DEPARTMENT OF THE TREASURY TECHNICAL EXPLANATION

OF THE CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED STATES

OF AMERICA AND THE GOVERNMENT OF THE KINGDOM OF THAILAND
FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION
OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME
SIGNED AT BANGKOK ON NOVEMBER 26, 1996

INTRODUCTION

GENERAL EFFECTIVE DATE UNDER ARTICLE 30: 1 JANUARY 1998

This document is a technical explanation of the Convention between the United States
and Thailand which was signed on November 26, 1996 (the "Convention"). References in this
Explanation to the “U.S. Model” are to the United States Model Income Tax Convention,
published on September 30, 1996. The U.S. Model was published following negotiation of the
Convention, but the Convention reflects substantial consistency with the language and policies of
the U.S. Model. References to the "OECD Model" are to the Model Tax Convention on Income
and on Capital, published by the OECD in 1992, as subsequently amended. References to the
"U.N. Model" are to the United Nations Model Double Taxation Convention between Developed
and Developing Countries, published in 1980.

The Technical Explanation is an official guide to the Convention. It reflects the policies
behind particular Convention provisions, as well as understandings reached with respect to the
application and interpretation of the Convention.

TABLE OF ARTICLES

Article 1---------------------------------Personal Scope

Article 2---------------------------------Taxes Covered
Article 3---------------------------------General Definitions
Article 4---------------------------------Residence
Article 5---------------------------------Permanent Establishment
Article 6---------------------------------Income from Immovable (Real) Property
Article 7---------------------------------Business Profits
Article 8---------------------------------Shipping and Air Transport
Article 9---------------------------------Associated Enterprises
Article 10-------------------------------Dividends
Article 11-------------------------------Interest
Article 12-------------------------------Royalties
Article 13-------------------------------Gains
Article 14-------------------------------Branch Tax
Article 15-------------------------------Independent Personal Services
Article 16-------------------------------Dependent Personal Services
Article 17-------------------------------Directors' Fees
Article 18-------------------------------Limitation on Benefits
Article 19-------------------------------Artistes and Sportsmen
Article 20-------------------------------Pensions and Social Security Payments
Article 21-------------------------------Government Service
Article 22-------------------------------Students and Trainees
Article 23-------------------------------Teachers
Article 24-------------------------------Other Income
Article 25-------------------------------Relief from Double Taxation
Article 26-------------------------------Non-Discrimination
Article 27-------------------------------Mutual Agreement Procedure
Article 28-------------------------------Exchange of Information and Administrative Assistance
Article 29-------------------------------Diplomatic Agents and Consular Officers
Article 30-------------------------------Entry into Force
Article 31-------------------------------Termination

ARTICLE 1
Personal Scope

Paragraph 1

Paragraph 1 of Article 1 provides that the Convention applies to residents of the United
States or Thailand, except where the terms of the Convention provide otherwise. Under Article 4
(Residence) a person is generally treated as a resident of a Contracting State if that person is,
under the laws of that State, liable to tax therein by reason of his domicile or other similar
criteria. If, however, a person is considered a resident of both Contracting States, a single state of
residence is assigned under Article 4. This definition governs for all purposes of the Convention.

Certain provisions are applicable to persons who may not be residents of either
Contracting State. For example, Article 21 (Government Service) may apply to an employee of a
Contracting State who is resident in neither State. Paragraph 1 of Article 26 (Non-
Discrimination) applies to nationals of the Contracting States. Under Article 28 (Exchange of
Information), information may be exchanged with respect to residents of third states.

Paragraph 2

Paragraph 2 contains the traditional saving clause found in all U.S. treaties. The
Contracting States reserve their rights, except as provided in paragraph 3, to tax their residents
and citizens as provided in their internal laws, notwithstanding any provisions of the Convention
to the contrary. For example, if a resident of Thailand is present in the United States for less than
90 days to perform independent personal services, the income from the services is not
attributable to a fixed base in the United States, and he receives less than $10,000 in
remuneration, Article 15 (Independent Personal Services) would normally prevent the United
States from taxing the income. If, however, the resident of Thailand is also a citizen of the
United States, the saving clause permits the United States to include the remuneration in the
worldwide income of the citizen and subject it to tax under the normal U.S. Internal Revenue
Code (the “Code”) rules (i.e., without regard to Code section 894(a)).

For purposes of the saving clause, "residence" is determined under Article 4 (Residence).
Thus, if an individual who is not a U.S. citizen is a resident of the United States under the Code,
and is also a resident of Thailand under its law, and that individual has a permanent home
available to him in Thailand and not in the United States, he would be treated as a resident of
Thailand under Article 4 and for purposes of the saving clause. The United States would not be
permitted to apply its statutory rules to that person if they are inconsistent with the treaty. Thus,
an individual who is a U.S. resident under the Code but who is deemed to be a resident of
Thailand under the tie-breaker rules of Article 4 (Residence) would be subject to U.S. tax only to
the extent permitted by the Convention. However, the person would be treated as a U.S. resident
for U.S. tax purposes other than determining the individual’s U.S. tax liability. For example, in
determining under Code section 957 whether a foreign corporation is a controlled foreign
corporation, shares in that corporation held by the individual would be considered to be held by a
U.S. resident. As a result, other U.S. citizens or residents might be deemed to be United States
shareholders of a controlled foreign corporation subject to current inclusion of Subpart F income
recognized by the corporation. See, Treas. Reg. section 301.7701(b)-7(a)(3).

Under paragraph 2 each Contracting State also reserves its right to tax former citizens
whose loss of citizenship had as one of its principal purposes the avoidance of tax. This right
extends only for a period of 10 years following such loss. The United States also reserves its
right to tax former long-term lawful residents whose loss of residence status had as one of its
principal purposes the avoidance of tax as though the Convention had not come into force
(whether or not such person is determined to be a U.S. resident under Article 4 (Residence)).
This right, also, extends only for a period of 10 years following the loss of residence.

For purposes of these “expatriation” rules, the United States treats an individual as having
a principal purpose to avoid tax if
(a) the average annual net income tax of such individual for the period of 5
taxable years ending before the date of the loss of status is greater than $100,000, or
(b) the net worth of such individual as of such date is $500,000 or more.

The United States defines “long-term resident” as an individual (other than a U.S. citizen) who is
a lawful permanent resident of the United States in at least 8 of the prior 15 taxable years. An
individual shall not be treated as a lawful permanent resident for any taxable year if such
individual is treated as a resident of a foreign country under the provisions of a tax treaty
between the United States and the foreign country and the individual does not waive the benefits
of such treaty applicable to residents of the foreign country. Such a former citizen or long-term
resident is taxable in the United States in accordance with the provisions of section 877 of the
Code.

Paragraph 3

Some provisions of the Convention are intended to provide benefits by a Contracting

State to its citizens and residents that do not exist under its internal law. Paragraph 3 sets forth
certain exceptions to the saving clause that preserve these benefits for citizens and residents of
the Contracting States. Subparagraph (a) lists certain provisions of the Convention that are
applicable to all citizens and residents of a Contracting State, despite the general saving clause
rule of paragraph 2:
(1) Paragraph 2 of Article 9 (Associated Enterprises) grants the right to a correlative
adjustment with respect to income tax due on profits reallocated under Article 9.
(2) Paragraphs 2 and 5 of Article 20 (Pensions and Social Security Payments) deal with
social security benefits and child support payments, respectively. The inclusion of paragraph 2 in
the exceptions to the saving clause means that the grant of exclusive taxing right of social
security benefits to the paying country applies to deny, for example, to the United States the right
to tax its citizens and residents on social security benefits paid by Thailand. The inclusion of
paragraph 5, which exempts child support payments from taxation by the State of residence of
the recipient, means that if a resident of Thailand pays child support to a citizen or resident of the
United States, the United States may not tax the recipient.
(3) Article 25 (Relief from Double Taxation) confirms the benefit of a credit to citizens
and residents of one Contracting State for income taxes paid to the other.
(4) Article 26 (Non-Discrimination) requires one Contracting State to grant national
treatment to residents and citizens of the other Contracting State in certain circumstances.
Excepting this Article from the saving clause requires, for example, that the United States give
such benefits to a resident or citizen of Thailand even if that person is a citizen of the United
States.
(5) Article 27 (Mutual Agreement Procedure) may confer benefits by a Contracting State
on its citizens and residents. For example, the statute of limitations may be waived for refunds
and the competent authorities are permitted to use a definition of a term that differs from the
internal law definition. These benefits are intended to be granted by a Contracting State to its
citizens and residents.

Subparagraph (b) of paragraph 3 provides a different set of exceptions to the saving

clause. The benefits referred to are all intended to be granted to temporary residents of a
Contracting State (for example, in the case of the United States, holders of non-immigrant visas),
but not to citizens or to persons who have acquired permanent residence in that State. If
beneficiaries of these provisions travel from one of the Contracting States to the other, and
remain in the other long enough to become residents under its internal law, but do not acquire
permanent residence status (i.e., in the U.S. context, they do not become "green card" holders)
and are not citizens of that State, the host State will continue to grant these benefits even if they
conflict with the statutory rules. The benefits preserved by this paragraph are the host country
exemptions for the following items of income: government service salaries and pensions under
Article 21 (Government Service); certain income of visiting students and trainees under Article
22 (Students and Trainees); certain income of visiting teachers or researchers under Article 23
(Teachers); and the income of diplomatic agents and consular officers under Article 29
(Diplomatic Agents and Consular Officers).

Paragraph 4

Paragraph 4 states the generally accepted relationship both between the Convention and
domestic law and between the Convention and other agreements between the Contracting States
(i.e., that no provision in the Convention may restrict any exclusion, exemption, deduction, credit
or other benefit accorded by the tax laws of the Contracting States, or by any other agreement
between the Contracting States). For example, if a deduction would be allowed under the Code
in computing the U.S. taxable income of a resident of Thailand, the deduction also is allowed to
that person in computing taxable income under the Convention. Paragraph 4 also means that the
Convention may not increase the tax burden on a resident of a Contracting State beyond the
burden determined under domestic law. Thus, a right to tax given by the Convention cannot be
exercised unless that right also exists under internal law. The relationship between the non-
discrimination provisions of the Convention and other agreements is not addressed in paragraph
4 but in paragraph 5.

It follows that under the principle of paragraph 4 a taxpayer's liability for U.S. tax need
not be determined under the Convention if the Code would produce a more favorable result. A
taxpayer may not, however, choose among the provisions of the Code and the Convention in an
inconsistent manner in order to minimize tax. For example, assume that a resident of Thailand
has three separate businesses in the United States. One is a profitable permanent establishment
and the other two are trades or businesses that would earn taxable income under the Code but
that do not meet the permanent establishment threshold tests of the Convention. One is profitable
and the other incurs a loss. Under the Convention, the income of the permanent establishment is
taxable, and both the profit and loss of the other two businesses are ignored. Under the Code, all
three would be subject to tax, but the loss would be offset against the profits of the two profitable
ventures. The taxpayer may not invoke the Convention to exclude the profits of the profitable
trade or business and invoke the Code to claim the loss of the loss trade or business against the
profit of the permanent establishment. (See Rev. Rul. 84-17, 1984-1 C.B. 308.) If, however, the
taxpayer invokes the Code for the taxation of all three ventures, he would not be precluded from
invoking the Convention with respect, for example, to any dividend income he may receive from
the United States that is not effectively connected with any of his business activities in the
United States.

