Article 1. PERSONAL SCOPE

**_Paragraph_** **_1_**

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Paragraph 1 provides that the Convention is applicable to residents of the United States or Turkey, except where the terms of the Convention provide otherwise. Under Article 4 (Resident) a person generally is treated as a resident of a Contracting State if that person is, under the laws of that State, liable to tax therein by reason of his domicile, residence or other similar criteria. If a person is, under these criteria, a resident of both Contracting States, a single State of residence is assigned under Article 4. The Article 4 definition of residence applies for all provisions of the Convention.

Certain provisions of the Convention are applicable to persons who may not be residents of either Contracting State.

For example, paragraph **1** of Article 24 (Non-Discrimination)

applies to nationals of the Contracting States, even if they are residents of a third state. Under Article 26 (Exchange of Information) information may be exchanged with respect to resi­ dents of third states.

Paragraph **_2_**

Paragraph 2 of Article 1 describes the relationship between the rules of the Convention, on the one hand, and the laws of.the Contracting States and other agreements between the Contracting States, on the other. Subparagraph 2 a) makes explicit the generally accepted principle that no provision in the Convention may restrict any exclusion, exemption, deduction, credit or other allowance accorded by the laws of the Contracting States. For example, if a deduction would be allowed under the Internal

Revenue Code (the "Code") in computing the taxable income of a

resident of Turkey, the deduction will be available to that person in computing income under the Convention. In no event may the application of the Convention increase the tax burden on a resident of a Contracting State beyond that permitted under the State's internal law. Thus, a right to tax given by the Conven­ tion cannot be exercised by the United States unless that right also exists under the Code. For example, the taxation of certain

interest allowable under Article **11** (Interest)) cannot be exer­

cised because of the Code exemption in sections 871(h) and 881(c).

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While a taxpayer may generally rely on more favorable treatment afforded under the Code, a taxpayer may not pick and choose among Code and Convention provisions in an inconsistent

manner in order to minimize tax. For example, assume a resident
of Turkey has three separate businesses in the United States.
One is a profitable permanent establishment. The other two are

trades or businesses that would earn income taxable in the United States under the Code but that do not meet the permanent estab­ lishment threshold tests of the Convention; one is profitable and

the other incurs a loss. Under the Convention, the income of the

permanent establishment is taxable, and both the profit and the

loss of the other two businesses are ignored. Under the Code,
all three would be taxable. The loss would be offset against the
profits of the two profitable ventures. The taxpayer may not

invoke the Convention to exclude the profits of the profitable

trade or business and invoke the Code to **off** set the loss of the

loss trade or business against the profit of the permanent establishment. (See Rev. Rul. 84-17, 1984-1 C.B. 308.) The taxpayer may invoke the Code to subject all three ventures to

**U.S.** tax. **A** taxpayer that does so would not be precluded from

invoking the Convention with respect to, for example, any divi­ dend income received from the United States that is not effec­ tively connected with any of its business activities in the United States.

Under subparagraph 2 b), the Convention may not be used to deny or restrict any benefit granted by any other agreement

between the United States and Turkey. For example, if a consular

convention affords certain protections not found in the Conven­ tion, those protections will be available to residents of the Contracting States regardless of any provisions to the contrary (or silence) in the Convention.

**_Paragraph 3_**

Paragraph **3** contains the traditional "saving clause," and
paragraph 4 contains exceptions to that clause. Under the saving

clause, the Contracting States reciprocally reserve their right to tax their residents, and the United States reserves its right to tax its citizens and certain former citizens, notwithstanding

any Convention provision to the contrary. The concept of "resi­

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**Supp.** **No.** **6(1998)**

dence" for purposes of the saving clause is determined under ```