Article 6. INCOME FROM REAL — U.S. Income Tax Treaty

Paragraph 1 provides the standard income tax treaty rule that income derived by a resident of Contracting State from real property, including income from agriculture or forestry, located in the other Contracting State may be taxed in that other State. The income may also be taxed in the State of residence.

Paragraph 2 defines real property in accordance with the laws of the Contracting States, but provides that it includes, in any case, property accessory to real property, livestock and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property apply, usufruct of real property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources. The term does not include ships, boats and aircraft.

Paragraph 3 clarifies that the Article covers income from any use of real property, without regard to the form of exploitation, including leasing or sub-leasing.

Paragraph 4 is based on a corresponding provision in the OECD Model, clarifying that paragraphs 1 and 3 of this Article also apply to income from real property of an enterprise and to income from real property used for the performance of independent personal services.

Paragraph 5 provides for a binding election by the taxpayer to be taxed on a net basis. The election reflects U.S. treaty policy and U.S. law. Since this Article provides for net basis taxation, it generally provides the same tax result as Article 7 (Business Profits).