Similarly, nothing in the Convention can be used to deny any benefit granted by any
other agreement between the United States and Thailand. For example, if there were a Status of
Forces Agreement between the United States and Thailand that provides certain benefits for
military personnel or military contractors, those benefits or protections will be available to
residents of the Contracting States regardless of any provisions to the contrary (or silence) in the
Convention.

Paragraph 5

Paragraph 5 specifically relates to non-discrimination obligations of the Contracting

States under other agreements. The provisions of paragraph 5 are an exception to the rule
provided in paragraph 4 of this Article under which the Convention shall not restrict in any
manner any benefit now or hereafter accorded by any other agreement between the Contracting
States.

Subparagraph (a) of paragraph 5 provides that, notwithstanding any other agreement to

which the Contracting States may be parties, a dispute concerning whether a measure is within
the scope of this Convention shall be considered only by the competent authorities of the
Contracting States, and the procedures under this Convention exclusively shall apply to the
dispute. Thus, procedures for dealing with disputes that may be incorporated into trade,
investment, or other agreements between the Contracting States shall not apply for the purpose
of determining the scope of the Convention.

Subparagraph (b) of paragraph 5 provides that, unless the competent authorities

determine that a taxation measure is not within the scope of this Convention, the
nondiscrimination obligations of this Convention exclusively shall apply with respect to that
measure, except for such national treatment or most-favored-nation ("MFN") obligations as may
apply to trade in goods under the General Agreement on Tariffs and Trade ("GATT"). No
national treatment or MFN obligation under any other agreement shall apply with respect to that
measure. Thus, unless the competent authorities agree otherwise, any national treatment and
MFN obligations undertaken by the Contracting States under agreements other than the
Convention shall not apply to a taxation measure, with the exception of GATT as applicable to
trade in goods.

Subparagraph (c) of paragraph 5 defines a "measure" broadly. It would include, for

example, a law, regulation, rule, procedure, decision, administrative action or guidance, or any
other form of measure.

ARTICLE 2
Taxes Covered

This Article specifies the U.S. taxes and the taxes of Thailand to which the Convention
applies. Unlike Article 2 in the OECD Model, this Article does not contain a general description
of the types of taxes that are covered (i.e., income taxes), but only a listing of the specific taxes
covered for both of the Contracting States. With one exception, the taxes specified in Article 2
are the covered taxes for all purposes of the Convention. A broader coverage applies, however,
for purposes of Article 28 (Exchange of Information). Article 28 applies with respect to all taxes
imposed, in the case of the United States, under the Internal Revenue Code, and, in the case of
Thailand, under the Revenue Code and under the Petroleum Tax Act.

Paragraph 1

Subparagraph 1(a) provides that the United States covered taxes are the Federal income
taxes imposed by the Code. Although they may be regarded as income taxes, social security
taxes (Code sections 1401, 3101, 3111 and 3301) are specifically excluded from coverage. It is
expected that social security taxes will be dealt with in bilateral Social Security Totalization
Agreements, which are negotiated and administered by the Social Security Administration. State
and local taxes in the United States are not covered by the Convention. The U.S. taxes covered
are referred to in the Convention as “United States tax.”

In this Convention, like the U.S. Model, but unlike some U.S. treaties, the Accumulated
Earnings Tax and the Personal Holding Companies Tax are covered taxes because they are
income taxes and they are not otherwise excluded from coverage. Under the Code, these taxes
will not apply to most foreign corporations because of a statutory exclusion or the corporation's
failure to meet a statutory requirement. In the few cases where the taxes may apply to a foreign
corporation, the tax due is likely to be insignificant. Treaty coverage therefore confers little if
any benefit on such corporations.

Subparagraph 1(b) specifies the taxes of Thailand that are covered by the Convention are
the income tax and the petroleum income tax. The Thai covered taxes are referred to in the
Convention as “Thai tax.”

Paragraph 2

Under paragraph 2, the Convention will apply to any taxes that are identical, or
substantially similar, to those enumerated in paragraph 1, and which are imposed in addition to,
or in place of, the existing taxes after the date of signature of the Convention.

The paragraph also provides that the competent authorities of the Contracting States will
notify each other of significant changes in their taxation laws that affect their obligations under
the Convention. The use of the term "significant" means that changes must be reported that are of
significance to the operation of the Convention.

The competent authorities are also obligated to notify each other of official published
materials concerning the application of the Convention. This requirement encompasses materials
such as technical explanations, regulations, rulings and judicial decisions relating to the
Convention.

ARTICLE 3
General Definitions

Paragraph 1

Paragraph 1 defines a number of basic terms used in the Convention. Certain others are
defined in other articles of the Convention. For example, the term "resident of a Contracting
State" is defined in Article 4 (Residence). The term "permanent establishment" is defined in
Article 5 (Permanent Establishment). The terms "dividends," "interest" and "royalties" are
defined in Articles 10, 11 and 12, respectively. The introduction to paragraph 1 makes clear that
these definitions apply for all purposes of the Convention, unless the context requires otherwise.
This latter condition allows flexibility in the interpretation of the treaty in order to avoid results
not intended by the treaty's negotiators. Terms that are not defined in the Convention are dealt
with in paragraph 2.

Subparagraph 1(a) defines the term "person" to include an individual, an estate, a trust, a
partnership, a company and any other body of persons. The definition is significant for a variety
of reasons. For example, under Article 4, only a "person" can be a "resident" and therefore
eligible for most benefits under the treaty. Also, all "persons" are eligible to claim relief under
Article 27 (Mutual Agreement Procedure).
 This definition is more specific but not substantively different from the corresponding
provision in the OECD Model. Unlike the OECD Model, it specifically includes a trust, an
estate, and a partnership. Since, however, the OECD Model's definition also uses the phrase "and
any other body of persons," partnerships would be included, consistent with paragraph 2 of the
Article, to the extent that they are treated as "bodies of persons." Furthermore, because the
OECD Model uses the term "includes," trusts and estates would be persons. Under Article 3(2)
the meaning of the terms "partnership," "trust" and "estate" would be determined by reference to
the law of the Contracting State whose tax is being applied.

The term "company" is defined in subparagraph 1(b) as a body corporate or an entity

treated as a body corporate for tax purposes. In the case of the United States, the rules of Treas.
Reg. section 301.7701-2 generally will apply to determine whether an entity is an association
taxable as a corporation, and thus is a company, for purposes of the Convention. Similarly, in the
case of the United States, a publicly traded partnership that is treated as a corporation under
Code section 7704 will be treated as a company for purposes of the convention.

The terms "enterprise of a Contracting State" and "enterprise of the other Contracting
State" are defined in subparagraph 1(c) as an enterprise carried on by a resident of a Contracting
State and an enterprise carried on by a resident of the other Contracting State. The term
"enterprise" is not defined in the Convention, nor is it defined in the OECD Model or its
Commentaries. Despite the absence of a clear, generally accepted meaning for the term
"enterprise," the term is understood to refer to any activity or set of activities that constitutes a
trade or business. It is our understanding that the term encompasses an enterprise conducted
through an entity (such as a partnership) that is treated as fiscally transparent in the Contracting
State where the entity’s owner is resident. Further, an enterprise conducted by such an entity will
be treated as carried on by a resident of a Contracting State to the extent its partners or other
owners are residents. This approach is consistent with the Code, which under section 875
attributes a trade or business conducted by a partnership to its partners and a trade or business
conducted by an estate or trust to its beneficiaries.

An enterprise of a Contracting State need not be carried on in that State. It may be carried
on in the other Contracting State or a third state (e.g., a U.S. corporation doing all of its business
in Thailand would still be a U.S. enterprise).

Subparagraph 1(d) defines the term "international traffic." The term means any transport
by a ship or aircraft except when the vessel is operated solely between places in the other
Contracting State. This definition is applicable principally in the context of Article 8 (Shipping
and Air Transport).

The exclusion from international traffic of transport solely between places in the other
Contracting State means, for example, that carriage of goods or passengers solely between New
York and Chicago by a Thai carrier (if this were possible under U.S. law) would not be treated as
international traffic. The substantive taxing rules of the Convention relating to the taxation of
income from transport, principally Article 8 (Shipping and Air Transport), therefore, would not
apply to income from such carriage. The income would, however, be treated as business profits
under Article 7 (Business Profits), and therefore would be taxable in the United States only if
attributable to a U.S. permanent establishment of the Thai carrier, and then only on a net basis.
The gross basis U.S. tax imposed by section 887 would not apply under the circumstances
described. If, however, goods or passengers are carried by a carrier resident in Thailand from a
non-U.S. port to, for example, New York, and some of the goods or passengers continue on to
Chicago, the entire transport would be international traffic. This would be true if the international
carrier transferred the goods at the U.S. port of entry from a ship to a land vehicle, from a ship to
a lighter, or even if the overland portion of the trip in the United States was handled by an
independent carrier under contract with the original international carrier, so long as both parts of
the trip were reflected in original bills of lading. For this reason, the Convention refers, in the
definition of "international traffic," to "such transport" being solely between places in the other
Contracting State, while the OECD Model refers to the ship or aircraft being operated solely
between such places. The Convention's language is intended to make clear that, as in the above
example, even if the goods are carried on a different aircraft for the internal portion of the
international voyage than is used for the overseas portion of the trip, the definition applies to that
internal portion as well as the external portion.

Finally, a “cruise to nowhere,” i.e., a cruise beginning and ending in a port in the same
Contracting State with no stops in a foreign port, would not constitute international traffic.

Subparagraphs 1(e)(i) and (ii) define the term "competent authority" for the United States
and Thailand, respectively. The U.S. competent authority is the Secretary of the Treasury or his
delegate. The Secretary of the Treasury has delegated the competent authority function to the
Commissioner of Internal Revenue, who in turn has delegated the authority to the Assistant
Commissioner (International). With respect to interpretative issues, the Assistant Commissioner
acts with the concurrence of the Associate Chief Counsel (International) of the Internal Revenue
Service. The Thai competent authority is the Minister of Finance or his authorized
representative.

The term "United States" is defined in subparagraph 1(f) to mean the United States of
America, and, thus, is understood to include the states, the District of Columbia and the
territorial sea of the United States. The term does not include Puerto Rico, the Virgin Islands,
Guam or any other U.S. possession or territory. For certain purposes, the definition is extended
to include any area outside the territorial sea of the United States over which the United exercises
rights in accordance with international law and U.S. law with respect to natural resource
exploration and exploitation of the seabed and its subsoil. This extension of the definition
applies, however, only if the person, property or activity to which the Convention is being
applied is connected with such natural resource exploration or exploitation. Thus, it would not
include any activity involving the sea floor of an area over which the United States exercised
rights for natural resource purposes if that activity was unrelated to the exploration and
exploitation of natural resources.

