United States or Egypt as the context
requires. The term "State" means the United States, Egypt, or any other national State.
The term "person" includes an individual, a partnership, a corporation, an estate or a trust.
The term "United States corporation" is defined as a corporation, or any unincorporated
entity which is 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 Columbia. An
"Egyptian corporation" is defined as a corporation, or any unincorporated entity which is treated
as a corporation for Egyptian tax purposes, which is created or organized under the laws of
Egypt.
With respect to the United States, the term "competent authority" means the Secretary of
the Treasury or his delegate. With respect to Egypt, it means the Minister of Finance or his
delegate. The term "tax" means those taxes imposed by the United States or Egypt to which the
Convention 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
within 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 resident of
Egypt 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 term has a different meaning
under the laws of Egypt 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 purposes of the
Convention establish a common meaning, which may differ from the meaning under the laws of
either Contracting States, in order to prevent double taxation or to further any other purpose of
the Convention.
ARTICLE 3
Fiscal Residence
This Article sets forth rules for determining 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.
The Convention definition is, of course, exclusively for purposes of the Convention.
Under paragraph (a), the term "resident of Egypt" means an Egyptian corporation (as
defined in paragraph (1)(f)(ii) of Article 2 (General Definitions)) or any other person (except a
corporation or any entity treated under Egyptian law as a corporation) resident in Egypt for
purposes of Egyptian tax. Similarly, "resident of the United States" means a United States
corporation (as defined in paragraph (1)(f)(i) Article 2 (General Definitions)) and any other
person (except a corporation or any entity treated as a corporation for United States tax purposes)
resident in the United States for purposes of United States tax. Thus, a resident of the United
States includes a resident alien individual, an alien present in the United states who elects to be
treated as a resident under Code section 6013(g) or (h), and a resident citizen, but under no
circumstances, a foreign corporation. A citizen of the United States or Egypt is not automatically
a resident of the United States or Egypt for purposes of the Convention. Residence for this
purpose is to be determined in accordance with the principles of Treasury regulations under
section 871 of the Code.
The Convention provides that a partnership, estate, or trust is a resident of a Contracting
State only to the extent that the income derived by such person is subject to tax in such
Contracting State as the income of a resident. For example, under United States law, a
partnership is never, and an estate or trust is often not, taxed as such. Under the Convention, in
the case of the United States, income received by a partnership, estate, or trust will not qualify
for the benefits of the Convention unless such income is subject to tax in the United States as the
income of a resident. Thus, in effect, 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 that 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 person
subject to tax on such income, which may be the grantor, the beneficiaries or the trust or estate
itself, as the case may be.
An individual who is a resident of one Contracting State under its laws and is not a
resident of the other need look no further to determine his residence under the Convention.
However, where he is a resident of each Contracting State under its laws, paragraph (2) of the
Article must be used to determine that person's residence under the Convention.

Under paragraph (2), an individual who is a resident of both Contracting States under
paragraph (1) will be deemed to be a resident of the Contracting State in which he has his
permanent home, his center of vital interests (closest personal and economic relations), an
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 Contracting State of which he
will be considered to be a resident.
ARTICLE 4
Source of Income
This Article contains the source rules which are to be used in applying the provisions of
the Convention. For example, under Article 6 (General Rules of Taxation), one Contracting State
may tax a resident of the other Contracting State only on income from sources within the first-
mentioned Contracting State (provided, with certain exceptions, such resident is not a citizen of
the first-mentioned Contracting State).
Paragraph (1) provides that, as a general rule, dividends will be treated as income from
sources within a Contracting State only if paid by a corporation of the Contracting State. This
general rule will not apply in two cases. First, dividends paid by a United States corporation will
be treated as income from sources within Egypt if such corporation's activities lie solely or
mainly in Egypt and the dividend is taxed in Egypt in the manner prescribed in paragraphs (3)
and (5) of Article 11 (Dividends). This rule is similar to that of Code sections 861(a)(2)(A) and
862(a)(1). See the explanation of paragraph (5) of Article 11 (Dividends) for a discussion of the
effects of this rule. Second, dividends paid by a corporation other than a United States
corporation will be treated as income from sources within the United States if at least 50 percent
of such corporation's gross income from all sources for the 3-year period (or such part of that
period as the corporation has been in existence) ending with the close of its taxable year
preceding the declaration of the dividend was industrial or commercial profits attributable to a
permanent establishment which such corporation had in the United States. The rule in the second
case, though similar, differs from that of Code section 861(a)(2)(B) in that, for example, it does
not specifically provide that only a pro rata portion of the dividend will be treated as income
from sources within the United States. However, since Article 6 (General Rules of Taxation)
provides, in effect, that the Convention will not increase a person's United States tax, the pro
ration specified in Code section 861(a)(2)(B) will be applied to determine the portion of the
dividend paid by such non-United States corporation which will be treated as United States
source income.
Under paragraph (2), interest will be treated as income from sources within a Contracting
State only if paid by the Contracting State, a political subdivision or a local authority thereof, or
by a resident of the Contracting State. However, if interest is paid on an indebtedness incurred in
connection with a permanent establishment which bears such interest, (i.e., deducts the interest in
computing the income of the permanent establishment) then such interest shall be deemed to be
from sources within the State (whether or not a Contracting State) in which the permanent
establishment is situated. This exception permits a Contracting State, under the proper

circumstances, to impose a tax on interest paid by a permanent establishment of a resident of a
State other than a Contracting State. For example, if a resident of France has a permanent
establishment in Egypt which borrows money from a resident of the United States and bears the
interest, the interest will be deemed to be from Egyptian sources. Thus, Egypt may tax such
interest, subject to the limitation of Article 12 (Interest). As provided in paragraph (8) of Article
5 (Permanent Establishment) the principles of Article 5 will be applied to determine whether the
resident of France has a permanent establishment in Egypt. The United States will not, because
of sections 86l(a)(1)(C) and (D) of the Code, impose a tax on interest received by nonresident
alien individuals or foreign corporations from a foreign corporation having a permanent
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 (or such part of such period as the corporation has been in
existence) was effectively connected with the conduct of a trade or business within the United
States. If it is, the U.S. will impose a tax on a pro rata portion of the interest.
In addition, the exception to the general rule of paragraph (2) of this Article will exempt
interest from tax in the Contracting State in which the payor resides if the payor has a permanent
establishment in a State other than a Contracting State in connection with which the indebtedness
on which the interest is paid was incurred, such interest is borne by the permanent establishment
and such interest is paid to a resident of the other Contracting State. This results from the
restriction in Article 6 (General Rules of Taxation) that a resident of one Contracting State, not a
citizen of the other Contracting State, may be taxed by the other Contracting State only on
income from sources within that other Contracting State.
Paragraph (3) provides that royalties for the use of, or the right to use, property or rights
described in paragraph (2) of Article 13 (Royalties) will be treated as income from sources
within a Contracting State only to the extent that such royalties are for the use of, or the right to
use, such property or rights within that Contracting State.
Paragraph (4) provides that income and gains (including royalties) to which Article 7
(Income from Real Property) applies will be treated as income from sources within a Contracting
State only if the real property is situated in that Contracting State. As noted in Article 7,
paragraph (4) determines not only the source of a gain from the alienation of real property itself,
but also of gains from the alienation of shares of a corporation, or of an interest in a partnership,
estate, or trust the property of which consists principally of real property situated in a
Contracting State.
Paragraph (5) provides that income from the rental of tangible personal (movable)
property will be treated as income from sources within a Contracting State only if such property
is situated in that Contracting State.
Under paragraph (6) income from the purchase and sale, exchange, or other disposition of
intangible or tangible personal property (other than gains described in paragraph (2) of Article 13
(Royalties)) will be treated as income from sources within a Contracting State only if such sale,
exchange, or other disposition is within that Contracting State.

