Article 19 - PENSIONS AND ANNUITIES

Article 19 deals with the taxation of private f i.e., non-government) pensions, annuities, social security, and similar benefits.

Paragraph l provides that private pensions and other similar remuneration derived and beneficially owned by a resident of a Contracting State in consideration of past employment are generally taxable only in the State of residence of the recipient. The paragraph also provides for exclusive residence country taxation of annuities. The rules of this paragraph do not apply to items of income which are dealt with in Article 20 (Government service), including pensions in respect of government service, or to social security benefits which are dealt with in paragraph 2 of Article 19.

The term "annuity" as used in this Article is defined in paragraph 3 to mean a stated sum paid periodically at stated times during life or during a specified or ascertainable number of years under an obligation to make the payment in return for adequate and full consideration other than services rendered or to be rendered.

Paragraph 2 provides that pensions (including the Swedish "allmän tilläggspension") and other payments made by one of the States under the provisions of its social security system or similar legislation paid to a resident of the other State or to a citizen of the United States will be taxable only in the paying State. Pensions in respect of government service under the provisions of a social security system as described in this paragraph are covered by this rule, and not by the rule of paragraph 2 of Article 20 (Government service). “Similar legislation" is defined in paragraph 2 of the notes exchanged at the time of the signing of the Convention to refer to United States tier 1 Railroad Retirement benefits. The reference to U.S. citizens is necessary to ensure that a social security payment by Sweden to a U.S. citizen not resident in the United States will not be taxable by the United States.

                                                                   - **`43`**                                                                   

Paragraph 4 permits a resident of Sweden or the United States who is not a national of that country to deduct contributions paid by or on behalf of that individual to a pension or other retirement arrangement that is established and maintained and recognized for tax purposes in the other country to the same extent that deductions would be permitted in the first-mentioned country. The contributions are only deductible, however, if the competent authority of the State permitting the deduction agrees that the pension scheme or other retirement arrangement of the other State generally corresponds to a pension scheme or other retirement arrangement recognized for that purpose in the first State. In either Contracting State, a pension or other retirement arrangement will qualify as "recognized for tax purposes" in that State if contributions to the arrangement would qualify for tax relief in that State.

Paragraph 2 is one of the exceptions listed in paragraph 5(a) of Article 1 (Personal scope) to the saving clause of paragraph 4 of that Article. Thus, the United States will not tax social security benefits paid by Sweden to a U.S. citizen who is a resident of Sweden. The provisions of this Article (except those of paragraph 2 dealing with social security benefits) are subject to the saving clause of paragraph 4 of Article 1 (Personal scope). Thus, for example, a periodic pension or annuity payment received by a resident of Sweden who is a U.S. citizen may be taxed by the United States, regardless of the provision for exclusive residence taxation for those classes of income.