Article 18 deals with the taxation of private (i.e., non-go­

vernment) pensions, annuities, social security, and similar

benefits.

   Paragraph 1

   Paragraph 1 provides that private pensions and other similar
remuneration paid in consideraion of past employment are gener­

ally taxable only in the residence State. It is understood that

the rules of this paragraph apply even if the payee of the

pension is not the person who performed the past employment. For example, a pension paid to a surviving spouse who is a resident of Turkey would be exempt from tax by the United States on the

same basis as if the right to the pension had been earned direct­ ly by the surviving spouse. A pension may be paid periodically

or in a lump sum. The rules of this paragraph do not apply to
government service pensions, which are dealt with in paragraph 2
of Article 19 (Government Service), nor do they deal with social

security benefits, which are dealt with in paragraph 2 of Article

18.

Paragraph 2

   Paragraph 2 provides that payments made by one of the
Contracting States under the provisions of its social security
system or similar legislation to a resident of the other State or
to a citizen of the United States will be taxable only in the

paying State. Pensions in respect of government service that fall under the provisions of a social security system as de­

scribed in this paragraph are covered by this rule, and not by

the rule of paragraph 2 of Article 20 (Government Service). The phrase "similar legislation" is intended to include United States

tier 1 Railroad Retirement benefits. The reference to U.S.

citizens is necessary to ensure that a social security payment by

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Turkey to a U.S. citizen not resident in the United States will
not be taxed by the United States.

Paragraph 3

Paragraph 3 of the Article provides for exclusive residence

country taxation of annuities. The term "annuity" as used in
this paragraph is defined to mean a stated sum paid periodically
at stated times during life or during a specified number of years
under an obligation to make the payment in return for adequate
and full consideration (other than services rendered) in money or
money's worth. An annuity received in consideration for services
rendered would be treated as deferred compensation and generally
would be taxable in accordance with Article 15 (Dependent
Personal Services). This paragraph is intended to cover
traditional annuity arrangements that provide retirement benefits
to individuals. It is not intended to exempt from tax at source
income from arrangements that are a variation of traditional
annuities and that accrues to corporations or other legal
persons.

Relation to other articles

   Paragraph 2 is one of the exceptions listed in paragraph
4 a) of Article 1 (Personal Scope) to the saving clause of para­
graph 3 of that Article. Thus, the United States will not tax
social security benefits paid by Turkey to a U.S. citizen or
resident. The provisions of paragraphs 1 and 3 of this Article
are subject to the saving clause of paragraph 3 of Article 1
(Personal Scope). Thus, for example, a periodic pension or
annuity payment received by a resident of Turkey who is a U.S.
citizen may be taxed by the United States, regardless of the
provision for exclusive residence taxation for those classes of
income.