Under paragraph (7), income received by an individual for his performance of labor or
personal services, whether as an employee or in an independent capacity, will be treated as
income from sources within a Contracting State only to the extent that such services are
performed in that Contracting State. Income from personal services performed aboard ships or
aircraft operated by a resident of a Contracting State in international traffic will be treated as
income from sources within that Contracting State if rendered by a member of the regular
complement of the ship or aircraft. However, remuneration described in Article 21
(Governmental Functions), and payments described in Article 20 (Social Security Payments)
paid from the public funds of a Contracting State or political subdivision or local authority
thereof will be treated as income from sources within that Contracting State only.
Paragraph (8) contains a general qualification to the preceding source rules, It provides
that industrial or commercial profits attributable to a permanent establishment which the
recipient, a resident of one Contracting State, has in the other Contracting State will be treated as
income from sources within that other Contracting State. Industrial or commercial profits
attributable to such permanent establishment may include any item of income described in
paragraphs (1) through (6) if the item of income is "effectively connected" with the permanent
establishment, See the discussion of paragraph (6) of Article 8 (Business Profits) for a discussion
of the effectively connected concept.
Under paragraph (9), the source of any item of income not described in the preceding
paragraphs of Article 4 will be determined by each Contracting State in accordance with its own
law. However, if the source of any item of income under the laws or one Contracting State is
different from its source under the laws of the other Contracting State or if its source is not
readily determinable under the laws of one of the Contracting States, the competent authorities of
the Contracting State may, in order to prevent double taxation or further any other purpose of the
Convention, establish a common source of the item of income for purposes of the Convention.
(See paragraph (2)(C) of Article 27 (Mutual Agreement Procedure)).
Several of the source rules set out in this Article differ to some degree from those
provided in the Code. Since Article 6 (General Rules of Taxation) provides, in effect, that the
Convention will not increase a person's overall United States tax, a taxpayer is not required to
apply the Convention rules in calculating his United States tax liability. However, a taxpayer
may not make inconsistent choices between Code and Convention rules.
ARTICLE 5
Permanent Establishment
This Article defines the term "permanent establishment." The existence of a permanent
establishment is relevant under Article 8 (Business Profits) to the taxation of industrial or
commercial profits and in determining the applicability of other provisions of the Convention.
Under paragraph (1), the term “permanent establishment” means a fixed place of business
through which a resident of one of the Contracting States engages in industrial or commercial
activity. Illustrations in paragraph (2) of a permanent establishment include a seat of

management; a branch; an office; a factory; a workshop: a mine, quarry or other place of
extraction of natural resources; and the maintenance of a building site or construction or
installation project which exists for more than six months. A drilling rig is included within this
rule. Under the construction or installation project rule the six-month period begins only when
work physically commences 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 six months test. 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 only for
one or more of the activities described in paragraph (3).
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 of goods
or merchandise belonging to the resident,
"(b) The maintenance of a stock of goods or merchandise belonging to the
resident for the purpose of storage, display, or delivery;
"(c) The maintenance of a stock of goods or merchandise belonging to the
resident for the purpose of processing by another person;
"(d) The maintenance of a fixed place of business for the purpose of purchasing
goods or merchandise, or for collecting information, for the resident;
"(e) The maintenance of a fixed place of business for the purpose of advertising,
or for similar activities which have a preparatory or auxiliary character, for the resident;
and
"(f) The maintenance of a building site or construction or installation project
which does not exist for more than 6 months."
As noted, these exceptions are cumulative and a fixed place of business used only for one or
more of these purposes will not be considered a permanent establishment under the Convention.
Under paragraph (4), a person acting in one Contracting State on behalf of a resident of
the other Contracting State, other than an agent of an independent status to whom paragraph (5)
applies, will be deemed to constitute a permanent establishment if such person has, and
habitually exercises in that first-mentioned Contracting 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 Contracting State will not
be deemed to have a permanent establishment in the other Contracting State merely because such
resident engages in industrial or commercial activity in such other Contracting State through a
broker, general commission agent, or any other agent of an independent status, where such
broker or agent is acting in the ordinary course of his business.
Paragraph (6) provides that a resident 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 displayed by such resident at the trade fair or convention. The trade fair
exception is not intended to apply with respect to goods in the resident's inventory.
Under paragraph (7), the determination of whether a resident of one Contracting State has
a permanent establishment in the other Contracting State is to be made without regard to the fact
that such resident may be related to a resident of the other Contracting State or to a person who
engages in business in that other Contracting State (whether through a permanent establishment
or otherwise). As defined in Article 10 (Related Persons), a person is related to another person if
either person owns or controls directly or indirectly the other, or if a third person or persons own
or control directly or indirectly both.
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
Contracting States or whether a person other than a resident of one of the Contracting States has
a permanent establishment in one of the Contracting States. This is necessary for the proper
application of paragraph (2) of Article 4 (Source of Income). This paragraph is not intended to
extend the benefits of the Convention to persons other than residents of the two Contracting
States.
ARTICLE 6
General Rules of Taxation
Under paragraph (1), a resident of one Contracting State may be taxed by the other
Contracting State on any income from sources within that other Contracting State and only on
such income, subject to the limitations set forth in the Convention. For this purpose, the source
rules contained in Article 4 (Source of Income) are to be applied. However, if the resident is a
citizen of the other Contracting State, that Contracting State may tax the resident without regard
to this paragraph because of the saving clause of Paragraph (3) of this Article.
Paragraph (2) contains the customary rule that the Convention will not restrict in any
manner any exclusion, exemption, deduction, credit, or other allowance now or hereafter
accorded by the laws of a Contracting State in the determination of a tax imposed by it, or by any
other agreement between the Contracting States. Thus, if a deduction would be allowed under the
Code for any item in computing the taxable income of an Egyptian resident, such deduction is
generally available to such person in computing taxable income under the Convention. Paragraph
(2) does not, however, authorize a taxpayer to make inconsistent choices between rules of the
Code and rules of the Convention. In no event may the Convention increase the overall tax
burden on residents of the Contracting States. Thus, a right to tax given by the Convention
cannot be exercised unless that right also exists under the Code.
Paragraph (3) contains the traditional saving clause under which the United States
reserves the right to tax its citizens and residents as if the Convention had not come into effect.
However, because of paragraph (4), the saving clause does not apply in several cases in which its
application would contravene policies reflected in the Convention which are specifically
designed to extend treaty benefits to citizens or residents. Thus, the saving clause does not affect

