Romania — Technical Explanation (1973)

# Preamble and ratification history

to rate which is intended maximum ensure that the tax may be fully cred- ited against the residence country tax.
Our income tax conventions are not designed to alter the U. S. tax liability of U. S. residents, corporations or citi- zens. U. S. taxpayers to be continue taxed according to our law. The con- tax to obtain are designed ventions benefits for U. S. corporations and resi- in ex- dents from our treaty partners change for similar benefits which we grant to their taxpayers.
The conventions also typically guar- antee that taxpayers from one country will not be subject to discriminatory taxes in the other country. And they provide for administrative cooperation taxation and in double in avoiding fiscal evasion. preventing [10] Convention with Romania Let me turn now to the convention with Romania. Although state enter- prises play a large role in the Ro- economy, there is also a sub- manian stantial private sector in which foreign capital is invited to participate. It is possible for a foreign investor to estab- lish a jointly owned Romanian cor- with local capital, provided poration that the foreign investor owns less than 50 percent of the equity.
A tax of 30 percent is imposed on the profits of such corporations, and remitted to dividends the foreign are subject to a 10 per- shareholders tax. In many respects cent withholding Romanian tax principles are similar to to those of Western our own and Europe. The convention reflects this common ground and differs very little with Iceland.
Business income. — from the convention For example, the Romanian the convention contains usual rule that a resident of one coun- try may be taxed by the other country on business income only to the extent that the income is attributable to a permanent in the taxing establishment Ro-The convention country. with introduces mania an explicit rule which we think is implicit in most of our existing conventions; it specifically 504 permits items displayed at a trade fair in the host country to be sold off at the close of the fair without incurring income. — tax liability to the host country.
The
Passive reciprocal on for the rates agreed withholding tax at source on dividends, maximum are within interest and royalties the The limits. agreed dividend usual rate may not exceed 10 withholding percent, the rate on interest may also not exceed 10 percent and in some cases is set at zero, and the maximum rate on royalties is 10 percent in some service income. — cases and 15 percent in others.
Personal Personal service income may be taxed by the if the recipient source country stays there longer than six months, or in the case of a self employed person if he a fixed place of business maintains ("fixed base") there to which the in- come is attributable. not in Although "fixed Iceland convention the the base" concept is found in the OECD model and in some other U, S. con- not defined, ventions. the Although "fixed base" is the same as the "per- establishment" manent concept but applied to independent personal serv- ice income rather than industrial or commercial profits. longer than six months — Teachers and students may remain from one to of the visit — on the purpose five years depending to be ex- and continue empt from tax on certain amounts of income. Entertainers become subject to tax after three months or if their exceed $3, 000, except that earnings entertainers to whose visit is pursuant between the two coun- an agreement ex- tries enjoy the longer six-month emption.
The convention includes the stand- ard rule that each country will exempt employees of the other sent to perform functions, but for activi- governmental func- ties to qualify as governmental tions they must be so regarded by both countries. This qualification condition is not necessarily intended to produce a different from that of our result but simply to avoid other conventions, in a situation where misunderstanding the role of the state in the two econo- nondiscrimination. — mies differs substantially.
The nondis- crimination article in the Romanian convention is different from the typical article. U. S, citizens nondiscrimination resident in Romania may not be more heavily taxed than resident Romanian citizens. This is a standard provision in our income tax conventions.
How- ever, the taxes imposed by Romania on resident U. S. citizens, or on perma- nent or establishments subsidiaries owned by U. S. residents may not be more burdensome than the taxes im- posed on third country citizens or busi- nesses in Romania, subject to differ- ences in treatment under special agree- ments, such as tax treaties. The com- with other foreign businesses parison more appropriate was thought than domestic with businesses given the large role of state enterprises which are subject to different and frequently heavier taxation than private firms. cooperation. — Administrative Guidelines for administrative coopera- are tion also provided along lines similar to those in the Iceland conven- tion.
[13] TEXTS OF RESOLUTIONS
OF
RATIFICATION
(Two-thirds
[14] Resolved, of the
Senators present therein), concurring That the Senate advise and consent to the ratification of the Convention be- of the United tween the Government States of America and the Government of the Socialist Republic of Romania to Taxes on Income, respect with signed at Washington on December 4, 1975 (Ex. B, 93-2).
1 of the
Technical Explanation'
Between the United
Convention
' It is the practice of the Treasury De- for the use of the to prepare partment Senate and other interested persons a Tech- of the tax conventions nical Explanation to the Senate for its which are submitted advice and consent io ratification. with Ro' An Income Tax Convention mania was signed December 4, 1973, and States of America and the Socialist Republic of Romania with Respect to Taxes on Income, Signed at On December 4, 1973* Washington

# Article 1 — TAxES COVERED

(1) designates the taxes
Paragraph are
States which of the Contracting the subject of the Convention. With respect to the United States, the sub- ject taxes are the Federal income taxes imposed by the Internal Revenue Code (" Code" ), including im- taxes the posed under section 531 (accumulated tax) and section 541 (per- earnings tax). How- company holding sonal does not apply ever, the Convention to the taxes imposed by chapters 2 income) and (tax on self-employment contributions insurance (federal 21 act) of the Code. These taxes are de- taxes to as social insurance scribed into Romanian. translation facilitate In the case of Romania, paragraph
(1) provides that the Convention ap- plies to income taxes imposed under to law, and in particular Romanian the income taxes imposed on wages, and income salaries, fees, copyrights, from any other source received by in- dividuals, on the profits of mixed com- on other than enterprises panies, mixed companies or state enterprises, on agricultural activities, on rentals, and on nonresidents.
(2), the to paragraph
Pursuant will also apply to taxes Convention similar to those covered substantially
(1) which are imposed by paragraph in addition to, or in place of, existing taxes, after the date of signature of (December 4, 1973) . the Convention For purposes of paragraph (5) of Article Profits) which (Business 7 deals with insurance and reinsurance submitted by the President to the Senate on March 11, 1974. On November 7, 1975, the Senate Committee on Foreign Relations held hearings and this Technical Explana-The Senate voted its tion was presented. advice and consent on November 18, 1975, were ex- of ratification and instruments changed on January 26, 1976, the conven- into force on Febru- uon thereby entering ary 26, 1976.
'Page 49'2; pertinent excerpts from Sen- ate Executive Report No. 94-15, page 502;
Senate Executive B is not published. also ap- the Convention premiums, plies to taxes other than income taxes level of a at the national . imposed State on such premiums Contracting paid to a resident of the other Con- tracting State. The efFect of this pro- under Article vision is discussed 7 (Business Profits) .
Pursuant to paragraph (3), for pur- poses of Article 22 (Nondiscrimina- tion), the Convention applies to taxes of every kind which are imposed at the national, state, or local level. that
(4) provides the
Paragraph competent authority of each Contract- ing State will notify the competent of the other Contracting authority State of any amendment of the tax laiis referred to in paragraph (1), or of the adoption of substantially similar to, or in in addition taxes imposed place of, those taxes. The texts of such or new statutes are to be amendments transmitted between the competent authorities at least once a year,
ART. 2. DEFINITIONS
GENERAL
(1) sets out definitions
Paragraph of certain basic terms in the used of important Convention. A number terms, however, are defined elsewhere in the Convention.
"Romania"
The term the means of Romania. The Socialist Republic "United States" term the means United States of America. When used in a geographical the term sense, "United States" means the states of the United States and the District of Columbia. Thus, the Convention does not apply to the possessions of the States or the Commonwealth United of Puerto Rico. When used in a geo-Romania graphical and the sense United States also include their respec- tive territorial seas and continental in accordance with shelves, generally of section 638 of the the principles Code.
State" is
The term "Contracting defined to mean the United States or Romania as the context requires. Al- not specifically defined in the though the term "State" means Convention, States, Romania, or any the United State. other national The term "person" is defined as in- a partnership, cluding an individual, a corporation, an estate or a trust.
