Technical Explanation PDF

UNITED
STATES TREASURY
DEPARTMENT

TECHNICAL
EXPLANATION
OF THE CONVENTION
BETWEEN

THE
GOVERNMENT OF THE UNITED
STATES OF AMERICA
AND

THE GOVERNMENT
OF THE
TUNISIAN
REPUBLIC

FOR
THE
AVOIDANCE
OF
DOUBLE
TAXATION
AND

THE PREVENTION
OF FISCAL
EVASION WITH
RESPECT

TO
TAXES ON
INCOME,
SIGNED AT
WASHINGTON
ON

JUNE
17,
1985
TOGETHER
WITH
A

SUPPLEMENTARY
PROTOCOL
SIGNED
AT

TUNIS,
OCTOBER
10, 1989

The
Convention
signed
in 1985
was
not considered
by
the U.S.

Senate
prior
to
enactment
of
the Tax
Reform
Act
of 1986.
A
supplementary
Protocol
signed
in 1989
amends
the
Convention
to
take
into
account
changes
in U.S.
tax
policy
made by
that Act
as

well
as certain
other changes.
The
negotiations
took as
their
starting
point the
U.S. Treasury
Department's
draft Model
Income
Tax
Convention of
June, 1981 ("the
U.S. Model"),
and the
model
income
tax
conventions
published
by the
Organization
for
Economic

Cooperation
and
Development
in 1977
("the
OECD Model")
and
by the

United Nations
in
1980 ("the
U.N.
Model").

The
Technical
Explanation
is
an official
guide
to
the

Convention and
Protocol
("the Convention").
It reflects
the
policies
behind
particular
provisions,
as well as
understandings
reached with
respect to
the application
and interpretation
of the

Convention.

The explanations
of each article
will include explanations
of

any Protocol
provisions
relating
to that
article.

References
to "he"
and "his" should
be read
to mean also
"she"
and "her".

Article 1. PERSONAL SCOPE

Article 1 states that
the Convention is applicable
in general

to residents
of the United States or
Tunisia or of both
countries. Residence is defined in Article 4 (Fiscal Domicile).

Other articles may provide exceptions to this general rule. For

example, Article 22 (General Rules) provides that each Con­
tracting State reserves the right to tax its residents and the
United States reserves the right to tax its citizens and certain

former citizens, according
to domestic law. Certain
provisions,

such
as the exchange of information
provided for in Article
26
TUNISIA 95
Supp. No. 3 (1993)

-2­
(Exchange
of Information and Administrative
Assistance) and the

source rule for interest payments provided in paragraph 6 of
Article 11 (Interest), may also affect residents of third States.

Article 2. TAXES COVERED

Article 2 provides that the Convention applies to national
taxes on income imposed by the Contracting States at the time of
signature of the
Convention and identifies
the existing U.S. and

Tunisian
taxes to which the Convention
applies. It also
provides

that the Convention
applies to any identical
or substantially
similar taxes imposed subsequent to that time.

Paragraph 2
identifies the existing
taxes to which the
Convention applies.
It was amended by Article
I of the Protocol

to clarify
that the U.S. income taxes
covered include the changes

to the Internal Revenue
Code made by the Tax Reform
of 1986 and
the technical
corrections thereto, and
to update *the list of
Tunisian
income taxes by substituting
the tax on industrial
and
commercial
profits
and the
tax on corporations
for the
former
reference
to the
business
profits
tax. The
Convention
does
not
apply
to the United
States accumulated
earnings
tax, the personal
holding
company tax, or social
security taxes. The Convention
does not apply to
Federal taxes other than
income taxes or,
except
as provided
in Article
24 (Non-Discrimination),
to any
State or local
taxes. For purposes of Article
24, the scope of
the Convention is expanded
to apply to taxes of
all kinds imposed
at all levels
of government in the
United States and Tunisia.
Paragraph
3 provides that taxes
imposed after the
date of
signature of the
Convention also are covered
if they are

substantially
similar
to the taxes
referred
to in paragraph
2.
The competent
authorities
agree to advise
each other
of major
changes
in their respective
income tax
laws.

Article 3. GENERAL DEFINITIONS

Paragraph
1 defines the meaning
of certain terms as they
are
used in the Convention.
Unless the context otherwise
requires,
the defined
terms
have
the same
meaning
throughout
the
Convention.
A number
of other important
terms
are defined
in
other
articles. For example,
see
Article 4 (Fiscal Domicile),
Article
5 (Permanent Establishment),
and the definitions
of
dividends,
interest,
and royalties
in
Articles
10, 11,
and 12,
respectively.

The
terms
"person",
"company",
and
"enterprise
of a
Contracting
State"
or "enterprise
of the other
Contracting
State"
are consistent
with
the
definitions
in the
U.S.
model draft
income
tax treaty
published
in June, 1981
(the
"U.S. Model").
A

partnership
is included
in the
definition of
a person as
a body
of persons.

The
competent
authority
for
the
United
States
is the

Secretary
of the
Treasury
or his delegate.
The Secretary
of the

TUNISIA
96
Supp.
No.
3 (1993)

-3­
Treasury
has
delegated
the
competent
authority
function
to
the
Commissioner
of
Internal
Revenue,
who
has,
in
turn,
redelegated
the
authority
to
the
Assistant
Commissioner
(International).
With
respect
to interpretive
issues,
the
Assistant
Commissioner
acts
with the
concurrence
of
the Associate
Chief Counsel
(International)
of
the
Internal
Revenue
Service.
The
competent
geographical
authority
for
Tunisia
is
the
Minister
of Finance
or
his
representative.
Subparagraphs
e)
and
f)
of
paragraph
1
define
the
scope
of
the two
countries
to
include
the
adjacent
seas
to the
extent
that,
under
international
law,
the
respective

country
may
exercise
rights
with
respect
to
natural
resources
of

*the
seabed
and
marine
subsoil
of
such
areas.
Though
not

specified,
the
term
"United
States"
is
understood
not to
apply
to

Puerto
Rico
or to
other
U.S.
possessions
or
territories.

The definition
of
international
traffic
is
the same
as in
the

U.S.
Model.
It includes
any
transport
by a
ship
or
aircraft
except
to the
extent
that
the transport
is
solely
between
places

in a
Contracting
State.
Thus,
for
example,
a
trip
which
begins

in
Tunis,
stops
in
New
York,
and
continues
to Chicago
is inter­
national
traffic
except
to
the
extent
that passengers
or cargo
board
at New
York.
To
the
extent
that
passengers
or
cargo
are
carried
only
on the
New
York-Chicago
portion
of
the
trip,
the
transport
is
not
considered
international
traffic,
and
the
sub­
stantive
taxing
rules
of
Article
8 (Shipping
and
Air
Transport),
therefore,
do not
apply. In
such a
case, the
income
would be
taxed
as
business
profits
under
Article
7, and
if
derived
by
an
enterprise
of Tunisia
would be
taxable
in
the United
States
only

if
attributable
to a
U.S. permanent
establishment
and then,
only
on a
net basis.
The
gross
basis
U.S.
tax
(Code
section
887)
would
not
apply
under
these
circumstances.
Paragraph
2
provides
that undefined
terms
shall
be defined
according
to the
law of
the Contracting
State
whose
tax
is being
determined.
However,
if the
meaning
differs
from
that
under
the
law
of the
other
Contracting
State,
or if
it is
not
readily
determinable,
the
competent
authorities
may
establish
a common
meaning
for the
purposes
of the Convention.
This common
meaning
need
not conform
to the meaning
of the term
under
the
laws of
either
Contracting
State.
Article
4.
FISCAL
DOMICILE

This Article
defines
those persons
who are
residents of
the
United
States
or Tunisia
for purposes
of
the Convention.
Paragraph 1, as amended
by the Protocol, begins
by stating that a
resident of
a Contracting
State means
the State
itself or a
political subdivision
or
local authority
thereof and
any person
liable
to tax in
that State
by reason of
such person's
domicile,

residence,
place of management,
place of incorporation
or any
other similar
criterion.
A
U.S. citizen
or an
alien admitted
as
a permanent
resident
(a "green
card" holder)
who
resides outside
TUNISIA
97
Supp. No. 3 (1993)

-4­
the
United States
will
be considered
a
U.S. resident
for
Tunisian

tax
purposes
only
if the
individual
has
a substantial
presence,
permanent
home, or
habitual abode
in the United
States. For
this

purpose, "substantial
presence" is defined as
in Code section
7701 (b).
The reference
to "liable
to taxation"
in
this

paragraph does not cause a tax-exempt organization to lose its
status
as a resident.

Although the explicit
reference in the U.S.
Model to

partnerships was deleted in the interests of conformity with the

OECD
Model, it is understood
that a partnership is considered
a
resident of a Contracting
State only to the
extent that the
income it derives
is taxed as the income
of a resident of that
State. This understanding
applies
for purposes of
determining
the extent
to which the partnership
is entitled to treaty
benefits with respect
to the income which it
receives from the
other
Contracting State and the
extent to which a resident
of the

other Contracting
State is entitled to
treaty benefits with
respect
to
income paid
by
such person.

A person who
is a resident of only one
of the Contracting
States under their respective taxation laws need
look no
further

than paragraph 1. Paragraphs 2 and 3 address cases of dual
residence.

If an individual is considered a resident of both States
under their
respective domestic laws,
paragraph
2 provides
a
series of "tie breakers" to assign a single residence for
purposes of the Convention.
The first test is where the
individual
has a permanent home, i.e.
where he resides with his
family. If the individual has a permanent home in both States,
he is deemed
to be a resident of the
State with which his
personal and economic relations are closer. If that test is
inconclusive, or if he does not have a permanent home in either
State, the deciding factor is where he has a habitual abode. If

the individual has a habitual
abode in both States
or in neither

of them,
he is deemed to be a resident
of the State of which
he
is
a national. If nationality
fails to assign 3
single

residence, the competent
authorities are charged with
settling
the question.

