ARTICLE 16

Dependent Personal Services

This Article concerns the taxation of income from the performance of personal services as an employee or company officer when the person performing the services is a resident of one of the Contracting States and the services are performed in the other Contracting State. Paragraph 1 provides that such income may be taxed in the State of residence of the recipient and, except as provided in paragraph 2, may also be taxed in the other State where the services are performed.

Paragraph 2 sets forth the exceptions. The other (i.e. source) State may not tax the remuneration if the individual is present in that State for less than 120 days in a period of 12 consecutive months and the remuneration is paid by or on behalf of an employer who is not a resident of that State and is not borne as such or reimbursed (i.e., deducted) by a permanent establishment which the employer has in that State. Restated affirmatively, if a dependent employee who is a resident of one of the Contracting States performs services in the other Contracting State, the other State may tax the remuneration for those Services if the individual remains in that other State for 120 days in 12 consecutive months, or if the remuneration is paid by an employer which is a resident of that other State or is borne by a permanent establishment in that other State of a nonresident employer.

Paragraph 3 provides a special rule for persons regularly employed aboard a ship or aircraft engaged in international traffic. The remuneration for such services is taxable only by the State of which the operator of the ship or aircraft is a resident. However, in accordance with paragraph 3 of Article 28 (General Rules of Taxation) each State reserves the right to tax its residents and citizens. Thus, a U.S. resident or citizen employed as a member of the crew of an Indonesian aircraft would be Subject to U.S. tax on the remuneration for his services (and eligible for a foreign tax credit in accordance with U.S. law).