ARTICLE 17

Independent Personal Services

The 1954 Convention combined the rules pertaining to independent and dependent personal services into one article.

The new Convention generally deals with personal services in two articles and creates a distinction based upon whether the services are independent or dependent personal services. The Convention also provides a special rule for independent individuals who are public entertainers and a special rule dealing with directors' fees. A doctor or lawyer, for example, typically renders independent personal services. Also an entertainer who under common law concepts is an independent contractor is considered as rendering independent personal services.

Generally, under Article 17, income earned by an individual resident of one State from independent personal services performed in the other State may not be taxed in that other State.

However, such income may be subject to tax in the State of source ( i.e., where the services are performed) if the recipient is present in that State for a period or periods aggregating more than 183 days in the taxable year or if the individual maintains a fixed base in that other State for a period or periods aggregating more than 183 days in the taxable year, but in the latter case only on the income attributable to such fixed base.

Commercial, industrial, or agricultural activities would not normally be considered independent personal services and the income therefrom would, therefore, be industrial or commercial profits subject to the rules of Article 8 (relating to business profits).

Under the fixed base concept if a physician, resident in one State, has an office regularly available in the other State for a period aggregating more than 183 days during the taxable year, the income he earns from the performance of services within the other State will be subject to tax in that other State regardless of whether he is physically present in that other State for more than 183 days during the taxable year and regardless of whether others make use of this office.

An individual who derives income from independent personal services as a public entertainer is nevertheless subject to tax in the other State if his stay in such State exceeds 90 days during the taxable year or his income (excluding reimbursed travel expenses) is in excess of $3,000, or its equivalent in Japanese yen, in the aggregate during the taxable year.