Once an individual is determined to be a resident of a
Contracting State under paragraph 1 or 2, that definition of
residence
prevails for all purposes
of the Convention, including

the "saving clause" of Article 22 (General Rules).

Paragraph 3 provides that, where a person other than an
individual is a resident of both Contracting States, the
competent authorities will attempt to agree on a single
residence. Tunisia's standard
of residence for
companies is
based
on the place of effective
management.
TUNISIA
98
Supp.
No.
3 (1993)

-5­
Article
5. PERMANENT
ESTABLISHMENT

The rules governing the
taxation by a Contracting
State of
business
income derived by a resident
of the other State
utilize
the concept
of a "permanent
establishment".
Paragraph
1 of
this
Article defines that concept in general terms, and the following
paragraphs give
some specific illustrations.
Paragraph
2 identifies a place
of management, a branch,
an
office, a factory, a workshop, and a place of extraction, such as
a well or quarry, as examples
of a permanent establishment.
Paragraph 3 provides that certain activities constitute a
permanent establishment if they are carried on for more than a
specified period of
time. A building site,
a construction
project, an assembly or installation project, or an installation,
rig or ship
used in exploration or
development of natural
resources will be considered
a permanent establishment
if the
site, project, or activity continues for more than 183 days in
any 365 day period. Supervisory activities connected with such a
site, project, or activity are taken into account in measuring
the 183 day period. These time thresholds are meant to be
applied as explained in the commentaries to the OECD and UN model
draft income
tax Conventions. In each
case the 183 day period
begins when the enterprise first begins work at the construction
or drilling site or assembly or installation project, or when a
supervisor
begins work at such
a site or project. Temporary
interruptions
of work, for example, due
to weather or supply
shortages, do not stop the running of the time period. Each site
or project is considered separately. Paragraph 3 is similar, in
its scope and time threshold, to paragraph 3(a) of Article 5 of
the U.N. model.
Paragraph 4 enumerates certain activities which may be
undertaken in a Contracting
State by a resident
of the other
Contracting State without creating a permanent establishment.
Those activities,
(described in subparagraphs
(a) through (e)),
include using facilities or maintaining a stock of goods solely
for the
purposes of storage, display,
or delivery of goods
belonging to the enterprise; maintaining goods belonging to the
resident solely for the purposes
of processing by another
person;

maintaining
a fixed place of
business solely for the purpose
of
purchasing goods or
collecting information for
the resident; and

maintaining
a fixed place of business
solely for preparatory
or
auxiliary activities of the resident, such as advertising,
supplying
information,
or scientific research.
Under sub­
paragraph
(f), these activities
may be carried on
in combination
as long as the
overall activity remains
preparatory or auxiliary
to the principal activities
of the enterprise.
The limitation
contained
in subparagraph (f) relating
to the preparatory or aux­
iliary character
of a combination
of activities
is
a departure
from
the U.S. Model, but it
is consistent with the OECD
and
TUNISIA 99
Supp.
No.
3
(1993)

-6­
U.N. models and
has been included in some
other U.S. treaties,
especially with
developing
countries.

Paragraphs
5 and 6 describe the
permanent establishment
implications
of employees and
agents. An independent agent,
as
explained in paragraph
6, does not constitute a
permanent es­
tablishment of the enterprise(s)
using
his services.
Paragraph 5

provides that a person other than an independent agent who acts
in one of the Contracting States on behalf of a resident of the
other State is
considered a permanent establishment
of that re­
sident if he habitually concludes contracts for the resident,
unless his activities are limited to those described in paragraph

4 as
not constituting
a permanent establishment.

Paragraph 7
states that control of one
company by another
does not of itself cause either company to be a permanent
establishment of the other.

Paragraph 8 provides a
special rule for insurance
companies.
It comes from the UN model and was included at the request of
Tunisia.
An insurance company
which
is a resident of one
of the
Contracting States and which receives premiums from or insures
risks in the other State through a person other than an inde­
pendent agent described in paragraph 5 is considered to have a
permanent establishment in the other State; thus, such a person
constitutes a permanent establishment of the insurance company
even though he does not have the authority to conclude contracts
on its behalf.

Article 6. INCOME FROM REAL PROPERTY

This Article provides that income of a resident of a

Contracting State derived from real property situated in the
other Contracting State may be taxed in the Contracting State
where such property is situated. This rule applies to income
from the leasing or use in any form of real property, including
income from agriculture
or forestry. It applies
to income from
immovable property
of an enterprise or income from
such property

which is used for the performance of independent
personal

services.

The term "real property" is defined under the law of the
Contracting State
in which the property is
situated. However, it

includes
livestock and
equipment
used in agriculture or
forestry

and rights with respect
to the extraction of
minerals and other
natural
resources. Income on indebtedness
secured by immovable
property or by a right giving
rise to income from the
extraction
of
natural resources is not
considered income from immovable
property. Such income is treated as interest subject to the
provisions
of Article 11
(Interest).
This Article
does
not prescribe
the manner
in which
real
property income
is to
be taxed by the
State of source.
United
States law permits taxation
on a net basis. Tunisia
taxes on a
TUNISIA 100
Supp. No. 3 (1993)

-7­
net basis where the accounts
permit determination
of the net
income;
in other cases the tax may
be imposed on a calculated
basis of gross receipts less specified expenses.

Income from
immovable
property may
also be taxed in the
Contracting
State of which the beneficial
owner is a resident
or

citizen in accordance with paragraph 2 of Article 22 (General
Rules),
subject to relief from
double taxation
in accordance
with

Article 23 (Relief from Double Taxation).

Article 7. BUSINESS PROFITS

This Article
provides
rules for the
taxation by a Contracting

State of income from business activity carried on by a resident
of the other State.

Paragraph 1 provides that the business profits of a resident
of a Contracting State shall be taxable only by that State unless

the resident carries on or has carried on business through a
permanent establishment
in the other Contracting
State.

Article
III of the Protocol contains
an understanding of the

Contracting States regarding the implementation of this Article
and related provisions of Articles 10 (Dividends), 11 (Interest),

12 (Royalties), 13 (Capital Gains), 14 (Independent Personal
Services), and
21 (Other Income). The Protocol
incorporates the
principle of Code
section 864(c)(6) into the
Convention. Any
income or
gain attributable to a permanent
establishment (or,
in
the context of Articles
10, 11, 12, 13, 14 and 21,
a fixed base
as well) during
its existence is taxable
in the Contracting State

where
the permanent establishment
(or fixed base) is
situated
even if the payments
are deferred until after
the permanent
establishment (or fixed base) no longer exists.

Paragraph 2 provides that the profits to be attributed to the

permanent
establishment are those which
it might be expected
to
make if it were
an independent entity
engaged in the same or
similar activities
under the same or similar
conditions and
dealing
on an arm's length basis with
its home office and with
any other associated enterprises.
The term "attributable to"
means
that the limited "force-of-attraction"
rule of Code
section
864(c)(3)
does not apply for U.S. tax
purposes under the Conven­
tion. Profits may, however,
be from sources within
or without a
Contracting
State and be "attributable
to" a permanent
establish­
ment. Thus, for example,
items of income described
in
section
864(c)(4)(B) of the Code
which are attributable to
a permanent
establishment
in the United
States are subject to tax
by the
United States.

Paragraph
3 provides that
deductions shall be allowed
of
expenses
incurred
for
the purposes
of the
permanent establish­
ment, whether
incurred in the
State where the permanent
establishment
is located
or elsewhere.
Deductible
expenses
include
a reasonable
allocation to
the permanent
establishment
of
TUNISIA 101
Supp.
No.
3 (1993)

-8­
general
overhead
expenses,
including
administrative
and executive

expenses.
This
provision
was
taken
from the
OECD
Model.
It
is

understood
that
this
rule overrides
Tunisia's
statutory
limita­
tion
of
such
overhead
expense
deductions.
The
paragraph
adds
the

provision
of the
U.N.
model
that
payments
of interest,
royalties,

fees
and
commissions
by
a permanent
establishment
to
its home
office
are not
deducted
in
determining
the profits
of
the
perma­
nent
establishment
except
to the extent
that
they
represent
reimbursement
of
costs
incurred.

Paragraph
4
provides
that
the
mere
purchase
by
a permanent
establishment
of goods
or merchandise
for the
resident
of which
it is
a permanent
establishment
shall
not result
in profits
being

attributed
to the
permanent
establishment.

Paragraph
5 provides
that
the method
of
determining
profits
attributable
to a
permanent
establishment
shall
not
be
changed
from
year
to year
unless
there
is good
and
sufficient
reason
for

such
a
change.

Paragraph
6 provides
that,
where
business
profits
include
items
of income
dealt
with
separately
in other
articles
of
the
Convention,
the provisions
of those
separate
articles
override
the
provisions
of
this
Article.
Thus,
for example,
the
taxation

of income
from
international
shipping
and air
transport
is
dealt

with
in Article
8
(Shipping
and
Air Transport).
The
taxation
of

dividends,
interest,
and royalties
is
controlled
by Articles
10
(Dividends),
11
(Interest),
and
12 (Royalties);
however,
those
Articles
provide
that
where
the
assets
giving
rise
to dividends,

interest,
or royalties
derived
by
a resident
of a
Contracting
State
are effectively
connected
with a
permanent
establishment
or

fixed base of
that resident
in the other
Contracting
state, the
resulting
income
is taxable
on a
net basis
in accordance
with
this
Article
or
Article
14 (Independent
Personal
Services).

Paragraph 7
is a special
rule, inserted
at the
request of
Tunisia,
to
make it
clear
that
Tunisia
may tax
the
participants
in a Tunisian
joint venture
on their
shares in the
profits of the

joint venture.

