Article 6 - INCOME PROM REAL PROPERTY

Paragraph l of Article 6 provides that income of a resident of a Contracting State derived from real property situated in the other Contracting State may be taxed in the Contracting State in which the property is situated. As clarified in paragraph 3, the income referred to in paragraph 1 means income from any use of real property, including, but not limited to, income from direct use by the owner and rental income from the letting of real property. Income from real property also includes income from agriculture and forestry. This Article does not grant an exclusive taxing right to the situs State, but merely grants it the primary right to tax. The Article does not impose any limitation in terms of rate or form of tax on the situs State.

Paragraph 2 provides that the term "real property" has the same meaning that it has under the law of the situs State. In addition, the paragraph specifies certain classes of property which, regardless of internal law definitions, are to be included within the meaning of the term for purposes of the Convention. The definition of "real property" for purposes of Article 6, however, is more limited than the expansive definition of "real property situated in the other Contracting State" in paragraph 2 of Article 13 (Gains), which includes not only real property itself, but certain interests in real property.

Paragraph 4 clarifies that the situs State may tax the real property income of a resident of the other Contracting State even in the absence of a permanent establishment or fixed base in the situs State, notwithstanding the requirements of Articles 7 (Business profits) and 14 (Independent personal services) that in order to be taxable, income must be attributable to a permanent establishment or fixed base, respectively. Thus, the situs State may tax income from real property of an enterprise and income from

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real property used for the performance of independent personal services, regardless of whether the enterprise or individual has a permanent establishment or fixed base in the situs State.

The Article does not include language found in many U.S. treaties providing for a taxpayer election to be taxed on real property income on a net basis. It was thought unnecessary to include such a provision since both States allow for net basis taxation of real property income under internal law.