Article XIII of the 1954 — U.S. Income Tax Treaty

provisions. Both of these, however, refer to a student who is present "solely" for purposes of his education or training. The Convention refers, instead, to one who visits for the purpose of his "full-time education or training". This change in language from the 1954 Convention is intended to clarify that even if the student engages in other activities in the host State, such as part-time employment (and might therefore be regarded as not present solely for his education), he remains

eligible for the benefits of the Article as long as lie is a full-time student or apprentice.

Paragraph 17 of the Protocol relates to paragraph 2 of the Article. It clarifies that payments from public funds of a Contracting State or from scholarship organizations endowed with such public funds will be treated as arising from sources outside the other Contracting State for purposes of the exemption provided in paragraph 2, when that other State is the host State. Under Paragraph 17 of the Protocol, such payments will also be considered to arise in full from sources outside the host State when payments are made under programs jointly funded by organizations of both Contracting States, so long as more than 50 percent of the combined funds is provided from the public funds of the Contracting State which is not the host State, or by a scholarship organization endowed with such funds.

Paragraph 3 of the Article provides that when a person visits a Contracting State, and that person is, or was immediately before the visit, a resident of the other Contracting State, he will not be taxed in the host State on payments (other than compensation for personal services) which he receives as a grant, allowance or award from a non-profit religious, charitable, scientific, literary, or educational private organization, including those organized in the host State, or a comparable public institution. This exemption applies regardless of the residence of the institution making the grant or award. This provision is broader in scope than the provisions of the student and scholar articles of most U.S. treaties. It is intended to apply, for example, to persons such as authors, composers, dramatists, etc. whose visits and work are funded by such grants, even though the recipients may not be engaged in formal study or research. This provision is essentially the same as paragraph 3 of Article XIII of the 1954 Convention.

Paragraph 4 provides that persons covered by paragraphs 2 and 3 (i.e., qualified students and business apprentices and recipients of certain grants, allowances or awards) who remain in the host country for a period not exceeding 4 years will be exempt from host country tax on income from dependent personal services not in excess of $5,000 (or its equivalent in Deutsche Mark) per taxable year. The exemption applies only if the services are performed solely for the purposes of supplementing the funds otherwise available for the person's maintenance, education or training. The $5,000 exemption applies in addition to, and not in lieu of, any allowances (e.g., personal exemptions and standard deductions) available to the person under the internal laws of the Contracting States. If the amount earned exceeds $5,000 per annum, only the excess is taxable. Under the provisions of Paragraph 18 of the Protocol, if the stay in the host State exceeds four years, the person may be subject to tax there for the entire period, unless the competent authorities agree otherwise. The exemption provision of paragraph 4 does not apply to income from the performance of independent personal services.

Paragraph 5 deals with a resident of a Contracting State who is an employee of an enterprise of that State or of an organization described in paragraph 3, who is temporarily present in the other Contracting State for a period not exceeding one year for the sole purpose of acquiring technical, professional or business experience from a person other than his employer. Such resident will be exempt from tax by the host State on compensation for services, wherever performed, which is remitted from outside that State and paid by such organization or institution if the compensation does not exceed $10,000. Unlike the exemption provided in paragraph 4, this exemption does not apply at all if the compensation exceeds $10,000.

By virtue of the exception to the saving clause in sub-subparagraph (b)(bb) of Paragraph 1 of the Protocol, the saving clause does not apply with respect to a person entitled to U.S. benefits under the provisions of this Article if that person is neither a U.S. citizen nor has immigrant status in the United States. Thus, for example, a German resident who visits the United States as a student or professor and becomes a U.S. resident according to the Code, would continue to be exempt from U.S. tax in accordance with this Article so long as he is not a U.S. citizen and does not acquire immigrant status in the United States. The saving clause does apply to U.S. citizens and immigrants.