Article 18. PENSIONS, ETC.

The general rule of this Article is that pensions and similar remuneration in consideration of past employment may be taxed only by the Contracting State of which the beneficial owner is a resident. It is understood that the services need not have been performed by the beneficial owner of the pension; for example, a pension paid to a surviving spouse who is a resident of Kazakhstan would be exempt from taxation by the United States on the same basis as if the right to the pension had been earned directly by the surviving spouse. A pension may be paid in installments or in a lump sum.

Subparagraph b) of paragraph 1 provides the first exception to the general rule, that social security benefits and other public pensions paid by a Contracting State may be taxed only by that State. (This rule is also an exception to the saving clause of paragraph 3 of Article l (General Scope).) Thus, a Kazakh social security benefit will be exempt from U.S. tax even if the beneficiary is a U.S. resident or a U.S. citizen (whether resident in the United States, Kazakhstan, or a third country).

Paragraph 2 provides rules for the taxation of pensions paid from public funds in respect of governmental services. Such pensions may be taxed only by the paying State unless the individual is a resident and citizen of the other State, in which case only the other (residence) State may tax the pension. The rules of paragraph 2 do not apply to social security benefits and other public pensions which are not in respect of services rendered to the paying government or a political subdivision or local authority thereof; such amounts are taxed exclusively by the source State under the terms of paragraph 1 b). However, paragraph 2, in particular subparagraph b), does apply to social security payments to U.S. Government employees for whom the social security system is the retirement plan related to their government service. Thus, in the unusual case where a Kazakh citizen and resident derives a pension for U.S. Government employment that is paid under the social security system, only Kazakhstan may tax that pension, as provided by paragraph 2 b). This could happen, for example, if a locally hired driver for the U.S. Embassy in Almaty were to retire and receive a U.S. pension under social security.

Annuities derived and beneficially owned by an individual resident of a Contracting State may be taxed only by that State. This provision is intended to cover traditional annuity arrangements that provide retirement benefits to individuals. It is not intended to exempt from tax at source income from arrangements that are a variation of traditional annuities and that accrues to corporations or other legal persons.

Paragraph 4 provides for exclusive residence State taxation of alimony payments. The term "alimony" is defined by paragraph 4 to mean periodic payments made pursuant to a written separation

agreement or decree of divorce, separate maintenance, or compulsory support, which payments are taxable to the recipient under the laws of the State of residence. Under U.S. law, alimony payments are taxable to the recipient (and deductible by the payer). Kazakhstan does not tax the recipient of alimony (nor does it permit a deduction by the payer). In general, "alimony" payments are made in Kazakhstan solely for the support of children, and there is no concept of payments made solely for the support of a spouse or former spouse.

Paragraph 5 addresses child support payments and provides for exclusive source State taxation. Thus, when a resident pays child support to a resident of the other State, only the firstmentioned State may tax the payment. This rule is an exception to the saving clause of paragraph 3 of Article 1 (General Scope). Thus, a U.S. resident deriving child support payments from a resident of Kazakhstan will be exempt from any U.S. tax on those payments. Under the laws of both the United States and Kazakhstan, child support payments are not taxable to the recipient in any case (and are not deductible by the payer).