Article 19. GOVERNMENT SERVICE

This Article deals with the taxation of compensation paid by

a government in respect of government service performed in the
discharge of governmental functions and paid from public funds.

Paragraph **1** provides that, as a general rule, wages, sala­

ries and similar remuneration including pensions, annuities or similar benefits, paid from public funds of a Contracting State, or one of its political subdivisions or local authorities, to a

citizen of that State who is an employee of the paying entity for
services rendered in the discharge of governmental functions to

that State, subdivision, or local authority shall be taxable only

in that State. The Memorandum of Understanding clarifies that if
a governmental entity, such as an Embassy or Consulate, is

performing governmental functions, all of its employees, includ­ ing persons such as cooks or drivers, are to be considered as

employed in the discharge of governmental functions. Social

security benefits paid in respect of government services are dealt with in this Article, not Article 18 (Pensions).

Paragraph 2 specifies that remuneration and pensions paid in respect of services performed in connection with a business carried on by a Contracting State or a political subdivision or local authority thereof are not subject to the provisions of

paragraph **1,** but are taxable under the provisions of Articles 14

(Independent Personal Services), 15 (Dependent Personal Servic­

es), **17** (Artistes and Athletes), and **18** (Pensions). Thus, if a

local government sponsors a basketball.team in an international tournament, and pays the athletes from public funds, the compen­ sation of the players is covered by Article 17 and not Article 19, because the athletes are not engaging in a governmental

function when they play basketball.

Paragraph 3 provides that paragraph 1 shall also apply, generally, to remuneration paid to the Austrian Foreign Trade Representatives of the Austrian Federal Economic Chamber and to the staff members of the Austrian Foreign Trade Offices. The provision applies only to the extent that they are discharging governmental functions in the United States and that the recipi­ ents of such remuneration are Austrian citizens.

AUSTRIA **383**

Supp. No. **6** **(1998)**

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Pursuant to paragraph 5(b) of Article 1 (Personal Scope), the benefits of this Article are not subject to the saving clause of paragraph 4 of Article 1, with respect to individuals who are neither citizens of, nor lawful permanent residents in, that State. Thus, for example, an individual who is a U.S. citizen or a lawful permanent resident of the United States and who is employed by the Government of Austria in the United States, would, notwithstanding this Article, be fully subject to U.S. tax.