The term "United States corpora- tion" is defined or as a corporation, (whether or not incorpor- any entity as a corporation for treated ated) United States tax purposes, which is created or organized under the laws of the United States, any state thereof, of or District Colombia. the A "Romanian corporation" is defined as a juridical including person, any mixed corporation, which is incorpor- ated and organized under Romanian law or any other legal entity which is created Romanian under and law which is treated under its tax laws as a juridical person.
With respect to the United States, the term "competent authority" means the Secretary of the Treasury or his With respect to Romania, delegate. it means the Minister of Finance or his "tax"
The delegate. term means those taxes imposed by the United States or Romania to which the Con- vention applies by virtue of Article 1 (Taxes Covered) .
The term "international traffic" is as any voyage of a ship or defined aircraft operated by a resident of one of the Contracting States except where such voyage is confined solely to places iiithin a Contracting State. Thus, for coastal along the example, shipping Atlantic coast of the United States is not a voyage in international traffic.
However, if a ship operated by a resi- of Romania dent transports goods from Canada to the United States, some of the goods in New leaving York and the remainder in Norfolk, of the voyage the portion between New York and Norfolk is international traffic.
(2) provides that any
Paragraph term used in the Convention which is not defined therein unless the shall, context otherwise have the requires, which it has under the laws meaning of the Contracting State whose tax is where a being determined. However, 505 ter»| has a different under Ineaning the laws of Romania and the United under States or where the meaning the laws of one of the Contracting the States is not readily determinable, may for pur- authorities competent a poses of the Convention establish common definition in order to prevent or to further taxation double any other purpose of the Convention.
ART. 3.
FISCAL RESIDENCE
This article sets forth rules for de- the residence of individuals, termining for and other persons corporations, purposes of the Convention. Residence because, in general, only is important a resident of one of the Contracting States may qualify for the benefits of the Convention.
(1), the
Under term paragraph a
Romania"
"resident of means
Romanian corporation as defined in or any

# Article 2 — General Definitions

in Ro- other person who is resident mania for purposes of its tax. Simi- larly, "resident of the United States" means a United States corporation as defined in Article 2 (General Defini- tions) and any other person resident in the United States for purposes of its tax. Thus, a resident of the United States includes a resident alien indi- vidual and a resident citizen but not A citizen of a foreign corporaiton. the United States or Romania is not a resident of the United automatically States or Romania for purposes of this even if a for-Convention. Similarly, or other corporation, foreign eign as a foreign corpora- treated entity tion, is treated as a resident (see, e. g. , 26 CFR $ 301. 7701-5 of the U. S. or a domestic Treasury Regulations) for certain purposes of a corporation State's income tax law, Contracting such corporation or entity will not be as a resident of that Con- treated of the State for purposes tracting Thus, for example, even Convention. though a foreign corporation is taxed by the United States on its trade or income from sources within business States, or a foreign cor- the United poration is referred to as a resident of 506 t'le United States in the source rules in section 861 of the Code, such cor- poration is not a resident of the United States for purposes of the Convention.
The Convention a that provides estate, or trust is a resi- partnership, State only to dent of a Contracting the extent that the income derived by is subject to tax in such such person Contracting State. For example, under States law, a partnership United is never, and an estate or trust is often the Con- not, taxed as such. Under by a part- income received vention, estate, or trust will not be nership, treated for purposes of the Convention by a resident of as income received the United States unless such income is subject to tax by the United States as the income of a resident. Thus, the by a of income received treatment by the will be determined partnership residence and taxation of its partners with respect to that income. To the to extent the are subject partners United States tax as residents of the will be United States, the partnership as a resident of the United treated of States. treatment the Similarly, by a trust or estate income received by the residence will be determined and taxation of the persons subject to tax on such income, which may be or the the beneficiaries the grantor, trust or estate itself, as the case may be.
Under paragraph (2), an individual who is a resident of both Contracting States under their domestic laws will, of the Convention, for purposes be to be a resident of the Con- deemed State in which he has his tracting home, his center of vital permanent and per-(closest economic Interests sonal relations), a habitual abode, or in the order listed. If his citizenship, the issue is not settled by these tests, will decide authorities the competent the one Con- by mutual agreement tracting State of which he will be con- sidered to be a resident.
ART. 4. RULES
GENERAL OF
TAXATION
(1), a resident
Under paragraph of one Contracting State may be taxed by the other Contracting State only on income from sources within that other Contracting State, subject to the limitations set forth in the Conven- tion. For this the purpose, source contained rules various in articles articles throughout the Convention are to be applied. if the However, resident is a citizen of the other Con- tracting State, that Contracting State may tax the resident without regard to this paragraph because of the sav- ing clause of paragraph (3) of this article.
(2) contains
Paragraph the cus- tomary rule that the Convention will not restrict in any manner any exclu- sion, exemption, deduction, credit, or now or hereafter ac- other allowance corded by the laws of a Contracting State in the determination of a tax imposed by it, or by any other agree- ment between the Contracting States.
This rule reflects the principle that a not increase convention should the tax burden on residents of the Con- tracting States.
(3) contains
Paragraph the tradi- tional saving clause under which the United States reserves the right to tax its citizens and residents as if the Con- vention had not come into effect. How- clause does not ap- ever, the saving ply in several cases in which its ap- contravene plication would policies reflected in the Convention. Thus, the saving clause does not affect the pro- visions with respect to social security rehef from double taxatton, payments, or mutual the nondiscrimination, Moreover, the procedure. agreement saving clause does not affect the bene- to individuals fits of the Convention functions, governmental performing teachers, students, trainees, and mem- and con- bers of diplomatic missions in sular offices who become resident States unless one of the Contracting are citizens of or have such individuals status in the Contracting immigrant State imposing the tax. In the case of status" the United States, "immigrant has been ad- the individual means mitted to the United States for perm&. gent residence. The saving clause is reciprocal.
(5) authorizes the com-
Paragraph of the Contracting petent authorities States to prescribe neces- regulations sary to carry out the provisions of the On the United States Convention. side, this authority is also provided by section 7805 of the Code.
ART. 5.
PERMANENT
ESTABLISHMENT
This article defines the term "per- manent establishment. " The existence is rele- establishment of a permanent vant under Article 7 (Business Profits) or com- to the taxation of industrial the mercial profits and in determining of other provisions of the applicability such as Articles 10 (Divi-Convention, dends), 11 (Interest), 12 (Royalties), and 13 (Capital Gains).
(1), the
Under term paragraph a establishment"
"permanent means fixed place of business through which the business of a resident of one of the States is wholly or partly Contracting carried on. Illustrations in paragraph
(2) of a permanent in- establishment clude a branch, an office, a factory; a mine, a warehouse; a workshop; quarry or other place of extraction of natural resources; and a construction or installation project which exists for As a general more than 12 months. or premises fixed facility rule, any a resident conducts which through or commercial activity for industrial or substantial period of an indefinite as a permanent time will be treated unless it is used for one establishment or more of the activities described in (3). paragraph The term "construction or installa- tion project" includes a building site.
Under the construction or installation project rule the twelve month period begins only when work physically com- mences in the other Contracting State.
A series of contracts or projects which are interdependent both commercially is to be treated as and geographically a single project for the purpose of applying the twelve months' test.
(3) specifically provides
Paragraph that a permanent does establishment not include a fixed place of business if it is used only for one or more of the following:
"(a) The use of facilities for the purpose of storage, display, or delivery to a sales contract, of goods pursuant or merchandise belonging to the resi- dent;
"(b) The maintenance of a stock of goods or merchandise belonging to the resident for the purpose of proc- essing by another person;
"(c) The maintenance of a fixed for the purpose of place of business or goods or merchandise, purchasing for collecting for the information, resident;
"(d) The maintenance of a fixed for the purpose of place of business for the supply of informa- advertising, tion, for scientific or for research, similar activities which have a prepara- tory or auxiliary for the character, resident; or "(e) The maintenance of a con- struction or installation project which exist for more not months. " does than 12 These are exceptions cumulative and a fixed place of business used solely for one or more of these pur- a per- poses will not be considered under the Con- manent establishment vention. Subparagraph (a) states that to a sales must be pursuant delivery contract to emphasize the implicit re- striction that a facility used for deliv- ering another person's goods would not be included exception. within the Since the subparagraph excludes the use of facilities for storage, display or it also ex- delivery, by implication cludes the stock of goods or merchan- dise itself from being deemed a per-The construc- manent establishment. tion or installation project exception
(e) is the converse of in subparagraph the rule of paragraph (2) that such a project which exists for more than 12 months will be a permanent establish- ment.
