Article 4. RESIDENCE

This Article sets forth rules for determining whether a person is a resident of a Contracting State for purposes of the Convention. Determination of residence is important because, as noted in the explanation to Article 1 (General Scope), as a general matter only residents of the Contracting States may, subject to Article 21 (Limitation on Benefits), claim the benefits of the Convention. The treaty definition of residence is used for all purposes of the Convention, including the saving clause of paragraph 3 of Article 1 (General Scope), but it is to be used only for purposes of the Convention.

The determination of residence for purposes of the Convention looks first to a person's liability to tax as a resident under the respective taxation laws of the Contracting States. For this purpose, "liability to tax" is interpreted as "subject to the taxation laws;" thus, a non-profit, tax-exempt entity may be a resident of a Contracting State. A person who, under those laws, is a resident of one Contracting State and not of the other need look no further. For purposes of the Convention, that person is a resident of the State in which he is resident under internal law.

In accordance with U.S. treaty and domestic tax policy, this Convention includes citizenship as one of the criteria of residence. Thus, a U.S. citizen resident in a third country is entitled to the benefits of this Convention on the same basis as an individual residing in the United States. If, however, a U.S. citizen or resident (e.g. a "green card" holder) is also a resident of Kazakhstan under its taxation law, the individual must look to the tie-breaker rules of paragraph 2, which assign one State of residence to such a person for purposes of the Convention. The U.S. citizen who is determined to be a resident of Kazakhstan under this paragraph would continue to be subject to U.S. taxation under the saving clause of paragraph 3 of Article 1 (General Scope), but a green card holder determined under paragraph 2 to be a resident of Kazakhstan would not be subject to the saving clause.

It is understood that the two Contracting States and their political subdivisions are to be treated as residents of those States for purposes of Convention benefits.

A person that is liable to tax in a Contracting State only in respect of income from sources within that State will not be treated as a resident of that Contracting State for purposes of the Convention. Thus, for example, a Kazakh consular official in the United States who is subject to U.S. tax on U.S. source investment income, but not on non-U.S. income, would not be considered a resident of the United States for purposes of the Convention. (In most cases such an individual also would not be a U.S. resident under the Code.)

A partnership, estate or trust will be treated as a resident of a Contracting State in accordance with the residence of the person liable to tax with respect to the income derived by the partnership, estate, or trust, i.e. to the extent that the income is taxed as the income of a resident, whether in the hands of the person deriving the income or in the hands of its partners or beneficiaries. This rule is applied to determine the extent to which the partnership, estate or trust is entitled to benefits with respect to income derived from the other Contracting State. Under Kazakh law, a "simple" partnership or a "consortium" is taxed on a flow-through basis, and trusts and estates generally are not used. Similarly, under U.S. law, an entity organized under a state law general or limited partnership statute generally is not, and an estate or trust often is not, a taxable entity. (Certain publicly traded partnerships and partnerships that are reclassified as associations under Reg. § 301.7701-2 will be taxable as corporations.) In addition, certain other forms of organization, such as limited liability companies, may be classified as partnerships for U.S. tax purposes. Thus, for purposes of the Convention, income received by an entity classified as a partnership for U.S. tax purposes will generally be treated as received by a U.S. resident to the extent included in the distributive share of partners or members who are themselves U.S. residents (looking through any partnerships which are themselves partners or members). Similarly, the treatment under the Convention of income received by a U.S. trust or estate will be determined by the residence for taxation purposes of the person subject to tax on such income, which may be the grantor, the beneficiaries, or the estate or trust itself, depending on the particular circumstances.

If, under the laws of the two Contracting States, and, thus, under paragraph 1, an individual is deemed to be a resident of both Contracting States, a series of tie-breaker rules is provided in paragraph 2 to determine a single State of residence for that individual. These rules come from the OECD Model. The first test is where the individual has a permanent home. If that test is inconclusive because the individual has a permanent home

available to him in both States, he will be considered to be a resident of the Contracting State where his personal and economic relations are closest, i.e ., the location of his "center of vital interests." If that test is also inconclusive, or if he does not have a permanent home available to him in either State, he will be treated as a resident of the Contracting State where he maintains an habitual abode. If he has an habitual abode in both States or in neither of them, he will be treated as a resident of his Contracting State of citizenship. If he is a citizen of both States or of neither, the competent authorities are instructed to resolve his residence by mutual agreement. This could be the case, for example, where the individual is not a citizen of either Contracting State.

The tie-breaker rules of paragraph 2 apply only to individuals. Paragraph 3 seeks to settle dual residence issues for companies (defined in Article 3 as entities treated as a body corporate for tax purposes). Under U.S. law, a corporation that is created or organized under the laws of the United States or a state or the District of Columbia is liable to U.S. tax by reason of that incorporation and therefore is a resident of the United States under paragraph 1. A company that has its place of registration in Kazakhstan is liable to Kazakh tax by reason of that registration and therefore is a resident of Kazakhstan under paragraph 1. In most cases it is expected that the place of incorporation and registration will be the same. However, in the event that a company is incorporated in the United States but registered in Kazakhstan, it would be a resident of both countries under their respective domestic laws. Paragraph 3 provides that, in that event, the competent authorities will endeavor to establish a single country of residence. If they are unable to do so, the company will not be entitled to claim the benefits of the Convention as a resident of either Contracting State. It will continue to be considered a resident of both States for purposes of providing benefits to other persons who are entitled to Convention benefits ( i.e ., those who receive dividends, interest or royalties from the dual resident and who are entitled to the treaty's reduced rates of source country tax on those items of income) and for purposes of the domestic taxation laws of the two States.

Paragraph 4 provides that where a person, other than an individual or a company, is a resident of both Contracting States under their respective laws, the competent authorities will establish a single country of residence and agree on how the Convention is to apply to such a person.