the provisions with respect to child support, social security payments, relief from double
taxation, nondiscrimination, or the mutual agreement procedure. Moreover, the saving clause
does not affect the benefits of the Convention granted to individuals performing governmental
functions, teachers, students, trainees, and diplomatic or consular officers who are neither
citizens of, nor have immigrant status in, the Contracting State imposing the tax. In the case of
the United States, "immigrant status" means the individual has been admitted to the United
States for permanent residence. The saving clause is reciprocal.
Paragraph (5) authorizes the competent authorities of the Contracting State to prescribe
regulations necessary to carry out the provisions of the Convention. For the United States, this
authority is also provided by section 7805 of the Code.
ARTICLE 7
Income from Real Property
Under paragraph (1), income from real property, including royalties and other payments
in respect of the exploitation of natural resources (e.g., oil wells), gains from the sale, exchange
or other disposition of such property or the right giving rise to such royalties or other payments,
and interest on indebtedness secured by real property (e.g., mortgages) or secured by a right
giving rise to royalties or other payments in respect of the exploitation of natural resources, may
be taxed by the Contracting State in which the real property or natural resources are situated.
Thus, natural resource royalties are covered under this Article and not under Article 13
(Royalties).
Under paragraph (2), paragraph (1) applies to income derived from the usufruct, direct
use, letting, or use in any other form of real property.
Paragraph (3) provides, consistent with U.S. law, that gains from the alienation of shares
of a corporation or of an interest in a partnership, estate, or trust, the property of which consists,
directly or indirectly, principally of real property situated in a Contracting State, shall be
regarded as income from real property. Thus, under paragraph (1) of the Article, such gains may
be taxed in the Contracting State in which the real property is situated, and under paragraph (4)
of Article 4 (Source of Income), the gain is treated as having its source in that State.
Paragraph (4) emphasizes what is clearly implied in paragraph (1), that income from real
property (including that referred to in paragraph (3)) may be taxed by both the State of residence
and the State in which the real property is situated.
This Article does not contain a provision allowing for the taxation of real property
income on a net basis. This is because such treatment is already provided for under the laws of
both Contracting States.
ARTICLE 8
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 permanent
establishment, only the industrial or commercial profits attributable to the permanent
establishment can be taxed by the other Contracting State, unless the resident is a citizen of that
other Contracting State. (See the saving clause in paragraph (3) of Article 6 (General Rules of
Taxation)). Under paragraph (8) of Article 4 (Source of Income), industrial or commercial profits
whether from sources within or without a Contracting State attributable to a permanent
establishment which a resident 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 attributable to a permanent establishment situated
in the United States will be subject to tax by the United States. The limited "force of attraction"
rule under Code section 864(c)(3) does not apply for U.S. tax purposes under the Convention.
In determining the proper attribution of industrial or commercial profits under the
Convention, paragraph (2) provides that both Contracting States will attribute to the permanent
establishment 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
wholly independently with the resident of which it is a permanent establishment. Under
paragraph (3), expenses, wherever incurred, which are reasonably connected with profits
attributable or apportionable to the permanent establishment, including executive and general
administrative expenses, will be allowed as deductions in determining the industrial or
commercial profits of the permanent establishment. However, in determining the amount of the
deduction under paragraph (3) for expenses incurred by the head office, the deduction generally
will be limited to the appropriate share of the expense incurred without including a profit
element for the head office.
Paragraph (4) provides that no profits shall be attributed to a permanent establishment
merely because of the purchase of goods or merchandise by that permanent establishment, or by
the resident of which it is a permanent establishment, for the account of such resident. Paragraph
(2) of the Article does not override paragraph (4). Thus, where a permanent establishment
purchases goods for its head office, the industrial an3 commercial profits attributed under
paragraph (2) to the permanent establishment with respect to its other activities will not be
increased by adding a notional figure for profits from purchasing.
Under paragraph (5), the term “industrial or commercial profits” includes income derived
from manufacturing, mercantile, banking, insurance, agricultural, fishing or mining activities, the
operation of ships or aircraft, the furnishing of services, the rental of tangible personal (movable)
property, and the rental or licensing of motion picture films or films or tapes used for radio or
television broadcasting. The term does not include income from the performance of personal
services derived by an individual either as an employee or in an independent capacity.
Under paragraph (6) of this Article, the term "industrial and commercial profits" also
includes income from dividends, interest, royalties described in paragraph (2) of Article 13
(Royalties), and capital gains and income derived from property and natural resources, but only

if the income is effectively connected with a permanent establishment. See paragraph (4) of
Article 11 (Dividends), paragraph (5) of Article 12 (Interest), paragraph (3) of Article 13
(Royalties) and paragraph (1)(c) of Article 14 (Capital Gains).
Paragraph (6) also contains criteria for determining whether income is effectively
connected with a permanent establishment. Factors to be taken into account include whether the
rights or property giving rise to such income are used in or held for use in carrying on an activity
giving rise to industrial or commercial profits through a permanent establishment and whether
the activities carried on through such permanent establishment were a material factor in the
realization of the income. For this purpose, due regard will be given to whether or not such
property or rights or such income were accounted for through such permanent establishment.
Under paragraph (7), where industrial or commercial profits include items of income
which are dealt with separately in other articles of the Convention, the provisions of those article
will, except as otherwise provided therein, supersede the provisions of; this Article. Thus, for
example, taxation of interest income (other than interest treated as income from real property
under paragraph (1) of Article 7 (Income from Real Property)) will be controlled by Article 12
(Interest) and not by this Article unless the interest is effectively connected with a permanent
establishment.
ARTICLE 9
Shipping and Air Transport
Paragraph (1) provides that, notwithstanding Article 8 (Business Profits), income derived
by a resident of one Contracting State from the operation in international traffic of ships or
aircraft, shall be exempt from tax by the other Contracting State. Gains from the sale, exchange,
or other disposition of ships or aircraft are dealt within the general rule of paragraph (1) of
Article 14 (Capital Gains).
Under paragraph (2), this Article applies to income derived from the rental of such ships
or aircraft under a full or bareboat charter if the lessor is engaged in the operation of ships or
aircraft in international traffic and the rental income is incidental to such operations of the lessor.
For example, 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 the other Contracting State.
Paragraph (2) also makes clear that the Article applies to income derived by a resident of
one Contracting State from the use, maintenance, and lease of containers, trailers for the inland
transportation of containers and other related equipment in connection with the operation by the
resident in international traffic of ships or aircraft described in paragraph (1).
Paragraph (2) makes explicit that income derived from the operation in international
traffic of ships or aircraft means income derived directly from the operation of ships or aircraft
and does not include dividends received by a shareholder in a corporation, where such

corporation operates ships or aircraft in international traffic.
This Article is subject to the saving clause of paragraph (3) of Article 6 (General Rules of
Taxation). Therefore, a Contracting State may tax income from international traffic derived by a
resident of the other Contracting State without regard to this Article if such resident is a citizen
of the first-mentioned Contracting State.
Paragraph (3) provides that the limited existing exemption of U.S. air transport
enterprises afforded by Decree to the Egyptian Council of Ministers of November 23, 1955 shall
cease to have effect upon entry into force of this Convention.
ARTICLE 10
Related Persons
This Article complements section 482 of the Code and confirms the authority of the
United States under that section. Thus, where a person subject to the taxing jurisdiction of a
Contracting State (whether or not a resident thereof) and any other related person make
arrangements or impose conditions between themselves which are different from those which
would be made between independent persons, under paragraph (1), any income, deductions,
credits or allowances which would, but for those arrangements or conditions, have been taken
into account in computing the income or loss of, or the tax payable by, one of such persons, may
be taken into account in computing the amount of the income subject to tax and the taxes payable
by such person in the Contracting State.
Paragraph (2) sets forth an explicit formulation of the consequence of a redetermination
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 will, if it agrees with such redetermination
and if necessary to prevent double taxation, make a corresponding adjustment 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 will endeavor to reach agreement
in accordance with the mutual agreement procedure in paragraph (2) of Article 27 (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 person or
persons own or control directly or indirectly both. "Control" includes any kind of control,
whether or not legally enforceable, and however exercised or exercisable.
ARTICLE 11
Dividends
Paragraph (1) provides that dividends derived from sources within one Contracting State
by a resident of the other Contracting State may be taxed by both Contracting States.