Under paragraph (4) a person act- ing in one Contracting State on behalf of a resident of the other Contracting State, other than an agent of an inde- to whom pendent status paragraph
(5) applies, will be deemed to give rise to a permanent if establishment exer- such person has, and habitually Contract- cises in the first-mentioned ing State, an authority to conclude contracts in the name of the resident, unless the exercise of the authority is to the purchase of goods or limited for the resident. merchandise On the other hand, paragraph (5) that a resident of one Con- provides tracting State will not be deemed to have a permanent establishment in the other Contracting State merely be- cause such resident engages in indus- trial or commercial activity in such State a other Contracting through agent, or broker, general commission agent of an independent any other status, if such agent is acting in the course of its business. ordinary
(6) provides that a resi-
Paragraph dent of one Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because such resident sells at the termination of a trade fair or convention in the other Contracting State or merchandise goods which were displayed by such resident at the trade fair or convention. This excep- tion does not appear in existing United States conventions, but a similar ex- ception is contained in the pending conventions with the Soviet Union and Poland.
(7), the deter-
Under paragraph mination of whether a resident of one State has a permanent Contracting in the other Contract- establishment ing State is to be made without regard to the fact that such resident may be related to a resident of the other Con- tracting State or to a person who en- gages in business in that other Con- a State tracting (whether through or other- permanent establishment wise). As defined in Article 9 (Re- lated Persons), a person is related to another person if either person owns or controls directly or indirectly the either, or if a third person or persons 507 or indirectly owIi or control directly both such persons. the
(8) provides that
Paragraph set forth in this article are principles whether to be applied in determining there is a permanent establishment in a State other than one of the Contract- ing States or whether a person other than a resident of one of the Contract- ing States has a permanent establish- ment in one of the Contracting States. for the proper ap-This is necessary
(7) of Article plication of paragraph 11 (Interest). This paragraph is not to extend the benefits of the intended Convention to persons other than resi-States. dents of the two Contracting
ART. 6. INcoME FRoM IMMovABLE PROPERTY Under paragraph (1), income from royal- immovable including property, in respect of ties and other payments of natural resources, the exploitation e. g. , oil wells, and gains from the sale, of such exchange or other disposition property or of the right giving rise to such royalties or other payments, may State in be taxed by the Contracting property or na- which the immovable tural resources are situated. However, income from immovable property does not include on indebtedness interest
(e. g. , secured by immovable property or by a right giving rise mortgages) in re- to royalties or other payments spect of the exploitation of natural re- sources. Such interest income is cov- ered by Article 11 (Interest).
Paragraph (1) applies to income de- direct use, the usufruct, from rived or use in any other form of letting, For United immovable property.
States purposes, the term "immovable property" is intended to have the same as the term "real property. " meaning BUSINESS PROFITS
ART. 7,
Paragraph (1) sets forth the general or commercial that industrial rule profits of a resident of one Contracting State are exempt from tax by the other State unless the resident Contracting has a permanent in the establishment State. Where there other Contracting 508 is a lii »i|ann»t establishment, only the profits attri- or cominercial industrial to the permanent butable establish- ment can be taxed by that other Con- tracting State, unless the resident is a citizen of the other Contracting State.
(See the saving clause in paragraph
(3) of Article Rules of
4 (General
Taxation) . ) It is intended that, for purposes of the Convention, including
(1) of Article 4 (General paragraph Rules of Taxation) and Article 21 (Relief from Double Taxation), in- dustrial or commercial profits whether from sources within or without a Con- to a per-State attributable tracting which a resi- manent establishment dent of one Contracting State has in State will be the other Contracting to be from sources within considered State. Thus, that other Contracting items of income described in section 864(c) (4) (B) of the Code attribut- to a permanent able establishment in the United States will be situated subject to tax by the United States.
In determining the proper attribu- tion of industrial or commercial profits
(2) under the Convention, paragraph States provides that both Contracting estab- will attribute to the permanent as it would lishment such profits be expected to derive if it reasonably were an independent entity engaged in the same or similar activities under the same or similar and conditions dealing at arm's length with the resi- estab- dent of which it is a permanent (3), ex-Under paragraph lishment. which are incurred, penses, wherever with profits at- connected reasonably tributable establish- to the permanent ment, including executive and general will be al- administrative expenses, as deductions in determining lowed or commercial profits of the industrial How- the permanent establishment. of the amount ever, in determining
(3) the deduction under paragraph for expenses incurred by the head may be limited office, the deduction in- to the expense without incurred cluding a profit element for the head office. that no
(4) provides
Paragraph be attributed to a per-~nofits shall establishment Uranent merely because of the purchase of goods or merchan- dise by that permanent establishment, or by the resident of which it is a permanent establishment, for the ac- count of such resident. Paragraph
(2) of the article does not override para- graph (4). Thus, where a permanent establishment purchases goods for its head office, the industrial and com- mercial profits attributed under para- graph (2) to the permanent establish- ment with respect to its other activities will not be increased by adding a no- tional figure for profits from purchas- ing.
(5), insurance or
Under paragraph reinsurance premiums derived by a resident of one Contracting State from sources within the other Contracting State cannot be subjected to an income tax or to any other tax in the other Contracting State unless the premiums are effectively connected with a per- manent establishment in the other State. In the case of the Contracting United States, this includes the stamp tax imposed by section 4371 of the Code on foreign insurance policies risks in the United covering States.
Except for the extension of the exemp- to include tion non-income taxes, which has no counterpart in existing United States conventions, this para- graph reaches the same result as would
(1) and be reached under paragraphs
(6) of the article, since premiums are or commercial profits to an industrial insurance company.
Under paragraph (6), the term "in- profits" in- or commercial dustrial manu- income derived from cludes insur- mercantile, facturing, banking, fishing or mining ance, agricultural, of ships or the operation activities, aircraft, the furnishing of services, and (mov- the rental of tangible personal The term does not able) property. perfortn. the from income include ance of personal services derived by an either as an employee or iii individual (althoug" an capacity independent con such income may be effectively establis"- a permanent nected with therefore taxable under and ment
(2) (b) of Article 14 (In- paragraph Services) ) . The Personal dependent derived income includes also term re- and natural from real property interest, investment sources, dividends, reserves from in- income on required surance activities, cultural and indus- and capital gains, but trial royalties or rights giving only if the property are effectively income rise to such connected with a permanent establish-
(3) of Article ment. See paragraph
(4) of
10 (Dividends), paragraph
(4)
Article 11 (Interest), paragraph and para-12 (Royalties) of Article graph (1) (a) of Article 13 (Capital Gains) .
(7) contains criteria for
Paragraph determining whether property or rights with a per- connected are eff'ectively Factors to be establishment. manent whether taken into account include are used in or the rights or property held for use in carrying on an activity or commercial giving rise to industrial profits through a permanent establish- the activities car- ment and whether ried on through such permanent estab- were a material factor in lishment the realization of the income derived from such property or rights. For this purpose, due regard shall be given to whether or not such property or rights for or such income were accounted establish- permanent such through ment. The eff'ectively connected con- is substantially cept in this paragraph connected to the effectively similar concept in section 864(c) (2) of the Code.
