ARTICLE 23 (RELIEF FROM DOUBLE TAXATION)

   This Article describes the manner in which each Contracting
State undertakes to relieve double taxation. The United States
uses the foreign tax credit method under its internal law, and by
treaty. Turkey also uses a foreign tax credit method.

Paragraph I

   The United States agrees, in paragraph 1, to allow to its
citizens and residents a credit against U.S. tax for income taxes
paid or accrued to Turkey. Paragraph 1 also provides that the
taxes referred to in subparagraph a) of paragraph 2 and paragraph
3 of Article 2 (Taxes Covered) are income taxes for U.S. purposes
(but see below the description of Point IX of the Protocol).

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This provision is based on the Treasury Department's review of
Turkey's laws.

   The credit under the Convention is allowed in accordance
with the provisions and subject to the limitations of U.S. law,
as that law may be amended over time, so long as the general
principle of this Article, ie., the allowance of a credit, is
retained. Thus, although the Convention provides for a foreign
tax credit, the terms of the credit are determined by the
provisions, at the time a credit is given, of the U.S. statutory
credit.

   Subparagraph b) provides for a deemed-paid credit, consis­
tent with section 902 of the Code, to a U.S. corporation in
respect of dividends received from a corporation resident in the
other Contracting State of which the U.S. corporation owns at
least 10 percent of the voting stock. This credit is for the tax
paid by or on behalf of the Turkish corporation on the profits
out of which the dividends are considered paid.

   As indicated, the U.S. credit under the Convention is

subject to the various limitations of U.S. law (= Code sections 901 - 908). For example, the credit against U.S. tax generally

is limited to the amount of U.S. tax due with respect to net
foreign source income within the relevant foreign tax credit

limitation category (= Code section 904(a) and (d)), and the

dollar amount of the credit is determined in accordance with U.S.

currency translation rules (see, e., Code section 986). Similarly, U.S. law applies to determine carryover periods for excess credits and other inter-year adjustments. Point VIII of

the Protocol provides that a credit will be allowed against the
alternative minimum tax (ANMT) for taxes paid to Turkey. However,
such credit cannot offset more than 90 percent of the AMT.
Unused credits (because of the 90 percent limitation)may be

carried forward or backward to be used against other years' AMT liability. Nothing in the Convention prevents the limitation of the U.S. credit from being applied on a per-country basis, an overall basis, or to particular categories of income

Code section 865(h)). The application of this general principle
to the determination of the source of income for credit purposes
is discussed below in connection with paragraph 3.

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    It is not U.S. policy to allow a credit by treaty for taxes
that are not creditable under the Code. Accordingly, a credit is
allowed under the Convention for the income taxes of Turkey
specified in subparagraph a) of Article 2, because they have been
judged to be creditable income taxes under the Code. The
withholding tax under Article 94 of Turkey's Income Tax Law,

however, is not considered an income tax under paragraph 1 of

Article 23 (see Point IX of the Protocol). Article 94 requires
corporations and business partnerships to pay a gross withholding
tax on progress payments as they are made during a construction
contract of longer than one year's duration. That tax is then
used to offset the amount of corporate income tax owed upon
completion of the contract. Issues exist about whether the
Article 94 withholding tax is creditable either as a tax on net
income under section 901 or as a tax "in lieu of" a net income
tax under section 903 of the Code because it is a gross basis tax
that is paid in addition to the corporate income tax. The
Convention does not independently provide for a credit of this
long-term construction contract withholding tax.

Paragraph 2

   Turkey agrees, in paragraph 2, to allow its residents, who
may be taxed by both Contracting States under the Convention, a
credit against Turkish tax for income taxes paid to the United
States. The credit under the Convention is allowed subject to
the provisions of Turkish taxation laws. The credit cannot
exceed the pre-credit amount of Turkish income tax appropriate to
the income that may be taxed in the. United States.

Paragraph 3

   Where income derived by a resident of a Contracting State
may be taxed in accordance with the Convention in the other
Contracting State (except where that right is solely on the basis
of citizenship under the saving clause of paragraph 3 of Article
1 (Personal Scope)), paragraph 3 provides that the item of income
is treated as arising in the other Contracting State for purposes
of computing the Convention's foreign tax credit. As a general
matter, the source of income for credit purposes, determined as
described in the preceding sentence, will be consistent with the

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source rules provided in the Code for purposes of computing the
foreign tax credit under the Code. If, however, there is an
inconsistency between Convention and Code source rules, paragraph
3 provides that the Code source rules will be used to determine
the limits for the allowance of a credit under the Convention.

Relation to other articles

   By virtue of the exceptions in subparagraph 4 a) of Article
l(Personal Scope), this Article is not subject to the saving
clause of paragraph 3 of Article 1. Thus, the United States will
allow a credit to its citizens and residents in accordance with
the Article, even if such credit were to provide a benefit not
available under the Code.