Thailand is defined in subparagraph 1(g) to mean the Kingdom of Thailand, and, thus, is
understood to include the territorial sea of Thailand. For certain purposes, the definition is
extended to include any area adjacent to the territorial waters of Thailand over which Thailand
exercises rights in accordance with international law and Thai law, with respect to natural
resource exploration and exploitation of the seabed or its subsoil. This extension of the definition
applies, however, only if the person, property or activity to which the Convention is being
applied is connected with such natural resource exploration or exploitation. Thus, it would not
include any activity involving the sea floor of an area over which Thailand exercised rights for
natural resource purposes if that activity was unrelated to the exploration and exploitation of
natural resources.

The terms “a Contracting State” and “the other Contracting State” are defined in
subparagraph 1(h) to mean the United States or Thailand, depending on the context.

The term “tax” is defined in subparagraph 1(j) to mean United States tax and Thai tax,
depending on the context. Those two terms, in turn, are defined in Article 2 (Taxes Covered) to
refer to the U.S. and Thai taxes covered, respectively.

The term "nationals," as it relates both to the United States and to Thailand, is defined in
subparagraph 1(j). This term is relevant for purposes of Articles 21 (Government Service) and 26
(Non-Discrimination). A national of a Contracting States is
(1) an individual who is a citizen or national of that State, and
(2) any legal person, partnership, association or any other entity deriving its status, as
such, from the law in force in that State.

Paragraph 2 provides that in the application of the Convention, any term used but not
defined in the Convention will have the meaning that it has under the law of the Contracting
State whose tax is being applied, unless the context requires otherwise, or unless the competent
authorities agree to a common meaning. If the term is defined under both the tax and non-tax
laws of a Contracting State, the definition in the tax law is understood to take precedence over
the definition in the non-tax laws. There also may be cases where the tax laws of a State contain
multiple definitions of the same term. In such a case, the definition used for purposes of the
particular provision at issue, if any, should be used. If, however, the meaning of a term cannot be
readily determined under the law of a Contracting State, or if there is a conflict in meaning under
the laws of the two States that creates difficulties in the application of the Convention, the
competent authorities may, pursuant to Article 27 (Mutual Agreement Procedure), agree to a
common meaning in order to prevent double taxation or to further any other purpose of the
Convention. Likewise, if the definition of a term under either paragraph 1 of Article 3 or the tax
law of a Contracting State would result in a circumstance unintended by the treaty negotiators or
by the Contracting States, the competent authorities may agree to a common meaning of the
term. This is a case where “the context” requires the use of a different definition. The common
meaning agreed to need not conform to the meaning of the term under the laws of either
Contracting State.

It is understood that the reference in paragraph 2 to the law of a Contracting State means
the law in effect at the time the treaty is being applied, not the law as in effect at the time the
treaty was signed. The use of an ambulatory definition, however, may lead to results that are at
variance with the intentions of the negotiators and of the Contracting States when the treaty was
negotiated and ratified. The reference in both paragraphs 1 and 2 to the "context otherwise
requiring" a definition different from the treaty definition, in paragraph 1, or from the internal
law definition of the Contracting State whose tax is being imposed, under paragraph 2, refers to a
circumstance where the result intended by the Contracting States is different from the result that
would obtain under either the paragraph 1 definition or the statutory definition. Thus, the context
may require the use of a different definition. Flexibility in determining the appropriate definition
to use is required.

ARTICLE 4
Residence

This Article sets forth rules for determining whether a person is a resident of a
Contracting State for purposes of the Convention. As a general matter only residents of the
Contracting States may claim the benefits of the Convention, although certain benefits apply to
nationals of a Contracting State, whether or not the person is a resident. The treaty definition of
residence is to be used only for purposes of the Convention. The fact that a person is determined
to be a resident of a Contracting State under Article 4 does not necessarily entitle that person to
the benefits of the Convention. In addition to being a resident, a person also must qualify for
benefits under Article 18 (Limitation on Benefits) in order to receive benefits conferred on
residents of a Contracting State.

The determination of residence for treaty purposes looks first to a person's liability to tax
as a resident under the respective taxation laws of the Contracting States. As a general matter, a
person who, under those laws, is a resident of one Contracting State and not of the other need
look no further. That person is a resident for purposes of the Convention of the State in which he
is resident under internal law. If, however, a person is resident in both Contracting States under
their respective taxation laws, the Article proceeds, where possible, to assign a single State of
residence to such a person for purposes of the Convention through the use of tie-breaker rules.

Paragraph 1

The term "resident of a Contracting State" is defined in paragraph 1. In general, this

definition incorporates the definitions of residence in U.S. law and that of Thailand by referring
to a resident as a person who, under the laws of a Contracting State, is subject to tax there by
reason of his domicile, residence, citizenship, place of management, place of incorporation or
any other similar criterion. Thus, residents of the United States include aliens who are considered
U.S. residents under Code section 7701(b). The paragraph states that the term “resident of a
Contracting State” also includes the Government of a Contracting State, as well as political
subdivisions and local authorities.

Certain entities that are nominally subject to tax but that in practice rarely pay tax also
would generally be treated as residents and therefore accorded treaty benefits. For example,
RICs, REITs and REMICs are all residents of the United States for purposes of the treaty.
Although the income earned by these entities normally is not subject to U.S. tax in the hands of
the entity, they are taxable to the extent that they do not currently distribute their profits, and
therefore may be regarded as "liable to tax." They also must satisfy a number of requirements
under the Code in order to be entitled to special tax treatment.
 It is also generally accepted that an entity that would be liable for tax as a resident under
the internal law of a state but for a specific exemption from tax (either complete or partial) is a
resident of that state for purposes of paragraph 1. The practice of including as residents
organizations that are generally exempt from tax reflects the fact that under U.S. law, certain
organizations that generally are considered to be tax-exempt entities may be subject to certain
excise taxes or to income tax on their unrelated business income. Thus, a U.S. pension trust, or
an exempt section 501(c) organization (such as a U.S. charity) that is generally exempt from tax
under U.S. law is considered a resident of the United States for all purposes of the treaty.

Paragraph 1 provides that a person who is liable to tax in a Contracting State only in
respect of income from sources within that State will not be treated as a resident of that
Contracting State for purposes of the Convention. Thus, a consular official of Thailand who is
posted in the United States, who may be subject to U.S. tax on U.S. source investment income,
but is not taxable in the United States on non-U.S. source income, would not be considered a
resident of the United States for purposes of the Convention. (See Code section 7701(b)(5)(B)).
Similarly, although not stated explicitly in this Article, an enterprise of Thailand with a
permanent establishment in the United States is not, by virtue of that permanent establishment, a
resident of the United States. The enterprise generally is subject to U.S. tax only with respect to
its income that is attributable to the U.S. permanent establishment, not with respect to its
worldwide income, as is a U.S. resident.

A U.S. citizen or a nonresident alien lawfully admitted for permanent residence (a "green
card" holder), who is not a resident of Thailand under paragraph 1, will be treated as a U.S.
resident for purposes of the Convention only if such individual has a substantial presence,
permanent home or habitual abode in the United States. If such an individual is also a resident of
Thailand, he shall be considered a resident of both Contracting States and his residence for
purposes of this convention shall be determined under paragraph 2. Thus, a U.S. citizen or "green
card" holder who has no substantial presence, permanent home, or habitual abode in either
Contracting State generally will not be entitled to benefits under the Convention. (However, as
noted above in connection with Article 1 (Personal Scope), limited Convention benefits are
available to certain persons who are not residents of either Contracting State.)

Special problems are presented by fiscally transparent entities such as partnerships and
certain estates and trusts that are not subject to tax at the entity level because they are treated as
fiscally transparent under the laws of either Contracting State. Entities falling under this
description in the United States would include partnerships, common investment trusts under
section 584, grantor trusts and U.S. limited liability companies (“LLC’s”) that are treated as
partnerships for U.S. tax purposes.

It is our understanding that an item of income derived through such fiscally transparent
entities will be considered to be derived by a resident of a Contracting State if the resident is
treated under the taxation laws of the State where he is resident as deriving the item of income.

For example, if a Thailand corporation distributes a dividend to an entity that is treated as

fiscally transparent for U.S. tax purposes, the dividend will be considered to be derived by a
resident of the U.S. only to the extent that U.S. tax law treats one or more U.S. residents (whose
status as U.S. residents is determined, for this purpose, under U.S. tax law) as deriving the
dividend income for U.S. tax purposes. In the case of a partnership, the persons who are, under
U.S. tax law, treated as partners of the entity would normally be the persons whom the U.S. tax
law would treat as deriving the dividend income through the partnership. Also, it follows that
partners whom the U.S. treats as deriving the dividend income for U.S. tax purposes but who are
not U.S. residents under U.S. tax law may not claim a benefit for the dividend paid to the entity
under the Convention, because they are not residents of the United States for purposes of
claiming this treaty benefit. (If, however, the country in which they are treated as resident for tax
purposes, as determined under the laws of that country, has an income tax convention with
Thailand, they may be entitled to claim a benefit under that convention.) In contrast, if, for
example, an entity is organized under U.S. laws and is classified as a corporation for U.S. tax
purposes, dividends paid by a Thailand corporation to the U.S. entity will be considered derived
by a resident of the United States since the U.S. corporation is treated under U.S. taxation laws
as a resident of the United States and as deriving the income.

These results would obtain even if the entity were viewed differently under the tax laws
of Thailand (e.g., as not fiscally transparent in the first example above where the entity is treated
as a partnership for U.S. tax purposes or as fiscally transparent in the second example where the
entity is viewed as not fiscally transparent for U.S. tax purposes). Similarly, the characterization
of the entity in a third country is also irrelevant, even if the entity is organized in that third
country. The results obtain regardless of whether the entity is disregarded as a separate entity
under the laws of one jurisdiction but not the other, such as a single owner entity that is viewed
as a branch for U.S. tax purposes and as a corporation for Thai tax purposes. The results also
obtain regardless of where the entity is organized, i.e., in the United States, in Thailand, or in a
third country.

For example, income from Thailand sources received by an entity organized under the
laws of Thailand, which is treated for U.S. tax purposes as a corporation and is owned by a U.S.
shareholder who is a U.S. resident for U.S. tax purposes, is not considered derived by the
shareholder of that corporation even if, under the tax laws of Thailand, the entity is treated as
fiscally transparent. Rather, for purposes of the Convention, the income is treated as derived by
the Thai entity.

The rule also applies to trusts to the extent that they are fiscally transparent in either
Contracting State. For example, if X, a resident of Thailand, creates a revocable trust and names
persons resident in a third country as the beneficiaries of the trust, X would be treated as the
beneficial owner of income derived from the United States under the Code's rules. If Thailand
has no rules comparable to those in sections 671 through 679 of the Code then it is possible that
under Thai law neither X nor the trust would be taxed on the income derived from the United
States. In these cases it is to be understood that the trust's income would be regarded as being
derived by a resident of Thailand only to the extent that the laws of Thailand treat Thai residents
as deriving the income for tax purposes.