Paragraph (2) limits the rate of tax imposed by the United States to a rate not in excess of
fifteen percent of the gross amount of the dividends paid by a United States corporation to an
Egyptian resident. However, if the dividend recipient is an Egyptian corporation, the rate of tax
imposed by the United States may not exceed five percent of the gross amount of the dividend
paid by a United States corporation. This additional rate limitation only applies if during the part
of the paying corporation's taxable year which precedes the date of payment of the dividend and
during the whole of its prior taxable year (if any), at least ten percent of the outstanding voting
stock of the paying corporation was owned by the recipient corporation, and not more than
twenty-five percent of the gross income of the paying corporation for such prior taxable year (if
any) consists of interest or dividends (other than interest derived from the conduct of a banking,
insurance, or financing business and dividends or interest received from subsidiary corporations,
fifty percent or more of the outstanding voting stock of which is owned by the paying
corporation at the time such dividends or interest is received). These rate limitations do not affect
the taxation of profits of the company which pays the dividends.
Paragraph (3) provides that dividends paid by an Egyptian corporation to a resident of the
United States will be subject to the following Egyptian taxes (and substantially similar taxes
enacted after August 24, 1980) to be deducted at the source:
(a) the tax on income derived from movable capital;
(b) the defense tax;
(c) the national security tax;
(d) the war tax; and
(e) the supplementary taxes computed on the basis of the previously mentioned
taxes (these taxes are hereinafter referred to collectively as "taxes on income from
movable capital").
However, to the extent such dividends are distributed out of the current year's earnings, the
amount of such dividend will be allowed as a deduction to the corporation in computing its
taxable profits subject to the Egyptian taxes on industrial and commercial profits. Dividends paid
to a U.S. corporation will not be subject to any other Egyptian taxes.
The rate of the taxes on income from movable capital is essentially the same as that of the
taxes on industrial and commercial profits. Thus, double taxation by Egypt is avoided under
internal Egyptian law to the extent earnings are distributed currently. Conversely, if current
earnings are not distributed, such earnings will be subject to the taxes on industrial and
commercial profits in the year earned and to the taxes on income from movable capital in the
year distributed.
In the case of dividends paid to a natural person who is a resident of the United States,
paragraph (3) provides that Egypt may also impose its graduated general income tax on such
dividends in addition to the taxes on income from movable capital. However, in applying these
graduated rates, the total general income tax on the dividend income of an individual may not
exceed an average of 20 percent of the net dividends. Thus, where the Egyptian taxable income
of the individual is so small that the marginal rate applicable to the dividends is less than 20
percent, the tax will fall below the maximum; and where the aggregate income is so large that the
marginal rates exceed 20 percent, the higher marginal rates will apply, but only to the point

where the average rate of general income tax on the income does not exceed 20 percent.
Paragraph (4) provides that the limitations of paragraphs (2) and (3) will not apply if the
dividends are treated, under paragraph (6) of Article 8 (Business Profits), as industrial or
commercial profits attributable to a permanent establishment which the recipient has in the
source Contracting State. In such case, the provisions of Article 8 (Business Profits) will apply.
If the recipient of the dividend is a citizen of the source Contracting State, that Contracting State
may tax the recipient without regard to this Article because of the saving clause of paragraph (3)
of Article 6 (General Rules of Taxation).
Paragraph (5) provides that Egypt may tax dividends paid by a United States corporation
whose activities lie solely or mainly in Egypt as though paid by an Egyptian corporation.
Accordingly, dividends paid by such a corporation to United States residents will be taxed in the
manner prescribed in paragraph (3) of this Article. Thus, a United States corporation whose
activities lie solely or mainly in Egypt, even though its head or administrative office is outside
Egypt, will be subject to the Egyptian taxes on industrial and commercial profits computed on its
income after deducting the amount of current income distributed as dividends. Such dividends, in
turn, will be subject to the taxes on income from movable capital which are deducted at the
source; and, by virtue of paragraph (1)(a) of Article 4 (Source of Income), such dividends will be
treated as income from sources within Egypt. The factors determining when a foreign company's
activities lie solely or mainly in Egypt are not specified in the treaty or in Egyptian statutory law;
however, the Egyptian tax authorities take into account such elements as the corporation's
charter, balance sheet, and profit and loss statement, and the ratio of profits from sources in
Egypt to total profits. In substance, this provision reflects those aspects of internal Egyptian tax
law which, in order to avoid discrimination between Egyptian and foreign corporations, treat
foreign corporations most of whose activities are conducted through an Egyptian branch as
Egyptian corporations for Egyptian tax purposes.
Paragraph (6) applies to the yearly profits attributable to an Egyptian permanent
establishment of a United States corporation (other than a United States corporation specified in
paragraph (5)) which are deemed distributed currently as a dividend in accordance with the
provisions of Egyptian taxation law. These dividends deemed paid will be deductible for
purposes of computing the income subject to the taxes on industrial and commercial profits and
hence they will be subject only to the Egyptian taxes specified in paragraph (3).
Paragraph (7) defines the term "dividends" to mean income from shares and similar
rights, which are not debt claims and which participate in profits. The term includes income from
other corporate rights which is treated as income from shares under the taxation laws of the State
of residence of the corporation making the distribution. Each Contracting State may apply its
domestic law rules for differentiating dividends from interest and other disbursements, subject to
an agreement between the competent authorities as to a common meaning. See paragraph (2) of
Article 2 (General Definitions).
ARTICLE 12
Interest

Paragraph (1) provides that interest derived by a resident of one Contracting State from
sources within the other Contracting State may be taxed by both Contracting States. However,
paragraph (2) limits the rate of tax in the Contracting State of source to a rate not in excess of 15
percent of the gross amount of the interest.
Paragraph (3) provides that interest beneficially derived by one of the Contracting States,
or by an instrumentality 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 Overseas Private
Investment Corporation (OPIC) on loans, made to Egyptian residents will be exempt from tax in
Egypt. The exemption also applies where a resident of a Contracting State receives interest
income with respect to debt obligations made, guaranteed or insured by that Contracting State or
an instrumentality thereof.
Paragraph (4) provides that interest paid by a resident of one Contracting State to a
person other than a resident of the other Contracting State (and in the case of interest paid by a
resident, of Egypt, to a person other than a United States citizen) will be exempt from tax by the
other Contracting State unless such interest is treated as income from sources within the other
Contracting State under paragraph (2) of Article 4 (Source of Income).
Paragraph (5) provides that the limitations of paragraphs (2), (3) and (4) will not apply if
the interest is treated, under paragraph (6) of Article 8 (Business Profits), as industrial or
commercial profits attributable to a permanent establishment which the recipient has in the
source Contracting State. In such a case, the provisions of Article 8 (Business Profits) will apply.
If excessive interest is paid to a related person, paragraph (6) provides that the Article
does not apply to the excessive portion of the payment. The excessive 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 be taxed as a dividend, in which case the
provisions of Article 11 (Dividends) will apply.
Paragraph (7) defines interest for purposes of the Convention as income from money lent
and 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. However, the term "interest" does not
include interest on indebtedness secured by mortgages on real estate or other amounts considered
income from real property under Article 7 (Income from Real Property) and to which the
provisions of Article 7 apply.
This Article is subject to the saving clause of paragraph (3) of Article 6 (General Rules of
Taxation). Therefore, interest derived by a citizen of the source Contracting State may be taxed
by that Contracting State without regard to this Article.
ARTICLE 13
Royalties

