ARTICLE 6 — U.S. Income Tax Treaty

Income from Immovable Property (Real Property)

Paragraph 1 provides that income of a resident of a Contracting State derived from real property situated in the other Contracting State may be taxed in the Contracting State which the property is situated. The paragraph specifies that income from real property includes income from agriculture and forestry. This Article does not grant an exclusive taxing right to the situs State, but merely grants it the primary right to tax. The Article does not impose any limitation in terms of rate or form of tax on the situs State. As clarified in paragraph 3, the income referred to in paragraph 1 means income from any use of real property, including, but not limited to, income from direct use by the owner and rental income from the letting of real property.

Paragraph 2 defines the term "immovable property", which, as is made clear in the title to the Article and in paragraph 1, is to be understood to have the same meaning as the U.S. statutory term "real property". The term is to have the same meaning that it has under the law of

the situs country.

Paragraph 4 specifies that the basic rule of paragraph 1 (as elaborated in paragraph 3) applies to income from real property of an enterprise and to income from real property used for the performance of independent personal services. This clarifies that, notwithstanding the requirements of Articles 7 (Business Profits) and 15 (Independent Personal Services) that income is taxable only if attributable to a permanent establishment or fixed base, respectively, the situs country may tax the real property income of a resident of the other Contracting State even in the absence of a permanent establishment or fixed base in the situs State.

The provision in the U.S. Model for a binding election by the taxpayer to be taxed on real property income on a net basis was not included in the Convention. Both Contracting States provide for net basis taxation of such income under internal law, and, therefore, an election provision is not needed.