ARTICLE 4

Residence

This Article sets forth rules for determining the residence of individuals, companies, and other persons for purposes of the Convention. Article 4 is important because, except as otherwise provided, only a resident of a Contracting State may claim benefits under the Convention. A determination of residence under this Article applies for all other provisions of the Convention. In general, the determination of residence begins with a person's liability to tax as a resident under the respective taxation laws of the Contracting States. Thus, a person who, under those laws, is a resident of one, and only one, Contracting State need look no further. However, the Convention definition is also designed to assign residence to one State or the other for purposes of the Convention in circumstances where a person is a resident of both Contracting States under their respective laws. The Convention definition is, of course, exclusively for purposes of the Convention.

The term ''resident of Barbados'' is defined as a company (as defined in paragraph 1(b) of Article 3 (General Definitions) whose business is managed and controlled in Barbados and any other person (except a company) resident in Barbados for purposes of its tax.

Similarly, the term ''resident of the United States'' is defined as a person (except a company) resident in the United States for purposes of its tax. This includes a resident alien individual, who is subject to tax by the United States on his worldwide income, or an alien present in the United States who makes an election under Code section 6013(g) or (h), as well as a resident U.S. citizen. The term also includes a company which is created or organized under the laws of the United States or a political subdivision thereof.

An individual is not automatically a resident of the United States or Barbados for the purposes of this Convention if he is a citizen of either State. To be a resident of a Contracting State for purposes of the Convention, he must be subject to tax in that State on account of his residence therein. Thus, an individual will be considered to be a U.S. resident if, without regard to his citizenship, he would be taxable by the United States on his worldwide income as a resident. Residence of a U.S. citizen for this purpose is to be determined in accordance with the principles of Treasury regulations under section 871 of the Internal Revenue Code as in effect prior to enactment of section 7701(b) in the Tax Reform Act of 1984. Whether a non-U.S. citizen is a resident of the United States for this purpose is to be determined under section 7701(b).

Paragraph 1 of this Article also 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 by such Contracting State as the income of a resident. For example, under current United States law, a partnership is never, and an estate or trust is often not, taxed as such. Thus, under the Convention, a partnership, estate, or trust will be treated as a resident of the United States only to the extent that income derived by such partnership, estate, or trust is subject to tax by the United

States as the income of a U.S. resident. Similarly, if a resident of Barbados and a resident of a third State form a partnership, and the partnership derives dividends from the United States, the limitation of U.S. tax under the provisions of Article 10 (Dividends) applies only to the share of dividends attributable to the partner resident in Barbados. However, the fact that a charitable organization or pension fund is generally exempt from tax by the Contracting State in which it is organized is not to be construed to deny such entity's status as a resident of that State under the Convention.

Paragraph 2 provides a series of tie-breaking rules for assigning residence to an individual who under paragraph 1 is a resident of both Contracting States. The first test depends upon where the individual has a permanent home available. If this test is inconclusive because the individual has a permanent home in both States, he is considered in resident of the State which is the center of his vital interests; i.e., the State, with which his personal and economic relations are closer. If such a center cannot be determined, or if he does not have a permanent home available to him in either State, residence is where the individual has an habitual abode. If he has an habitual abode in both States or in neither of them, he is deemed to be a resident of the State of which he is a national. Should the individual be a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question of residence by mutual agreement under the authority of Article 25 (Mutual Agreement Procedure).

Paragraph 3 provides that a company which under paragraph 1 is a resident of both Contracting States (i.e., it is incorporated in the United States and has its place of effective management in Barbados) shall be considered to be a resident of the Contracting State under whose laws (or the laws of a political subdivision of that State) it was created.

Paragraph 4 provides that if under paragraph 1 a person, other than an individual or a company, is a resident of both Contracting States, the competent authorities shall agree on a single residence for such person and on how the Convention applies to such person. This provision applies to persons such as partnerships, trusts and estates.