Article 22. CAPITAL

This Article specifies the circumstances in which a Contracting State may impose tax on capital owned by a resident of the other Contracting State. At the time the treaty was signed, neither the United States nor Kazakhstan imposed a national-level tax on capital. There was some indication, however, that Kazakhstan might enact such a tax, and the purpose of this Article was to provide rules to deal with any such tax subsequently enacted by either State. The recently enacted tax code of Kazakhstan contains provisions for capital taxes on land, vehicles, and certain business assets. This Article specifically permits Kazakhstan to impose a capital tax on real property (as defined in Article 9 (Income from Real Property)) of a U.S. resident situated in Kazakhstan (paragraph 1) and on movable business assets forming part of the permanent establishment or fixed base of a U.S. resident in Kazakhstan (paragraph 2). Paragraphs 1 and 2 would also permit the United States to impose capital taxes on real property of a Kazakhstan resident located in the United States and on a Kazakhstan resident's business assets held in connection with a permanent establishment or fixed base in the United States. In the cases covered by paragraphs l and 2, the taxing right given to the State where the capital is

located is not an exclusive right; the State of residence may also tax.

Paragraph 3 provides that capital represented by ships, aircraft or containers owned by a resident of one Contracting State and operated in international traffic may be taxed only in the residence State. This is consistent with the rule of Article 8 (Shipping and Air Transport) that addresses the income from international transportation activities.

Paragraph 4 provides that all other items of capital not otherwise specified in the Article will be taxed exclusively by the residence State. For this purpose, a "resident" is defined under Article 4 (Residence). Thus, for example, a U.S. citizen may be a "resident" of Kazakhstan and would be subject to capital taxes in Kazakhstan under paragraph 4 but would also be subject to any capital tax in the United States under the saving clause of paragraph 3 of Article 1 (General Scope).