Article 22. GENERAL RULES

This Article clarifies the relationship of the Convention to other international agreements and to domestic law. Paragraph 1 provides that the Convention shall not be construed to deny tax benefits available under domestic tax laws or under the terms of any other agreement between the two States.

The Convention is intended to benefit taxpayers and not to make
them worse off than they would be in its absence. Thus, a tax­

payer may always elect to rely on the rules of domestic law or of another agreement between the Contracting States. A taxpayer may not, however, make inconsistent choices between the rules of the

Code and the rules of the Convention. For example, a taxpayer
may not choose to apply the Convention's permanent establishment

rules to one **U.S.** business operation and the Code trade or

business rules to another to vary the treatment of profitable and

loss operations, but it could apply the Code trade or business
rules to all **U.S.** business operations and claim the reduced
withholding rate under the Convention on **U.S.** dividends not

effectively connected with a U.S. trade or business.

**TUNISIA** **116**

Supp. No. **3** **(1993)**

**-23­**

Paragraph 2 provides a "saving clause" which excepts the

residents or citizens of a Contracting State from treaty benefits conferred by that State. Each State also preserves its right to tax certain former citizens under domestic law. Taxation based on citizenship is currently applicable only in the United States.

The reference to former citizens preserves the taxing rules of

Code section 877. Residence is defined under Article 4 (Fiscal

Domicile) for all purposes of the Convention, including this

provision. Thus, a U.S. resident alien, who under the Convention

is determined to be a resident of Tunisia, is a resident of

Tunisia for all purposes of the Convention, including the limita­

tions of tax at source provided, for example, in Article **10**
(Dividends). **A** **U.S.** citizen resident in Tunisia under the Con­
vention generally remains subject to **U.S.** tax on his worldwide

income in accordance with the rules of the Code. Paragraph 3 provides certain exceptions to the saving clause

of paragraph 2. Under paragraph **3** a), **U.S.** residents, as de­

termined under Article 4 (Fiscal Domicile), and U.S. citizens are

entitled to certain treaty benefits provided **by** the United

States. Those benefits are the right to correlative adjustments of tax provided under paragraph 2 of Article 9 (Associated Enter­ prises), the rule stated in paragraph 1 of this Article, and the provisions of Article 23 (Relief from Double Taxation), 24 (Non-discrimination) and 25 (Mutual Agreement Procedure).

Under paragraph **3** **b),** individuals who are not **U.S.** citizens
and are not permanent immigrants to the United States ("green

card" holders) are entitled to the treaty benefits granted by the

United States to individuals working for the Tunisian government
under Article **19** (Governmental Functions), and to students and

trainees under Article 20 (Students and Trainees), even if under

domestic law they would otherwise be considered **U.S.** resident

aliens. Since the introduction of Code section 7701(b) in 1984, it is much less likely that such a government employee or student

would be treated as a **U.S.** resident under domestic law, but a

trainee might be so considered. Article 23. RELIEF FROM DOUBLE TAXATION

This Article specifies the method **by** which each of the
Contracting States will avoid international double taxation of

its residents, and in the case of the United States its citizens,

with respect to income subject to tax in the other Contracting

State.

Paragraph **1** provides that the United States will allow a

credit for income taxes paid to Tunisia, as defined in paragraphs

2 **b)** and **3** of Article 2 (Taxes Covered), and an indirect (Code
section **902)** credit with respect to Tunisian tax paid on profits
distributed as dividends **by** a Tunisian corporation to a **U.S.**
corporation holding **10** percent or more of its stock. The total
credit is subject to the limitations of **U.S.** law, including the
special limitation for purposes of the alternative minimum tax.

TUNISIA **117**

Supp. No. **3** **(1993)**

-24­

The limitation is determined by applying the source rules of the Internal Revenue Code.

Paragraph 2 provides that Tunisia will allow a credit for
taxes paid to the United States, subject to the provisions of

Tunisian law which limit the credit to the portion of pre-credit Tunisian tax attributable to the income which may be taxed in the United States. Although this Article permits Tunisia to tax U.S. source income, subject to a foreign tax credit, it does not pre­ vent Tunisia from continuing to avoid double taxation by exempting such income from tax in certain cases.

For purposes of this Article, income is considered to arise

in a Contracting State if it may be taxed in that State under the provisions of the Convention other than paragraph 2 of Article 22 (General Rules), which permits taxation on the basis of citizen­

ship in accordance with domestic law. However, as noted above,
it is understood that the limitation of the **U.S.** credit takes

into account domestic law source rules applicable in determining such limitation.

The saving clause of paragraph 2 of Article 22 (General

Rules) does not apply to this Article. Thus, the United States

must grant the benefits of this Article to its citizens and

residents, notwithstanding any less beneficial Code provisions.