Paragraph (1) provides that royalties derived by a resident of one Contracting State from
sources within the other Contracting State may be taxed by both Contracting States. However,
paragraph (1) limits the tax in that other Contracting State to a rate not to exceed 15 percent of
the gross amount of such royalty.
The term "royalties" is defined in paragraph (2) as payments of any kind made as
consideration for the use of, or the right to use, copyrights of literary, artistic, or scientific works
(but not including copyrights of motion picture films or films or tapes used for radio or television
broadcasting which are industrial and commercial profits within the meaning of paragraph (5) of
Article 8 (Business Profits)), and patents, designs, models, plans, secret processes or formulae,
trademarks, or other like property or rights. The term "royalties" also includes gains derived from
the sale, exchange, or other disposition of such property or rights to the extent the amounts
realized on such sale, exchange or other disposition for consideration are contingent on the
productivity, use, or disposition of the property or rights. If the amounts realized are not so
contingent, the provisions of Article 14 (Capital Gains) may apply.
Paragraph (3) provides that the tax rate limitations of paragraph (1) shall not apply if the
royalty is treated, under paragraph (6) of Article 8 (Business Profits), as industrial or commercial
profits attributable to a permanent establishment which the recipient, a resident of one
Contracting State, has in the other Contracting State. In such a case, the provisions of Article 8
will apply.
Paragraph (4) provides that this Article will not apply to dividends paid on founders'
shares issued in Egypt as consideration for the rights mentioned in paragraph (2) of this Article
and which are taxed in Egypt in accordance with the provisions of Article 1 of Law No.14 of
1939. In such case, the Provisions of Article 11 (Dividends) will apply.
If excessive royalties are paid to a related person, paragraph (5) provides that the Article
does not apply to the excessive portion of the royalty. The excessive portion may be taxed by
each Contracting State according to its own laws, including the Convention where applicable.
Thus, in the case of the United States, the excessive portion may be treated as a dividend or
interest, or in whatever other manner is appropriate.
As noted under paragraph (3) of Article 4 (Source of Income), royalties (including
contingent gains) 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 described in paragraph (2) within that Contracting State. 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 6 (General Rules of
Taxation). Therefore, royalties derived by a citizen of the source Contracting State may be taxed
by that Contracting State without regard to this Article.
ARTICLE 14

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.
However, the exemption does not apply if
(a) the gain is from the sale, exchange or other disposition of property described
in Article 7 (Income from Real Property) situated within the other Contracting State;
(b) the gain is from the sale, exchange or other disposition of property described
in paragraph (2)(b) of Article 13 (Royalties);
(c) the gain is treated, under paragraph (6) of Article 8 (Business Profits), as
industrial or commercial profits attributable to a permanent establishment which the
recipient has in the other Contracting State; or
(d) the gain is realized by an individual resident of one Contracting State who is
present in the other Contracting State for a period or periods aggregating 183 days or
more during the taxable year.
For purposes of this Article and the other physical presence tests contained in the Convention
with regard to an individual, the term "day" means a calendar day during any portion of which
the individual is physically present in the relevant Contracting State.
Paragraph (2) provides that the provisions of Article 7 (Income from Real Property) will
apply to real property gains; the provisions of Article 13 (Royalties) will apply to certain royalty
gains; and the provisions of Article 8 (Business Profits) will apply to gains attributable to a
permanent establishment.
If the recipient of the gain is a resident of one Contracting State and a citizen of the other
Contracting State, that other Contracting State may tax the recipient without regard to this
Article because of the saving clause of paragraph (3) of Article 6 (General Rules of Taxation).
ARTICLE 15
Independent Personal Services
In dealing with the taxation of income from personal services the Convention
distinguishes between "independent" and "dependent" personal services. The Convention also
provides special treatment for individuals who are "public entertainers" and for amounts received
for furnishing the personal services of others.
Under paragraph (1), income derived by an individual resident of one Contracting State
from the performance of personal services in an independent capacity may be taxed only 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 the
individual is present therein for a period or periods aggregating 90 days or more in the taxable
year. Under the saving clause of paragraph (3) of Article 6 (General Rules of Taxation), the other
Contracting State may also tax any individual who is a citizen of that other Contracting State
without regard to this Article.

Services performed by an individual in an independent capacity are services performed
for his own account where he receives the income and bears the losses arising from such
services. Generally, as noted in paragraph (3), the term "personal services in an independent
capacity" includes but is not limited to, scientific, literary, artistic, educational, or teaching
activities as well as services rendered by physicians, lawyers, engineers, architects, dentists and
accountants performing personal services.
ARTICLE 16
Dependent Personal Services
Under paragraph (1), wages, salaries, and similar remuneration derived by an individual
who is a resident 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 21 (Governmental
Functions), 22 (Teachers), and 23 (Students and Trainees). In addition, except as provided by
paragraph (2) and Articles 19 (Private Pensions and Annuities), 21 (Governmental Functions), 22
(Teachers), and 23 (Students and Trainees), such remuneration derived from sources within the
other Contracting State may be taxed by that other Contracting State.
Under paragraph (2), dependent personal service income derived by an individual
resident of one Contracting State will be exempt from tax by the other Contracting State if:
(a) the individual is present in that other Contracting State for a period or periods
aggregating less than 90 days in the taxable year;
(b) the individual is an employee of a resident of the first-mentioned Contracting
State or of a permanent establishment maintained in the first-mentioned Contracting
State;
(c) the remuneration is not borne as such (i.e., as a deduction for salary payments)
by a permanent establishment which the employer has in the other Contracting State; and
(d) the remuneration is subject to tax in the first-mentioned Contracting State.
Income of a United States citizen or resident which is excluded from tax by reason of section 911
is not considered subject to tax by the United States. Dependent personal service income may
also be taxed by that other Contracting State without regard to this Article if the individual is a
citizen of that other Contracting State, because of the saving clause of paragraph (3) of Article 6
(General Rules of Taxation).
Under paragraph (3), and notwithstanding paragraphs (1) and (2), remuneration derived
by an employee (even if a resident of a State other than a Contracting State) of a resident of one
Contracting State for labor or personal services performed as a member of the regular
complement of a ship or aircraft operated in international traffic by a resident of that Contracting
State may be taxed by that Contracting State.
ARTICLE 17

