Article 14. INDEPENDENT PERSONAL SERVICES

The Convention deals in separate articles with different

classes of income from personal services. Article 14 deals with the general class of income from independent personal services, and Article 15 deals with the general class of income from employment (dependent personal services). Articles 16 through 20 provide exceptions and additions to these general rules for directors' fees (Article 16); income of artistes and sportsmen (Article 17); government service salaries (Article 18); pensions in respect of personal service income and social security benefits (Article 19); and certain income of students, trainees and researchers (Article 20) .

Income derived by an individual who is a resident of one Contracting State from the performance of personal services in an independent capacity in the other Contracting State is exempt from tax in that other State unless two conditions are satisfied. The income may be taxed in that other State if the services are or were performed there (see Code section 864(c)(6)); and the income is attributable to a fixed base that is or was regularly available to the individual in that other State for the purpose of performing his services. If those two conditions are met, the income attributable to the fixed base also may be taxed by the State where the fixed base is located. The income attributed to the fixed base must be taxed on a net basis, after allowance of deductions for business expenses, in accordance with principles similar to those provided in Article 7 (Business Profits) for the taxation of business enterprises. However, in this case, only income from services performed in a Contracting State may be attributed to a fixed base in that State.

Paragraph 2 notes that the term "independent personal services" includes independent scientific, literary, artistic, educational or teaching activities, as well as the independent activities of physicians, lawyers, engineers, architects, dentists, and accountants. This list, which is derived from the OECD Model, is not exhaustive. The term includes all personal services performed by an individual for his own account, where he receives the income and bears the risk of loss arising from the services.

As indicated in paragraph 4 of Article 6 (Income from Real Property), the provisions of Article 6 rather then of Article 14 will apply to income from real property that is used for the performance of independent personal services.

Paragraph 5 of the Protocol acknowledges that the State of source may require a preliminary withholding of tax from income derived by residents of the other State, including but not limited to income referred to in this Article. Where there is a tentative withholding of tax, each State agrees to make timely refunds on application of the taxpayer if the Convention provides for a reduced rate or an exemption.

Article 15. DEPENDENT PERSONAL SERVICES

This Article deals with the taxation of remuneration derived by a resident of a Contracting State for the performance of personal services in the other Contracting State as an employee.

Under paragraph 1, remuneration derived by an employee who is a resident of a Contracting State may be taxed by his State of residence. This is the same result as achieved by paragraph 3 of Article 1 (General Scope). However, to the extent that the remuneration is derived from an employment exercised (the performance of services) in the other Contracting State, the remuneration also may be taxed by the other Contracting State if the conditions specified in paragraph 2 are satisfied.

Paragraph 1 also provides that the more specific rules of Articles 18 (Government Service), and 19 (Pensions) apply in the case of employment income described in one of these articles. Thus, even though the State of source has a right to tax employ­ ment income generally under Article 15, it may not have the right to tax a particular type of income under the Convention if that right is proscribed by one of the aforementioned articles.

Under paragraph 2, the Contracting State in which the services are performed may also tax the remuneration unless three conditions are satisfied: (1) the individual is present in that State for a period or periods not exceeding 183 days in the calendar year; (2) the remuneration is paid by, or on behalf of an employer who is not a resident of that Contracting State; and (3) the remuneration is not borne as a deductible (or capitalizable) expense by a permanent establishment or fixed base that the employer has in that State. If a foreign employer pays the salary of an employee, but a host country corporation or permanent establishment reimburses the foreign employer through a deductible payment that can be identified as a reimbursement, neither condition (2) nor (3), as the case may be, will be considered to have been fulfilled. Conditions (2) and (3) are intended to ensure that a Contracting State will not be required both to allow a deduction to the payor for the amount paid and to exempt the employee on the amount received. In order for the remuneration to be exempt from tax in the source State, all three conditions must be satisfied.

Paragraph 3 contains a special rule that provides for exemption from tax at source for remuneration for services performed as an employee aboard a ship or aircraft operated in international traffic. Such income is taxable only in the State of the employee's residence.