(8), where in-
Under paragraph dustrial or commercial profits include items of income which are dealt with separately in other articles of the Con- vention, the provisions of those articles except provided as otherwise will, of the provisions supersede therein, this article. Thus, for example, taxa- tion of income of from copyrights motion picture films or films or tapes broad- used for radio or television by Article casting will be controlled and not by this article 12 (Royalties) is effectively con- unless the copyright establish- a permanent with nected ment.
ART. 8. AND AIR
SHIPPING
TRANSPORT that, not-
(1) provides
Paragraph
(Business
Article withstanding 7
(Capital
13
Article and
Profits) by a resident
Gains), income derived
State from the of one Contracting traffic of in international operation ships or aircraft registered in that Con- tracting State, and gains derived from the sale, exchange or other disposition be or aircraft, of such shall ships exempt from tax by the other Con- tracting State.
This article also applies to income from the rental of ships or derived aircraft under a full or bareboat char- ter if the lessor is engaged in the opera- in interna- tion of ships or aircraft tional traffic and the rental income is incidental to such operations. For ex- ample, if an airline which is a resident State has excess of one Contracting in the winter months and equipment leases several of its aircraft which are not required by it during that period to an airline which is a resident of the State, that rental other Contracting income of the lessor is not subject to State, tax by that other Contracting whether or not the lessee uses the air- craft in international traffic.
(2) makes clear that the
Paragraph article also applies to income derived of one by a resident Contracting State from the use, maintenance, and lease of containers and other related the in connection with equipment traffic by in international operation the resident of ships or aircraft regis-State, An tered in such Contracting example of such other related equip- ment is a trailer for the inland trans- portation of containers in connection with such operations.
This article is subject to the saving
(3) of Article 4 clause of paragraph (General Rules of Taxation). There-State may fore, the other Contracting tax the resident without regard to this is a citizen of article if such resident that other Contracting State.
ART. 9.
RELATED PERSONS
Where a person subject to the tax- ing jurisdiction of a Contracting State thereof) or not a resident (whether make and any other related person or impose conditions be- arrangements which are different tween themselves from those which would be made be- persons, under par- tween independent agraph (1) any income, deductions, credits or allowances which would, but or conditions, for those arrangements have been taken into account in com- the income or loss of, or the puting by, one of such persons, tax payable may be taken into account in comput- ing the amount of the income subject to tax and the taxes payable by such person in that Contracting State.
(2) sets forth an explicit
Paragraph of the consequence of an formulation made in accordance with adjustment paragraph (1) by a Contracting State to the income of one of its residents. In such event, the other Contracting State must, if it agrees with such redetermi- nation, make a corresponding adjust- ment to the income of a person in such other Contracting State related to such resident. If the other Contracting State disagrees with the redetermination, the two Contracting States must endeavor in accordance to reach agreement with the mutual agreement procedure 23
(2) (b) of Article in paragraph Procedure) .
( Mutual Agreement that for
(3) provides
Paragraph a person purposes of the Convention person if either is related to another owns or controls or directly person indirectly the other, or if a third per- son or persons own or control directly or indirectly both. "Control" includes or not any kind of control, whether ex- legally enforceable, and however ercised or exercisable.
ART. 10.
DIVIDENDS
(1) provides that divi-
Paragraph dends paid by a corporation of one Contracting State to a resident of the other Contracting State may be taxed States. However, by both Contracting
(2) limits the rate of tax paragraph State to a in the former Contracting 50a rate not in excess of 10 percent of the This of the dividend. gross amount does not affect the taxation limitation of the corporation which of profits pays the dividend. does not The ten percent limitation being a resi- apply if the recipient, State dent of the other Contracting in the has a permanent esablishment the State and Contracting former shares with respect to which the divi- con- are paid are effectively dends estab- nected permanent such with In such a case, under para- lishment.
(6) of Article (Business
7 graph are treated as the dividends Profits) profits. If or commercial industrial is a citizen of the Con- the recipient State of which the corpora- tracting is a resident, tion paying the dividend State may tax the that Contracting recipient without regard to this aricle because of the saving clause of para- graph (3) of Article 4 (General Rules of Taxation) . It is intended that, for of Article 21 (Relief from purposes Double Taxation), dividends paid by of a Contracting State a corporation are from sources within that Contract- ing State.
ART. 11. INTEREST
(1) provides that inter-
Paragraph est derived by a resident of one Con- tracting State from sources within the other Contracting State may be taxed States. However, by both Contracting
(2) limits the rate of tax paragraph State to a in that other Contracting rate not in excess of ten percent of the gross amount of the interest.
(3) provides that inter-
Paragraph derived by one of the est beneficially States, or by an instru-Contracting mentality of that Contracting State not to tax by that Contracting subject State on its income, will be exempt tax by the other Contracting from State. Under this rule, interest income by the Export-Import Bank derived of the United States and the Over- seas Private Corporation Investment
(OPIC) on loans made to Romanian will be exempt from tax in residents Romania. The exemption also applies 510 of a Contracting a resident u liere State income interest receives with i. e. , debt obli- respect to indebtedness, or in- guaranteed, insured, gations, by that Contracting directly financed thereof.
State or an instrumentality of indirect An example financing is of a Con- an instrumentality where State provides tracting in the funds form of an export credit or import credit to a resident thereof for purpose that resident to extend of permitting credit to a resident of the other Con- tracting State. This concept of indirect financing is also found in the exchange of notes recent our accompanying Convention.
Japanese that the
(4) provides
Paragraph
(2) does rate limitation in paragraph not apply if the recipient of the inter- est, being a resident of one Contract- ing State, has a permanent establish-State ment in the other Contracting giving rise to the and the indebtedness connected with is effectively interest In establishment. permanent such
(6) of such a case, under paragraph Article 7 (Business Profits) the inter- or as industrial est will be treated commercial profits of the recipient.
If excessive is paid to a interest
(5) pro- related paragraph person, of the vides that the rate limitations article do not apply to the excessive The exces- of the payment. portion may be taxed by each sive portion State to its Contracting according the Convention own laws, including In the case of the where applicable.
United States, the excessive portion may, for example, be taxed as a divi- dend, in which case the provisions of Article 10 (Dividends) may apply.
(6) defines interest for
Paragraph purposes of the Convention as income Government securities, from bonds, notes or other evidences of indebted- and or not secured whether ness, whether or not carrying a right to par- ticipate in profits, and debt-claims of every kind, as well as all other income which, under the taxation law of the Contracting State in which the income to income has its source, is assimilated from money lent.
(7) sets forth the source
Paragraph for interest. rules With two excep- tions, interest will be treated as in- come from sources within a Contract- ing State only if paid by that Con- tracting State, or a political subdivi- sion or local authority thereof, of resi- dent of that Contracting State. Under the first exception, if the person pay- ing the interest (whether or not such is a resident of one of the person States) has a permanent Contracting in one of the Contract- establishment ing States in connection with which on which the interest the indebtedness is paid was incurred and such interest is borne by the permanent establish- ment, the interest will be deemed to be from sources within the Contracting State in which the permanent estab- is situated. This exception lishment a Contracting State, under permits the proper circumstances, to impose a tax on interest paid by a permanent establishment therein including a per- manent establishment Romania in which borrows money from a resident of the United States and bears the the interest will be deemed interest, to be from Romanian sources. Thus, may tax such income, sub-Romania ject to the limitations of this article.
