ARTICLE 19

Remuneration and Pensions in Respect of Government Service

Subparagraphs (a) and (b) of paragraph 1 deal with the taxation of government compensation (other than a pension). Subparagraph (a) provides that wages, salaries, and similar compensation paid by a Contracting State or by its political subdivisions or local authorities to any individual are exempt from tax by the other Contracting State. Under subparagraph (b), such payments shall, however, be taxable in the other Contracting State, and only in that State, if the services are rendered in that other State and the individual is a resident of that State who is either a national of that State or a person who did not become resident of that State solely for purposes of rendering the services.

Paragraph 2 deals with the taxation of a pension paid by, or out of funds created by, a Contracting State or a political subdivision or a local authority thereof to an individual in respect of services rendered to that state or subdivision or authority. Subparagraph (a) provides that such a pension shall be taxable only in that State. Subparagraph (b) provides an exception under which such a pension shall be taxable only in the other Contracting State if the individual is a resident of, and a national of, that other State. Pensions paid to retired civilian and military employees of a government of either Contracting State are intended to be covered under paragraph 2. Social security and similar benefits paid by a Contracting State in respect of services rendered to that State or a subdivision or authority are also intended to be covered.

Paragraphs 1 and 2 are similar to paragraphs 1 and 2 of Article 19 (Government Service) of the OECD and the U.N. Model Treaties. These paragraphs differ from Article 19 of the U.S. Model under which such remuneration, including a pension, is taxable only in the Contracting State that pays it.

Paragraph 3 provides that the provisions of Articles 16 (Dependent Personal Services), 17 (Directors' Fees), 18 (Income Earned by Entertainers and Athletes) and 20 (Private Pensions, Annuities, Alimony and Child Support) shall apply to remuneration and pensions in respect of services rendered in connection with a business carried on by a Contracting State or a political subdivision or a local authority thereof. This treatment is consistent with the U.S., OECD and U.N. Model Treaties, all of which exclude payments in respect of services rendered in connection with a business carried on by the governmental entity paying the compensation or pension.

Under paragraph 4 (b) of Article 1 (General Scope), the saving clause (paragraph 3 of Article 1) does not apply to the benefits conferred under Article 19 if the recipient of the benefits is neither a U.S. citizen nor has immigrant status in the United States. Thus, for example, an Indian resident who receives a pension paid by India in respect of services rendered to India shall be taxable on this pension only in India unless the individual is a U.S. citizen or acquires immigrant status in the United States.