Paragraph
8 was inserted
at the
request of
Tunisia to
permit
the tax
authorities
of a
Contracting
State
to apply
the provis­
ions
of internal
law in
determining
tax
liability
in cases
where
the information
available
to the
competent
authority
is not
adequate
to measure
accurately
the profits of
a permanent
estab­
lishment.
The Internal
Revenue
Service
would
have this
power
even in the absence
of such
a specific provision.
The
determina­
tion of profits
in such cases,
based on
the available
informa­
tion,
must be
done consistently
with the
principles
of
this
Article,
i.e.,
it
must
seek to
reflect
arm's
length
pricing
and
appropriaE-
Jeductions
of
expenses.
TUNISIA
102
Supp.
No.
3
(1993)

Article 8.
SHIPPING AND AIR
TRANSPORT

Paragraph 1 limits the right of a Contracting State to tax
income derived by an enterprise from the operation of ships or
aircraft in international
traffic. Tunisia may
tax only if the
effective management
of the enterprise is
in Tunisia (or, if the
effective management is on board a ship which either has its home
harbor in Tunisia or, if the home harbor is not known, is
operated by a resident of Tunisia); these rules come from the
OECD model.
The United States may tax only if the enterprise
is created under U.S. law. In effect, a Contracting State may
tax such income
only if the enterprise
is a resident of that
State for tax purposes under domestic law. A dual resident
company may be taxed by both States, subject to relief from
double taxation in accordance
with Article 23 (Relief
from
Double
Taxation). "International traffic" is defined in Article 3
(General Definitions). This Article takes precedence over
Article 7 (Business Profits).
Thus, each State must
exempt a
resident
of the other State even
if the income is attributable
to
a permanent establishment
in the
first State.
Paragraph 2 defines the scope of income eligible for the
exemption. Income from the operation of ships or aircraft in
international traffic
is defined to include
income from the
rental on a full or bareboat basis of ships or aircraft used in
international
traffic, if either the ship
or aircraft is used in

international
traffic by the
lessee or the rental income
is
occasional and accessory
to operating income.
Income derived
from the use, maintenance,
or leasing of containers
and related
equipment used in international traffic is covered by this
Article
if the income is occasional
and accessory to income
described in paragraph
1, i.e., if the resident
deriving
the
income is engaged in interiETonal shipping or aircraft opera­
tions
and the container
leasing
activity
is relatively
minor in
relation to
those operations.
Income
from the leasing
of
containers
by leasing companies not
engaged in international
shipping or air transport is covered by Articles 7 (Business
Profits)
or 14 (Independent Personal
Services),
which provide
for

taxation at source
only to the extent that
the income is
attributable
to a permanent establishment
or fixed base.

Paragraph 3 provides
that the provisions of
paragraph 1 also

apply to profits
from participation in a pool or other joint
business engaging
in international
shipping or air
transport.
Thus,
for example,
if a
Tunisian
and
an Algerian
airline

participate
in a joint venture
which flies to the
United States,

the share of
profits derived
by the Tunisian
airline
would be
exempt
from U.S. tax
under this provision.
As
with any benefit
of the
Convention,
the
enterprise
claiming
the benefit
must
be
entitled to
it under the
provisions of
paragraphs 5,
6 and 7 of
Article
25 (Mutual
Agreement
Procedure)
as
added by
the Protocol.

TUNISIA 103
Supp. No. 3 (1993)

-10­
Article
9. ASSOCIATED
ENTERPRISES

This Article complements
section 482 of the
Code and confirms

the
right of the Contracting
States to reallocate income
in
certain cases.
Under paragraph 1, if conditions
between associ­
ated enterprises in their
commercial or financial
relations
differ from those that would be made between independent enter­
prises, any profits that would, but for those conditions, have
accrued to one of the enterprises,
but by reason of
those condi­
tions have not so accrued, may be included in the profits of that

enterprise and taxed accordingly. This rule applies in cases
where an enterprise of a Contracting State participates directly

or indirectly
in the management, control,
or capital of an enter­
prise
of the other Contracting
State or the same persons
partic­
ipate directly
or indirectly in
the management, control,
or
capital of both.

Paragraph 2 describes the consequences of an adjustment made
by a Contracting State in accordance with paragraph 1. Where a
Contracting State makes such an adjustment, the other Contracting
State shall make an appropriate adjustment to the amount of tax
which it charged
the associated enterprise,
in order to avoid
double taxation. It is implicit in the language of the paragraph
that the other Contracting State agrees that the adjustment
reflects
the result which would occur
under arm's length condi­
tions. In determining
the amount of such
adjustments, other pro­
visions
of the
Convention are
to be taken
into account.
Thus
if,
as a result
of the adjustment,
one
enterprise is
determined to
have
made a distribution
of profits
to the other,
the provisions
of Article 10 (Dividends) may apply to the deemed distribution.
If necessary, the competent authorities shall consult to resolve
any
differences in the application
of these provisions.

If an adjustment is made
under paragraph 2 of
this Article
the correlative
adjustment
made by
the other Contracting
State
is

to
be implemented pursuant to
paragraph 2 of Article 25
(Mutual
Agreement
Procedure), notwithstanding
any time limits
in the
domestic law
of the Contracting States.
The saving clause of
paragraph 2 of Article 22 (General Rules) does not apply to
paragraph 2 of Article 9. Thus, even if the statute of limita­
tions has run, or there is a closing agreement between the
Internal Revenue
Service and
the taxpayer,
a refund of
tax
can be
made in order
to implement a correlative
adjustment. Statutory
or procedural
limitations,
however,
cannot be
overridden
to
impose
additional
tax, because,
under subparagraph
1 of
Article
22, the Convention cannot restrict any statutory benefit.

It is understood
that this Article
does not limit the
application
of
any internal
law
provisions
in either Contracting

State designed
to
place transactions
between related enterprises
on an arm's-length
basis.
Thus,
it does not limit
the right
of

the United States
to apply section 482
of the Code.

TUNISIA
104
Supp. No. 3 (1993)

-11­
Article
10. DIVIDENDS

This Article
governs the
taxation by
a
Contracting
State of
dividends
paid
by
a company
which
is a
resident
of that
State to
a resident
of the other
Contracting
State. It also
governs the
application
of
branch taxes
imposed in addition
to the
tax on
profits.
Dividends
may
be taxed
in both
Contracting
States,
in
the
country
of
source and
the country
of
residence.
Under
paragraph

2
of this
Article,
the tax imposed
by
the State
of source
may not

exceed
14 percent
of the
gross
amount of
the dividends
when
the
beneficial
owner
is a
company
which owns,
directly,
at least
25
percent of
the share capital
of the
distributing
company. The
tax
at source
in other
cases
may not
exceed
20 percent
of the
gross
amount
of the
dividends.
These
limitations
are
subject
to
the exceptions
in paragraph
3. (Further,
under paragraph
2 of
Article
22 (General
Rules)
these
limitations
do
not apply
to the

U.S. taxation
of
U.S. citizens
and
persons
who, under
Article
4
(Fiscal Domicile)
are U.S.
residents.)

Paragraph
3, as added
by the Protocol,
addresses
the taxation

of dividends
paid
by certain
U.S.
"pass-through"
entities.
Divi­
dends paid by
a U.S. Regulated
Investment
Company
are
taxable at

source at
not more than
20 percent
of the gross
amount, in
accordance
with
subparagraph
(b) of paragraph
2. Dividends
paid
by a U.S.
Real Estate
Investment
Trust are taxable
at source
at
not
more than 20
percent of the
gross amount
if the beneficial
owner
is an individual
resident
of Tunisia
owning an interest
of
less
than 25 percent in the
Real Estate Investment Trust;
in
other cases dividends paid
by such entities are subject
to tax in
accordance with domestic law.
Paragraph 4 (as renumbered by the Protocol) adopts the
definition
of "dividends" found in
the OECD Model. It adds
a
provision
which
permits either
Contracting
State to
treat as
dividends other claims,
including debt obligations,
which carry
the right
to participate
in profits,
to the extent
consistent
with domestic law.

Paragraph 5, as renumbered and amended by Articles III and IV

of the Protocol, provides
that this Article does not
apply if the

shareholding giving rise to the dividends is effectively con­
nected with a permanent establishment or fixed base which the
owner of the dividends
has or had in the Contracting
State of
which the distributing corporation is a resident. In such a case

the dividends are taxable
to the permanent establishment
or fixed

base in accordance with Article 7 (Business Profits) or Article
14 (Independent Personal Services), as appropriate.

Paragraph 6, as renumbered by the Protocol, provides that a
Contracting State may not tax dividends paid by a company which
is a resident of the other Contracting State except to the extent

that the dividends
are
paid to a resident of the first State or
TUNISIA 105
Supp.
No.
3
(1993)

-12­
that the
shareholding
is
effectively
connected
with
a permanent
establishment
or
fixed
base
in the
first State.
The right
to
tax

in
those
two
cases
derives
from
paragraph
2
of Article
22
(General
Rules)
and paragraph
5 of this
Article,
respectively.

Paragraph
7,
added by
the Protocol,
replaces
prior paragraph
6, which
authorized
the
imposition
of a
branch profits
tax
by
Tunisia,
to also
permit
the imposition
of
the U.S.
branch
taxes
enacted
by the Tax Reform
Act of
1986. Under
paragraph 7,
each
contracting State may impose
on a resident of the
other State a
tax in addition to
the corporate level tax on
the profits of a
permanent
establishment
in
the first-mentioned
State
and on
income
or gains
derived
with respect
to
real property
situated
in the first-nentioned
State.
The
tax base is
defined in
accordance
with domestic
laws,
but must be net
of the corporate
level tax.
In the United
States, the
branch profits
tax base is

the
"dividend
equivalent amount"
as defined
in Code
section
884(b),
which is roughly the amount
that would be distributed
as
a dividend if
the U.S. permanent
establishment
were
operating as

a locally
incorporated
subsidiary.
Under
the Convention,
the
dividend equivalent
amount
is determined
taking into
account not

only effectively
connected
profits
(or profits that
are
deemed
to

be effectively
connected) that are attributable
to a permanent
establishment in the United
States but also profits
from the
disposition
or operation of real estate
that are subject to net
basis taxation in the
United States under Article
6 (Income from
Real Property)
or Article 13
(Capital Gains).

