Article 24. SOURCE OF INCOME

This article sets forth in a single provision various rules which are to be applied to determine the source of the different kinds of income covered by the proposed Convention: dividends, interest, royalties, income from real property, including gains derived from the sale of such property, and com­ pensation for personal services. These rules affect the application of Article 22 (General Rules of Taxation) and Article 23 (Relief from Double Taxa­ tion ). A source of income article is contained in the present Convention.

The source of any kind of income not covered by the proposed Conven­ tion is to be determined under the in­ ternal law of the two States. In the case of different source rules applica­ ble to an item of income the compe­ tent authorities of the two States under the mutual agreement proce­ dure may establish a common source for the item of income.

Dividends will be treated as income from sources within a State only if paid by a corporation of the State.

Interest will be treated as income from sources within a State only if paid by that State, or by a political subdivision, local authority, or resi­ dent of that State. However, there are two situations relating to interest paid on indebtedness where this general rule does not apply. The general rule does not apply, regardless of the resi­ dence of the person paying the inter­ est, if the person paying the interest has a permanent establishment in ei­ ther Contracting State in connection with which the indebtedness on which

the interest is paid was incurred and the interest is borne by that perma­ nent establishment. The general rule also does not apply if the person pay­ ing the interest is a resident of a Con­

two States. Generally, the rules are only applicable for taxing residents of either State and, therefore, are not applicable in determining source of income of residents of other States, al­ though the income of such other resi­ dents is of a type referred to in this article.