Public Entertainers
This Article provides that, notwithstanding Articles 15 (Independent Personal Services)
and 16 (Dependent Personal Services), income derived by an individual resident of one
Contracting State from his performance of personal services in the other Contracting State as a
public entertainer, such as a theater, motion picture, radio or television artist, a musician, or
athlete, may be taxed by the other Contracting State only if the gross amount of such income
exceeds $400 or its equivalent in Egyptian pounds for each day the individual is present in the
other Contracting State for the purpose of performing such services therein. If the entertainer's
gross income exceeds $400 per day he may be taxed on the full amount of his income, not just
the amount in excess of $400.
If the individual receives a fixed amount for performing the services on more than one
day, the amount received will be prorated over the number of days the individual performs the
services. Thus, for example, if an entertainer resident in Egypt receives $5,000 to perform in a
series of 5 concerts in the United States on 5 different days and spend an additional 5 days in the
United States in rehearsal for those concerts over a two week period, he will be considered to
have received $500 for each day and thus, pursuant to this Article, he may be taxed by the United
States.
Income derived from services rendered by producers, directors, technicians, and others
who are not public entertainers is taxable in accordance with the provisions of Article 15
(Independent Personal Services), or 16 (Dependent Personal Services), as the case may be.
Under the saving clause of paragraph (3) of Article 6 (General Rules of Taxation), if the
individual is a citizen of a Contracting State that State may tax his income without regard to this
Article.
ARTICLE 18
Amounts Received For Furnishing Personal Services of Others
Paragraph (1) provides that, notwithstanding the provisions of Article 8 (Business
Profits), amounts received by a resident of one Contracting State in consideration of furnishing
in the other Contracting State the personal services of one or more other persons, including a
public entertainer referred to in Article 17 (Public Entertainers), may be subject to tax under the
taxation laws of each Contracting State to the extent that: the person for whom the services were
furnished designated the person or persons who would render the services, whether or not he had
the legal right to do so and whether or not the designation was made formally; the person for
whom the services were furnished had the right to designate the person or persons who would
render the services; or, by reason of the facts and circumstances, the arrangement for personal
services had the effect of designating the person or persons who would render the services; and
the resident of the first-mentioned Contracting State directly or indirectly pays compensation for
such services to any person, other than another resident of the first-mentioned Contracting State
or of that other Contracting State who is subject to tax on such compensation. If this paragraph
applies, the amounts received for providing personal services of other individuals in the other

Contracting State may be taxed by that other Contracting State even though not attributable to a
permanent establishment.
Paragraph (2) provides that paragraph (l) will not apply if it is established to the
satisfaction of the competent authority of that other Contracting State with respect to any amount
received that neither the creation nor organization of the resident of the first-mentioned
Contracting State (where such resident is a corporation or other entity) nor the furnishing of the
services through such resident has the effect of a substantial reduction in income, war profits,
excess profits, or similar taxes. The taxes referred to in the preceding sentence are those
enumerated in Article 1 (Taxes Covered) which are imposed by the two Contracting States.
ARTICLE 19
Private Pensions and Annuities
Except as provided in Article 21 (Governmental Functions), pensions and other similar
remuneration paid to an individual will be taxable under paragraph (1) only in the Contracting
State of which he is a resident. Thus, private pensions and similar remuneration derived from
sources within one Contracting State by an individual resident of the other Contracting State are
exempt from tax in the first-mentioned Contracting State. Pensions for Government service are
dealt within Article 21 (Governmental Functions). The term "pensions and other similar
remuneration" is defined in paragraph (4) as periodic payments, other than social security
payments covered in Article 20 (Social Security Payments), made by reason of retirement or
death and in consideration for services rendered, or by way of compensation for injuries or
sickness received in connection with past employment.
Paragraph (2) provides that alimony and annuities paid to an individual 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 payments 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 written separation agreement or a decree of divorce,
separate maintenance, or compulsory support which are taxable to the recipient under the internal
laws of the Contracting State of which he is a resident. Thus, the term "alimony" would not
include a payment which would not be taxable to the recipient under the laws of the Contracting
State in which lie is resident even though such payment is made pursuant to a decree of divorce
or of separate maintenance.
Paragraph (3) provides that child support payments made by an individual resident of one
Contracting State to an individual resident of the other Contracting State will be exempt from tax
in that other Contracting State. The term "child support payments" is defined in paragraph (7) as
periodic payments for the support of a minor child made pursuant to a written separation
agreement or a decree of divorce, separate maintenance, or compulsory support.
Except for paragraph (3), dealing with child support, this Article is subject to the saving
clause of paragraph (3) of Article 6 (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.
ARTICLE 20
Social Security Payments
This Article provides that social security payments and other public pensions, e.g.,
railroad retirement benefits, paid by one Contracting State to an individual who is a resident of
the other Contracting State shall be taxable only in that other Contracting State. Payments
described in Article 21 (Governmental Functions) are not covered by this Article.
Under paragraph (2) of Article 32 (Termination), this Article may be terminated by either
Contracting State at any time after the Convention enters into force.
Under paragraph (4)(a) of Article 6 (General Rules of Taxation), the saving clause of
paragraph (3) of Article 6 does not apply to the provisions of this Article. Thus, the exemption
applies even to a citizen of a Contracting State.
ARTICLE 21
Governmental Functions
Under paragraph (1) of this Article, wages, salaries, or similar remuneration, including
pensions, annuities, or similar benefits, paid from public funds of one Contracting State to a
citizen of that Contracting State, or to a citizen of a State other than a Contracting State who
comes to the other Contracting State expressly for the purpose of being employed by the first-
mentioned Contracting State, for labor or personal services performed 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. If the
individual becomes a citizen of, or acquires immigrant 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 6 (General Rules of Taxation).
Whether services will be treated as performed in the discharge of governmental functions
may be determined by reference to the concept of a governmental function in the State in which
the income arises. Thus, as provided in paragraph (2), remuneration or pensions paid in respect
of services rendered in connection with any trade or business carried on by one of the
Contracting States or any agency thereof will be treated the same as compensation received from
a private employer, and the provisions of Articles 16 (Dependent Personal Services) and 19
(Private Pensions and Annuities) will apply.
This Article applies only to remuneration paid by the national Government or agencies of
the national Government of a Contracting State.

ARTICLE 22
Teachers
Paragraph (1) provides that, if a resident of one Contracting State is invited by the other
Contracting State, a political subdivision or local authority thereof, or by a university or other
recognized educational institution in that other Contracting State to come to that other
Contracting State for a period not expected to exceed two years for the purpose of teaching or
engaging in research, or both, at a university or other recognized educational institution, and if
such resident comes to that other Contracting State primarily for such purpose, his income from
personal services for teaching or research at such university or educational institution 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 Contracting State of which he was a resident at the time he became eligible for
the benefits of this Article, the individual need only be a resident of such Contracting State at the
beginning of his visit. However, if the individual becomes a citizen of, or acquires immigrant
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 6 (General Rules of Taxation). If
the individual's visit exceeds a period of two years from the date of his arrival, the exemption
applies only to the income received by the individual before the expiration of such two-year
period.
Pursuant to paragraph (2), this 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 other
than the person performing the research.
ARTICLE 23
Students and Trainees
Paragraph (1) provides that an individual who is a resident of one Contracting State at the
time he becomes temporarily present in the other Contracting State and who is temporarily
present therein for the primary purpose of studying at a university or other recognized
educational institution, 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 governmental, religious, charitable, scientific, literary, or educational organization,
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 and for such additional period of
time as is necessary to complete, as a full-time student, the educational requirements as a
candidate for a postgraduate or professional degree from a recognized educational institution on:
(1) gifts from abroad for the purpose 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 $3,000 or its equivalent in Egyptian pounds for any taxable year.

