Article 3. GENERAL DEFINITIONS

Paragraph 1 defines a number of basic terms used in the Convention. Certain others are defined in other articles of the Convention. For example, the term "resident of a Contracting State" is defined in Article 4 (Residence). The term "permanent establishment" is defined in Article 5 (Permanent Establishment). The terms "dividends," "interest," and "royalties" are defined in Articles 10, 11 and 12, respectively, which deal with the taxation of those classes of income.

The term "Contracting State" means the United States or the Republic of Kazakhstan, depending on the context in which the term is used.

The terms "United States" and "Kazakhstan" are defined in subparagraphs b) and c), respectively. The term "United States" is defined to mean the United States of America. The term does not include Puerto Rico, the Virgin Islands, Guam or any other . U.S. possession or territory. When used geographically, the "United States" includes the territorial sea, the continental shelf and the economic zone of the United States, provided that any taxation therein is in accordance with international law and U.S. tax law. Currently, U.S. tax law applies on the continental shelf only with respect to the exploration for and exploitation of mineral resources (Code section 638). The term "Kazakhstan" means the Republic of Kazakhstan and, when used geographically, includes the territorial sea, the continental shelf, and the economic zone, provided that any taxation therein is in accordance with international law and Kazakh tax law.

Subparagraph d) defines the term "person" to include an individual, an estate, a trust, a partnership, a company and any other body of persons. Any such person may be a "resident" of a Contracting State for purposes of Article 4 and thus entitled to the benefits of the Convention.

The term "company" is defined in subparagraph e) as any entity treated as a body corporate for tax purposes. The Kazakh entities described in the second sentence of subparagraph e) are treated as companies, provided their profits are taxed at the entity level in Kazakhstan. In Kazakhstan, all legal entities (including a joint stock company, a limited liability company, and a joint venture), except simple partnerships and consortiums, are subject to tax on profits at the entity level. In the United States, the rules of Reg. § 301.7701-2 generally will be applied to determine whether an entity is taxed as a body corporate.

The Convention is drafted to refer to "residents" rather than "enterprises." The Kazakh delegation observed that existing models do not provide an adequate definition of an "enterprise of a Contracting State." Thus, it was decided to use instead the term "resident," for example, in Article 5 (Permanent Establishment) and Article 6 (Business Profits), obviating the need to define "enterprise."

Subparagraph f) defines the term "international traffic." The term means any transport by a ship or aircraft except when such transport is solely between places within the other (i.e., non-resident) State. (The operative provisions of Article 8 (Shipping and Air Transport) provide for exclusive residence State taxation of income from international shipping and air transport and are drafted such that, when the term "international traffic" is used, the "other" State always means the nonresident, source State.) The provisions of Article 8, together with the definition of "international traffic" in this Article, result in source-State exemption of income from shipping or air transport unless the transport is solely between points within the non-resident State. Thus, for example, the transport of goods or passengers by a Kazakh carrier solely between New York and Chicago (if that were permitted) would not be treated as transport in international traffic, and the resulting income would not be exempt from U.S. tax under Article 8. It would, however, be treated as business profits under Article 6 and would, therefore, be taxable in the United States only if attributable to a U.S. permanent establishment, and then only on a net basis. If, however, goods or passengers are carried by a Kazakh plane from Almaty to New York and then to Chicago, the trip would be in international traffic with respect to the carriage for those who continued to Chicago as well as for those who disembarked in New York.

Subparagraph g) defines the term "capital." The definition is relevant for purposes of Article 22 (Capital), which limits either Contracting State's ability to impose any capital taxes, including any capital taxes that may be enacted in the future.

The "competent authority" is the Government official charged with administering the provisions of the Convention and with attempting to resolve any doubts or difficulties which may arise in interpreting its provisions. The U.S. competent authority is the Secretary of the Treasury or his authorized representative. The Secretary of the Treasury has delegated the competent authority function to the Commissioner of Internal Revenue, who has, in turn, delegated the authority to the Assistant Commissioner (International). With respect to interpretive issues, the Assistant Commissioner acts with the concurrence of the Associate Chief Counsel (International) of the Internal Revenue Service. In Kazakhstan, the competent authority is the Minister of Finance or his authorized representative. In general

that function is assigned to the Deputy Minister of Finance or the Chief of the Department of Tax Reform.

Paragraph 2 provides that, in the application of the Convention, any term used but not defined in the Convention will have the meaning which it has under the law of the Contracting State whose tax is being applied, unless the context requires a different interpretation or the competent authorities agree to a common meaning.