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.