Under paragraph (2), an individual who is a resident of one Contracting State at the time
he becomes temporarily 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 technical, professional, or business experience from a
person other than that resident of the first-mentioned Contracting State or other than a person
related to such resident, or studying at a university or other recognized educational institution in
that other Contracting State, will be exempt from tax by that other Contracting State for a period
not exceeding twelve consecutive months, on income from personal services not in excess of
$7,500 or its equivalent in Egyptian pounds.
Under paragraph (3), an individual who is a resident of one Contracting State at the time
he becomes temporarily present in the other Contracting State and who is temporarily present
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 training, 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 Egyptian pounds.
The monetary limits provided in paragraphs (1), (2), or (3) are in addition to, and not in
lieu of, other exemptions provided by the Code. Thus, an unmarried resident of Egypt who is
temporarily present in the United States for the primary purpose of studying at a university
would entitled to exclude $3,000 of income from the performance of personal services and, in
addition, would be entitled to the personal exemption allowed by section 151 of the Code, as
provided in section 873(b) of the Code.
The first sentence of paragraph (4) provides that the benefits provided in paragraph (1)
and the benefits provided under Article 22 (Teachers), when taken together, may extend only for
such period of time, not to exceed five taxable years from the date of individual's arrival, as may
reasonably or customarily be required to effectuate the purpose of the visit, and for such
additional period of time as is specified in paragraph (1). The second sentence of paragraph (4)
makes it clear that the benefits provided by Article 22 will not be available to an individual if,
during the immediately preceding period, the individual enjoyed the benefits provided by
paragraph (1). Thus, an Egyptian individual who originally entered the United States for the
purpose of becoming a student and received benefits under paragraph (1) must leave the United
States and, if necessary, reestablish residence in Egypt, and then return at the invitation of the
United States, a political subdivision or local authority thereof, or a university or other
recognized educational institution for the primary purpose of becoming a teacher in order to take
advantage of Article 22.
If an individual qualifies for the benefits of more than one of the provisions of Article 22
(Teachers) and this Article, such individual mar choose the most favorable provision, but may
not claim the benefits of more than one provision in any taxable year as a means of avoiding the
limitations provided. Thus, for example. an individual who comes to the other Contracting State
for the primary purpose of studying may be able to qualify under either paragraphs (2) or (3) of
this Article. However, he cannot combine the maximum exclusion limits in those two paragraphs

to exclude $17,500 during the taxable year. If the individual becomes a citizen of, or acquires
immigrant 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 6 (General
Rules of Taxation).
ARTICLE 24
Investment or Holding Companies
The Article provides that a corporation of one Contracting State deriving dividends,
interest, royalties or capital gains from sources within the other Contracting State will not be
entitled to the benefits of Articles 11 (Dividends), 12 (Interest), 13 (Royalties) or 14 (Capital
Gains) if, by reason of special measures, the tax imposed on such corporation by the first-
mentioned Contracting State with respect to such dividends, interest, royalties or capital gains is
substantially less than the tax generally imposed by such Contracting State on corporate profits,
and twenty-five percent or more of the capital of such corporation is held of rec6rd or is
otherwise determined, after consultation between the competent authorities of the Contracting
States, to be owned, directly or indirectly, by one or more persons who are not individual
residents of the first-mentioned Contracting State (or, in the case of an Egyptian corporation,
who are citizens of the United States). For purposes of applying this Article, it is intended that
the requisite direct or indirect ownership be tested at the individual shareholder level. Existing
Code provisions dealing with the taxation of capital gains do not make this Article applicable
with respect to capital gains.
The purpose of this Article is to deal with potential abuse which could occur if one of the
Contracting States provided preferential rates of tax for investment or holding companies. In the
absence of this Article, residents of third countries could organize a corporation in the
Contracting State extending the preferential rates for the purpose of making investments in the
other Contracting State. The combination of low tax rates in the first-mentioned Contracting
State and the reduced rates or exemptions in the other Contracting State would enable the third
country residents to realize unintended benefits.
ARTICLE 25
Relief from Double Taxation
In order to avoid double taxation, each Contracting State agrees in this Article to provide
to its citizens or residents a credit against its taxes for taxes paid by such persons to the other
Contracting State.
In paragraph (1), the United States agrees to allow a Unite4 States citizen or resident as a
credit against United States tax an appropriate amount of taxes paid or accrued to Egypt in
accordance with the provisions and subject to the limitations of the law of the United States (as it
may be amended from time to time without changing the general principle of paragraph (1)). In
addition, in the case of a United States corporation owning at least ten percent of the voting stock
of an Egyptian corporation from which it receives dividends in any taxable year, the United

States will allow a credit for the appropriate amount of taxes paid or accrued to Egypt by the
Egyptian corporation paying such dividends with respect to the profits out of which such
dividends are paid. The appropriate amount will be based upon the amount of tax paid or accrued
to Egypt, but the credit is not to exceed the limitations (for the purpose of limiting the credit to
the United States tax on income from sources within Egypt or on income from sources outside
the United States) provided by United States law for the taxable year. This provision does not
require the United States to maintain a per-country or overall limitation in the future so long as
the general principle of a foreign tax credit remains in effect. For the purpose of applying the
United States credit in relation to taxes paid or accrued to Egypt, the rules set forth in Article 4
(Source of Income) will be applied to determine the source of income, and the taxes referred to
in paragraphs (1)(b) and (2) of Article 1 (Taxes Covered) will be considered to be income taxes.
Whether Egyptian taxes are paid or accrued is determined under the rules of the Code. A
taxpayer may, for any year, claim a foreign tax credit under the rules of the Code. In that case, he
would forego the rules of the Convention that guarantee income tax status for the specified
Egyptian taxes.
Under paragraph (2), Egypt will allow a resident of Egypt as a credit against Egyptian tax
the appropriate amount of income taxes paid or accrued to the United States and, in the case of
an Egyptian corporation owning at least ten percent of the voting stock of a United States
corporation from which it receives dividends in any taxable year, will also allow credit for the
appropriate amount of taxes paid or accrued to the United States by the United States corporation
paying such dividends with respect to the profits out of which such dividends are paid. The
appropriate amount will be based upon the amount of tax paid or accrued to the United States but
will not exceed that portion of Egyptian tax which such resident's net income from sources
within the United States bears to his entire net income for the same taxable year. For the purpose
of applying the Egyptian credit in relation to taxes paid or accrued to the United States, the rules
set forth in Article 4 (Source of Income) will be applied to determine the source of income.
Paragraph (4) of Article 6 (General Rules of Taxation) provides that the saving clause in
paragraph (3) of that Article does not affect the benefits conferred under this Article. Thus, the
provisions of this Article may be relied upon by a citizen or resident of a Contracting State.
ARTICLE 26
Nondiscrimination
Paragraph (1) provides that a citizen of one Contracting State who is a resident of the
other Contracting State will not be subject in that other Contracting State to more burdensome
taxes than a citizen of that other Contracting State who is a resident thereof. The determination
of whether there is more burdensome taxation is to be made by comparing the treatment of
individuals who are in comparable positions. Thus, for example, a citizen of Egypt 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 citizen of the United States.
Paragraph (2) provides that a permanent establishment which a resident of one