The Contracting States
may also impose
a tax on excess
interest. Under
section
884(f)(1)(B),
excess interest
is
the
excess of the total amount
allowable as a deduction
in computing
the U.S.
effectively connected income
of a foreign corporation
over the total interest
paid by the foreign
corporation's U.S.
trade or business.
Under
the Convention,
the U.S. tax on excess

interest
applies
only to the excess
of interest which is deducti­
ble in computing net
U.S. tax on (1) profits
that are attribut­
able to a U.S.
permanent establishment of
a resident of Tunisia
or (2) income or gains
derived by a resident of
Tunisia with
respect to real property situated in the United States, over the
interest paid with respect to these amounts. The reference to
excess interest "allocable" to the permanent establishment means
any excess
of interest deductible over
interest paid as

determined under U.S. law.

The additional
taxes are limited to a
rate of not more than
14 percent,
reciprocally.
In the absence
of the Convention,
the

U.S. tax would be imposed at 30 percent
in both cases. The
Tunisian tax would be the corporate tax rate times the portion of
distributions by the home office deemed to be paid out of profits
of the Tunisian permanent establishment (comparable to the
"dividend equivalent
amount" of U.S. law); there
is not currently
a Tunisian tax on excess interest.
TUNISIA
106
Supp.
No.
3
(1993)

-13­
Article 11. INTEREST

This Article
governs the taxation by
a Contracting State of
interest derived from
sources within that State
by a resident of

the other
Contracting
State. The
taxation of certain excess
interest of a
permanent establishment or
trade or business is
covered
by paragraph 7
of Article 10 (Dividends).
Such
interest may be
taxed by both Contracting
States,
the
country
of source and
the country
of residence.
However, para­
graph
2 limits
the tax at source
to not more
than
15 percent
of
the gross
interest when the beneficial
owner of the interest
is
a resident of
the other State.
Notwithstanding
this
limitation,
however,
the saving
clause of paragraph
2 of Article
22 (General
Rules)
permits the United States
to tax its citizens and
persons
who under Article 4 (Fiscal Domicile) are U.S. residents as if
the
Convention had
not come into force.

Paragraph 3 provides
an exemption from tax
at source in
certain
cases. Neither Contracting
State may tax interest
beneficially owned by the
other Contracting State or
its politi­
cal
subdivisions or local authorities
or by any agency or
instru­
mentality
thereof which
is exempt from
income tax
in that other
State.
In addition,
interest
beneficially owned
by a financial
institution of
the other State
with respect
to loans
of at least
7
years duration,
and interest
paid by the
Government of
Tunisia
or a political authority
thereof on loans to
it by a U.S. resi­
dent are exempt
from tax
at source. In
the absence
of the Con­
vention,
there would
generally
be no U.S.
tax on portfolio
interest or on interest
derived by the Government
of Tunisia
which is exempt
under section
892 of the
Internal Revenue
Code,
and
a 30 percent
tax would
be withheld on
other interest.
The
Tunisian statutory
rate
of tax on interest
paid to
nonresidents
is generally 15 percent
(reduced from 20 percent
by 1990 tax
reforms.)

The
definition of
"interest"
in paragraph
4
is substantially
the same As that
in the U.S. Model. It is
amended to provide, by
cross-reference
to Article 10
(Dividends),
that in certain
cases
obligations
designated
as debt may
be treated as
giving use to
dividends
if
domestic
law so provides.
Thus, for
example,
income
from a
debt obligation
carrying
the right to
participate
in
profits is
not covered
by Article 11
to
the extent
characterized

as a dividend
under the laws
of the Contracting
State
in which
the income arises.

Paragraph
5 provides
that this
Article does
not apply
if the
indebtedness
giving
rise to
the interest
is effectively
connected

with a
permanent
establishment
or
fixed
base which
the
owner
of
the
interest
has or
had (See
Article
III of the
Protocol)
in the

State
where
the interest
has its
source.
In such
a case
the
interest
is taxable
to the
permanent
establishment
or
fixed base

in
accordance
with
the provisions
of
Article 7
(Business
Profits)

or 14
(Independent
Personal
Services),
as appropriate.

TUNISIA
107
Supp. No.
3 (1993)

-14­
Paragraph
6 defines
the source
of interest
payments
for
purposes
of this Article. Interest
is
deemed to arise in
a
Contracting
State
if paid
by a resident
of
that State.
However,

interest
which
is borne
by a
permanent
establishment
or
fixed
base in
a Contracting
State,
whether
of a resident
of
the other
Contracting
State
or of
a third State,
is
deemed to
arise in
the

State where
the
permanent
establishment
or
fixed
base is
situ­
ated.
This
rule applies where
the interest paid was incurred
in
connection
with
the
permanent
establishment
or
fixed base.
The
reference
to
the indebtedness
being "connected"
with such
perma­
nent establishment
or fixed
base does
not imply any
requirement
that
the interest
be
traced to
specific
debt.

Paragraph
7
provides
that, where
interest
paid
to a
related
person
exceeds
the amount
which
would be
paid to
an unrelated
person,
the excess
amount
is not
affected
by this
Article,
but
may
be taxed
by each
Contracting
State
in accordance
with
its
law,
including
other
provisions
of the
Convention
which
may be
applicable.
For
example,
if the excess
payment
is characterized

as a dividend, the provisions
of Article 10 (Dividends)
would be

applicable.

Article
12.
ROYALTIES

This Article
governs
the
taxation
by a Contracting
State
of
royalties
derived
from sources within
that State
by a resident
of

the other
Contracting
State.

Such royalties may be
taxed by both Contracting
States, the
country
of source and
the country of residence.
However, para­
graph
2, as amended by Article
VI the Protocol, limits the
tax
at
source when the beneficial owner of the royalties is a resident
of the other State. The
limits are 10 percent of the
gross pay­
ment for the rental of equipment and of remuneration for certain

technical or economic studies or technical assistance services,
and 15 percent of the
gross payment in other cases.
In the
absence of the Convention, the Tunisian statutory rate of with­
holding on royalties
paid to nonresidents would
be 21 percent
(the corporate tax rate of 35 percent, as reduced by the 1990 tax

reforms, applied to 60
percent of the gross payment),
and the
U.S. rate, 30 percent. The limitations provided in this para­
graph do not
apply to the U.S. taxation
of U.S. citizens and
persons who under Article 4 (Fiscal Domicile) are U.S. residents.

(See paragraph
2 of Article 22 (General
Rules)).

The 10 percent maximum rate applies to payments for the use
of, or right to use, industrial, commercial or scientific equip­
ment,
other than payments for
the rental of ships, aircraft
or
containers which are either exempt from tax under domestic law or

under Article 8 (shipping
and Air Transport) or are
taxable on a

net
basis under Articles 7 (Business
Profits) or 14 (Independent

Personal
Services). The 10 percent
maximum
rate also applies
to

remuneration derived by a resident of a Contracting State for (1)

technical
or economic studies
paid for
out of public funds
by the

TUNISIA
108
Supp. No. 3 (1993)

-15­
other Contracting
State
or a political
subdivision
or local
authority
thereof
and (2) the performance
of
accessory technical

services
related to the use of property
or rights giving rise
to

a royalty under this
paragraph if the services
are performed in
the
Contracting State where the
payment is sourced. For
example,

if
the Government of Tunisia
contracts with a U.S. resident
to
provide it a technical study of a water storage system or a plan

to control
erosion,
the
remuneration
for that study
may
be taxed

by Tunisia as a royalty, at a rate of not more than 10 percent of

the
gross payment,
without regard
to where
the work is
done. To

the extent that
the study is done in
the United States, the
source rule
of paragraph 6 permits the
Tunisian tax to be claimed

as a credit. In the case of remuneration for accessory technical

services, a Contracting
State may tax a
resident of the other
State only on income for
services performed in the first
State in
connection
with
a right or property
used there. For example,
if
a
U.S. manufacturer
grants rights
to an exclusive
manufacturing
process
to a Tunisian company
and, as part of that arrangement,
sends a consultant to Tunisia to train the licensees of the
process
in how to use it effectively,
the consultant's remunera­
tion
may be taxed
by Tunisia
as a royalty
at a rate of
not more
than 10 percent
of the gross payment for
the services rendered in
Tunisia.
The
15 percent
maximum
rate
applies to royalties
with
respect

to copyrights, including film or tape rentals, and with respect
to patents,
designs,
models, plans,
secret processes or formulas,

trademarks and information concerning industrial, commercial or
scientific
experience. It also
applies to gain on the
disposi­
tion of any such
right or property when
the amount realized is
contingent on the productivity,
use, or disposition
of the
property or right. Thus, a noncontingent payment for all rights

to such property or right is not a royalty.

The treatment
as royalties of payments
for the leasing of
equipment and for certain studies and accessory technical as­
sistance differs from the position of the U.S. Model, in which
such income constitutes
business profits
or personal service
income. It represents a concession by the United States to the
position
of Tunisia which, as a
developing country, seeks
to
preserve taxation at source of payments deducted from the

Tunisian tax base and paid to nonresidents.

This Article
does not
apply if the property
or rights giving

rise to the royalty are effectively connected with a
permanent
establishment or a fixed base which the recipient has or had (See

Article III
of the Protocol)
in the
Contracting State
where the
royalty arises. In that
case the provisions of
Article 7

(Business
Profits) or Article
14 (Independent Personal Services)

apply.

