Article 2. TAXES COVERED.

This Article identifies the U.S. and Kazakh taxes to which the Convention applies.

In the case of the United States, the Convention applies to the Federal income taxes imposed by the Internal Revenue Code, but not including the accumulated earnings tax or personal holding company tax (which are considered penalty taxes) or social security taxes. In the case of Kazakhstan, the Convention applies to the taxes on profits and income provided by the laws "On Taxation of Enterprises, Associations and Organizations" and "On the Income Tax on Citizens of the Kazakh SSR, Foreign Citizens and Stateless Persons." The non-discrimination provisions of Article 24 apply to all taxes imposed at all levels of government. This is the only article that applies to state and local taxes. The exchange of information provisions of Article 26 apply to all national level taxes (including estate and gift and excise taxes), to the extent that the information exchanged is relevant to enforcement of the Convention or of any covered tax as long as such tax is applied in a manner that is not inconsistent with the Convention.

Under paragraph 2, the Convention will apply to any taxes that are substantially similar to those enumerated in paragraph 1 and that are imposed in addition to, or in place of, the existing taxes after October 24, 1993 (the date of signature of the Convention). In recognition of the fact that the Kazakh tax system is evolving, the paragraph adds that a tax imposed by one State subsequent to the signing of the Convention that is substantially similar to an existing tax of the other State covered by paragraph 1 will also be covered. For the same reason, paragraph 3 also includes in the Convention's coverage any national level tax on capital subsequently imposed by either Contracting State.

On April 24, 1995, Kazakhstan enacted a new tax law by presidential decree.1 As part of the implementation of the new law, the presidential decree orders that all existing laws be repealed or revised as necessary to bring them into conformity with the new law. The new law is generally consistent with U.S. and OECD tax policies. Its application to U.S. residents who qualify for treaty benefits will be limited by the terms of the Convention.

Paragraph 2 also provides that the U.S. and Kazakh competent authorities will notify each other of significant changes in their taxation laws that are relevant to the operation of the

1 The Decree of the President of the Republic of Kazakhstan, Having the Force of a Law, "On Taxes and Other Obligatory Payments to the Budget" (Almaty, April 24, 1995).

Convention and of official published materials that concern the application of the Convention.