Article 15. DEPENDENT PERSONAL SERVICES

This Article deals with the taxation of remuneration derived

by a resident of a Contracting State as an employee.

  Under paragraph 1, employment income derived by an individual
who is a resident of a contracting State may be taxed in the
State of residence. To the extent the remuneration is derived
from an employment exercised in the other Contracting State (the
"host country"), the remuneration may also be taxed by the host
country, subject to the conditions specified in paragraph 2.

   The provisions of this paragraphs apply, subject to the
provisions of Articles 18 (Pensions) and 19 (Government Service).
Thus, if a person is exempt from tax in the host country under
the provisions of Articles 18 or 19 (eg.L, the person is perform­
ing Government service on behalf of one State in the other) he
cannot be subject to host country tax under paragraph 1 of this
Article even though his employment is exercised in the host
country. Article 17 (Artistes and Athletes) specifies that its
provisions apply notwithstanding the provisions of this Article.
Thus, for example, a resident of one Contracting State, who is a
member of a football team that plays in the other Contracting
State, and who earns over S20,000 in a taxable year from his
performances in the other State will be subject to host country
tax on his employment income even if he would otherwise be exempt
under Article 15.

   Paragraph 2 specifies the conditions under which, even where
the remuneration of a resident of a Contracting State (described

in paragraph 1) is derived from sources within the other Con­

tracting state (ie., the services are performed there), that

other State may not tax the remuneration. The host country may
not tax if three conditions are satisfied: (1) the individual is
present there for a period or periods not exceeding, in the

aggregate, 183 days in any 12-month period beginning or ending in
the fiscal year concerned; (2) the remuneration is paid by, or on
behalf of, an employer who is not a resident of the host country;
and (3) the remuneration is not borne as a deductible expense by

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a permanent establishment or fixed base that the employer has in
the host country.
   The first condition is taken from the 1992 OECD Model. In
previous OECD Models, the 183-day period covered only the fiscal
year concerned. This permitted an abuse under which an employee
could remain in a country for the last 5 1/2 months of one fiscal
year and the first 5 1/2 months of the next and fail to meet the
test for taxability in the host country. The language of sub­
paragraph 2(a) prevents that abuse.

   The 183-day period in condition (a) is to be measured using
the "days of physical presence" method. Under this method, the
days that are counted include any day in which a part of the day

is spent in the host country. (Rev. Rul. 56-24, 1956-1 C.B.
851.) Thus, days that are counted include the days of arrival
and departure; weekends and holidays on which the employee does
not work but is present within the country; vacation days spent
in the country before, during or after the employment period,
unless the individual's presence before or after the employment
can be shown to be independent of his presence there for employ­
ment purposes; and time during periods of sickness, training

periods, strikes etc., when the individual is present but not
working. If illness prevented the individual from leaving the
country in sufficient time to qualify for the benefit, those days
will not count. Also, any part of a day spent in the host
country while in transit between two points outside the host
country is not counted. These rules are consistent with the
description of the 183-day period in paragraph 5 of the Commen­
tary to Article 15 in the OECD Model.
   Conditions (2) and (3) are intended to assure that a Con­
tracting State will not be required both to allow a deduction to
the employer for the salary paid and to exempt the employee on
the amount received. If a foreign employer pays the salary of an
employee, but a host country corporation or permanent establish­
ment reimburses the foreign employer in 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 ful­
filled. For the remuneration to be exempt from tax in the source
State, all three conditions must be satisfied.

   Conditions (2) and (3) are intended to assure that a Con­
tracting State will not be required both to allow a deduction to
the employer for the salary paid and to exempt the employee on
the amount received. If a foreign employer pays the salary of an
employee, but a host country corporation or permanent establish­
ment reimburses the foreign employer in a deductible payment that
can be identified as a reimbursement, neither condition (2) nor

   Paragraph 3 contains a special rule applicable to remunera­
tion for services performed by an individual who is a resident of
a contracting State as an employee aboard a ship or aircraft
operated in international traffic. Such remuneration may be
taxed only in the Contracting State of residence of the employee
if the services are performed as a member of the regular comple­
ment of the ship or aircraft. The "regular complement" includes
the crew. In the case, for example, of a cruise ship, it may
also include others, such as entertainers, lecturers, etc.,

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employed by the shipping company to serve on the ship. The use of the term "regular complement" is intended to clarify that a person who exercises his employment as, for example, an insurance salesman, while aboard a ship or aircraft is not covered by this

paragraph.

   A U.S. citizen resident in Austria who performs dependent

services in the United States and meets the conditions for U.S.

exemption under paragraph 2, or a U.S. citizen or resident who is

a crew member on an Austrian ship or airline, and would, there­

fore, be exempt from U.S. tax under paragraph 3 were he not a
U.S. citizen or resident, is, nevertheless, taxable in the United
States on his remuneration by virtue of the saving clause of
paragraph 4 of Article 1 (Personal Scope), subject to the special

foreign tax credit rule of paragraph 2 of Article 22 (Relief from

Double Taxation).