Article 4 - RESIDENT

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   Article 4 sets forth rules for determining whether a person
is a resident of the United States or Turkey for purposes of the
Convention. As a general matter only residents of the Contract­
ing States may claim the benefits of the Convention. The defini­
tion of resident in the Convention is to be used only for purpos­
es of the Convention.

Paragraph 1

   Paragraph 1 defines the term "resident of a Contracting
State" for all purposes of the Convention. In general, this
definition incorporates the definitions of residence in U.S. and
Turkish law. A resident of a Contracting State is a person who,
under the laws of that State, is liable to tax therein by reason
of his domicile, residence, place of management, place of incor­
poration or any other criterion of a similar nature. For this
purpose, "liable to tax in" is interpreted as "subject to the
taxation laws of." Thus, a non-profit, tax-exempt entity may be
a resident of its state of organization because it is subject to
the taxation laws of that state, even though it may be exempt
from taxation in that state. A person who, under the general
rule of paragraph 1, is a resident of one State and not of the
other will be treated for purposes of the Convention as a resi­
dent of the first-mentioned State (subject to an exception de­
scribed below).

   In the case of the United States, residents include U.S.
citizens as well as aliens who are considered U.S. residents
under Code section 7701(b). Although "citizenship" is not
included among the explicit criteria of residence in the Conven­
tion, it is understood to be a "criterion of a similar nature"
under paragraph 1. Thus, a U.S. citizen who resides outside the
United States may be a resident of the United States within the
meaning of Article 4 and therefore entitled to treaty benefits
from Turkey because, as a U.S. citizen, he is liable to U.S. tax
on his worldwide income. Under Point I of the Protocol, however,
U.S. citizenship may not automatically render a person a resident
of the United States for purposes of the Convention. Under this
Protocol provision, a citizen of the United States who has a
closer economic nexus to another country than to the United
States will be treated for purposes of the Convention as a

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resident of that other country, and not of the United States.

The relative economic nexus is determined by applying the princi­ ples of the tie-breaker rules of paragraph 2 of the Article to

the U.S. citizen.

   Paragraph 1 also makes clear that a partnership or similar
pass-through entity, an estate or a trust may be treated as a

resident of a Contracting State for purposes of the Convention, but only to the extent that the income derived by such entity is subject to tax in that State as the income of a resident, either

in the hands of the entity or in the hands of its partners,

members, grantors or beneficiaries. The phrase "similar passthrough entity" may include, in general, any entity that is classified as a partnership for tax purposes under the rules of Code section. 7701 (as from time to time amended). Thus, for example, Turkish source income received by a U.S. limited liabil­

ity company ("LLC") classified as a partnership for U.S. tax

purposes will generally be treated as income of a U.S. resident
to the extent the income is included in the distributive share of

the LLC's members that are themselves U.S. residents (looking

through any partnerships or other pass-through entities that are

themselves partners or members). Certain publicly-traded part­

nerships are classified for U.S. tax purposes as corporations

taxable at the entity level and thus would not be considered

"partnerships" for purposes of applying the rules of paragraph 1

to determine whether income they receive is income of a U.S.
resident.

   The treatment under the Convention of income received by a
trust or estate will be determined by the residence for taxation
purposes of the person subject to tax on such income, which may

be the grantor, the beneficiaries, or the estate or trust itself,

depending on the circumstances.

Paragraph 1 also specifies that a person liable to tax in a State only in respect of income from sources within that State

will not be treated as a resident of that State for purposes of

the Convention. For example, a Turkish consular official sta­

tioned in the United States, who may be subject to U.S. tax on
his U.S. source investment income but not on his non-U.S. source

income would not be considered a resident of the United States

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for purposes of the Convention (see Code section 7701(b) (5) (B)).

Similarly, a Turkish enterprise with a permanent establishment in
the United States is not, by virtue of that permanent establish­

ment, a resident of the United States. The enterprise is subject to U.S. tax only with respect to its income attributable to the

U.S. permanent establishment, not with respect to its worldwide
income, as is a U.S. resident.

   It is understood that the two Contracting States and their
political subdivisions are to be treated as residents of those
States for purposes of Convention benefits.

   Paragraph 2

   If an individual is considered a resident of each State

under its laws, a single State of residence is determined by application of the tie-breaker rules of paragraph 2. Paragraph 2 a) provides that such an individual will be resident in the State in which the individual has a permanent home. If the

individual has a permanent home available to him in both States,
he will be considered to be a resident of the Contracting State

to which his personal and economic relations are closest, i.e., the location of his "centre of vital interests." Under paragraph 2 b), if he has no "centre of vital interests" or if he does not have a permanent home available to him in either State, he will

be treated as a resident of the Contracting State in which he

maintains an habitual abode. Under paragraph 2 c), if he has an habitual abode in both States or in neither of them, he will be treated as a resident of the State of which he is a citizen. If he is a citizen of both States or of neither, paragraph 2 d)

provides that the competent authorities will, by mutual agree­
ment, assign a single State of residence. As noted above, these
tests may also be applied to determine whether a U.S. Citizen or
green card holder is to be treated as a resident of the United
States or of a third state for purposes of the Convention.

Paragraph 3

   The tie-breaker rules of paragraph 2 apply only to individu­
als. Paragraph 3 addresses companies that are treated as a

resident of each State under its internal laws. A corporation

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that is incorporated under the laws of the United States or one

of its states or the District of Columbia and that is managed and

controlled in Turkey might be such a dual resident. Paragraph 3

provides that such a company will be considered to be a resident

of the State in which it has its place of incorporation. Under subparagraph 1 e) of Article 3 (General Definitions), a company has its "place of incorporation" in Turkey if its legal head

office is in Turkey and in the United States if it is organized,
created, or incorporated in the United States or in any political
subdivision. It is understood that the place an entity is
created, organized, or incorporated is sufficiently analogous to

the location of the legal head office that, in virtually all

cases, the tie-breaker rule of paragraph 3 will result in a
single State of residence.

Paragraph 4

   Paragraph 4 addresses dual-residence issues for persons

other than individuals or companies. Under this paragraph, the

competent authorities are instructed to determine a single State
of residence by mutual agreement, and to determine how the
Convention will apply to such a person.