The taxation laws of a Contracting State may treat an item of income, profit or gain as
income, profit or gain of a resident of that State even if the resident is not subject to tax on that
particular item of income, profit or gain. For example, if a Contracting State has a participation
exemption for certain foreign-source dividends and capital gains, such income or gains would be
regarded as income or gain of a resident of that State who otherwise derived the income or gain,
despite the fact that the resident could be exempt from tax in that State on the income or gain.

Income will be considered derived through a fiscally transparent entity if the entity’s
participation in the transaction giving rise to the income, profit or gain in question is respected
after application of any source State anti-abuse principles based on substance over form and
similar analyses. For example, if a partnership with U.S. partners receives income arising in the
other Contracting State, that income will be considered to be derived through the partnership by
its partners as long as the partnership’s participation in the transaction is not disregarded for lack
of economic substance. In such a case, the partners would be considered to be the beneficial
owners of the income.

Paragraph 2

If, under the laws of the two Contracting States, and, thus, under paragraph 1, an
individual is deemed to be a resident of both Contracting States, a series of tie-breaker rules are
provided in paragraph 2 to determine a single State of residence for that individual. These tests
are to be applied in the order in which they are stated. The first test is based on where the
individual has a permanent home. If that test is inconclusive because the individual has a
permanent home available to him in both States, he will be considered to be a resident of the
Contracting State where his personal and economic relations are closest (i.e., the location of his
"center of vital interests"). If that test is also inconclusive, or if he does not have a permanent
home available to him in either State, he will be treated as a resident of the Contracting State
where he maintains an habitual abode. If he has an habitual abode in both States or in neither of
them, he will be treated as a resident of his Contracting State of citizenship. If he is a citizen of
both States or of neither, the matter will be considered by the competent authorities, who will
assign a single State of residence.

Paragraph 3

Paragraph 3 settles dual-residence issues for persons other than individuals. A

corporation is resident in the United States if it is created or organized under the laws of the
United States or a political subdivision thereof. In Thailand, a corporation is treated as a resident
of Thailand if it is incorporated there. Since the same test is used to determine corporate
residence under the laws of the United States and under the laws of Thailand, dual corporate
residence will not occur. If a person other than an individual or company is resident in both
Contracting States, the competent authorities shall determine by mutual agreement a single State
of residence for that person for purposes of the convention.

ARTICLE 5
Permanent Establishment

This Article defines the term "permanent establishment," a term that is significant for
several articles of the Convention. The existence of a permanent establishment in a Contracting
State is necessary under Article 7 (Business Profits) for the taxation by that State of the business
profits of a resident of the other Contracting State. Since the term "fixed base" in Article 15
(Independent Personal Services) is understood by reference to the definition of "permanent
establishment," this Article is also relevant for purposes of Article 15. Articles 10, 11 and 12
(dealing with dividends, interest, and royalties, respectively) provide for reduced rates of tax at
source on payments of these items of income to a resident of the other State only when the
income is not attributable to a permanent establishment or fixed base that the recipient has in the
source State. The concept is also relevant in determining when a Contracting State may impose a
branch tax under Article 14 (Branch Tax) and certain "other income" under Article 24 (Other
Income).

Paragraph 1

The basic definition of the term "permanent establishment" is contained in paragraph 1.

As used in the Convention, the term means a fixed place of business through which the business
of an enterprise is wholly or partly carried on.

Paragraph 2

Paragraph 2 lists a number of types of fixed places of business that constitute a

permanent establishment. This list is illustrative and non-exclusive. According to paragraph 2,
the term permanent establishment includes a place of management, a branch, an office, a factory,
a workshop, a warehouse, in relation to a person performing storage facilities for others, and a
mine, oil or gas well, quarry or other place of extraction of natural resources. As indicated in the
OECD Commentaries (see paragraphs 4 through 8), a general principle to be observed in
determining whether a permanent establishment exists under paragraphs 1 and 2 is that the place
of business must be “fixed” in the sense that a particular building or physical location is used by
the enterprise for the conduct of its business, and that it must be foreseeable that the enterprise’s
use of this building or other physical location will be more than temporary. The use of singular
nouns in this illustrative list is not meant to imply that each such place of business constitutes a
separate permanent establishment. In the case of mines or wells, for example, several such places
of business could constitute a single permanent establishment if the project forms a commercial
and geographical whole.

Paragraph 3

Paragraph 3 describes several additional activities or business sites that will constitute a
permanent establishment. Paragraph 3(a) adds that the term "permanent establishment" may
include a building site or a construction, assembly or installation project, or supervisory activities
connected with such sites or projects. It may include, as well, a drilling rig or ship used for the
exploration or exploitation of natural resources. The sites or activities described in subparagraph
(a) will constitute a permanent establishment only if they continue for a period or periods
aggregating more than 120 days within any twelve-month period. This limit does not apply to the
site of the actual production of oil or gas from a well or any other place of extraction of natural
resources, because such activity is dealt with in subparagraph (g) of paragraph 2.
 The 120-day test applies separately to each site or project. The count of days for purposes
of the 120-day threshold begins when work (including preparatory work carried on by the
enterprise) physically begins in a Contracting State. A series of contracts or projects by a
contractor that are interdependent both commercially and geographically are to be treated as a
single project for purposes of applying the 120-day threshold test. For example, the construction
of a housing development would be considered as a single project even if each house were
constructed for a different purchaser. Several drilling rigs operated by a drilling contractor in the
same sector of the continental shelf also normally would be treated as a single project.

If the 120-day threshold is exceeded in a twelve-month period, the site or project

constitutes a permanent establishment from the first day of activity within that twelve-month
period. In applying this paragraph, time spent by a sub-contractor on a building site is counted as
time spent by the general contractor at the site for purposes of determining whether the general
contractor has a permanent establishment. However, for the sub-contractor itself to be treated as
having a permanent establishment, the sub-contractor's activities at the site must last for more
than 120 days within any twelve-month period. If a sub-contractor is on a site intermittently time
is measured from the first day the sub-contractor is on the site until the last day (i.e., intervening
days that the sub-contractor is not on the site are counted) for purposes of applying the 120-day
rule.

These interpretations of paragraph 3(a) are based on the Commentary to paragraph 3 of

Article 5 of the OECD Model, which contains language similar to that in the Convention (except
for the absence in the OECD Model of a rule for drilling rigs). These interpretations are
consistent with the generally accepted international interpretation of the language in paragraph
3(a) of Article 5 of the Convention.

Paragraph 3(b) provides that the term "permanent establishment" encompasses the
furnishing of services, including consultancy services, by an enterprise of a Contracting State
through its employees or any other personnel engaged for that purpose if one of two tests are
satisfied. The activities will constitute a permanent establishment only if
(1) the activities for the same or a connected project continue within a State for a period
or periods aggregating more than 90 days within any twelve-month period, or,
(2) the services are performed within a State for a related enterprise within the meaning
of paragraph 1 of Article 9, in which case no time threshold must be met.

Services rendered for an unrelated enterprise within the country for a period or periods
aggregating less than 30 days in any taxable year will not cause a permanent establishment to
exist in that taxable year. That time will count, however, in determining whether the 90-day test
has been met. Thus, if services are performed in Thailand on behalf of a U.S. enterprise for 20
days at the end of year 1, continuing for an additional 80 days at the beginning of year 2, a
permanent establishment would exist in Thailand, because the 90-day threshold has been passed,
but there would be a permanent establishment only in year 2, and not in year 1, and, thus, only
the income of year two would be subject to tax in Thailand. As with respect to the 120-day
threshold discussed above, the count of days for purposes of the 90-day threshold begins when
work (including preparatory work carried on by the enterprise) begins in a Contracting State.
Paragraph 4

This paragraph contains exceptions to the general rule of paragraph 1, listing a number of
activities that may be carried on through a fixed place of business, but which nevertheless do not
create a permanent establishment. The use of facilities solely to store or display merchandise
belonging to an enterprise does not constitute a permanent establishment of that enterprise. The
maintenance of a stock of goods belonging to an enterprise solely for the purpose of storage or
display, or solely for the purpose of processing by another enterprise does not give rise to a
permanent establishment of the first-mentioned enterprise. The maintenance of a fixed place of
business solely for the purpose of purchasing goods or merchandise, or for collecting
information, for the enterprise, or for other activities that have a preparatory or auxiliary
character for the enterprise, such as advertising, or the supply of information do not constitute a
permanent establishment of the enterprise. Thus, for example, an employee of a U.S.
manufacturer gathering information as part of a market research project would not constitute a
permanent establishment of the manufacturer, even if the activity takes place through a fixed
place of business. Similarly, as explained in paragraph 22 of the OECD Commentaries, an
employee of a news organization engaged merely in gathering information would not constitute a
permanent establishment of the news organization.

Paragraph 5

Unlike the U.S. and OECD Models, subparagraphs (a) and (b) of paragraph 4 do not
carve out the use of facilities or the maintenance of a stock of goods solely for the purpose of
delivery from constituting a permanent establishment. Paragraph 5, however, adds that the term
"permanent establishment" shall be deemed not to include the use of facilities or the maintenance
of a stock of goods or merchandise for the purpose of occasional delivery of such goods or
merchandise. A permanent establishment does exist if deliveries are made on a regular basis
from a warehouse or other storage facility.

Paragraph 6

Paragraphs 6 and 7 specify when activities carried on by an agent on behalf of an

enterprise create a permanent establishment of that enterprise. Paragraph 6 sets forth three
conditions under which a dependent agent of an enterprise is deemed to constitute a permanent
establishment of the enterprise. The enterprise will have a permanent establishment in a State if
the agent has and regularly exercises in that State an authority to conclude contracts that are
binding on the enterprise. If, however, his activities are limited to those activities specified in
paragraphs 4 and 5 which would not constitute a permanent establishment if carried on by the
enterprise through a fixed place of business, the agent is not a permanent establishment of the
enterprise. The enterprise also will have a permanent establishment in that State if the agent
regularly secures orders in that State for the enterprise, even if the agent has no authority to
conclude contracts on behalf of the enterprise. In addition, the enterprise will have a permanent
establishment in that State if the agent maintains a stock of goods or merchandise belonging to
that enterprise in that State for the enterprise from which the agent regularly makes deliveries on
behalf of the enterprise.
Paragraph 7

Under paragraph 7, an enterprise is not deemed to have a permanent establishment in a

Contracting State merely because it carries on business in that State through an independent
agent, including a broker or general commission agent, if the agent is acting in the ordinary
course of his business as an independent agent. Thus, there are two conditions that must be
satisfied: the agent must be both legally and economically independent of the enterprise, and the
agent must be acting in the ordinary course of its business in carrying out activities on behalf of
the enterprise.

Whether the agent and the enterprise are independent is a factual determination. Among
the questions to be considered are the extent to which the agent operates on the basis of
instructions from the enterprise. An agent that is subject to detailed instructions regarding the
conduct of its operations or comprehensive control by the enterprise is not legally independent.