(8) of in
As provided paragraph
Article 5 (Permanent Establishment), the rules of Article 5 will be applied to determine the resident of whether has a permanent France establish- ment in Romania. The United States will not, because of section 861(a) (1) of the Code, impose a tax on interest alien individu- received by nonresident from a als or foreign corporations having a per-Romanian corporation in the United manent establishment States unless 50 percent or more of the gross income of such corporation all sources for the three-year from the close of its with period ending the payment taxable year preceding con- of the interest effectively was with conduct of a trade or nected business within the United States. exception Under second the is a the interest the person paying of one of the Contracting resident States and has a permanent establish- ment in a State other than a Con-State connection tracting in with which the indebtedness on which the incurred is paid and interest was is paid to a resident of such interest the other Contracting State, and such is borne by such permanent interest interest be the establishment, will to be from sources within deemed the State in which the permanent is situated. Interest de- establishment scribed in the second exception will be exempt from tax in the Contracting the payor is a resident State where 4 (General Article under because, Rules of Taxation), a resident of one Contracting State not a citizen of the other Contracting State may be taxed State only by that other Contracting that on income from sources within other Contracting State. For example, if a resident of the United States has in France a permanent establishment from a resi- borrows which money dent of Romania and bears the inter- est, the interest will be deemed to be from French sources. Thus, the United States may not tax such income if the resident of Romania is not recipient a citizens of the United States. As pro-
(8) of Article 5 vided in paragraph Establishment), (Permanent the rules of Article 5 will be applied to deter- of the the resident whether mine United States has a permanent estab- lishment in France.
This article is subject to the saving
(3) of Article 4 clause of paragraph (General Rules of Taxation). There- by a citizen of fore, interest derived State may be the source Contracting taxed by that Contracting State with- out regard to this article.
ART. 12.
RoYALTIES
(1) provides that royal-
Paragraph ties derived by a resident of one Con-State from tracting within sources State may be the other Contracting States. taxed Contracting by both However, paragraph (2) limits the tax State to a in that other Contracting rate not to exceed 10 percent of the royalties or of cultural gross amount 15 percent of the gross amount of in- dustrial royalties.
The term "cultural royalties" is de- fined as payments of any kind made as for the use of, or the consideration of literary, to use, copyrights right artistic, or scientific works, including of motion picture films or copyrights films or tapes used for radio or tele- vision broadcasting. The term "indus- trial royalties" is defined as payments of any as consideration made kind for the use of, or the right to use, designs, models, plans, secret patents, or processes or formulae, trademarks, or rights, or for other like property experience or skill (know- knowledge, how) . Cultural royalties and industrial include from gains derived royalties the sale, exchange, or other disposition of such property or rights to the extent the amounts realized on such sale, ex- change or other disposition for con- are contingent sideration on the pro- of the use, or disposition ductivity, or rights. If the amounts property are not so contingent, realized the of 13 Article (Capital provisions Gains) may apply. that tax
(4) provides
Paragraph rate of paragraph limitations (2) shall not apply if the recipient of the royalty, being a resident of one Con- tracting State, has a permanent estab- other lishment the Contracting in State and the property or right giving rise to the royalty con- is effectively nected with the permanent establish- ment. In such a case, under paragraph
(6) of Article 7 (Business Profits), the royalties will be treated as indus- trial or commercial profits.
If excessive royalties are paid to a related (5) pro- person, paragraph vides that the provisions of the article do not apply to the excessive portion of the royalty. The excessive portion be taxed by each Contracting may State according to its own laws, in- cluding the Convention ap- where plicable. Thus, the excessive portion may be treated as a dividend or inter- est, or in whatever other manner is appropriate.
Paragraph (6) provides that royal- ties will be treated as income from sources within a Contracting State only to the extent they are payments made for the use of, or as consideration the right to use, property or rights de-
(3) within that scribed in paragraph State or gains from the Contracting sale, exchange, or other disposition of or rights. This source such property is similar to the source rule in rule section 861(a) (4) of the Code.
This article is subject to the saving
(3) of Article 4 clause of paragraph (General Rules of Taxation). There- derived by a citizen of fore, royalties State may be the source Contracting taxed by that Contracting State with- out regard to this article.
ART. 13.
CAPITAL GAINS
Under paragraph (1), a resident of State will be exempt one Contracting from tax by the other Contracting State on gains from the sale, exchange, or other disposition of capital assets, e. g. , stock or securities, whether such capital assets were acquired by inheri- tance, gift or any other manner. How- ever, the exemption does not apply if
(1) the recipient of the gain, being a resident of one Contracting State, has a permanent establishment the in other Contracting State and the prop- erty giving rise to the gain is effective- ly connected with the permanent es- or (2) the recipient tablishment, of the gain, being an individual resident of one Contracting State, is present in other the State for a Contracting period or periods aggregating 183 days the taxable year. If or more during the recipient of the gain is a citizen of the other Contracting State, that State may tax the recip-Contracting ient without regard to this article be- cause of the saving clause of paragraph
(3) of Article 4 (General
Rules of
Taxation). The term "day" for pur- poses of this article and the other physical presence tests contained in the Convention with regard to an individ- ual means a calendar day during any of which portion the individual is physically present in the relevant Con- tracting State. Where Articles 6 (In-511 Propertl ), 8 coine froni linniovable or 12 and Air Transport) (Shipping derived to gains (Royalties) apply from the sale, exchange, or other dis- position of rights or property which are this article covered by those articles, does not apply to such gains. that gains
(2) provides
Paragraph connected which are effectively with a permanent which the establishment recipient has in the other Contracting State will be treated as industrial or commercial under paragraph profits
(6) of Article 7 (Business Profits).
ART. 14.
INDEPENDENT PERSONAL
SERVICES
In dealing with the taxation of in- come from personal services the Con-"inde- vention between distinguishes and "dependent" pendent" personal services. The Convention also provides for individuals special treatment who are "entertainers. " are Independent personal services services performed by an individual in capacity (for his own an independent account) where he receives the income and bears the losses arising from such services. If an individual is an inde- pendent contractor he is considered as serv- independent rendering personal services rendered ices. Generally, by archi- engineers, physicians, lawyers, and accountants per- tects, dentists forming personal services as sole pro- prietors or partners are independent personal services.
(1), income de-
Under paragraph resident of one rived by an individual State from the perform-Contracting services in an inde- ance of personal pendent capacity may be taxed by that State. However, under Contracting derived
(2) such income paragraph in the other from services performed Contracting State may also be subject State to tax in that other Contracting if: (a) the individual is present there- in for a period or periods aggregating 183 days or more in the taxable year; maintains a perina-
(b) the individual therein with which nent establishment the income is effectively connected; or
(c) the individual is an entertainer, 512 motion as a theater, picture, such artist, a inusician, radio or television or an athlete, who is present therein for a period or periods aggregating more than 90 days in the taxable year or the gross income derived from his services as an entertainer personal in ex- therein capacity an independent $3, 000 or its ceeds in the aggregate in Romanian lei during the equivalent taxable year. Under the saving clause
(3) of Article 4 (Gen- of paragraph eral Rules of Taxation), the other State may also tax any Contracting who is a citizen of that Con- individual tracting State without to this regard article.
(3), the exemp-
Under paragraph tion of an entertainer is determined to the 90 day or reference without $3, 000 test of paragraph 2(c) if the is a resident of one Con- entertainer State and tracting in the is present State pursuant other Contracting to a agreed to by the specific arrangement States. It is contemplated Contracting that such a specific arrangement would be agreed to by the Contracting States under the Cultural Relations Agree- the United States and ment between Romania on December 15, signed 1972 (23 U. S. T. 3741, T. I. A. S. No.

1. . It is not contemplated that an of artists that was merely exchange or by both Governments, encouraged a visit by a Romanian to performer the United States that was merely en- couraged by an agency of the United States Government, would as qualify such a specific arrangement. However, a specific arrangement need not name if he is a performer the individual member of a group that is clearly iden- tified by the arrangement, such as, for example, a city orchestra.

ART. 15. DEPENDENT PERSONAL
SERVICES
(1), wages, sal-
Under paragraph de- remuneration aries, and similar who is a resi- rived by an individual State from dent of one Contracting labor or personal services performed as an employee, including income from by an officer of a services performed corporation or company, may be taxed by that Contracting State except as provided in Articles 18 (Governmental Functions), 19 (Teachers), and 20 (Students and Trainees) .
