ARTICLE 13

Gains

Article 13 provides that, except as provided in Article 8 (Shipping and Air Transport), each Contracting State may tax capital gains in accordance with the provisions of its domestic

law.

The sole exception to the general rule relates to the taxation of gains of an enterprise operated by a resident of a Contracting State where the gains are derived from the alienation of ships, aircraft, or containers owned and operated by the enterprise, the income from which is taxable only in that State (i.e., income from the operation of such ships, aircraft, or containers in international traffic). Such gains shall be taxable only in the Contracting State in which the profits of the enterprise deriving such income are taxable according to Article 8. Article 8 exempts such income from source country taxation.

There is nothing in this article that precludes the imposition of any tax in force under U.S. domestic law or enacted in the future except the exemption of gains described in Article 8. Thus, for example, the United States preserves its right to impose the tax under section 897 of the Code on gains derived by foreign persons from the disposition of United States real property interests, the tax under section 871(a)(2) on capital gains of aliens present in the United States 183 days or more, the tax under section 872 or 882 on capital gain of a nonresident alien or foreign corporation that is effectively connected 'with the conduct of a U.S. trade or business, the withholding tax on a foreign partner's allocable portion of effectively connected taxable income consisting of gain.

Notwithstanding the foregoing limitations on source country taxation of certain gains, paragraph 3 of Article 1 (General Scope) permits the United States to tax its citizens and residents as if the Convention had not come into effect.