In determining whether the agent is economically independent, a relevant factor is the

extent to which the agent bears business risk. Business risk refers primarily to risk of loss. An
independent agent typically bears risk of loss from its own activities. In the absence of other
factors that would establish dependence, an agent that shares business risk with the enterprise, or
has its own business risk, is economically independent because its business activities are not
integrated with those of the principal. Conversely, an agent that bears little or no risk from that
activities it performs is not economically independent and therefore is not described in paragraph
7.

Another relevant factor in determining whether an agent is economically independent is

whether the agent has an exclusive or nearly exclusive relationship with the principal. Such a
relationship may indicate that the principal has economic control over the agent. A number of
principals acting in concert also may have economic control over the agent. The limited scope of
the agent's activities and the agent's dependence on a single source of income may indicate that
the agent lacks economic independence. Unlike the comparable provisions in the U.S. Model,
paragraph 7 provides that an agent will not be considered to be an independent agent within the
meaning of paragraph 7 when, by agreement between the agent and the enterprise, the activities
of the agent are devoted wholly or almost wholly on behalf of that enterprise or other enterprises
controlling, or controlled by, that enterprise. It should be borne in mind, however, that, in the
absence of such an agreement between the agent and the enterprise, exclusivity is not in itself a
conclusive test: an agent may be economically independent notwithstanding an exclusive
relationship with the principal if it has the capacity to diversify and acquire other clients without
substantial modifications to its current business and without substantial harm to its business
profits. Thus, exclusivity should be viewed as a pointer to further investigation of the
relationship between the principal and the agent. Each case must be addressed on the basis of its
own facts and circumstances.

Paragraph 8

Paragraph 8 clarifies that a company that is a resident of a Contracting State is not

deemed to have a permanent establishment in the other Contracting State merely because it
controls, or is controlled by, a company that is a resident of that other Contracting State, or that
carries on business in that other Contracting State. The determination whether a permanent
establishment exists is made solely on the basis of the factors described in paragraphs 1 through
7 of the Article. Whether a company is a permanent establishment of a related company,
therefore, is based solely on those factors and not on the ownership or control relationship
between the companies.

ARTICLE 6
Income from Immovable (Real) Property

This Article deals with the taxation of income from immovable, or real, property. The
two terms should be understood to have the same meaning.

Paragraph 1

The first paragraph of Article 6 states the general rule 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 in which the property is situated. The paragraph specifies that income
from real property includes income from agriculture and forestry. Paragraph 3 clarifies that the
income referred to in paragraph 1 also means income from any use of real property, including,
but not limited to, income from direct use by the owner (in which case income may be imputed
to the owner for tax purposes) and rental income from the letting of real property.

This Article does not grant an exclusive taxing right to the situs State; the situs State is
merely given the primary right to tax. The Article does not impose any limitation in terms of rate
or form of tax on the situs State.

Paragraph 2

The terms "immovable property" or “real property” are defined in paragraph 2 by

reference to the internal law definition in the situs State. In the case of the United States, the term
has the meaning given to it by Treas. Reg. § 1.897-1(b). In addition, paragraph 2 specifies certain
classes of property, including rights, that, regardless of domestic law definitions, are to be
included within the meaning of the terms for purposes of the Convention. It also specifies that
the terms do not include ships, boats, or aircraft in any event.

Paragraph 3

Paragraph 3 makes clear that all forms of income derived from the exploitation of real
property are taxable in the Contracting State in which the property is situated. In the case of a net
lease of real property, if a net election has not been made, the gross rental payment (before
deductible expenses incurred by the lessee) is treated as income from the property. Income from
the disposition of an interest in real property, however, is not considered "derived" from real
property and is not dealt with in this article. The taxation of that income is addressed in Article
13 (Gains). Also, the interest paid on a mortgage on real property and distributions by a U.S.
Real Estate Investment Trust are not dealt with in Article 6. Such payments would fall under
Articles 10 (Dividends), 11 (Interest) or 13 (Gains). Finally, dividends paid by a United States
Real Property Holding Corporation are not considered to be income from the exploitation of real
property: such payments would fall under Article 10 (Dividends) or 13(Gains).

Paragraph 4

This paragraph specifies that the basic rule of paragraph 1 (as elaborated in paragraph 3)
applies to income from real property of an enterprise and to income from real property used for
the performance of independent personal services. This clarifies that the situs country may tax
the real property income (including rental income) of a resident of the other Contracting State in
the absence of attribution to a permanent establishment or fixed base in the situs State. This
provision represents an exception to the general rule under Articles 7 (Business Profits) and 15
(Independent Personal Services) that income must be attributable to a permanent establishment
or fixed base, respectively, in order to be taxable in the situs State.

ARTICLE 7
Business Profits

This Article provides rules for the taxation by a Contracting State of the business profits
of an enterprise of the other Contracting State.

Paragraph 1

Paragraph 1 states the general rule that business profits (as defined in paragraph 8) of an
enterprise of one Contracting State may not be taxed by the other Contracting State unless the
enterprise carries on business in that other Contracting State through a permanent establishment
(as defined in Article 5 (Permanent Establishment)) situated there. If the enterprise has a
permanent establishment in the other Contracting State, that other State may tax the portion of
the enterprise's business profits which is attributable to the permanent establishment itself
(subparagraph 1(a)). Under certain circumstances, the State in which the permanent
establishment exists may also tax income of the enterprise attributable to sales in that other State
of goods or merchandise of the same kind as those sold through the permanent establishment
(subparagraph 1(b)), or to other business transactions carried on in that other State which are of
the same or similar kind as those effected through the permanent establishment (subparagraph
1(c)). The rules in subparagraphs (b) and (c) are of a type known as “limited force of attraction”
rules.

This limited force of attraction rule is similar to, but narrower than, a rule found in the
U.N. Model. Under the rule in the U.N. Model, if an enterprise of one Contracting State derives
income from the sale of goods or the carrying on of other business activities through a permanent
establishment situated in the other Contracting State, income derived directly by the enterprise
(i.e., not through the permanent establishment) from the sale of goods of the same or similar kind
as those sold through the permanent establishment or from the carrying on of activities of the
same or similar kind as those carried on through the permanent establishment may be attributed
to the permanent establishment. Countries that insist on including a limited force of attraction
rule see it as a means of preventing avoidance of their tax at source. The force of attraction rule
in this Convention focuses on its anti-abuse function. Its application is limited to situations in
which it can be shown that the transaction giving rise to the income was carried out outside the
permanent establishment in order to avoid taxation in the country in which the permanent
establishment is situated. For example, if the Bangkok office of a U.S. consulting firm provides
certain services to small companies in Thailand and a very large Thai company requires similar
services but on a scale too large for the permanent establishment to handle, the Thai company
might enter into a contract with the consulting firm's home office in the United States to provide
those services directly. The income from that transaction would not be attributed to the
permanent establishment because it could not be shown that the transaction was structured
through the U.S. office in order to avoid Thai tax. If, however, some small Thai companies are
served by the Bangkok office and other similar-sized companies are served directly from the
United States, it might be possible to show that services were carried out through the home office
to avoid Thai tax. If such a case were made, the income from these contracts with the home
office would be attributed to the permanent establishment.

The limited force of attraction rule in this Convention is narrower than the rule of Code
section 864(c)(3).

Paragraph 2

Paragraph 2 provides rules for the attribution of business profits to a permanent

establishment. The Contracting States will attribute to a permanent establishment the profits that
it would have earned had it been an independent enterprise engaged in the same or similar
activities under the same or similar circumstances. This language incorporates the arm's length
standard for purposes of determining the profits attributable to a permanent establishment. The
computation of business profits attributable to a permanent establishment under this paragraph is
subject to the rules of paragraph 3 for the allowance of expenses incurred for the purposes of
earning the profits.

The “attributable to” concept of paragraph 2 is analogous but not entirely equivalent to
the “effectively connected” concept in Code section 864(c). The profits attributable to a
permanent establishment may be from sources within or without a Contracting State. Thus, for
example, items of income described in section 864(c)(4) of the Code which are "attributable to" a
permanent establishment in the United States are subject to tax by the United States. In addition,
the "attributable to" concept does not incorporate the limited force of attraction rule of Code
section 864(c)(3), although the concept is subject to the limited force of attraction rules of
subparagraphs 1(b) and 1(c) described above.

Paragraph 3

Paragraph 3 provides that in determining the business profits of a permanent

establishment, deductions shall be allowed for the expenses incurred for the purposes of the
permanent establishment, ensuring that business profits will be taxed on a net basis. This rule is
not limited to expenses incurred exclusively for the purposes of the permanent establishment, but
includes a reasonable allocation or apportionment of executive and general administrative
expenses incurred for the purposes of the enterprise as a whole, or that part of the enterprise that
includes the permanent establishment. Deductions are to be allowed regardless of which
accounting unit of the enterprise books the expenses, so long as they are incurred for the
purposes of the permanent establishment. For example, a portion of the general administrative
expense recorded on the books of the home office in one State may be deducted by a permanent
establishment in the other if properly allocable thereto.

The paragraph specifies that the expenses that may be considered to be incurred for the
purposes of the permanent establishment include a reasonable amount of executive and general
administrative expenses. Unlike the U.S. Model, the paragraph does not specify that research and
development expenses and interest may also be allocated on a reasonable basis, but this is
understood to be implicit. This rule permits (but does not require) each Contracting State to
apply the type of expense allocation rules provided by U.S. law (such as in Treas. Reg. sections
1.861-8 and 1.882-5).

Paragraph 3 does not permit a deduction for expenses charged to a permanent

establishment by another unit of the enterprise. Thus, a permanent establishment may not deduct
a royalty deemed paid to the head office. Similarly, a permanent establishment may not increase
its business profits by the amount of any notional fees for ancillary services performed for
another unit of the enterprise, but also should not receive a deduction for the expense of
providing such services, since those expenses would be incurred for purposes of a business unit
other than the permanent establishment.

Paragraph 4

Paragraph 4 of this Article corresponds to paragraph 4 of Article 7 of the OECD Model.

The paragraph provides that a Contracting State may, where it is customary to do so under its
law and practice, determine the profits attributable to a permanent establishment on the basis of
an apportionment of the total profits of the enterprise. The paragraph clearly states, however, that
any such approach must be designed to approximate an arm’s length result.

Paragraph 5

Paragraph 5 provides that no business profits can be attributed to a permanent

establishment merely because it purchases goods or merchandise for the enterprise of which it is
a part. This rule applies only to an office that performs functions for the enterprise in addition to
purchasing. The income attribution issue does not arise if the sole activity of the office in the
host State is the purchase of goods or merchandise because such activity does not give rise to a
permanent establishment under Article 5 (Permanent Establishment). A common situation in
which paragraph 5 is relevant is one in which a permanent establishment purchases raw materials
for the enterprise's manufacturing operation conducted outside the United States and sells the
manufactured product. While business profits may be attributable to the permanent establishment
with respect to its sales activities, no profits are attributable to it with respect to its purchasing
activities.
Paragraph 6

Paragraph 6 provides that profits shall be determined by the same method of accounting
each year, unless there is good reason to change the method used. This rule assures consistent tax
treatment over time for permanent establishments. It limits the ability of both the Contracting
State and the enterprise to change accounting methods to be applied to the permanent
establishment. It does not, however, restrict a Contracting State from imposing additional
requirements, such as the rules under Code section 481, to prevent amounts from being
duplicated or omitted following a change in accounting method.