Such income derived from labor or personal services performed in the other Contracting State may also be taxed in that other Contracting State
(a) the individual unless: is present in that other Contracting State for a period or periods aggregating less than 183 days during the taxable year; (b) the individual is an employee of a of the first-mentioned resident Con- tracting State or of a permanent es- tablishment maintained in the first- mentioned Contracting State by a resi- dent of the other Contracting State;
(c) the remuneration is not borne as by a permanent such establishment which the employer has in the other Contracting State; and (d) in the case of an entertainer, such as a theater, or television motion radio picture, artist, a musician, or an athlete, he is present in the other Contracting State for a period or periods aggregating less than 90 days in the taxable year and the gross income he derives as an em- ployee in the other Contracting State $3, 000 or its than aggregates less in Romanian lei during the equivalent taxable year. Such income may also be taxed by that other Contracting State without regard to this article if is a citizen of that Con- the individual tracting State, because of the saving clause of paragraph (3) of Article 4 (General Rules of Taxation), (3), the exemp-Under paragraph tion of an entertainer is determined reference to the 90 day and without $3, 000 test of paragraph 2(d) if the is a resident of one Con- entertainer State and is present in the tracting to State pursuant other Contracting agreed to by a specific arrangement States. See the dis- the Contracting cussion under Article 14 (Independent for the require Services) Personal ments of a specific arrangement.
(4), remunera-
Under paragraph from the tion derived by an individual performance of labor or personal serv- as an employee aboard ices performed ships or aircraft operated by a resident State in interna- of one Contracting traffic notwithstanding will, tional (2), be exempt from tax paragraph by the other Contracting State if such of a (even if a resident individual State other than a Contracting State) comple- is a member of the regular ment of the ship or aircraft.
ART. 16. PENSIONS
AND
PRIVATE
ANNUITIES
18 in Article
Except as provided
Functions), pensions
(Governmental paid to and other similar remuneration of past in consideration an individual under be taxable will employment paragraph (1) only in the Contracting State of which he is a resident. Thus, private pensions and similar remunera- tion derived from sources within one State by an individual Contracting resident of the other Contracting State of past employment in consideration are exempt from tax in the first Con- tracting State. The term "pensions and other similar remuneration" is defined
(4) as periodic payments in paragraph (other than social security payments 17 ( Social Security Pay- in Article ments) ) made by reason of retirement for services or death in consideration rendered, or by way of compensation in connection for injuries received with past employment. that ali-
(2) provides
Paragraph mony and annuities paid to an individ- ual resident of a Contracting State will be taxable only in that Contracting State. The term "annuities" is defined in paragraph (5) as a stated sum paid periodically at stated times during life, or during a specified number of years, under an obligation to make the pay- ments in return for adequate and full (other than for services consideration rendered) .
The term "alimony" is defined in
(6) as periodic payments paragraph to a decree of divorce made pursuant or compulsory support, separate main- tenance agreement, or support or sep- which are taxable aration agreement the internal under to the recipient laws of the Contracting State of which he is a resident. Thus, the term "ali- mony" would not include a payment which would not be taxable to the re- cipient under the laws of the Contract- he is a resident ing State in which is made such payment even though to a decree of divorce or of pursuant separate maintenance. The explicit ref- erence to a decree of compulsory sup- port does not appear in prior United but is consistent States conventions, with section 71 of the Code.
Paragraph (3) provides that a resi- dent of one Contracting State who re- from a ceives child support payments resident of the other Contracting State will be exempt from tax on such pay- ments in both Contracting States. The term "child support payments" is de-
(7) as periodic in paragraph fined for the support of a minor payments to a decree of child made pursuant divorce, separate maintenance agree- ment, or support or separation agree- ment.
The exemptions by this provided article for pensions and other similar and annuities remuneration, alimony, are subject to child support payments
(3) of the saving clause of paragraph Article 4 (General Rules of Taxation) . who are citizens Therefore, individuals of a Contracting State or residents Contracting by that be taxed may State without regard to this article.
ART. 17.
SOCIAL SECURITY PAYMENTS
This article provides that social se- curity payments and other public pen- sions, e. g. , railroad retirement benefits, State to an paid by one Contracting is a resident of the who individual State will be ex- other Contracting empt from tax in both Contracting States. Payments in Article described 18 (Governmental are not Functions) covered by this article.
Under paragraph (2) of Article 28 (Termination), article be this may by either Contracting State terminated at any time after the Convention en- ters into force.
ART. 18. GOVERNMENTAL FUNCTIONS this article, wages, salaries, Under including remuneration, and similar annuities or similar benefits, paid from State public funds of one Contracting State to a citizen of that Contracting for labor or personal per- services formed as an employee of the national of that Contracting State, government or any agency thereof, in the discharge of functions of a governmental nature will be exempt from tax by the other Contracting State. con-In order to avoid a potential flict as to what constitutes governmen- the second sentence of tal functions, this article provides that labor or per- by a citizen sonal services performed be State of one Contracting shall State treated by the other Contracting in the discharge of gov- as performed if such labor or functions ernmental be treated would services personal laws of both Con- under the internal tracting State as so performed. Thus, paid in connection with compensation or commercial industrial activity is re- treated the same as compensation ceived from a private employer. This article does not include remuneration or a paid by a political subdivision thereof within the ex- local authority emption.
If the citizen becomes a citizen of, or acquires status in, the immigrant State, that other other Contracting Contracting State may tax the individ- ual without regard to this article. See
(3) and (4) (b) of Article paragraphs 4 (General Rules of Taxation).
ART. 19. TEACHERS
(1) provides that, if a
Paragraph resident of one Contracting State is in- vited by the other Contracting State, a or local authority political subdivision thereof, or by a university or other rec- in that ognized educational institution other Contracting State to come to State for a pe- that other Contracting riod not expected to exceed two years for the purpose of teaching or engag- ing in research, or both, at a university or other recognized educational insti-513 tution, and if such resident comes to that other Contracting State primarily for such purpose, his income from per- sonal services for teaching or research at the university or educational institu- tion will be exempt from tax by that State for a period other Contracting not exceeding two years from the date of his arrival in that other Contracting State. visit may be of Since a temporary such a duration that an individual may lose his status as a resident of the Con- tracting State of which he was a resi- dent at the time he became eligible for the benefits of this article, the individ- ual need only be a resident of such State at the beginning of Contracting his visit. However, if the individual be- comes a citizen of, or acquires immi- grant status in, the other Contracting State State, that other Contracting may tax the individual without regard
(3) and to this article. See paragraphs
(4) (b) of Article 4 (General Rules of Taxation) . If the individual's visit ex- ceeds a period of two years from the date of his arrival, the exemption ap- plies only to the income received by before the expiration of the individual such two year period.
The article does not apply to income not in the from research undertaken for the public interest but primarily private benefit of a specific person or persons.
ART. 20.
STUDENTS AND TRAINEES
Paragraph (1) provides that an in- dividual who is a resident of one Con- tracting State at the time he becomes present in the other Con- temporarily tracting State and who is temporarily for the primary therein pur- present at a university or pose of studying other recognized educational institu- to tion, securing training required qualify him to practice a profession or specialty, or studying or professional as a recipient of a research doing grant, allowance, or award from a gov- religious, charitable, scien- ernmental, tific, literary, or educational organiza- tion, will be exempt from tax by that State for a period other Contracting five taxable years from not exceeding the date of his arrival in that other Contracting State on:
(1) Gifts from abroad for the pur- pose of his maintenance, education, study, research, or training;
(2) The or grant, allowance, award; and
(3) Income from personal services in the other Contracting performed State not in excess of $2, 000 or its in Romanian lei for any equivalent taxable year.
Under paragraph (2), an individual who is a resident of one Contracting State at the time he becomes tempo- rarily present in the other Contracting State and who is temporarily present of, or under as an employee therein contract with, a resident of the first-State, for the Contracting mentioned purpose of acquiring techni- primary or business experi- cal, professional, ence from a person other than that of the first-mentioned Con- resident tracting State or other than a person related to such resident, or studying at or other recognized a university edu- in that other Con- cational institution tracting State, will be exempt from tax by that other Contracting State on in- come from personal services not in ex- in Ro- cess of $5, 000 or its equivalent lei for a period not exceeding manian one year.
