Article 12. ROYALTIES

This Article governs the taxation **by** a Contracting State of

royalties derived from sources within that State by a resident of the other Contracting State.

Such royalties may be taxed **by** both Contracting States, the
country of source and the country of residence. However, para­

graph 2, as amended by Article VI the Protocol, limits the tax at

source when the beneficial owner of the royalties is a resident

of the other State. The limits are 10 percent of the gross pay­ ment for the rental of equipment and of remuneration for certain

technical or economic studies or technical assistance services,
and **15** percent of the gross payment in other cases. In the
absence of the Convention, the Tunisian statutory rate of with­
holding on royalties paid to nonresidents would be 21 percent

(the corporate tax rate of 35 percent, as reduced by the 1990 tax

reforms, applied to **60** percent of the gross payment), and the
**U.S.** rate, **30** percent. The limitations provided in this para­
graph do not apply to the **_U.S._** taxation of **_U.S._** citizens and

persons who under Article 4 (Fiscal Domicile) are U.S. residents. (See paragraph 2 of Article 22 (General Rules)).

The **10** percent maximum rate applies to payments for the use

of, or right to use, industrial, commercial or scientific equip­

ment, other than payments for the rental of ships, aircraft or

containers which are either exempt from tax under domestic law or under Article 8 (shipping and Air Transport) or are taxable on a net basis under Articles 7 (Business Profits) or 14 (Independent Personal Services). The 10 percent maximum rate also applies to remuneration derived by a resident of a Contracting State for (1) technical or economic studies paid for out of public funds by the

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other Contracting State or a political subdivision or local

authority thereof and (2) the performance of accessory technical services related to the use of property or rights giving rise to

a royalty under this paragraph if the services are performed in

the Contracting State where the payment is sourced. For example,

if the Government of Tunisia contracts with a **U.S.** resident to

provide it a technical study of a water storage system or a plan to control erosion, the remuneration for that study may be taxed by Tunisia as a royalty, at a rate of not more than 10 percent of the gross payment, without regard to where the work is done. To

the extent that the study is done in the United States, the

source rule of paragraph 6 permits the Tunisian tax to be claimed as a credit. In the case of remuneration for accessory technical

services, a Contracting State may tax a resident of the other

State only on income for services performed in the first State in connection with a right or property used there. For example, if

a **U.S.** manufacturer grants rights to an exclusive manufacturing
process to a Tunisian company and, as part of that arrangement,
sends a consultant to Tunisia to train the licensees of the

process in how to use it effectively, the consultant's remunera­

tion may be taxed **by** Tunisia as a royalty at a rate of not more

than 10 percent of the gross payment for the services rendered in Tunisia.

The 15 percent maximum rate applies to royalties with respect

to copyrights, including film or tape rentals, and with respect

to patents, designs, models, plans, secret processes or formulas,

trademarks and information concerning industrial, commercial or
scientific experience. It also applies to gain on the disposi­
tion of any such right or property when the amount realized is
contingent on the productivity, use, or disposition of the

property or right. Thus, a noncontingent payment for all rights to such property or right is not a royalty.

The treatment as royalties of payments for the leasing of
equipment and for certain studies and accessory technical as­
sistance differs from the position of the **U.S.** Model, in which
such income constitutes business profits or personal service
income. It represents a concession **by** the United States to the
position of Tunisia which, as a developing country, seeks to

preserve taxation at source of payments deducted from the Tunisian tax base and paid to nonresidents.

This Article does not apply if the property or rights giving

rise to the royalty are effectively connected with a permanent

establishment or a fixed base which the recipient has or had (See

Article III of the Protocol) in the Contracting State where the

royalty arises. In that case the provisions of Article 7 (Business Profits) or Article 14 (Independent Personal Services) apply.

Paragraph **5** provides that, where a royalty to a related
person exceeds the amount that would be paid to an unrelated

person, Article 12 applies only to the extent of royalty payments

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that would have been made absent such special relationships
(i.e., an arm's-length royalty payment). The excess amount is

not affected by this Article but may be taxed by each Contracting

State in accordance with its law, including other provisions of
the Convention which may be applicable. For example, if the

excess payment is characterized as a dividend, the provisions of Article 10 (Dividends) would be applicable.

Paragraph **6** defines the source of royalties as the State in
which the right or property is used, or, in the case of the
technical or economic studies referred to in subparagraph 3(c),

the State which makes the payment. Article 13. CAPITAL GAINS

This Article governs the taxation **by** a Contracting State of

gains derived by a resident of the other Contracting State.

