ARTICLE 3. GENERAL RULES OF TAXATION

The general rules of taxation applicable under the proposed Convention are as follows;

A resident of one State may be taxed by the other State only on income from source- within that other State (including industrial or commercial profits attributable to a permanent establishment located in that other State), subject

to the limitations set forth in this Convention. The jurisdictional rules of th proposed Convention parallel those set forth in section 472(a) of the United States Internal Revenue Code, relating to nonresident alien Individuals, and section 882(b), relating to foreign corporations engaged In trade or business

in the United States, as amended by the Foreign Investors Tax Act of 1966.

The proposed Convention contains the general rule (also found In our new French Convention) that the Convention does not effect in any manner any exclu­ sion, exemption, deduction, credit, or other allowance now or hereafter accorded by the laws of a State in the determination of a tax imposed by that State. or

by any other agreement between the States. Even though the OECD Model Con­ vention does not contain a comparable provision, this rule reflects the well-es­

tablished principle that the Convention will not have the effect of increasing the tax burden on residents of the sirnatory countries. This rule represents

the position of the United States under all conventions to which it is a party except that, to the extent a convention specifically provides. it may be necessary to waive certain rights as a condition to claiming more advantageous treaty benefits.

The proposed Convention also contains the traditional savings clause under which the United States reserves the right to tax its citizens and residents as if the Convention had not come into effect. However, the savings clause does not apply In several cases in which its application would contravene policies re­ flected in the Convention. Thus, the savings clause does not affect the proviions with respect to the foreign tax credit, nondiscrimination, or tax deferral for technical assistance. Although the provisions dealing with the mutual agreement procedure are not specifically excepted from the savings clause, agreements made by the competent authorities may nevertheless inure to the benefit of a citizen or resident of the United States or a resdient of Trinidad and Tobago. Moreover, the savings clause will not deny the benefits of the Convention to governmental employees or teachers or students unless such individuals are citi­ zens of the United States or have Immigrant status In the United States. The OECD Model Convention does not contain a savings clause because it Is oriented toward the residence principle of taxation.

This Article also provides that any income from sources within a State to which the Convention Is not expressly applicable will be taxable by that State in accordance with Its own law. For example, because income from prizes or awards is not covered by the Convention, such income will be taxed In accord­ ance with the internal law of the State from which such income is derived. The OECD Model Convention differs on this point and provides that income which is not expressly mentioned will be taxable only in the State of residence. In any event It should be noted that the proposed Convention specifically covers most types of income.

Another general rule of taxation Is that subject to the provisions of paragraph (4) a State may tax a resident of that State whether or not that person is also a resident of the other State.