Article 14. INDEPENDENT PERSONAL SERVICES

The Convention deals in separate articles with different classes of income from personal services. Article 14 deals with the general class of income from independent personal services, and Article 15 deals with the general class of income from employment, sometimes referred to as dependent personal services. Articles 16 through 19 provide exceptions and additions to these general rules for directors' fees (Article 16); government

service salaries (Article 17); pensions and social security benefits (Article 18); and certain income of students, trainees and researchers (Article 19).

Unlike the OECD Model and certain other U.S. treaties, this Convention does not provide a separate article dealing with entertainers and athletes. Like the OECD Model and other U.S. treaties, the Convention does not provide a separate rule for the remuneration of teachers. (See the discussion under Article 19 (Students, Trainees, and Researchers.)) The compensation of such individuals is taxable under this Article or Article 15 (Income from Employment).

Income derived by an individual who is a resident of one Contracting State from the performance of personal services in an independent capacity is exempt from tax in that other State unless one of two conditions is met. The income may be taxed in that other State if the services are or were performed there (see Code section 864(c)(6)) and if the income is attributable to a fixed base that the individual regularly used or uses in that other State in performing services. Alternatively, if the individual is or was present in that other State for more than an aggregate of 183 days in any twelve month period beginning or ending in the taxable year concerned, that other State may tax the income attributable to the activities performed there, whether or not there is a fixed base. Under either the fixed base or 183 day presence test, it is understood that the taxation of income from independent personal services is to be governed by the principles set forth in Article 6 (Business Profits). In particular, the income attributed to the services must be taxed on a net basis, after allowance of deductions for business expenses, in accordance with principles similar to those provided in Article 6 for the taxation of business profits of a permanent establishment. However, the nonresident State may only tax income that is attributed to services performed in that State and may not in any case tax income from services performed elsewhere.

Paragraph 2 notes that the term "independent personal services" includes independent scientific, literary, artistic, educational or teaching activities, as well as the independent activities of physicians, lawyers, engineers, architects, dentists, and accountants. This list, which is derived from the OECD Model, is not exhaustive. The term includes all personal services performed by an individual for his own account, where he receives the income and bears the risk of loss arising from the services.