Article 3 defines terms used — U.S. Income Tax Treaty

defines a number of basic terms used in the Convention. Para

graph 2 addresses terms that are not defined in the Convention.

Other articles define certain other terms. For example, the term "resident of a Contracting State" is defined in Article 4

(Resident). The term "permanent establishment" is defined in Article 5 (Permanent Establishment). The terms "dividends", "interest" and "royalties" are defined in Articles 10, 11, and

12, respectively, which deal with the taxation of those items of
income.

Subparagraph 1(a) defines the term "person" to include an individual, an estate, a trust, a company and any other body or persons.

Subparagraph 1(b) defines the term "company" as a body corporate or an entity treated as a body corporate for tax purposes. Subparagraph 1(c) defines the terms "enterprise of a Contracting State" and "enterprise of the other Contracting State" as an enterprise carried on by a resident of a Contracting

State and an enterprise carried on by a resident of the other

Contracting State, respectively. Since the terms "body corpo

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rate" and "enterprise, are not defined in the Convention, in

accordance with paragraph 2 of this Article, they have the meaning that they have under the laws of the Contracting State

whose tax is being applied..

Subparagraph 1(d) defines the term "international traffic"

as any transport by a ship or aircraft, except when such trans
port is solely between places in the other Contracting State.

The meaning of the term "other Contracting State" becomes clear in the context of Article 8 (Shipping and Air Transport), which

refers to the profits of an enterprise of a Contracting State

related to activities carried on in international traffic. The reference to the "other Contracting State," therefore, refers to

the State other than the one in which the enterprise is resident.
The exclusion from international traffic of transport solely

between places within the other Contracting State means, for

example, that a carriage of goods or passengers solely between

New York and Chicago by an Austrian carrier (if that were possi

ble under U.S. law) would not be treated as international traffic. The substantive taxing rules of the Convention relating

to the taxation of income from transport, principally Article 8,
therefore, would not apply to income from such carriage, and the

United States would not be required to exempt the income under Article 8. The income would, however, be treated as business

profits under Article 7 (Business Profits) and would, therefore,
be taxable in the United States only if attributable to a U.S.

permanent establishment, and then only on a net basis. If, however, goods or passengers are carried by an Austrian carrier

from Vienna to New York, with some of the. goods or passengers

carried only to New York, and the rest taken to Chicago, the
entire transport would be international traffic.

Subparagraphs 1(e) (i) and 1(e) (ii) define the term "compe tent authority" for the United States and Austria, respectively. The U.S. competent authority is the Secretary of the Treasury or his delegate. The Secretary of the Treasury has delegated the competent authority function to the Commissioner of Internal

Revenue, who has, in turn, re-delegated the authority to the

Assistant Commissioner (International). With respect to

interpretative issues, the Assistant Commissioner acts with the

concurrence of the Associate Chief Counsel (International) of the

Internal Revenue Service. In Austria the competent authority is the Minister of Finance or his delegate. The routine relief from source taxation on dividends in Austria is carried out by the

Regional Directorate for Vienna.

The terms "United States" and "Austria" are defined in sub- paragraphs 1(f) and 1(g), respectively. The term "United States" is defined to mean the United States of America. The term does not include Puerto Rico, the Virgin Islands, Guam or any other U.S. possession or territory. When used geographically, the term

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includes the states of the United States ^and the District ^of Columbia. The Convention also explicitly includes the U.S.

continental shelf within the definition of the United States to
the extent that; under international law, the United States has
sovereign right to explore for and exploit the natural resources
of the continental shelf and the waters above it. The term
"Austria" is defined to mean the Republic of Austria.

   Subparagraph 1(h) defines the term "nationals" of a
Contracting State. A national is an individual possessing the
nationality of a Contracting State (i.., a citizen), and any
legal person, partnership or association deriving its status, as
such, from the laws in force in a Contracting State.

   Paragraph 2 provides that, in applying the Convention, any
term used but not defined in the Convention, unless the context

otherwise requires, will have the meaning it has under the laws
of the Contracting State concerning the taxes to which the
convention applies. Under the U.S. and Austrian interpretation
of this provision, any meaning under the applicable tax laws of
that State prevails over a meaning given to the term under other
laws of that State. If, however, the meaning of a term cannot be
readily determined under the laws of a Contracting State, or if
there is a conflict in meaning under the laws of the two States
that creates problems in the application of the Convention, the
competent authorities may, pursuant to the provisions of

paragraph 3(e) of Article 24 (Mutual Agreement Procedure),

establish a common meaning in order to prevent double taxation or
to further any other purpose of the Convention. This common
meaning need not conform to the meaning of the term under the

laws of either Contracting State.

    It is understood that, when reference is made in paragraph 2
in the internal law of a Contracting State for purposes of
defining a term, it means the law as in effect at the time the
treaty is being applied, not the law as in effect at the time the
treaty was signed. This use of "ambulatory definitions" is
generally accepted within the OECD. The use of an ambulatory
definition, however, may lead to results that are at variance
with the intentions of the negotiators and of the Contracting
States when ratifying the treaty. The reference in paragraph 2

to "unless the context otherwise requires" a definition different

from the internal law definition of the Contracting State whose
tax is being imposed refers to a circumstance where the result
intended by the negotiators or by the Contracting States is
different from the result that would obtain under the statutory
definition.

   The first section of the Memorandum of Understanding,
described in the introductory section of this Technical
Explanation, is relevant for the application of paragraph 2 of

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this article. It provides that, with certain exceptions, interpretations found in the Commentary to the ^OECD ^Model ^will ^be relevant for understanding the meaning of terms in this Convention, when those terms are also used in the ^OECD ^Model.