ARTICLE 23

Pensions, Annuities, and Social Security Payments

The 1954 Convention did not provide any exemption from tax by the source State for pensions, annuities, and social security payments derived from sources within one State by individuals residing in the other State.

The new Convention provides that pensions and annuities received by a resident of a State will be taxable only in the State of residence. However, pensions coming within the scope of Article 21 (relating to governmental functions) are taxable according to that provision.

The term "pensions" is defined as including periodic payments, including United States and Japanese social security payments made by reason of retirement or death in consideration for services rendered, or by way of compensation for injuries received, in connection with employment. The term "annuities" is defined as including a stated sum paid periodically at stated times during life, or during a specified number of years, under an obligation to make the payments in return for adequate and full consideration (other than services rendered).

The effect of this provision with respect to pensions is generally the same as that of the OECD Model Convention. The treatment of social security payments in the same manner as private pensions differs from their treatment in our recent Belgian, French, Finnish and Norwegian Conventions, under which social security payments are taxable only by the State of source.