Contracting State has in the other Contracting State will not be subject in that other Contracting
State to more burdensome taxes than a resident of that other Contracting State carrying on the
same activities, However, as noted in paragraph (2)(a), this does not obligate a Contracting State
to grant to individual residents of the other Contracting State any personal allowances, reliefs, or
deductions for 'taxation purposes on account of civil status or family responsibilities which it
grants its own individual residents.
Under paragraph (2)(b) Egypt is not obliged to grant United States corporations the
exemptions granted Egyptian corporations under Articles 5 and 6 of Law No. 14 of 1939. Article
5 of that law exempts from Egyptian tax certain foreign source investment income which an
Egyptian insurance company earns on reserves which are required under foreign law to be
deposited in a foreign country. Article 6 of that law exempts certain distributions to shareholders
of Egyptian investment companies, where the investment company has paid tax on its dividend
and interest income.
Paragraph (2)(c) preserves the rules of the first and second paragraphs of Article 11 and
Article 11 bis of Law No.14 of 1939. Under these provisions of Egyptian law, the Egyptian
branch profits of a foreign corporation are deemed to be distributed and are treated as dividends.
Thus, a branch of a foreign corporation is subject to tax on deemed distribution, while an
Egyptian corporation is not, because the actual tax on the Egyptian corporation's dividends falls
on the recipient and not on the paying corporation. Paragraphs (5) and (6) of Article 11
(Dividends) provide for this treatment. Paragraph (2)(c) of this Article confirms that this
treatment will not be considered discriminatory.
Paragraph (3) prohibits one Contracting State from subjecting a corporation of such
Contracting State, the capital of which is wholly or partly owned, directly or indirectly, by one or
more residents of the other Contracting State to any taxation 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 the first-mentioned Contracting State.
The provisions of this Article do not override the rig' ht of the (3'nited States to impose
the tax provided in Code section 897 (relating to gains derived by nonresident aliens or foreign
corporations from U.S. real property interests).
Under paragraph (3) of Article 1 (Taxes Covered), the provisions of this Article extend to
all taxes of every kind imposed at the national, state or local level.
The saving clause in paragraph (3) of Article 6 (General Rules of Taxation) does not
apply to this Article. Thus, a Contracting State may not deny any rights conferred by this Article
to its citizens and residents.
ARTICLE 27
Mutual Agreement Procedure

Under paragraph (1), when a resident or citizen of one Contracting State considers that
action of one or both Contracting States results or will result for him in taxation not in
accordance with the Convention, he 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 or citizen of a Contracting State need not,
although it is anticipated that in the normal situation he will, exhaust his other administrative or
judicial remedies prior to resorting to the use of the mutual agreement procedure. If the claim is
considered to have merit by the competent authority, that competent authority will endeavor to
come to an agreement with the competent authority of the other Contracting State with a view to
the avoidance of taxation not in accordance with the Convention.
Paragraph (2) requires the competent authorities of the two Contracting States to
endeavor to resolve by mutual 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 commercial profits to a resident of one 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 Person and to the
readjustment of taxes imposed by each Contracting State to reflect such allocation; the same
determination of the source of particular items of income; and the same characterization of
particular items of income; The list of subjects of potential mutual agreement in paragraph (2) is
not exhaustive; it merely illustrates the principles set forth in the paragraph.
Under paragraph (3), in implementing the provisions of this Article, the competent
authorities may communicate with each other directly and, when advisable, meet together for an
oral 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 agreement. This permits the issuance of a refund or credit
notwithstanding procedural barriers otherwise existing under a Contracting State's law, such as
the statute of limitations. However, it does not authorize imposition of additional taxes after the
statute of limitations has run.
ARTICLE 28
Exchange of Information
Paragraph (1) provides for a system of administrative cooperation between the competent
authorities of the two Contracting States by requiring an exchange of information necessary for
the carrying out of the Convention and of the domestic laws of the Contracting States concerning
taxes covered by the Convention insofar as the taxation thereunder is in accordance with the
Convention. Under paragraph (3) of Article 1 (Taxes Covered), the provisions of this Article
extend to all taxes of every kind imposed at the national level. The competent authorities may
exchange information in connection with tax compliance generally, not merely illegal acts or
crimes. Information need be exchanged, however, only if it is of a class that can be obtained
under the laws and administrative practices of each Contracting State with respect to its own

taxes.
Paragraph (2) provides that information exchanged must be treated as secret. However,
such information may be disclosed to any persons or authorities concerned with or made part of
the public record with respect to the assessment, collection, or enforcement of, or litigation with
respect to, the taxes which are the subject of the Convention. Thus, disclosure is not prohibited
as a part of a public proceeding before a court or an administrative body.
Paragraph (3) provides that no information may be exchanged which would be contrary
to the public policy.
Paragraph (4) provides that 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 Contracting State, to the extent such depositions and documents can be
obtained under the laws and administrative practices of each Contracting State with respect to its
own taxes.
Paragraph (5) provides that any depositions and evidence which may be furnished in
accordance with this Article should not be withheld by reason of any doctrine of law under
which international judicial assistance is not accorded in tax matters.
Paragraph (6) provides that the exchange of information may be on either a routine basis
or on request with reference to particular cases, and that the competent authorities may agree on
the list of information to be furnished on a routine basis.
In making the determinations necessary under paragraphs (1) and (4) of this Article, a
Contracting State ill use the standards it uses in the enforcement of its own laws by its
administrative and judicial authorities, treating the tax of the Contracting State with respect to
which a request relates as if it were a tax of the Contracting State requested to furnish the
information and were being imposed by such Contracting State.
ARTICLE 29
Assistance in Collection
Paragraph (1) provides that one Contracting State will give the other Contracting State
limited assistance in collecting its taxes. Thus, each Contracting State is required to collect on
behalf of the other Contracting State only those taxes imposed by such other Contracting State as
will ensure that any exemption or reduced rate of tax granted under this Convention by such
other Contracting State is not enjoyed by persons not entitled to such benefits.
Paragraph (2) makes clear that a Contracting State is not obligated to carry out measures
at variance with the laws or the administrative practice of either Contracting State with respect to
the collection of its own taxes.

ARTICLE 30
Diplomatic and Consular Officers
This Article provides that nothing in the Convention will affect the fiscal privileges of
diplomatic and consular officials under the general rules of international law or under the
provisions of special agreements.
ARTICLE 31
Entry into Force
This Article provides that the Convention is subject to ratification and provides for the
exchange of instruments of ratification. The Convention will enter into force thirty days after the
date of exchange of such instruments of ratification. The Convention shall first have effect as
respects the rate of withholding tax, to amounts paid on or after the first day of the second month
following the date on which the Convention enters into force, and, as respects other taxes, to
taxable years beginning on or after January 1 of the year following the date on which the
Convention enters into force.
ARTICLE 32
Termination
Paragraph (1) provides that the Convention will continue in force indefinitely, but that it
may be terminated by either Contracting State at any time after five years from the date it enters
into force. A Contracting State seeking to terminate the Convention must give at least six
months' notice through diplomatic channels. If the Convention is terminated, such termination
will be effective with respect to income of calendar years or taxable years beginning (or, in the
cases of taxes payable at source, payments made) on or after January 1 next following the
expiration of the six month period. It is intended that the reference to calendar years applies only
to cases where the taxable year is the calendar year.
Under paragraph (2), the provisions of Article 20 (Social Security Payments) may be
terminated by either Contracting State at any time after the Convention enters into force by prior
notice given through diplomatic channels.