Paragraph 5
provides that, where a
royalty to a related
person exceeds the amount that would be paid to an unrelated
person, Article
12 applies only to the
extent of royalty payments

TUNISIA109
Supp. No. 3 (1993)

-16­
that
would have
been
made absent
such
special
relationships
(i.e.,
an arm's-length
royalty
payment).
The
excess
amount
is
not affected
by
this Article
but
may be
taxed
by
each
Contracting

State
in
accordance
with
its
law,
including
other
provisions
of
the
Convention
which
may
be
applicable.
For
example,
if
the
excess
payment
is characterized
as
a dividend,
the
provisions
of

Article
10
(Dividends)
would
be applicable.

Paragraph
6
defines
the
source
of
royalties
as
the
State
in
which
the
right
or
property
is
used,
or,
in
the
case
of
the
technical
or
economic
studies
referred
to
in
subparagraph
3(c),
the
State which
makes
the
payment.

Article
13.
CAPITAL
GAINS

This
Article
governs
the
taxation
by
a Contracting
State
of
gains
derived
by a
resident
of
the other
Contracting
State.

Gain
on the
disposition
of
real property
situated
in
one of
the Contracting
States
may
be taxed
by that
State.
Real property

situated
in
the
United
states
includes
a United
States
real
property
interest.
Thus,
the
United States
retains
its
right to

tax
in accordance
with
section
897
of the
Internal
Revenue
Code.

A
Contracting
State
may tax
gain
derived by
a resident
of the

other Contracting
State
from the
alienation
of movable
property
of
a permanent
establishment
or fixed
base
which
the
recipient
has
in the first-mentioned
State, including
such gain
from the
alienation
of the
permanent
establishment
or
fixed base.
Under
Article
III
of the Protocol,
a Contracting
State
may also
tax
gain
attributable
to a permanent
establishment
or fixed base
even

if
the payments
are
deferred
until after
the permanent
establish­
ment
or fixed
base no
longer
exists.
This provision
is
con­
sistent
with section
864(c)(6)
of
the Code.
However,
the
tax
imposed
by
section
864(c)(7)
would not
apply.
Nor does
Tunisia
impose
a tax
on the gain
on property
removed
from
a permanent
establishment
there.
In
particular,
it
is understood
that
neither country
treats the
removal from
its territory
of a
drilling
rig or similar
equipment
as a deemed
disposition subject

to tax on
the accrued
gain or on the
recapture of
depreciation
deductions.

Gain on the alienation
of ships, aircraft and related

equipment,
including
containers,
used in
international
traffic
may
be taxed in
Tunisia only
if the place
of effective management
of the enterprise deriving
the gain is Tunisia, and
by the United
States only if the
enterprise is created under
U.S. law. This
amounts
to taxation only by the
country of residence, but
recog­
nizes that a
company could
be a resident
of both States
if the
competent
authorities cannot agree
on a single residence
in
accordance
with paragraph
3 of Article
4 (Fiscal Domicile).
Gain

on
the alienation of all other
property, including corporate
securities (other
than stock included
within
the definition
of a

United States
real property interest),
may be taxed only by the
Contracting
State of which
the alienator is a resident.

TUNISIA
110
Supp.
No. 3(1993)

-17­
Article
14. INDEPENDENT
PERSONAL SERVICES

This Article
concerns the taxation
of income from the

performance of
independent personal services
by an individual who

is a resident of one
of
the Contracting States
when the services

are performed in the other Contracting State. Independent

personal services are, in
general terms, services performed
by an

individual
for his
own account
where
he receives
the
income and
bears the losses arising
from the services.
Generally, they
include personal
services
performed
by a self-employed
individu­
al, a sole proprietor,
or
a partner, but
not services
performed
as an employee
or an officer
of a company.
Services
performed as

a director
of a corporation
are typically
independent
services,
except
to the extent that the
director is also an officer
of the

corporation
(in which case Article
15 (Dependent Personal

Services)
applies,
or that
the remuneration
constitutes
a
distri­
personal
bution.
of profits,
in which case
Article 16
(Directors' Fees)
applies.
Paragraph
1 provides
that an
individual
resident
of
a
Contracting
State who
derives
income
from independent
services
may be taxed
on such
income by the
other Contracting
State
only if
the services
are performed
in that
other State
and
if.the
individual
meets
one or more
of three conditions:
a) he
is present
in that other State for more
than 183 days of the tax­
able year,
or b) the
income
is attributable
to
a fixed
base which
the
individual has in that other
State, or c) the gross
income
for such
services
exceeds
$7,500
during the
taxable
year.
The
State
of residence
(or citizenship)
may also
tax such
income,
subject
to providing
relief
from double
taxation
in
accordance
with'Article
23 (Relief
from Double
Taxation).

Paragraph
2 illustrates
the type
of services
which
may
be
covered
by this
Article. They
include, but
are not limited
to,
scientific,
literary,
artistic,
educational,
medical,
legal,
architectural,
engineering
and accounting
services.
Article
15.
DEPENDENT
PERSONAL
SERVICES

This Article
concerns
the taxation
of income
from
the

performance
of
personal
services as
an employee
or company
officer
when
the
person performing
the
services
is a resident
of

one
of the
Contracting
States
and
the
services
are performed
in
the
other Contracting
State.
Paragraph
1 provides
that
such
income
may
be taxed
in
the State
of
residence
of
the recipient
and, except
as provided
in paragraph
2, may also be
taxed in the

State
where
the services
are
performed.

Paragraph
2 sets
forth the
exceptions.
The other
(i.e.,
source)
State may
not tax
the remuneration
if the
individuaVlTs
present
in that State
for
not more
than 183
days in
the taxable
year
and the remuneration
is paid
by or
on
behalf
of an employer

who
is not
a resident
of that
State
and
is
not borne
as
such
or

reimbursed
(i.e.,
deducted)
by a
permanent
establishment
which
TUNISIA 111
Supp. No. 3 (1993)

-18­
the
employer has in that State.
Restated affirmatively,
if an
employee or company officer
who is a resident of
one of the
Contracting
States performs services
in the other Contracting
State,
the other State may
tax the remuneration for
those
services if:
a) the individual
remains
in that other
State for
more
than 183 days
in the taxable
year, or b)
the remuneration
is
paid
by an employer
which is a
resident of that
other State,
or
c) the remuneration
is
borne by a permanent
establishment
in that

other
State
of a nonresident
employer.

Paragraph 3 provides a
special rule for persons
regularly
employed
aboard a ship or aircraft
engaged in international
traffic. The effect
of the rule is that the
remuneration
for
such services is taxable
only
by the State of
which the operator
of the ship or aircraft is a resident. However, in accordance
with paragraph 2 of Article
22 (General Rules of Taxation)
each
State reserves the right to tax its residents and citizens.
Thus,
a U.S. resident or citizen
employed as a member of
the crew

of a Tunisian
aircraft would be subject
to U.S. tax on the re­
muneration for his services.
A foreign tax credit
would be
allowed
for any Tunisian income tax
paid on the remuneration
for

services performed outside the United States.

Income
dealt with in Article
16 (Directors' Fees),
Article 18

(Pensions,
etc.) and Article 19
(Governmental Functions)
is

governed by the provisions
of those Articles rather
than by this

Article.

Article
16. DIRECTORS' FEES
This Article provides that, when a company which is a
resident of a Contracting State pays a fee to a resident of the
other Contracting State for services rendered as a director of
that company, the fee may be taxed in the first-mentioned State
if it is treated in that State as a distribution of profits which

may not be claimed as a deductible expense by the company.
Remuneration and fees to an individual for services performed as

a director which are a deductible expense to the company are
covered under Article 14 (Independent Personal Services) or 15
(Dependent Personal Services), as appropriate. This Article is
similar to the corresponding provision in the U.S.-Belgium income
tax treaty.
Article 17. ARTISTES AND ATHLETES

This
Article provides exceptions
to the rules of Articles
14
(Independent Personal Services) and 15 (Dependent Personal
Services) for remuneration derived by an entertainer (such as a
theatre, motion picture, radio or television artiste or a mu­
sician) or an athlete.
The remuneration of producers,
directors,
technicians, and others who are not entertainers or athletes is
covered by Articles 14 and 15.
TUNISIA 112
Supp. No. 3 (1993)

-19­
When an
individual
who is a
resident of
one of the

Contracting
States performs as an entertainer
or athlete in the
other Contracting
State, the latter State
may tax the remunera­
tion for such services if the gross amount, including reimbursed
expenses, exceeds $7,500 U.S. dollars. This is a compromise be­
tween Tunisia's preferred position, which is to tax such income
at source with
no threshold (as in the OECD
and UN models), and
the U.S. model, which allows a higher threshold.

Paragraph
2 provides that, where
income for the performance
of personal services by an
entertainer or athlete does
not
accrue
to that individual
but is diverted to another
person, the income
may
be taxed in the State where
the services are performed,
not­
withstanding
the provisions of Articles
7 (Business Profits),
14
(Independent Personal Services) and 15 (Dependent Personal

Services).
This is an anti-abuse
rule, intended to have
the same

effect as the corresponding provision in the U.S. model.

Article
18. PENSIONS,
ETC.
This Article concerns
the taxation of pensions
(other than
for government
service), social security
benefits, annuities,
alimony, and
child support payments derived
by a resident of a
Contracting State.

Paragraphs la),
2 and 3 provide for exclusive
taxation by the
country
of residence of pensions
(other
than a public pension
for
services
performed in discharging governmental
functions) annui­
ties, and alimony.
Notwithstanding this
rule, the United States
may tax such income
derived by U.S. citizens who
are residents of
Tunisia in accordance with paragraph 2 of Article 22 (General
Rules). The Article
defines the terms "annuities"
and "alimony",
but leaves the definition of "pensions" to domestic law.
Paragraph 1b) provides
that social security benefits
paid by
one Contracting
State
to a resident
of the
other Contracting
State may be taxed
by both States. The country
of residence is
obligated to avoid double
taxation
in accordance with
Article 23.
In
the case of
the United
States, payments
under the
Railroad
Retirement Act are treated as social security payments.

