Article 16, DEPENDENT PERSO'.'\AL SERVICES

This Article deals with the taxation in respect of dependent per­ sonal services. This Article is similar in many respects to Article 15 (Dependent Personal Services) of the CECO Model Convention. Under paragraph (1), wages, salaries, and similar remuneration derived by an indi'idual who is a resident of one Cont.:-acting State from labor or personal services performed as an emp×oyee, including income from services performed by an officer of a corporation, may be taxed by that Contracting State, except as provided in Article 20 (Governmental

Functions). ln addition, except as provided by paragraphs (2) and (3) and in Articles 20 (Governmental Functions), 21 (Teachers), and 22

(Students and Trainees), remuneration from the performance of dependent personal services derived from sources within the other Contracting State may be taxed by that other Contracting State.

Under paragraph (2), dependent personal service income derived by · an individual resident of one Contracting State will be exempt from tax by the other Contracting State if: (a) the individual is present in that other Contracting State !or a period or periods aggregating less than 90 days in the taxable year; (b) the individual is an employee of a resident of the first-mentioned Contracting State or of a permanent establishment maintained in the first-mentioned Contracting State; and (c) the remunera­ tion is not borne ·as such by a permanent establishment or fixed base which the employer has in the other Contracting State. Such income, however, may also be taxed by that other Contracting State without regard to this Article if the individual is a citizen or resident of that other Contracting State, because of the saving clause of paragraph (3) of Article 6 (General

Rules of Taxation).

In the United States, remuneration from the performance of depend­ ent services will be viewed as not having been borne by the permanent establishment or fixed base maintained in the United States if the employee is performing stewardship or overseeing functions for the benefit of a resident or or a permanent establishment maintained in the Philippines. However, the remuneration will be considered to be borne by the perma­ nent establishment or fixed base maintained in the United States lf the remuneration is paid for activities other than stewardship or overseeing functions and the permanent establishment or fixed base is entitled to

claim the employee's remuneration as a deduction in computing tax­ able Income for United States purposes because the remuneration ls definitely related and allocable to its gross income or a class of its gros income pursuant to Code section 861 and the regulations there­ under.

• PPragraph (3) provides that, notwithstanding the provisions of para­ graphs (2) and (3), remuneration derived by an employee (even lf a resi­ dent of a State other than a Contracting State) of a resident of one Con­ tracting State for labor or personal services performed as a member o! the regular complement of a ship or aircraft operated in international traffic by a resident of that Contracting State may be taxed only by that Contracting State.