Paragraph 7

Paragraph 7 coordinates the provisions of Article 7 and other provisions of the

Convention. Under this paragraph, when business profits include items of income that are dealt
with separately under other articles of the Convention, the provisions of those articles will,
except when they specifically provide to the contrary, take precedence over the provisions of
Article 7. For example, the taxation of dividends will be determined by the rules of Article 10
(Dividends), and not by Article 7, except where, as provided in paragraph 5 of Article 10, the
dividend is attributable to a permanent establishment or fixed base. In the latter case the
provisions of Articles 7 or 15 (Independent Personal Services) apply. Thus, an enterprise of one
State deriving dividends from the other State may not rely on Article 7 to exempt those dividends
from tax at source if they are not attributable to a permanent establishment of the enterprise in
the other State. By the same token, if the dividends are attributable to a permanent establishment
in the other State, the dividends may be taxed on a net income basis at the source State’s full
corporate tax rate, rather than on a gross basis under Article 10 (Dividends).

As provided in Article 8 (Shipping and Air Transport), income derived from shipping and
air transport activities in international traffic and rental income incidental to such international
transport described in that Article is taxable, or exempt, only under the provisions of Article 8,
irrespective of whether it is attributable to a permanent establishment situated in the source State.

Paragraph 8

The term "business profits" is defined generally in paragraph 8 to mean income derived
from any trade or business.

In accordance with this broad definition, the term "business profits" is understood to
include income attributable to notional principal contracts and other financial instruments to the
extent that the income is attributable to a trade or business of dealing in such instruments, or is
otherwise related to a trade or business (as in the case of a notional principal contract entered
into for the purpose of hedging currency risk arising from an active trade or business). Any other
income derived from such instruments is, unless specifically covered in another article, dealt
with under Article 24 (Other Income).

Income earned by an enterprise from the furnishing of personal services is business

profits. Thus, a consulting firm resident in one State whose employees perform services in the
other State through a permanent establishment may be taxed in that other State on a net basis
under Article 7, and not under Article 15 (Independent Personal Services), which applies only to
individuals. The salaries of the employees would be subject to the rules of Article 16 (Dependent
Personal Services).

The paragraph specifies that the term "business profits" includes income derived by an
enterprise from the rental of ships, aircraft, and containers, including trailers, barges and related
equipment for the transport of containers if such income is not incidental to income from the
operation of ships or aircraft in international traffic (in which case it would be subject to Article
8 (Shipping and Air Transport)). The inclusion of such in business profits means that such
income earned by a resident of a Contacting State can taxed by the other Contracting State only
if the income is attributable to a permanent establishment in that other State, and, if the income is
taxable, it can taxed only on a net basis.

Paragraph 9

Paragraph 9 incorporates into the Convention the rule of Code section 864(c)(6). Like the
Code section on which it is based, paragraph 8 provides that any income or gain attributable to a
permanent establishment or a fixed base during its existence is taxable in the Contracting State
where the permanent establishment or fixed base is situated, even if the payment of that income
or gain is deferred until after the permanent establishment or fixed base ceases to exist. This rule
applies with respect to paragraphs 1 and 2 of Article 7 (Business Profits), paragraph 5 of Article
10 (Dividends), paragraph 5 of Article 11 (Interest), paragraph 4 of Article 12 (Royalties), and
paragraph 1(a) of Article 15 (Independent Personal Services) and paragraph 2 of Article 24
(Other Income).

Relation to Other Articles

This Article is subject to the saving clause of paragraph 2 of Article 1 (Personal Scope).
Thus, if a citizen of the United States who is a resident of Thailand under the treaty derives
business profits from the United States that are not attributable to a permanent establishment in
the United States, the United States may tax those profits, notwithstanding the provision of
paragraph 1 of this Article which would exempt the income from U.S. tax.

The benefits of this Article are also subject to Article 18 (Limitation on Benefits). Thus,
an enterprise of Thailand that derives income effectively connected with a U.S. trade or business
that does not constitute a permanent establishment under Article 5, may not claim the benefits of
Article 7 unless the resident carrying on the enterprise qualifies for such benefits under Article
18.

ARTICLE 8
Shipping and Air Transport

This Article governs the taxation of profits from the operation of ships and aircraft in
international traffic. The term "international traffic" is defined in subparagraph 1(d) of Article 3
(General Definitions).

Paragraph 1

Subparagraphs 1(a) and (b) provide, for United States and Thai residents, respectively,
that profits derived by a resident of a Contracting State from the operation of aircraft in
international traffic are taxable only in that Contracting State. Because paragraph 7 of Article 7
(Business Profits) defers to Article 8 with respect to shipping income, such income derived by a
resident of one of the Contracting States may not be taxed in the other State even if the resident
has a permanent establishment in that other State. Thus, if a U.S. airline has a ticket office in
Thailand, Thailand may not tax the airline's profits attributable to that office under Article 7.
Unlike most treaties, however, the exclusive residence State taxation rule applies only to income
from the operation of aircraft in international traffic, and not to income from the operation of
ships.

Paragraph 2

Paragraph 2 provides for limited source country taxation of income from the operation of
ships in international traffic. Under this paragraph, the amount of tax that may be imposed by a
Contracting State on profits derived by an enterprise of the other Contracting State from the
operation of ships in international traffic shall be reduced to 50 percent of the amount which
would have been imposed in the absence of the Convention. Thus, for example, under
subparagraph 2(b) the U.S. tax on the income of a Thai shipping company from the operation of
ships in international traffic would be limited to a maximum of 2 percent of the company's U.S.
source gross transportation income from such operation (under section 887 of the Code, the tax
rate is 4 percent).

Paragraph 3

Paragraph 3 provides that income from the operation of ships or aircraft in international
traffic also includes income from the rental of ships or aircraft if such rental income is incidental
to income described in paragraphs 1 or 2. Income from the rental of ships or aircraft is incidental
to income from the operation of ships or aircraft in international traffic if the lessor is a shipping
company or airline, and the ship or aircraft is part of the body of equipment used by the lessor in
its business as an international carrier. Such rental income, therefore, is treated the same as
income from the operation of aircraft and ships under paragraphs 1 and 2, respectively. Income
from the incidental rental of aircraft is taxable only by the State of residence of the lessor.
Income from the incidental rental of ships is taxable also by the source country only to the extent
of one-half of the tax that would be imposed in the absence of the Convention.

In addition, income of a resident of a Contracting State from the rental of ships or aircraft
on a full basis (i.e., with crew) when such ships or aircraft are used in international traffic is
treated as income of the lessor from the operation of ships and aircraft in international traffic
and, therefore, is exempt, in the case of aircraft, or taxable to the extent of one-half the otherwise
applicable tax in the case of ships, under paragraphs 1 and 2 respectively.
 Paragraph 3 does not specify, as does the comparable paragraph in the U.S. Model
(paragraph 2), that income earned by an enterprise from the inland transport of property or
passengers within either Contracting State falls within Article 8 if the transport is undertaken as
part of the international transport of property or passengers by the enterprise. The Convention
language is to be interpreted to mean the same as language in the U.S. Model, as evidenced by
the discussion in this Technical Explanation of the definition of international traffic in paragraph
1 of Article 3, even though the language of the U.S. Model definition and the Convention
definition differ. Thus, if a U.S. shipping company contracts to carry property from Thailand to a
U.S. city and, as part of that contract, it transports the property by truck from its point of origin
in Thailand to a Thai airport (or it contracts with a trucking company to carry the property to the
airport) the income earned by the U.S. shipping company from the overland leg of the journey
would be taxable only in the United States under paragraph 1 if the international transport is by
air. It would be subject in Thailand to half of the Thai tax otherwise applicable, under the
provisions of paragraph 2, if the international transport is by ship. Similarly, Article 8 also would
apply to income from lighterage undertaken as part of the international transport of goods.

Finally, certain non-transport activities that are an integral part of the services performed
by a transport company are understood to be covered in paragraphs 1 and 2, though they are not
specified in paragraph 3. These include, for example, the performance of some maintenance or
catering services by one airline for another airline, if these services are incidental to the provision
of those services by the airline for itself. Income earned by concessionaires, however, is not
covered by Article 8. These interpretations of paragraphs 1 and 2 also are consistent with the
Commentary to Article 8 of the OECD Model.

Paragraph 4

Paragraph 4 provides that income from the use, maintenance, or rental of containers
(including equipment for their transport) that is incidental to income from the operation of ships
or aircraft in international traffic is treated as income from the operation of ships or aircraft in
international traffic described in paragraphs 1 or 2. Thus, income from the use, maintenance or
rental of containers by a shipping or airline company, where those containers are part of the
equipment used by that company in international traffic, is subject to tax under the rules of
paragraphs 1 and 2, as appropriate. For example, income from the rental of containers by an
airline is taxable only in the country of residence of the airline. Income from the rental of
containers by a shipping company therefore is taxable by the source country; under this Article,
however, it is taxable at a rate no more than 50 percent of the tax that would be imposed in the
absence of the Convention.

Income from the use, maintenance or rental of containers that is not incidental to the
operation of ships or aircraft in international traffic is treated as business profits under the
definition in paragraph 8 of Article 7 (Business Profits). It is taxable by the source State,
therefore, on a net basis, and only when attributable to a permanent establishment in that State.

Paragraph 5
 Paragraph 5 clarifies that the provisions of paragraphs 1, 2 and 4 also apply to profits
derived by an enterprise of a Contracting State from participation in a pool, joint business or
international operating agency. This refers to various arrangements for international cooperation
by carriers in shipping and air transport. For example, airlines from the United States and
Thailand may agree to share the transport of passengers between the two countries. They each
will fly the same number of flights per week and share the revenues from that route equally,
regardless of the number of passengers that each airline actually transports. Paragraph 5 makes
clear that with respect to each carrier the income dealt with in the Article is that carrier's share of
the total transport, not the income derived from the passengers actually carried by the airline.

Relation to Other Articles

The taxation of gains from the alienation of ships, aircraft or containers is not dealt with
in this Article but in paragraph 2 of Article 13 (Gains).

As with other benefits of the Convention, the benefit of exclusive residence country
taxation or limited source-country taxation under Article 8 is available to an enterprise only if it
is entitled to benefits under Article 18 (Limitation on Benefits).

This Article also is subject to the saving clause of paragraph 2 of Article 1 (Personal
Scope). Thus, if a citizen of the United States who is a resident of Thailand derives profits from
the operation of aircraft in international traffic, notwithstanding the exclusive residence country
taxation in paragraph 1 of Article 8, the United States may tax those profits as part of the
worldwide income of the citizen.