Under
paragraph 4, child support
payments are exempt from
tax
in both States.
Under U.S.
law, such payments
are not taxable
to
the
recipient (and
are not deductible
by
the payor).
Under
Tunisian law
such payments,
like alimony,
are taxable
to the
recipient
(and
deductible
by the
payor).
Thus,
a rule
of taxa­
tion
only
by the residence
country
would
lead
to double
taxation
of child
support payments
made
by a U.S. resident
(not deductible
by the payor
for U.S. tax)
to a Tunisian
resident
(taxable by
Tunisia
to
the recipient).
The
Article avoids
that result by
providing
that neither
Contracting
State
will
tax child
support
payments
made to a resident
of the
other State.
This rule
does
not
require
the
United States
to allow a deduction
to the
payor;
the exemption
provided
applies
to the
recipient.
TUNISIA
113
Supp. No. 3 (1993)

-20­
Article
19.
GOVERNMENTAL
FUNCTIONS

This Article concerns
the taxation of
remuneration and

pensions
paid to individuals out
of public funds as compensation

for services rendered in
the discharge of governmental
functions.

Paragraph
1 deals with
remuneration
other than
pensions.
Payments
by a Contracting State
or a political subdivision
or
local authority
thereof to a citizen of
that State for services
rendered in discharging
governmental functions may
not be taxed
in the other
State. This rule also
appears in the U.S. Model.
Thus, for example,
a U.S. citizen working at the
U.S. Embassy In

Tunis will be
exempt from
Tunisian tax
on the compensation
for
those services. A citizen
of Tunisia or of a third
country simi­
larly employed
may be taxed by Tunisia
in accordance with its
domestic
law and any other international
obligations,
such
as the

Vienna
Convention
on Diplomatic
Relations;
typically,
such

individuals will
be host-country
residents
who are locally
hired.

Paragraph 2 provides
a different rule for pensions.
Pensions

paid
out of public funds of a
Contracting State or political
sub­
division or local
authority thereof to
an individual who is a
resident
of the other Contracting
State for past services
render­
ed in the discharge
of governmental functions
may be taxed only
in the State of
residence, unless the individual
is a citizen of

the paying State. This rule
is a departure from that
in the U.S.

Model, and represents
a concession to Tunisia's
strong position
that its residents deriving pensions (whether for private or
public sector employment) should be taxed on the same basis with­
out regard to where the pension originates. Thus, for example, a

former U.S. Government employee who after retirement becomes a
resident of Tunisia will be subject only to Tunisian income tax
on his pension, unless the individual is .a U.S. citizen. If he
is a U.S. citizen,
the United
States may
also tax,
and Tunisia
will provide
relief from
double taxation
in accordance
with
Article 23.

Paragraph
3 makes it clear that remuneration
or pensions paid

by
a Contracting State or a
political subdivision or local
au­
thority thereof with respect to services rendered in connection
with a trade
or business carried on
by either government or
by
a political subdivision
or local authority
thereof are not
covered
by this Article but
by the applicable provisions
of
Articles 14 (Independent
Personal Services), 15
(Dependent
Personal Services), or 17 (Artistes and Athletes). This treat­
ment is consistent with the U.S., OECD and U.N. Models, all of
which exclude
payments in respect of services
rendered in con­
nection with a business
carried on by the governmental
entity
paying the compensation or pension. Each Contracting State
applies
the rules of its domestic
law in determining
whether
services performed
in its territory constitute governmental

functions or are performed in connection with a trade or

business.

TUNISIA 114
Supp. No. 3 (1993)

-21­
An exception to the saving clause in paragraph 3b) of Article

22 (General Rules), preserves the benefit of this Article for a
resident of a Contracting State who is not a citizen or immigrant

of that State.

Thus, for example, the U.S. may not tax the salary of a
Tunisian
citizen who is a U.S.
resident without immigrant
status,

if the amount is paid
by the government of Tunisia
for services
in discharging
governmental
functions.

Article
20. STUDENTS
AND TRAINEES

Paragraph
1 of this Article
provides special tax rules
for
individual residents of one of the Contracting States who visit
the other Contracting State for the purpose of full-time educa­
tion or training.
Education or training includes
research,
pro­
vided in each case that the individual participates in a full-
time program consisting of study, research or training or any
combination of such activities.

The host State agrees to
exempt such individuals
from tax on:

a)
remittances from abroad for
their study or training, including

amounts for living expenses during the period of study or
training;
b) an award received from
a non-profit organization
(in

the case of a U.S. organization, one which qualifies under Code
section 501(c)(3); and c) not more than $4,000 per year of re­
muneration for personal
services. If the amount
earned exceeds

$4,000,
the exemption applies to the
first $4,000. The excess
is

taxable in accordance with
domestic law, taking into
account any

personal
exemptions
and deductions
allowable under
domestic
law.

The period of exemption
for individuals who qualify
under
paragraph
1 may
not exceed five
years from
the individual's
date
of arrival in the other State.

An exception
to the saving clause contained
in paragraph 3 b)

of Article 22 (General Rules), preserves the benefit of this
Article for a resident of a Contracting State who does not have
the status of
citizen or immigrant of that
State.
Thus, for ex­
ample, the U.S. may not tax
a student, apprentice or trainee
who

was a Tunisian
resident immediately
before arriving
in the United

States and
who becomes
a
U.S. resident
without immigrant
status,

if
the amount paid to
the individual
is exempt under Article
20.

Article
21. OTHER
INCOME

In general,
any item
of income derived
by a
resident of
a
Contracting
State and
not dealt with
in
one of
the preceding
articles
is taxable
only in
the State
of residence.
An item
of
income
is "dealt
with" in an
Article when
items in the same
cate­
gory are
addressed
or defined
in
the Article,
whether
or not
any
treaty benefit
is granted
to that item
of income.
This Article
deals
both with
types of income
which
are not dealt
with
elsewhere,
such as,
for example,
lottery
winnings,
and
also with

TUNISIA 115
Supp. No. 3(1993)

-22­
types
of income
dealt with
elsewhere
in
the Convention,
but
from

sources
in third
States,
and,
therefore,
not covered
by
the other

Articles.
The
exclusive
right
of
taxation
accorded
to
the resi­
dence
State
under paragraph
1
applies
whether
or not the
resi­
dence
State
exercises
its right
to
tax the
income
covered
by this

Article.

The general
rule
extends
to income
from
real
property
(as
defined
in paragraph
2 of
Article
6 (Income
From
Real
Property),

for
example, real
property located
in a third
State, even
if the

real
property
is part
of the business
property
of a permanent
establishment
or
fixed
base which
the
resident
maintains
in the
other
Contracting
State.
In such
a case,
the other
State
may not
impose
tax.
However,
other
income
derived
from a
right or
property
that
is
effectively
connected
with
a
permanent
es­
tablishment
or fixed
base
which the
resident
maintains
in the
other
Contracting
state
may be
taxed
in that
other
State
in
accordance
with Article
7 (Business
Profits)
or Article 14

(Independent
Personal
Services).
Thus,
in general,
third-country

income
which
is attributable
to
a permanent
establishment
main­
tained in
the United States
by a resident
of Tunisia
would be
taxable
by
the United
States.
However,
if a
Tunisian
resident
derives
income from
real property
located
in
a third
State which

is attributable
to the
resident's permanent
establishment
or
fixed base in the United
States, only Tunisia and not
the
United

States may
tax that
income.

This Article
is
subject
to the saving
clause
of paragraph
2
of Article
22 (General Rules) of
the Convention. Thus, the
United States
may tax
the income of
a resident
of Tunisia not
dealt
with elsewhere
in the
Convention,
if that resident
is a
citizen of
the United States.

Article 22. GENERAL RULES

This Article
clarifies the
relationship
of the Convention
to

other international agreements and to domestic law.

Paragraph 1
provides that the Convention
shall not be

construed to deny tax benefits available under domestic tax laws

or under the terms
of any other agreement between
the two States.

The Convention is intended to benefit taxpayers and not to make
them worse off than they would be in its absence. Thus,
a tax­
payer may always elect to rely on the rules of domestic law or of
another agreement between the Contracting States. A taxpayer may
not, however, make inconsistent
choices
between the rules of the
Code and the rules of the Convention. For example, a taxpayer
may not choose to apply
the Convention's permanent
establishment
rules to one U.S. business operation and the Code trade or
business rules to another to vary the treatment of profitable and
loss operations, but it could apply the Code trade or business
rules to all U.S. business operations and claim the reduced
withholding rate under the Convention on U.S. dividends not
effectively connected with a U.S. trade or business.
TUNISIA 116
Supp. No. 3 (1993)

-23­
Paragraph
2 provides
a "saving clause"
which
excepts the
residents
or citizens of a Contracting
State from treaty
benefits

conferred
by that
State. Each State also
preserves its right to

tax
certain former
citizens under
domestic law.
Taxation
based

on
citizenship
is currently applicable
only
in the United
States.

The reference to former citizens preserves the taxing rules of
Code section 877. Residence is defined under Article 4 (Fiscal

Domicile)
for all
purposes of
the Convention,
including
this
provision. Thus, a
U.S. resident alien, who under
the Convention

is determined to be a resident of Tunisia, is a resident of
Tunisia for all purposes of the Convention, including the limita­
tions of tax at source
provided, for example, in
Article 10
(Dividends). A U.S. citizen resident in Tunisia under the Con­
vention generally remains subject to U.S. tax on his worldwide
income in accordance
with the rules of
the Code.