(3), an individ-
Under paragraph ual who is a resident of one Contract- ing State at the time he becomes tem- porarily present in the other Contract- ing State and who is temporarily pres- ent therein for a period not exceeding one year, as a participant in a program by the other Contracting sponsored State, for the primary purpose of train- ing, research, or study, will be exempt from tax by the other Contracting State with respect to his income from in respect of such services personal training, research, or study performed State in an in that other Contracting not in excess of amount aggregate $10, 000 or its equivalent in Romanian lei.
The first sentence of paragraph (4) provides that the benefits provided in
(1) and the benefits pro- paragraph vided 19 (Teachers), under Article when taken together, may extend only for such period of time, not to exceed five taxable years from the date of the individual's arrival, as may reasonably or customarily to effect- be required uate the purpose of the visit. The sec- ond sentence of paragraph (4) makes it clear that the benefits provided by 19 (Teachers) Article not be will available to an individual if, during the immediately preceding period, the individual the benefits enjoyed pro- vided by paragraph (1) .
If an individual for the qualifies benefits of more than one of the pro- visions of Articles 19 (Teachers) and 20 (Students and Trainees), such in- dividual may choose the most favor- able provision but may not claim the benefits of more than one provision in any taxable year as a means of avoid- ing the limitations provided. Thus, for example, an individual who comes to the other Contracting State for the pri- mary purpose of studying may be able to qualify under either paragraph
(2) or (3) . However, he cannot combine the maximum exclusion limits in those to exclude $15, 000 two paragraphs the taxable year. If the indi- during becomes a citizen of, or ac- vidual status in, the other quires immigrant State, that other Contracting Con- tracting State may tax the individual without regard to this article. See par- agraphs (3) and (4) (b) of Article 4 (General Rules of Taxation).
ART. 21. RELIEF FRQM DoUBLE TAx-ATION In order to avoid double taxation State agrees in this each Contracting article to provide to its citizens or resi- its taxes for a credit against dents taxes paid by such persons to the other State. The United States Contracting agrees to allow a United States citizen or resident as a credit against United of States tax an appropriate amount Romanian tax in accordance with the and subject to the limita- provisions tions of the law of the United States from time to (as it mav be amended time without the principles changing
(1) ). The credit of paragraph will not exceed the portion of United States tax which such citizen's or resident's net income (i. e. , taxable income) from sources within Romania or on his in- of the outside sources from come United States bears to his entire net income for the same taxable year. This provision does not require the United a per-country and States to maintain overall limitation in the future so long of a foreign as the general principle tax credit remains in effect. the credit for U. S.
In computing purposes, the Romanian taxes referred
(1) (a) of Article to in paragraph 1 (Taxes Covered) will be considered to be income taxes. Thus, for example, taxes among the creditable Romanian other than is the tax on enterprises mixed companies or state enterprises, cial representatives — the tax on foreign commer- including the even though to the tax applies to income imputed under a schedule based representative of employees in the on the number office, and thus might representative's not be creditable under section 901 of the Code. It is intended that any in- come of a resident of the United States which has been subject to such a tax in accordance by Romania with the will be treated as income Convention from Romanian sources.
This article also provides that Ro- mania will allow its citizens and resi- dents a credit, under its law, as it may be amended from time to time, against tax for taxes paid to their Romanian the United States. The language as to by Ro- the tax credit to be allowed mania is generally parallel to the lan-United to the respect with guage States.
ART. 22.
NONDISCRIMINATION
(1) provides that a citi-
Paragraph zen of one Contracting State who is a resident of the other Contracting State in that other shall not be subjected Contracting State to more burdensome taxes than a citizen of that other Con- tracting State who is a resident there- there whether of. The determination is to be taxation is more burdensome of the treatment made by comparing who are in comparable po- individuals sitions. Thus, for example, a citizen of is a resident of the Romania who otherwise States who and United specified the requirements in meets section 911 of the Code would under this article be eligible for the benefits of section 911 even though not a citi- zen of the United States. On the other hand, just as a United States citizen alien at who becomes a nonresident year or a taxable any time during alien at whose spouse is a nonresident any time during a taxable year cannot file a joint return for that year, a Ro-'manian citizen would not be entitled to joint return with his spouse if either is a nonresident alien at any time dur- the taxable year. that one
(2) provides
Paragraph
State not
Contracting impose may taxes on residents more burdensome who are citizens of the other Contract- ing State or on permanent establish- ments of residents of the other Con- tracting State than it generally imposes or permanent establish- on citizens ments of residents of third States car- rying on the same activities. one Con-
(3) prohibits
Paragraph tracting State from subjecting a corpo- ration of such Contracting State the capital of which or partly is wholly directly or indi- owned or controlled, rectly, by one or more residents of the State to any taxa- other Contracting tion or any connected requirement with taxation which is other or more to than those applicable burdensome of the first-mentioned corporations State Contracting on the carrying same activities, the capital of which is wholly or partly owned or controlled of a third by one or more residents State.
The criterion in paragraphs (2) and
(3) is in terms of residents of third of States, or permanent establishments owned or controlled and corporations of third States, rather by, residents than to citizens or residents of that the Ro-State, because Contracting manian taxation of other foreign busi- nesses is a more relevant comparison taxation of domestic than Romanian state which are frequently businesses (2) However, paragraphs enterprises. and (3) do not require a Contracting State to grant to citizens or permanent of residents of the other establishments State, or to corporations Contracting owned or controlled by such residents, by special agree- tax benefits granted income tax con- ments, e. g. , bilateral to citizens or residents of a ventions, owned or third State or corporations controlled by such residents.
(3) of Article
Under paragraph
1 of
(Taxes Covered), the provisions this article extend to all taxes of every kind whether imposed at the national, state, or local level.
ART. 23. MUTUAL AGREEMENT PRO-CEDURE When a resident of one Contracting State considers that action of one or States results or will both Contracting result for him in taxation not in ac- cordance with the Convention, such the resident notwithstanding may, remedies provided by the national laws of the Contracting States, present his case to the competent authority of the he is a State of which Contracting of a or citizen. A resident resident State need not, although Contracting that in the normal it is anticipated situation he will, exhaust his other ad- or judicial remedies prior ministrative to resorting to the use of the mutual procedure. If the claim is agreement considered to have merit by the com- au- that competent petent authority, to come to an thority must endeavor agreement with the competent author- ity of the other Contracting State with of taxation a view to the avoidance not in accordance with the Conven- tion.
(2) requires the compe-
Paragraph tent authorities of the two Contracting States to endeavor to resolve by mu- or tual agreement difficulties any doubts arising as to the application of In particular, Convention. the the competent authorities may agree to the or com- of industrial same attribution 515 of on= profits to a resident mercial State and its permanent Contracting the other situated establishment in Contracting State; the same allocation or of income, credits, deductions, between a resident of one allowances State and a related per-Contracting of taxes son and to the readjustment State to imposed by each Contracting reflect such allocation; the same deter- of the source of particular mination items of income; and the same charac- items of in- of particular terization come.
(3), in imple-
Under paragraph the provisions of this article, menting may com- authorities the competent municate with each other directly and, when advisable, meet together for an exchange of opinions.
(4), in cases in
Under paragraph which the competent authorities reach taxes will be imposed an agreement, on such income, and refund or credit of taxes allowed, by the Contracting States in accordance with such agree- ment. This permits the issuance of a refund or credit notwithstanding pro- cedural barriers otherwise existing under a Contracting State's law, such as the statute of limitations.
ART. 24. ExcHANGE
INFORMA
OF
TION
(1) provides for a sys-
Paragraph cooperation be- tem of administrative tween the competent authorities of the States by requiring two Contracting an exchange of information necessary for carrying out the provisions of the or for the prevention of Convention or for the administration of fraud taxes concerning statutory provisions applies. The to which the Convention authorities competent may exchange tax information in connection with not merely ille- compliance generally, gal acts or crimes.
