Article 15 deals with the taxation — U.S. Income Tax Treaty

a resident of a Contracting State as an employee.

Under paragraph 1, remuneration in respect of employment derived by an individual who is a resident of a Contracting State generally may be taxed only by his State of residence. To the extent his remuneration is derived from an employment exercised in the other State ("the host State"), the remuneration may also be taxed by the host State, subject to the conditions specified in paragraph 2. In such a case the individual's State of residence


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will relieve double taxation in accordance with the provisions of Article 23 (Relief from double taxation). Consistent with the general rule of construction that the more specific rule takes precedence over the more general, income dealt with in Articles 16 (Directors' fees), 19 (Pensions and annuities), and 20 (Government service) is governed by the provisions of those articles rather than this Article.

Paragraph 2 provides that the host State may not tax the remuneration of a resident of the other State derived from services performed in the host State, if three conditions are satisfied: (1) the individual is present in the host State for a period or periods not exceeding 183 days in any consecutive twelve month period; (2) the remuneration is paid by, or on behalf of, an employer who is not a resident of the host State; and (3) the remuneration is not borne as a deductible expense by a permanent establishment or fixed base that the employer has in the host State. If a foreign employer pays the salary of an employee, but a host State corporation or permanent establishment reimburses the foreign employer in a deductible payment which can be identified as a reimbursement, neither condition (2) nor (3), as the case may be, will be considered to have been fulfilled. Conditions (2) and (3) are intended to assure that a State will not be required both to allow a deduction to the payor for the amount paid and to exempt the employee on the amount received. In order for the remuneration to be exempt from tax in the host State, all three conditions must be satisfied.

Paragraph 3 contains a special rule applicable to remuneration for services performed by an individual who is a resident of a State as an employee aboard a ship or aircraft operated in international traffic, including an aircraft operated in international traffic by the air transport consortium Scandinavian Airlines System ("SAS”). (The special situation of SAS is discussed in connection with Article 8 (Shipping and air transport).) Such remuneration shall be taxable only in the State of residence of the employee if the services are performed as a member of the regular complement of the ship or aircraft. The "regular complement" includes the crew. In the case of a cruise ship, it may also include others, such as entertainers, lecturers, etc., employed by the shipping company to serve on the ship. The use of the term "regular complement" is intended to clarify that a person who exercises his employment as, for example, an insurance salesman, while aboard a ship or aircraft is not covered by this paragraph. However, services performed by an individual as a member of a regular complement of a ship operated in international traffic by a Swedish enterprise may be taxed in Sweden.

The comparable provision in the OECD Model provides a different rule with respect to operations by a United States enterprise. Under paragraph 3 in the OECD Model such income may be taxed (on a non-exclusive basis) in the Contracting State in which


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the place of effective management of the employing enterprise is situated. The United States does not use this rule in many other treaties, because under U.S. law, a taxing right over an employee of an enterprise managed in the United States (or an employee of a U.S. resident) cannot be exercised with respect to non-U.S. source income unless the employee is also a U.S. citizen or resident.

If a U.S. citizen who is resident in Sweden performs dependent services in the United States and meets the conditions of paragraph 2, or is a crew member on a Swedish ship or airline, and would, therefore, be exempt from U.S. tax were he not a U.S. citizen, he is nevertheless taxable in the United States on his remuneration by virtue of the saving clause of paragraph 4 of Article 1 (Personal scope), subject to the special foreign tax credit rule of paragraph 3 of Article 23 (Relief from double taxation).