ARTICLE 15

Dependent Personal Services

This Article concerns the taxation of remuneration derived by a resident of one of the Contracting States as an employee or as a director of a company.

Pensions, annuities and remuneration of government employees are covered by Articles 18 and 19. Other remuneration of a resident of one of the Contracting States for employee services or for services performed as a director of a company may be taxed only in the State of residence unless the employment is exercised or the services are performed in the other State, in which case that other State may tax the remuneration for the services performed there, subject to the conditions set forth in paragraph 2.

Paragraph 2 provides that, even where a resident of one Contracting State performs services in the other State, that other State may not tax the income for such services if three conditions are met:

(a) the recipient is present in that State for not more than 183 days in the taxable year (or income year);

(b) the remuneration is paid by or on behalf of an employer, or, in the case of remuneration of directors, a company, that is not a resident of that State; and

(c) the remuneration is not deductible in determining taxable profits of a permanent establishment, fixed base, or a trade or business of the employer or company in that State.

If any one of these conditions is not met, e.g., if the employer is a resident of the State where the

services are performed, the income may be taxed by that State. The insertion of the reference to a trade or business means that if, for example, an Australian resident is employed in the United States by a Bermuda company and his salary is deducted in determining the profits of the U.S. trade or business of that company, the salary is taxable in the United States even if the Bermuda company does not have a permanent establishment in the United States.

Paragraph 3 provides that remuneration derived for employment aboard a ship or aircraft operated in international traffic by a resident of a Contracting State may be taxed by that State. Under this provision, Australia may tax the remuneration of employees for services aboard ships or aircraft operated internationally by Australian residents. Similarly, the United States may tax such remuneration when the operator is a U.S. resident. However, under U.S. law, the United States taxes such income of a nonresident alien only to the extent it is derived from U.S. sources (i.e., within U.S. territorial waters). This paragraph does not confer an exclusive taxing right. Both Contracting States retain the right to tax their residents and citizens under paragraph 3 of Article 1 (Personal Scope).