Article 20 deals with the taxation of income (including

pensions) from governmental employment.

Subparagraphs (a) and (b) of paragraph 1 deal with the taxation of government compensation (other than a pension). Subparagraph (a) provides that wages, salaries, and similar compensation paid by one of the States or by its political subdivisions or local authorities to any individual are generally exempt from tax by the other State. Under subparagraph (b), such payments are, however, taxable in the other State and only in that State, if the services are rendered in that other State and the individual is a resident of that State who is either a citizen of that State or a person who did not become resident of that State solely for purposes of rendering the services. Thus, an individual who, after establishing U.S. residence, is hired by the Swedish Embassy in Washington, would be subject to U.S. (and not Swedish) tax on his Swedish salary.

Paragraph 2 deals with the taxation of a pension paid by, or out of funds created by, one of the States or a political subdivision or a local authority thereof to an individual in respect of services rendered to that State or subdivision or

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authority. Subparagraph (a) provides that such a pension is taxable only in that State. Subparagraph (b) provides an exception under which such a pension is taxable only in the other State if the individual is a resident of, and a citizen of, that other State. Pensions paid to retired civilian and military employees of a Government of either State are intended to be covered under paragraph 2.

Paragraphs 1 and 2 are similar to paragraphs 1 and 2 of Article 19 (Government service) of the OECD Model Treaty. These paragraphs differ from many U.S. treaties under which such remuneration, including a pension, is taxable only in the Contracting State that pays it.

Paragraph 3 provides that the provisions of Articles 14 (Independent personal services), 15 (Dependent personal services), 16 (Directors' fees), 18 (Artistes and athletes), and 19 (Pensions and annuities) shall apply to remuneration and pensions in respect of services rendered in connection with a business carried on by one of the States or a political subdivision or a local authority thereof. This treatment is consistent with the OECD Models which excludes payments in respect of services rendered in connection with a business carried on by the governmental entity paying the compensation or pension.

Under paragraph 5(b) of Article 1 (Personal scope), the saving clause (paragraph 4 of Article 1) does not apply to the benefits conferred by one of the States under Article 20 if the recipient of the benefits is neither a citizen of that State, nor, in the case of the United States, is a lawful permanent resident (i.e., a "green card" holder). Thus, for example, a Swedish resident who receives a pension paid by Sweden in respect of services rendered to the Government of Sweden shall be taxable on this pension only in Sweden unless the individual is a U.S. citizen or acquires a U.S. green card.