Article 17. GOVERNMENT SERVICE

This Article follows the corresponding provisions of the OECD Model.

Paragraph 1 provides that generally payments from the public funds of a Contracting State or political subdivision or local authority to compensate an individual for performing governmental services may be taxed only by that State. However, if the services are rendered in the other State by an individual who is either a citizen of that other State, or was a resident of that other State prior to taking the governmental job (or otherwise did not become a resident of the other State solely for the purpose of taking the job), the compensation may be taxed only by that other State. It is understood that a governmental worker's spouse who takes a governmental job subsequent to becoming a resident of the host state nevertheless will be considered to have become a resident of the host State solely for the purpose of taking a governmental job.

The rules of paragraph 1 are an exception to the saving clause of paragraph 3 of Article 1 (General Scope) for individuals who are neither citizens nor permanent residents of the State where the services are performed. Thus, for example, payments by Kazakhstan to its employees at the Kazakh Embassy in Washington, D.C. are exempt from U.S. tax if the employees are not U.S. citizens or green card holders and were not residents of the United States at the time they became employed by Kazakhstan, even if they would otherwise be considered U.S. residents for tax purposes. (Under the 1984 modification to the definition of a U.S. resident in Code section 7701, this exception to the saving clause is of less relevance, because time spent in the United States as a foreign government employee does not count in applying the physical presence test of residence.)

Paragraph 2 provides that this Article applies only to remuneration paid in respect of services of a governmental nature. Remuneration paid in respect of services for a government-conducted business (for example, a government-operated airline) are covered by Articles 14 (Independent Personal Services) or 15 (Income from Employment), as appropriate.

This Article does not cover pensions paid to individuals in respect of services rendered to the government of one of the Contracting States. Such payments are covered instead in Article 18 (Pensions, Etc.).