Gain on the disposition of real property situated in one of

the Contracting States may be taxed by that State. Real property

situated in the United states includes a United States real

property interest. Thus, the United States retains its right to tax in accordance with section 897 of the Internal Revenue Code. A Contracting State may tax gain derived by a resident of the

other Contracting State from the alienation of movable property
of a permanent establishment or fixed base which the recipient
has in the first-mentioned State, including such gain from the
alienation of the permanent establishment or fixed base. Under
Article III of the Protocol, a Contracting State may also tax

gain attributable to a permanent establishment or fixed base even if the payments are deferred until after the permanent establish­

ment or fixed base no longer exists. This provision is con­
sistent with section 864(c)(6) of the Code. However, the tax
imposed **by** section 864(c)(7) would not apply. Nor does Tunisia
impose a tax on the gain on property removed from a permanent
establishment there. In particular, it is understood that
neither country treats the removal from its territory of a

drilling rig or similar equipment as a deemed disposition subject

to tax on the accrued gain or on the recapture of depreciation

deductions.

Gain on the alienation of ships, aircraft and related

equipment, including containers, used in international traffic

may be taxed in Tunisia only if the place of effective management of the enterprise deriving the gain is Tunisia, and by the United

States only if the enterprise is created under **_U.S._** law. This

amounts to taxation only by the country of residence, but recog­

nizes that a company could be a resident of both States if the
competent authorities cannot agree on a single residence in

accordance with paragraph 3 of Article 4 (Fiscal Domicile). Gain

on the alienation of all other property, including corporate

securities (other than stock included within the definition of a

United States real property interest), may be taxed only **by** the

Contracting State of which the alienator is a resident.

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Article 14. INDEPENDENT PERSONAL SERVICES

This Article concerns the taxation of income from the performance of independent personal services by an individual who is a resident of one of the Contracting States when the services are performed in the other Contracting State. Independent personal services are, in general terms, services performed by an

individual for his own account where he receives the income and
bears the losses arising from the services. Generally, they
include personal services performed **by** a self-employed individu­
al, a sole proprietor, or a partner, but not services performed

as an employee or an officer of a company. Services performed as

a director of a corporation are typically independent services,

except to the extent that the director is also an officer of the corporation (in which case Article 15 (Dependent Personal Services) applies, or that the remuneration constitutes a distri­

bution. of profits, in which case Article **16** (Directors' Fees)

applies.

Paragraph 1 provides that an individual resident of a

Contracting State who derives income from independent personal
services may be taxed on such income **by** the other Contracting

State only if the services are performed in that other State and

if.the individual meets one or more of three conditions: a) he

is present in that other State for more than 183 days of the tax­ able year, or b) the income is attributable to a fixed base which

the individual has in that other State, or c) the gross income
for such services exceeds **$7,500** during the taxable year. The
State of residence (or citizenship) may also tax such income,
subject to providing relief from double taxation in accordance

with'Article 23 (Relief from Double Taxation).

Paragraph 2 illustrates the type **of** services which may be

covered by this Article. They include, but are not limited to, scientific, literary, artistic, educational, medical, legal, architectural, engineering and accounting services. Article 15. DEPENDENT PERSONAL SERVICES This Article concerns the taxation of income from the

performance of personal services as an employee or company

officer when the person performing the services is a resident of

one of the Contracting States and the services are performed in

the other Contracting State. Paragraph **1** provides that such
income may be taxed in the State of residence of the recipient

and, except as provided in paragraph 2, may also be taxed in the State where the services are performed.

Paragraph 2 sets forth the exceptions. The other (i.e.,
source) State may not tax the remuneration if the individuaVlTs
present in that State for not more than **183** days in the taxable

year and the remuneration is paid by or on behalf of an employer who is not a resident of that State and is not borne as such or

reimbursed (i.e., deducted) **by** a permanent establishment which

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the employer has in that State. Restated affirmatively, if an
employee or company officer who is a resident of one of the
Contracting States performs services in the other Contracting
State, the other State may tax the remuneration for those
services if: a) the individual remains in that other State for

more than 183 days in the taxable year, or b) the remuneration is

paid **by** an employer which is a resident of that other State, or

c) the remuneration is borne by a permanent establishment in that other State of a nonresident employer.

Paragraph **3** provides a special rule for persons regularly
employed aboard a ship or aircraft engaged in international
traffic. The effect of the rule is that the remuneration for

such services is taxable only by the State of which the operator

of the ship or aircraft is a resident. However, in accordance
with paragraph 2 of Article 22 (General Rules of Taxation) each
State reserves the right to tax its residents and citizens.

Thus, a U.S. resident or citizen employed as a member of the crew

of a Tunisian aircraft would be subject to **U.S.** tax on the re­
muneration for his services. **A** foreign tax credit would be

allowed for any Tunisian income tax paid on the remuneration for services performed outside the United States. Income dealt with in Article 16 (Directors' Fees), Article 18 (Pensions, etc.) and Article 19 (Governmental Functions) is governed by the provisions of those Articles rather than by this Article.