Paragraph
3 provides
certain exceptions
to the
saving clause

of paragraph
2. Under paragraph
3 a), U.S. residents, as de­
termined under Article 4 (Fiscal Domicile), and U.S. citizens are

entitled
to certain treaty
benefits provided by the
United
States. Those
benefits are the right to
correlative adjustments

of tax provided under paragraph 2 of Article 9 (Associated Enter­
prises), the rule stated
in paragraph 1 of this
Article, and the

provisions
of Article 23 (Relief
from Double Taxation),
24

(Non-discrimination)
and 25 (Mutual
Agreement Procedure).

Under paragraph
3 b), individuals
who are not U.S. citizens
and are not permanent immigrants to the United States ("green
card" holders) are entitled to the treaty benefits granted by the

United States
to individuals working
for the Tunisian government
under Article 19 (Governmental
Functions), and to
students and
trainees under Article 20 (Students and Trainees), even if under

domestic
law they would otherwise
be considered U.S. resident
aliens. Since the introduction of Code section 7701(b) in 1984,

it is much
less likely that such a government
employee or student

would be treated as a U.S. resident under domestic law, but a
trainee might be so considered.

Article
23. RELIEF
FROM DOUBLE TAXATION

This Article specifies
the method by which
each of the
Contracting States
will avoid international
double
taxation of
its residents,
and in the case
of the United
States its citizens,

with respect to income subject to tax in the other Contracting
State.

Paragraph
1 provides
that the
United States
will allow
a
credit
for income
taxes paid to Tunisia,
as defined
in paragraphs

2 b) and
3 of Article 2 (Taxes Covered),
and an indirect (Code
section 902)
credit with respect
to Tunisian
tax
paid
on profits
distributed
as dividends by
a Tunisian corporation to
a U.S.
corporation
holding 10 percent or more
of its stock. The total
credit is subject
to the limitations of
U.S. law, including the
special
limitation
for purposes
of the alternative
minimum
tax.
TUNISIA117
Supp. No. 3 (1993)

-24­
The limitation is determined by applying the source rules of the

Internal
Revenue
Code.

Paragraph 2
provides that Tunisia will
allow a credit for
taxes
paid to the United States,
subject to the provisions
of
Tunisian
law which limit the credit
to the portion of pre-credit

Tunisian tax attributable
to the income which
may be taxed in the

United States.
Although this Article
permits Tunisia to tax U.S.

source income, subject to a foreign tax credit, it does not pre­
vent Tunisia from continuing to avoid double taxation by

exempting such income from tax in certain cases.

For
purposes of
this Article,
income is considered
to
arise
in a Contracting State if it
may be taxed in that State under the

provisions
of the
Convention
other than paragraph
2 of Article
22

(General Rules),
which permits taxation
on the basis of citizen­
ship in accordance
with
domestic
law.
However, as
noted above,
it is understood
that the limitation of
the U.S. credit takes
into account domestic law source
rules applicable in determining

such limitation.

The
saving clause of paragraph
2 of Article 22 (General
Rules) does not
apply to this
Article. Thus, the
United States

must grant the benefits
of this Article to its
citizens and
residents,
notwithstanding
any less
beneficial
Code provisions.

Article
24. NON-DISCRIMINATION

Paragraph
1 prohibits either
Contracting State
from imposing

other or more burdensome taxes or related
requirements on resi­
dents
who are nationals
of the other Contracting
State than
on
resident nationals of
the first State in
the same circumstances.

Unlike the corresponding
provision of the
U.S. Model, this pro­
vision
is limited
to persons
resident in
a Contracting
State,
because
Tunisia
considers
such
an approach to
be
more consistent

with the bilateral
scope of the Convention. It does not
imply on

the part
of either State an intent to discriminate on the
basis
of nationality
among nonresidents
who are otherwise
in the same
circumstances. (However, because the United States taxes its
nonresident
citizens on their
worldwide
income, U.S.
nationals
and
Tunisian nationals resident
outside the United States
are not

in the same circumstances.)

Paragraph
2 defines the
term "nationals"
to mean all

individuals possessing the
nationality of a Contracting
State and

all
legal persons,
partnerships,
and associations
deriving
their
status as such from
the laws in force in a Contracting
State.

Paragraph 3 ensures nondiscriminatory
taxation by each

Contracting State of
permanent establishments of
residents of the

other
Contracting
State
relative
to the taxation
of
enterprises
carried on
by residents of
that State. The branch
taxes author­
ized
by paragraph
7 of Article
10 (Dividends)
are explicitly
excepted from this provision.

TUNISIA 118
Supp.
No. 3 (1993)

-25­
It is
understood,
however,
that
the
requirement
of
Code
section
1446
that
any partnership
with
income
that
is effectively

connected
with
a U.S.
trade
or
business
withhold
tax
on amounts
allocable
to a foreign
partner
is not
a form
of
discrimination
within
the meaning
of
paragraph
2 of
this
Article,
notwith­
standing
the
fact that
the withholding
obligation
does not
apply

to
amounts
allocable
to U.S.
partners.
No distinction
is made
between
U.S. and
Tunisian
partnerships;
the
law
requires
in both

cases
that tax
be withheld
in
respect
of
the partnership
shares
of non-U.S.
partners.
The requirement
to
withhold
on
the

Tunisian
but not
the U.S.
partner's
share
is, like
other
with­
holding
on nonresidents
aliens,
a reasonable
method
for the
col­
lection
of tax
from persons
who
are not
continually
present
in
the
United
States.
If tax
has
been overwithheld,
the
partner
may

file
for a
refund.

Paragraph
4 provides
that, except
where
the
payments
are
considered
excessive
in
accordance
with
the provisions
of
para­
graph
1
of Article
9
(Associated
Enterprises),
paragraph
7
of
Article
11
(Interest),
or
paragraph
5
of Article
12
(Royalties),

interest,
royalties,
and other
disbursements
made
by a
resident
of a Contracting
State
to
a resident
of
the
other Contracting

State
shall
be
allowed
as a
deduction
in computing
taxable
income

in the
first State
to the
same extent
as
if the payment
were
made

to
a resident
of that
State.

Paragraph
5 prohibits
discriminatory
taxation of
resident
corporations
based
on their
ownership;
i.e. corporations
owned
by
residents
of
the other
Contracting
State
may not
be subject
to
more
burdensome
taxes
or connected
requirements
than corporations
owned
or controlled
by residents
of
the taxing
State
which are
engaged
in the
same
activities.
Certain
provisions
of U.S. law
relating
to the taxation
of
gain
on the liquidation
of a subsidiary
and to the
taxation
of
small business (subchapter S) corporations distinguish between
U.S.-owned and foreign-owned
corporations, but are not
considered
discriminatory
in the context
of paragraph
5.
Under
the Code, an 80% or
more controlled corporation
that
distributes appreciated
property to its
parent corporation in
complete
liquidation
of the subsidiary,
is not
taxed
on the
dis­
tribution as a general
rule. However, tax
is imposed on dis­
tributions
to parent corporations
that are tax-exempt organiza­
tions or, except
to the extent provided
in regulations, foreign
corporations. Eligibility for tax-free treatment on liquidating
distributions is not
based on the nationality
of the owners of
the distributing corporation,
but rather on whether such
owners

would be subject to corporate tax if they later sold or

distributed the same
property. The policy
of the provision
(section 367(e)(2)) is to
collect the U.S. corporate
tax on the
liquidating distribution of appreciated property; the provision
defers
tax on such a distribution
only if that tax
can be
TUNISIA 119
Supp. No. 3(1993)

-26­
collected
on a subsequent sale
or distribution. Similarly,
the
ineligibility of a
corporation with nonresident
alien share­
holders
to make the
election to
be an "S" corporation
(taxed
at
the shareholder level) is not due to the nationality or residence

of
its shareholders,
but to the
fact that
they are not subject
to

U.S.
tax on
a net basis
as are
U.S. shareholders.
The
purpose of

the election,
to permit individuals
to carry on business
in
corporate form subject to the individual income tax rates, would
not be achieved
by extending the election
to corporations owned
by
non-resident
aliens. The
provisions also
exclude corporations

with
other
types of shareholders,
such
as corporate
shareholders,

where
the purpose
of the provisions
cannot be
fulfilled or
their

mechanics
implemented.

Paragraph
5 does not
require
granting
the same
relief
for
family
circumstances
to nonresident
individuals as may
be
available to rdsident individuals.

The provisions
of this Article apply
not only
to the income
taxes
specified in Article 2 (Taxes Covered), but to all
taxes
imposed at
the national
level or by
a political
subdivision or
local authority.
*
The saving
clause
of paragraph
2 of Article
22
(General
Rules)
does not apply
to this Article,
by virtue
of the exception

in subparagraph
3
b) of Article
citizen
who is resident
in Tun
22.
isia
Thus,
may cl
for
aim
example,
benefits
a
in
U.S.
the
United States under this Article.
Article 25. MUTUAL AGREEMENT PROCEDURE

This
Article
provides
for
cooperation
between
the
competent
authorities
of the Contracting
States,
as defined
in Article
3
(General Definitions),
to resolve
cases of
double taxation.
Paragraph
1 provides
that,
if a resident
of one
of the
Contracting
States
considers
that
the action
of either
or
both
States
will
result in
taxation
not in
accordance
with the
Con­
vention,
he may
present
his case
to the
Contracting
State
of
which
he is
a resident.
If
the case
concerns
a complaint
of dis­
crimination
by the State
of residence
on the basis
of citizen­
ship, he
may present the
case to the
State of
which he is
a
citizen. In any case,
a person requesting assistance
from the
competent
authority
may
also avail
himself
of any
remedies
under
domestic
laws.
The
competent authority
to which
the case
is presented
is to

review the case and, if
the claim is justified, seek
a solution
either
independently
or in conjunction
with
the competent

authority
of the other
State.
Any
agreement
reached
by the
competent
authorities
will be
implemented
without
regard
to any
time or
procedural
limitations
of domestic
law. Thus,
for
example, the competent
authorities
will waive
the domestic
statute
of limitations
to make
a refund
under a competent
TUNISIA 120
Supp. No.
3 (1993)

-27­
authority
agreement.
However,
no additional
tax
will be
imposed

if the
statute
of
limitations
has
expired.