Under paragraph (2) information must be treated as secret exchanged except that it may be disclosed to any person charged with, or made part of a public record with respect to, the collection, enforcement of, assessment, or litigation with respect to, the taxes 516 Convention the to which applies. as a is not prohibited Thus, disclosure part of a public proceeding before a court or administrative body.
The article provides two limitations on what kind of information can be exchanget. '. Under paragraph (1), the must be of a class that information can be obtained under the laws and practices of each Con- administrative tracting State with respect to its own taxes. Thus, a Contracting State re- quested to furnish information will use it uses in the enforce- the standard ment of its own laws by its adminis- trative and judicial authorities, treat-State ing the tax of the Contracting with respect to which the request re- lates as if it were a tax of the Con- tracting State requested to furnish the information and were being imposed State.
Contracting Under such by paragraph (3), no information will be would be contrary exchanged which to public policy.
(4), depositions
Under paragraph of witnesses and copies of unedited documents original (including books, records, accounts, papers, statements, or writings) shall be provided by the of a Contracting competent authority State if specifically by the requested competent authority of the other Con- tracting State to the same extent that and documents can such depositions under the laws and ad- be obtained of each Con- practices ministrative tracting State with respect to its own to be used by a taxes. The standard Contracting State, when requested to and docu- such depositions provide as de- is the same standard ments, scribed above under paragraph (1) .
Although implicit in any tax conven- for exchange of infor- tion providing
(5) provides that mation, paragraph and evidence which any depositions in accordance with may be furnished this article shall not be withheld by reason of any doctrine of law under judicial assistance which international is not accorded in tax matters.
(6) provides for the ex-
Paragraph on either a rou- change of information tine basis or on request with reference to particular cases. The competent au- thorities may agree on the list of in- formation to be furnished on a routine basis.
ART. 25. %EMBERS OF DIPLOMATIC MISSIONS AND CONSULAR OFFICES This article provides that nothing in the Convention will affect the fiscal of members of diplomatic privileges missions and consular offices under the general rules and norms of interna- tional law or under the provisions of special agreements. This is merely a special case of the general rule pro- vided in paragraph (2) of Article 4 (General Rules of Taxation) .
ART. 26. As sIsTANGE IN CQLLEGTION This article provides for mutual as- sistance the of taxes in collection where required to insure that the bene- fits of the Convention will only be ex- tended to persons entitled to such ben- efits. It does not in any way affect rights of residents of the Contracting States under the Convention.
(1) provides
Paragraph that each
Contracting State will endeavor to col- lect on behalf of the other Contracting State such taxes imposed by that other State as will ensure that Contracting any exemption or reduced rate of tax granted under the Convention will not be enjoyed by persons not entitled to benefits. those However, paragraph
(2) makes clear that this does not im- pose on a Contracting State the obli- gation to carry out measures at vari- ance with the laws or administrative practices of either Contracting State with respect to collection of its own taxes.
ART. 27. ENTRY INTo FoRGE
This article provides that the Con- is subject to ratification and vention of of instruments for the exchange ratification. The Convention will enter into force one month after the date of of ratifi- exchange of such instruments cation, The provisions of the Conven- tion shall first have effect with respect to income of calendar years or taxable (or in the case of years beginning at source, payable taxes payments made) on or after January 1, 1974. It is intended for purposes of this article and Article 28 (Termination) that the to calendar reference years applies only to cases where the taxable year is the calendar year.
ART. 28. TERMINATION
(1) provides that the
Paragraph will continue in effect in-Convention but that it may be termi- definitely, State at nated by either Contracting any time after five years from the date into force. A Contracting it enters State seeking to terminate the Conven- at least notice six must give tion months before the end of the calendar channels. If diplomatic year through is terminated, such the Convention will be effective with re- termination spect to income of calendar years or taxable years beginning (or, in the case of taxes payable at source, payments made) on or after January 1 next fol- lowing the expiration of the six month period.
(2), the provi-
Under paragraph
17 (Social Security sions of Article be terminated Payments) may by State at any time either Contracting enters into force after the Convention diplo- by prior notice given through matic channels.
United States —
United Kingdom
Income Tax Convention Not
Applicable to Southern Rhodesia or to Yemen In response to inquiries the Treasury that the in-Department announced tax the convention come between United States and the United King- dom, as extended in 1959 to Southern Rhodesia (then part of the Federation [1960-2 of Rhodesia and Nyasaland)
C. B. 653] has not applied to Southern 1, 1974. The Rhodesia since January extension of the U. S. -U. K. tax treaty to Southern Rhodesia was terminated by the United States, effective Janu- note to the ary 1, 1974, by diplomatic of the United Kingdom Government es- in accordance with the procedure tablished in the convention. that also announced The Treasury the income tax convention between the United States and United the in 1959 to the as extended Kingdom of Democratic Republic Peoples Yemen (then part of Aden) has been Demo- to the People's inapplicable cratic Republic of Yemen since that on No- became independent country vember 30, 1967. The government of not take Yemen the necessary did steps to affirm that it was assuming the obligation of the income tax con- vention. The convention is therefore considered inapplicable to the People' s Democratic Republic of Yemen by the United States.
(Filed by the Office of the Federal Register on July 28, 1976, 8:45 a. m. , and pub- lished in the issue of the Federal Regis- ter for July 29, 1976, 41 F. R. 31578) Subpart B. — Legislation and Related Committee Reports Public Law 94-273 94th Congress, S. 2445' April 21, 1976 to Act permanent provide An changes in laws necessary because of the October-September fiscal year.
Be it enacted by the Senate and the Representatives House of of United States of America in Congress assembled, that this Act may be cited
Act. " as the "Fiscal Year Adjustment
SEc. 2. The following provisions of law are "June, " wherever amended deleting by it appears, and in- serting "September" in lieu thereof:
2 of the Land
(7) section and
Water Conservation Fund Act, as amended (16 U. S. C. 4601-5) [Pub. L.
88-578, 1964-2 C. B. 654];
(17) section 402 of the Act of No-13, 1966 (31 U. S. C. 757f) vember t This publication oi the tsw is restricted to excerpts involving t'ax tnatters; Senate Report No. 94-469 and House Report No. 94-1000 are not published.
[Pub. L. 89-809, 1966-2 C. B, 656], ex- to June 30, cept for the reference 1967;
SEc. 3. The following provisions of are amended deleting law "July, " wherever by it appears, and in- serting "October" in lieu thereof—
(4) sections 5(b) and 201(b) of the Land and Water Conservation Fund Act (16 U. S. C. 4601-7(b) and 4601-11(b)) [Pub. L. 88-578, 1964-2 C. B.
654];
SEc. 5. The following provisions of law are amended by deleting "Decem- ber, " wherever it appears, and insert- ing "March" in lieu thereof—
(4) section 103(a) of the Act of June 6, 1972 (31 U. S. C. 1203(a) ) [Pub. L. 92-310, 1972-2 C. B. 670];
SEc. 12. The following provisions of law are amended deleting by "March" and inserting "June" in lieu thereof—
(2) section 105(a) (2) of the Act of October 20, 1972 (31 U. S. C. 1224
(a) (2) ) [Pub. L. 92-512, 1972-2 C. B.
684]; and
SEc. 18. Section 209(e) (1) of the Act of 1956 (23 Revenue Highway
U. S. C. 120 note) [Pub. L. 627, 1956-2
C. B. 1150], is amended by deleting "March" and "June 30" and inserting "June" and "September 30, " respec- tively, in lieu thereof.
SEc. 38. Sections 6(a) (1) (D) and
(E) of the Alaska Native Claims Set-Act (43 U. S. C. 1605) [Pub. tlement
L. 92-203, 1972-1 C. B. 490] are amended to read as follows:
"(D) $40, 000, 000 during the period July 1, 1976, and ending beginning September 30, 1976; and "(E) $30, 000, 000 during each of the 517