Article 7 of the proposed Convention generally follows the standard rules for taxation…

country of the business profits of a resident of the other. The non-residence country's right to tax such profits is generally limited to cases in which the profits are attributable to a permanent establishment located in that country. The proposed Convention, however, grants rights to tax business profits that generally are somewhat broader than those found in the U.S. and OECD model treaties.

As do all recent U.S. treaties, Article 14 of this Convention preserves the right of the United States to impose its branch profits tax in addition to the basic corporate tax on a branch's business. The proposed Convention, at Article 7, also accommodates a provision of the 1986 Tax Reform Act that attributes to a permanent establishment income that is earned during the life of the permanent establishment but is deferred and not received until after the permanent establishment no longer exists.

Consistent with U.S. treaty policy, Article 8 of the new Convention permits only the country of residence to tax profits from international carriage by airplanes. This reciprocal exemption also extends to income from the rental of aircraft if the rental income is incidental to income from the operation of the aircraft in international traffic. However, income from the international operation of ships (including rentals that are incidental to such operations) is taxed at one-half the tax rate otherwise applicable. Income from the use or rental of containers that is incidental to the operation of ships or aircraft in international traffic is treated the same as the income from the operation of the ships or aircraft (i.e., it is exempt if it is incidental to aircraft operations and taxed at half of the rate otherwise applicable if incidental to the operations of ships). This deviation from the preferred U.S. position regarding the taxation of shipping profits, which is suggested as an option in the U.N. model treaty, was necessary to accommodate Thailand's long-standing policy on this issue. The United States and Thailand have agreed to exchange notes under which, if Thailand grants any other country more-favorable treatment on income from the operation of ships in international traffic, negotiations will be reopened to extend such favorable treatment to the United States. Other income from the rental of ships or aircraft and from the use or rental of containers is treated as business profits.

The taxation of income from the performance of personal services under Article 15 of the proposed Convention is similar to that under some U.S. treaties with developing countries but grants a taxing right to the source country with respect to such income that is broader than that in either the U.S. or OECD model treaties.