Paragraph
3
authorizes
the competent
authorities
to seek
a
mutual agreement
on any difficulty
arising
in applying
the Con­
vention and
on cases of double
taxation
arising from
situations
not directly
dealt with in the Convention.
For example, the
competent
authorities may agree
to a common definition of
a term
used in the Convention, to the characterization of a particular
item of income, or to the
appropriate allocation of
deductions.
They may also endeavor
to coordinate the provisions
of domestic
law
with respect
to
penalties
and interest.

Paragraph 4 of the Convention is deleted by the Protocol and
replaced by
paragraphs
5, 6, and 7.
Former paragraph
5 is re­
numbered
4. It
simply confirms
that the
competent authorities
may communicate directly, including meeting together, for the
purpose
of implementing
this Article.
Paragraphs 5 and 6 provide rules to prevent "treaty shopping"
by persons not intended to benefit from the provisions of the
Convention.
Paragraph 5 provides
that a resident of a Con­
tracting State, other
than an individual, may
not claim benefits
under the Convention
unless it meets any
of three alternative
tests. The first test has two parts: 1) more than 50 percent of
the
beneficial interest in such person, (or more than 50 percent
of the number of shares of each class of shares in the case of a
company) must
be owned by any combination
of individual U.S.
residents and citizens,
individual residents
of Tunisia,
and the
Governments
of the United States and
Tunisia; and 2) the income
of such person may not be used in substantial part, directly or
indirectly, to meet liabilities to persons other than those
identified above.
The 'term "substantial" is
not defined. De­
ductible payments
which are less than 50
percent of the relevant
income,
however, will generally not
be considered substantial,
although in appropriate circumstances a lower percentage of

income may be considered substantial. The term "income" in
subparagraph (a)(ii)
is to be interpreted
as "gross income"
under

U.S. law, as determined without regard to the residence of the
income recipient. Thus, in general, the term should be in­
terpreted to mean gross receipts less cost of goods sold.
The
purpose of the second condition
is to prevent residents
of third countries from setting up a company in a Contracting
State which
meets
the ownership requirements
but which passes
on
a large share
of its income through deductible
expenses, such as
interest and royalties, paid to third country residents. This
rule is
not meant to deny benefits
to companies which,
for
business
reasons, purchase
supplies from third countries.
The
focus is on liabilities
for interest, royalties
and certain com­
pensation, not on the
cost of goods sold. This
intent is con­
firmed in
subparagraphs b) and c),
which authorize benefits
to
persons deriving
income in connection
with an active
business in

the
country of residence and
to companies that are
publicly
traded, respectively.

TUNISIA 121
Supp. No. 3 (1993)

-28­
Subparagraphs
b) and c) recognize
that
a company which
is a
resident
of a Contracting
State
may be primarily
owned by
re­
sidents of third
countries and/or may make
substantial
deductible

payments
to residents of third countries
in the ordinary course
of
business. Subparagraph
b) authorizes treaty benefits
to
persons that carry
on an active business
in the Contracting State
of which
they are residents and derive
income from the other
State in connection with that active
business. Making or
managing
investments does not
constitute an active business
for
this purpose unless it is a banking or insurance activity carried

on by a bank or insurance company.

Companies
whose
principal class of
shares is regularly traded

in substantial volume
on a recognized stock exchange
are presumed

to be owned
by residents of
the
country
in which it
is so traded

and
thus to qualify
for treaty
benefits
under subparagraph
c).
The recognized
exchanges
for this
purpose are defined.
The
com­
petent
authorities
may agree
on additional
exchanges
in future as
appropriate.
Although the Convention
does not preclude agreement
on an exchange in
a third country, it is expected
that any ad­
ditional
exchanges agreed upon
would be in either the
United
States or Tunisia.

If any one of the three tests provided in paragraph 5 is
satisfied,
all items of income derived by the beneficial owners
from the other Contracting State are entitled to treaty benefits.

Claiming treaty benefits under paragraph 5 does not require
advance competent authority ruling or approval. The tax author­
ities may, of
course, on review, determine
that the taxpayer has

improperly interpreted the
paragraph and is not entitled
to the
benefits claimed.

Paragraph 6 provides
that in any case
where treaty benefits
are to be denied the competent authorities will consult. This
does not imply an obligation that there be agreement, but the
competent authority of the State denying benefits under paragraph

5 will first notify
the other Contracting
State of its decision
and the
reason for
it.

Paragraph 7 provides authority to the competent authorities
to grant treaty benefits to residents of the other Contracting
State
in certain cases even though
such persons do not
satisfy
any of the preceding
tests. This discretionary
provision
is not

addressed
to any particular situation,
but is intended to allow
some flexibility
if a case should arise
where the enumerated
tests
cause an unintended denial
of benefits. The taxing
State

must decide when that is the case.

This Article is not subject to the saving clause of paragraph
2 of Article
22 (General Rules). Thus,
for example, rules, de­
finitions, procedures, etc., which are agreed upon by the com­
petent authorities under this Article may be applied by the
United States
with respect to its citizens
and residents even if
TUNISIA 122
Supp. No.
3
(1993)

-29­
they differ
from the comparable
Code
provisions.
Similarly, as
indicated
above, U.S. law may
be overridden to provide refunds
of

tax to a U.S. citizen
or resident under this
Article.

Article
26. EXCHANGE
OF INFORMATION

This Article provides
that the competent authorities
shall
exchange information with respect to the taxes enumerated in
Article 2 (Taxes Covered) for the purpose of applying the Con­
vention or the domestic laws of the Contracting States concerning

taxes covered by the
Convention, provided that
the taxation under

the domestic
laws is not contrary
to
the Convention. The in­
formation exchanged may relate to nonresidents as well as to re­
sidents of a Contracting
State. The State receiving
information

under this
Article must keep it secret
in the same manner
as
information obtained
under its domestic
laws. The information
may
be made available only to
persons involved in the assessment,

collection, administration, or enforcement of the taxes covered
by the Convention, or in the prosecution or determination of
appeals in relation
to such taxes; and
the information may be
used
only for such purposes. It
may be disclosed in public
court
proceedings or in judicial decisions. The General Accounting
Office and
the tax-writing committees
of Congress may have access

to the information exchanged, in their capacity of overseeing the

administration of the U.S. income tax law, subject to the secrecy

requirements applicable
to domestic tax
information.

Paragraph
2 provides that
the obligation to exchange
information
under
this Article
does
not require
a Contracting
State to
carry out administrative measures
contrary to the laws
and practice of
either State, or to supply
information not ob­
tainable in that or
the other State under its
laws or tax ad­
ministration, or to
supply information which
would disclose any
trade secret
or which it is contrary
to the public policy of that
State to disclose. For
example, if one of the States
requests
the other to
furnish information
which
the first State
could not
obtain under its own
laws and practice, the second
State need not
comply with that request
even though its laws and practice
permit
it to collect
such information with respect
to domestic tax
claims.
Paragraph 3
provides that,
subject
to the conditions
of
paragraphs
1 and 2,
a Contracting
State will obtain
information
requested
by the
other Contracting
State
in the
same manner
and
to the
same extent
as if the tax
in question
were its own
tax,
even though
it may have
no tax interest
in the
particular case
to
which the request relates.
It is contemplated
that
the information
exchanged
under this
Article
may be on a
routine basis,
such as reporting
on income
payments made
and tax
withheld,
or
in response to
specific re­
quests.
The
competent
authorities
may
agree on
the items
of in­
formation
to
be furnished
routinely.
They may
also agree
to
furnish
information
spontaneously
which
they believe
to be
TUNISIA 123
Supp.
No.
3
(1993)

-30­
relevant in
applying the
Convention or
the
domestic
laws covered

by the Convention
and to
develop and
implement other
programs of

information exchange within the conditions of this Article.

Article 27. DIPLOMATIC AGENTS AND CONSULAR OFFICERS

This Article
confirms
that this Convention
does
not affect
any fiscal privileges afforded to diplomatic and consular
officials under international
law or other agreements.
Article 30. ENTRY INTO FORCE

The Convention
is
subject to ratification.
It enters
into
force on the date of the exchange of instruments of ratification,
which is
to take place in Washington,
D.C.. The withholding rate
reductions provided
for in Articles 10 (Dividends),
11 (Inter­
est), and 12 (Royalties) take effect with respect to dividends,
interest and royalties paid or credited on or after the first day
of the
fourth month after the Convention enters into force
or on
January 1 following the exchange of instruments of ratification,
whichever comes earlier. With respect to other taxes, the Con­
vention takes effect with
respect to taxable years
ending on or
after December
31 of the year in which the
Convention enters into

force.

Article 31.
TERMINATION

The Convention will
remain in force indefinitely
unless it is

terminated by either Contracting
State in accordance
with this
Article. Either State may
terminate the Convention
after
it has

been in force
for 5 years by giving notice
through diplomatic
channels
at least 6 months before
the
end of any calendar
year.
In that event, the
Convention will cease to have
force
and effect

for withholding
taxes on dividends,
interest and royalties paid
or credited and
for taxes on other income
of taxable years be­
ginning, on or after January 1 next following the expiration of
the notice period of 6 months or more.

PROTOCOL

The Protocol sets
forth
agreements with
respect to the

interpretation of
these points. Each has
been mentioned in
connection
with the
relevant article.

June 14, 1990

TUNISIA
124
Supp. No. 3(1993)