Exchange of Notes

Diplomatic Notes exchanged at the time of the signing of the Convention, stated the
understanding that if Thailand agrees in a treaty or other agreement with any other country to
(1) a rate of tax on income or profits derived by residents of such other country on the
operation of ships that is lower than the rate specified in paragraph 2 (i.e., less than 50 percent of
the tax otherwise applicable), or
(2) treatment for the rental or use of containers in international traffic that is more
favorable than the treatment specified in paragraph 8 of Article 7 (Business Profits) or paragraph
4 of Article 8 (Shipping and Air Transport), then Thailand will agree to reopen negotiations with
the United States with a view to the conclusion of a Protocol which would extend such lower rate
or more favorable treatment to residents of the United States.

The agreement stated in these notes to reopen negotiations does not guarantee that agreement on
a Protocol will be reached. Any agreement that is reached to amend the Convention will be
subject to the normal ratification procedures in both countries.

ARTICLE 9
Associated Enterprises
 This Article incorporates in the Convention the arm's length principle reflected in the
U.S. domestic transfer pricing provisions, particularly Code section 482. It provides that when
related enterprises engage in a transaction on terms that are not arm's length, the Contracting
States may make appropriate adjustments to the taxable income and tax liability of such related
enterprises to reflect what the income and tax of these enterprises with respect to the transaction
would have been had there been an arm's length relationship between them.

Paragraph 1

This paragraph addresses the situation where an enterprise of a Contracting State is

related to an enterprise of the other Contracting State, and there are arrangements or conditions
imposed between the enterprises in their commercial or financial relations that are different from
those that would have existed in the absence of the relationship. Under these circumstances, the
Contracting States may adjust the income (or loss) of the enterprise to reflect what it would have
been in the absence of such a relationship.

The paragraph identifies the relationships between enterprises that serve as a prerequisite
to application of the Article. The necessary element in these relationships is effective control,
which is also the standard for purposes of section 482. Thus, the Article applies if an enterprise
of one State participates directly or indirectly in the management, control, or capital of the
enterprise of the other State. Also, the Article applies if any third person or persons participate
directly or indirectly in the management, control, or capital of enterprises of different States. For
this purpose, all types of control are included, i.e., whether or not legally enforceable and
however exercised or exercisable.

The fact that a transaction is entered into between such related enterprises does not, in
and of itself, mean that a Contracting State may adjust the income (or loss) of one or both of the
enterprises under the provisions of this Article. If the conditions of the transaction are consistent
with those that would be made between independent persons, the income arising from that
transaction should not be subject to adjustment under this Article.

Similarly, the fact that associated enterprises may have concluded arrangements, such as
cost sharing arrangements or general services agreements, is not in itself an indication that the
two enterprises have entered into a non-arm's length transaction that should give rise to an
adjustment under paragraph 1. Both related and unrelated parties enter into such arrangements
(e.g., joint venturers may share some development costs). As with any other kind of transaction,
when related parties enter into an arrangement, the specific arrangement must be examined to see
whether or not it meets the arm's length standard. In the event that it does not, an appropriate
adjustment may be made, which may include modifying the terms of the agreement or
recharacterizing the transaction to reflect its substance.

It is understood that the "commensurate with income" standard for determining

appropriate transfer prices for intangibles, added to Code section 482 by the Tax Reform Act of
1986, was designed to operate consistently with the arm's-length standard. The implementation
of this standard in the section 482 regulations is in accordance with the general principles of
paragraph 1 of Article 9 of the Convention, as interpreted by the OECD Transfer Pricing
Guidelines.

It is understood that the adjustments to income provided for in paragraph 1 do not

replace, but complement, the adjustments provided for under the internal laws of the Contracting
States. Even though it is not stated explicitly in the Convention, the Contracting States preserve
their rights to apply internal law provisions relating to adjustments between related parties. They
also reserve the right to make adjustments in cases involving tax evasion or fraud. Such
adjustments -- the distribution, apportionment, or allocation of income, deductions, credits or
allowances -- are permitted even if they are different from, or go beyond, those authorized by
paragraph 1 of the Article, as long as they accord with the general principles of paragraph 1, i.e.,
that the adjustment reflects what would have transpired had the related parties been acting at
arm's length. For example, while paragraph 1 explicitly allows adjustments of deductions in
computing taxable income, it does not deal with adjustments to tax credits. It does not, however,
preclude such adjustments if they can be made under internal law. The OECD Model reaches the
same result, as explained in paragraph 4 of the Commentaries to Article 9.

This Article also permits tax authorities to deal with thin capitalization issues. They may,
in the context of Article 9, scrutinize more than the rate of interest charged on a loan between
related persons. They also may examine the capital structure of an enterprise, whether a payment
in respect of that loan should be treated as interest, and, if it is treated as interest, under what
circumstances interest deductions should be allowed to the payor. Paragraph 2 of the
Commentaries to Article 9 of the OECD Model, together with the U.S. observation set forth in
paragraph 15, sets forth a similar understanding of the scope of Article 9 in the context of thin
capitalization.

Paragraph 2

When a Contracting State has made an adjustment that is consistent with the provisions
of paragraph 1, and the other Contracting State agrees that the adjustment was appropriate to
reflect arm's-length conditions, that other Contracting State is obligated to make a correlative
adjustment (sometimes referred to as a “corresponding adjustment”) to the tax liability of the
related person in that other Contracting State.

As explained in the OECD Commentaries, Article 9 leaves the treatment of "secondary

adjustments" to the laws of the Contracting States. When an adjustment under Article 9 has been
made, one of the parties will have in its possession funds that it would not have had at arm's
length. The question arises as to how to treat these funds. In the United States the general
practice is to treat such funds as a dividend or contribution to capital, depending on the
relationship between the parties. Under certain circumstances, the parties may be permitted to
restore the funds to the party that would have the funds at arm's length, and to establish an
account payable pending restoration of the funds. See, Rev. Proc. 65-17, 1965-1 C.B. 833.

The Contracting State making a secondary adjustment will take the other provisions of
the Convention, where relevant, into account. For example, if the effect of a secondary
adjustment is to treat a U.S. corporation as having made a distribution of profits to its parent
corporation in Thailand, the provisions of Article 10 (Dividends) will apply, and the United
States may impose a 10 percent withholding tax on the dividend. Also, if under Article 25 the
other State generally gives a credit for taxes paid with respect to such dividends, it would also be
required to do so in this case.

The competent authorities are authorized by paragraph 2 to consult, if necessary, to

resolve any differences in the application of these provisions. For example, there may be a
disagreement over whether an adjustment made by a Contracting State under paragraph 1 was
appropriate.

If a correlative adjustment is made under paragraph 2, it is to be implemented, pursuant

to Article 27 (Mutual Agreement Procedure), notwithstanding any time limits or other procedural
limitations in the law of the Contracting State making the adjustment. If a taxpayer has entered a
closing agreement (or other written settlement) with the United States prior to bringing a case to
the competent authorities, the U.S. competent authority will endeavor only to obtain a correlative
adjustment from Thailand. See, Rev. Proc. 96-13, 1996-1 C.B. 616, Section 7.05.

Relation to Other Articles

The saving clause of paragraph 2 of Article 1 (Personal Scope) does not apply to
paragraph 2 of Article 9 by virtue of the exceptions to the saving clause in paragraph 3(a) of
Article 1. Thus, even if the statute of limitations has run, 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 paragraph 4 of Article 1 provides that the
Convention cannot restrict any statutory benefit.

ARTICLE 10
Dividends

Article 10 provides rules for the taxation of dividends paid by a company that is a
resident of one Contracting State to a beneficial owner that is a resident of the other Contracting
State. The article provides for full residence country taxation of such dividends and a limited
source-State right to tax.

Paragraph 1

The right of a shareholder's country of residence to tax dividends arising in the source
country is preserved by paragraph 1, which permits a Contracting State to tax its residents on
dividends paid to them by a company resident in the other Contracting State. For dividends from
any other source paid to a resident of a Contracting State, Article 24 (Other Income) grants the
residence country exclusive taxing jurisdiction (other than for dividends attributable to a
permanent establishment or fixed base in the other State).

Paragraph 2

The State of source may also tax dividends beneficially owned by a resident of the other
State, subject to the limitations in paragraphs 2 and 3. Generally, the source State's tax is limited
to 15 percent of the gross amount of the dividend paid. If, however, the beneficial owner of the
dividends is a company resident in the other State that holds at least 10 percent of the voting
power of the company paying the dividend, then the source State's tax is limited to 10 percent of
the gross amount of the dividend. Indirect ownership of voting shares (through tiers of
corporations) and direct ownership of non-voting shares are not taken into account for purposes
of determining eligibility for the 10 percent direct dividend rate. Shares are considered voting
shares if they provide the power to elect, appoint or replace any person vested with the powers
ordinarily exercised by the board of directors of a U.S. corporation.

The benefits of paragraph 2 may be granted at the time of payment by means of reduced
withholding at source. It also is consistent with the paragraph for tax to be withheld at the time of
payment at full statutory rates, and the treaty benefit to be granted by means of a subsequent
refund.

Paragraph 2 does not affect the taxation of the paying company on the profits out of
which the dividends are paid. The taxation by a Contracting State of the income of its resident
companies is governed by the internal law of the Contracting State, subject to the provisions of
paragraph 4 of Article 26 (Non-Discrimination).

The term “beneficial owner” is not defined in the Convention, and is, therefore, defined
as under the internal law of the country imposing tax (i.e., the source country). The beneficial
owner of the dividend for purposes of Article 10 is the person to which the dividend income is
attributable for tax purposes under the laws of the source State. Thus, if a dividend paid by a
corporation that is a resident of one of the States (as determined under Article 4 (Residence)) is
received by a nominee or agent that is a resident of the other State on behalf of a person that is
not a resident of that other State, the dividend is not entitled to the benefits of this Article.
However, a dividend received by a nominee on behalf of a resident of that other State would be
entitled to benefits. Further, in accordance with paragraph 12 of the OECD Commentaries to
Article 10, the source State may disregard as beneficial owner certain persons that nominally
may receive a dividend but in substance do not control it. See also, paragraph 24 of the OECD
Commentaries to Article 1 (General Scope).

Companies holding shares through fiscally transparent entities such as partnerships are
considered for purposes of this paragraph to hold their proportionate interest in the shares held
by the intermediate entity. As a result, companies holding shares through such entities may be
able to claim the benefits of subparagraph (a) under certain circumstances. The lower rate applies
when the company's proportionate share of the shares held by the intermediate entity meets the
10 percent voting stock threshold. Whether this ownership threshold is satisfied may be difficult
to determine and often will require an analysis of the partnership or trust agreement.

Paragraph 3

Paragraph 3 provides rules that modify the maximum rates of tax at source provided in
paragraph 2 in particular cases. Paragraph 3 denies the lower direct investment withholding rate
of paragraph 2(a) for dividends paid by a U.S. Regulated Investment Company (RIC) or a U.S.
Real Estate Investment Trust (REIT). The paragraph also denies the benefits of subparagraph (b)
of paragraph 2 to dividends paid by REITs in certain circumstances, allowing them to be taxed at
the U.S. statutory rate (30 percent). The United States limits the source tax on dividends paid by
a REIT to the 15 percent rate when the beneficial owner of the dividend is an individual resident
of the other State that owns a less than 25 percent interest in the REIT. The rules of paragraph 3
will apply to dividends paid by companies resident in Thailand that are determined by mutual
agreement of the competent authorities to be similar to U.S. RIC's and REIT's.

The denial of the 10 percent withholding rate at source to all RIC and REIT shareholders,
and the denial of the 15 percent rate to all but less than 25 percent individual shareholders of
REITs is intended to prevent the use of these entities to gain unjustifiable source taxation
benefits for certain shareholders resident in Thailand. For example, a corporation resident in
Thailand that wishes to hold a diversified portfolio of U.S. corporate shares may hold the
portfolio directly and pay a U.S. withholding tax of 15 percent on all of the dividends that it
receives. Alternatively, it may acquire a diversified portfolio by purchasing shares representing a
10 percent or greater interest in a RIC. Since the RIC may be a pure conduit, there may be no
U.S. tax costs to interposing the RIC in the chain of ownership. Absent the special rule in
paragraph 2, use of the RIC could transform portfolio dividends, taxable in the United States
under the Convention at 15 percent, into direct investment dividends taxable only at 10 percent.

Similarly, a resident of Thailand directly holding U.S. real property would pay U.S. tax
either at a 30 percent rate on the gross income or at graduated rates on the net income. As in the
preceding example, by placing the real property in a REIT, the investor could transform real
estate income into dividend income, taxable at the rates provided in Article 10, significantly
reducing the U.S. tax burden that otherwise would be imposed. To prevent this circumvention of
U.S. rules applicable to real property, most REIT shareholders are subject to 30 percent tax at
source. However, since a relatively small individual investor who might be subject to a U.S. tax
of 15 percent of the net income even if he earned the real estate income directly, individuals who
hold less than a 10 percent interest in the REIT remain taxable at source at a 15 percent rate.

Paragraph 4

Paragraph 4 defines the term dividends broadly and flexibly. The definition is intended to
cover all arrangements that yield a return on an equity investment in a corporation as determined
under the tax law of the state of source, as well as arrangements that might be developed in the
future.

The term dividends includes income from shares, or other corporate rights that are not
treated as debt under the law of the source State, that participate in the profits of the company.
The term also includes income that is subjected to the same tax treatment as income from shares
by the law of the State of source. Thus, a constructive dividend that results from a non-arm's
length transaction between a corporation and a related party is a dividend. In the case of the
United States the term dividend includes amounts treated as a dividend under U.S. law upon the
sale or redemption of shares or upon a transfer of shares in a reorganization. See, e.g., Rev. Rul.
92-85, 1992-2 C.B. 69 (sale of foreign subsidiary’s stock to U.S. sister company is a deemed
dividend to extent of subsidiary's and sister's earnings and profits). Further, a distribution from a
U.S. publicly traded limited partnership, which is taxed as a corporation under U.S. law, is a
dividend for purposes of Article 10. However, a distribution by a limited liability company is not
taxable by the United States under Article 10, provided the limited liability company is not
characterized as an association taxable as a corporation under U.S. law. Finally, a payment
denominated as interest that is made by a thinly capitalized corporation may be treated as a
dividend to the extent that the debt is recharacterized as equity under the laws of the source State.
Moreover, the term "dividends" includes income from any arrangement, including debt
obligation, carrying the right to participate in profits, to the extent so characterized under the law
of the Contracting State in which the income arises.

Paragraph 5

Paragraph 5 excludes from the source country limitations under paragraph 2 and
paragraph 3 dividends paid with respect to holdings that form part of the business property of a
permanent establishment or a fixed base. Such dividends will be taxed on a net basis using the
rates and rules of taxation generally applicable to residents of the State in which the permanent
establishment or fixed base is located, as modified by the Convention. An example of dividends
paid with respect to the business property of a permanent establishment would be dividends
derived by a dealer in stock or securities from stock or securities that the dealer held for sale to
customers.

In the case of a permanent establishment or fixed base that once existed in the State but
that no longer exists, the provisions of paragraph 5 also apply, by virtue of paragraph 9 of Article
7 (Business Profits), to dividends that would be attributable to such a permanent establishment or
fixed base if it did exist in the year of payment or accrual. See the Technical Explanation of
paragraph 9 of Article 7.

Relation to Other Articles

The branch tax rules, which are frequently dealt with in the dividends article, are dealt
with in this Convention in a separate article, Article 14 (Branch Tax).

Notwithstanding the foregoing limitations on source country taxation of dividends, the

saving clause of paragraph 2 of Article 1 permits the United States to tax dividends received by
its residents and citizens as if the Convention had not come into effect.

The benefits of this Article are also subject to the provisions of Article 18 (Limitation on
Benefits). Thus, if a resident of Thailand is the beneficial owner of dividends paid by a U.S.
corporation, the shareholder must qualify for treaty benefits under at least one of the tests of
Article 18 in order to receive the benefits of this Article.

ARTICLE 11
Interest

Article 11 provides rules for the taxation of interest paid by a resident of one Contracting
State to a beneficial owner that is a resident of the other Contracting State. The Article provides
for full residence country taxation of such interest and a limited source country right to tax.

Paragraph 1

Paragraph 1 preserves the right of a Contracting State to tax interest paid to its residents
that arises in the other Contracting State. It does not limit the rate of tax or the manner in which
it may be imposed.

Paragraph 2

Paragraph 2 allows the State where interest arises, as defined in paragraph 6, to tax the
interest, except as provided in paragraph 3. If, however, the beneficial owner of the interest is a
resident of the other Contracting State, the tax may not exceed the maximum rates specified in
subparagraphs (a), (b) and (c). Subparagraph (a) applies to interest beneficially owned by any
financial institution (including an insurance company). The rate of tax at source on such interest
may not exceed 10 percent of the gross amount of the interest.

Subparagraph (b) applies to interest beneficially owned by a resident of the other

Contracting State that is paid on indebtedness arising out of a sale on credit by a resident of that
other State of any equipment, merchandise or services. Subparagraph (b) does not apply where
the sale was between persons not dealing with each other at arm's length. Subparagraph (b) also
imposes a ceiling of 10 percent of the gross amount of such interest.

Subparagraph (c) applies to all other categories of interest that are not dealt with in
paragraph 3. That subparagraph imposes a ceiling of 15 percent of the gross amount of such
interest.

The term “beneficial owner” is not defined in the Convention, and is, therefore, defined
as under the internal law of the country imposing tax (i.e., the source country). The beneficial
owner of the interest for purposes of Article 11 is the person to which the interest income is
attributable for tax purposes under the laws of the source State. Thus, if interest paid by a
resident of one of the States (as determined under Article 4 (Residence)) is received by a
nominee or agent that is a resident of the other State on behalf of a person that is not a resident of
that other State, the interest is not entitled to the benefits of this Article. However, interest
received by a nominee on behalf of a resident of that other State would be entitled to benefits.
Further, in accordance with paragraph 8 of the OECD Commentaries to Article 11, the source
State may disregard as beneficial owner certain persons that nominally may receive interest but
in substance do not control it. See also, paragraph 24 of the OECD Commentaries to Article 1
(General Scope).

Paragraph 3

As an exception to the limited, positive taxation at source under paragraph 2, paragraph 3

provides for exemption from source State taxation for interest paid to the Government of the
other Contracting State and for interest paid to a resident of the other Contracting State with
respect to debt obligations guaranteed or insured by the Government of that State.

Paragraph 3(a) defines the “Government of Thailand” for the purpose of this paragraph to
include the Bank of Thailand, the Export-Import Bank of Thailand, the local authorities, and
such financial institutions, the capital of which is wholly owned by the Government of Thailand
or by any local authority, as may be agreed by the competent authorities of the Contracting
States.

Paragraph 3(b) defines the Government of the United States for purposes of this
paragraph to include the Federal Reserve Banks, the Export-Import Bank, the Overseas Private
Investment Corporation, the states and local authorities, and such financial institutions, the
capital of which is wholly owned by the Government of the United States or by any state or any
local authority, as may be agreed by the competent authorities of the Contracting States.

Paragraph 4

The term "interest" is defined in paragraph 4 for purposes of Article 11. The term is
defined to mean income from debt claims of every kind, whether or not secured by a mortgage.
This includes income from Government securities and from bonds and debentures, and includes
premiums or prizes attaching to such securities. Interest that is paid or accrued subject to a
contingency is also within the ambit of Article 11. This includes income from a debt obligation
carrying the right to participate in the debtor’s profits. The term does not, however, include
amounts, that are treated as dividends under Article 10 (Dividends).

The term interest also includes amounts subject to the same tax treatment as income from
money lent under the law of the State in which the income arises. Thus, for purposes of the
Convention amounts that the United States will treat as interest include
(i) the difference between the issue price and the stated redemption price
at maturity of a debt instrument, i.e., original issue discount (OID), which may be
wholly or partially realized on the disposition of a debt instrument (section 1273),
(ii) amounts that are imputed interest on a deferred sales contract (section
483),
(iii) amounts treated as OID under the stripped bond rules (section 1286),
(iv) amounts treated as original issue discount under the below-market
interest rate rules (section 7872),
(v) a partner's distributive share of a partnership's interest income (section
702),
(vi) the interest portion of periodic payments made under a "finance lease"
or similar contractual arrangement that in substance is a borrowing by the nominal
lessee to finance the acquisition of property,
(vii) amounts included in the income of a holder of a residual interest in a
REMIC (section 860E), because these amounts generally are subject to the same
taxation treatment as interest under U.S. tax law, and
(viii) imbedded interest with respect to notional principal contracts.

Paragraph 5
 Paragraph 5 provides an exception to the rules of paragraphs 2 and 3 that limit the rate of
source country taxation of interest. This paragraph applies in cases where the beneficial owner of
the interest carries on business through a permanent establishment in the State of source or
performs independent personal services from a fixed base situated in that State and the interest is
effectively connected with that permanent establishment or fixed base, or with activities referred
to in subparagraphs (b) and (c) of paragraph 1 of Article 7 (Business Profits) (i.e., income from
activities similar to those carried on through the permanent establishment, but not carried on
through the permanent establishment for tax avoidance reasons). In these cases the provisions of
Article 7 (Business Profits) or Article 15 (Independent Personal Services) will apply and the
State of source will retain the right to impose tax on such interest income, consistent with the
rules of those Articles.

In the case of a permanent establishment or fixed base that once existed in the State but
that no longer exists, the provisions of paragraph 5 also apply, by virtue of paragraph 9 of Article
7 (Business Profits), to interest that would be attributable to such a permanent establishment or
fixed base if it did exist in the year of payment or accrual. See the Technical Explanation of
paragraph 9 of Article 7.

Paragraph 6

Paragraph 6 provides rules for sourcing interest. Generally, interest is deemed to arise in
a Contracting State when the payer is the State itself, a political subdivision, a local authority or
a resident of that State. When the payer has a permanent establishment or fixed base in a
Contracting State in connection with which the indebtedness on which the interest is paid was
incurred and the interest is borne by the permanent establishment or fixed base, then the interest
is deemed to arise in the State where the permanent establishment or fixed base is located. This
rule applies whether or not the payer is a resident of a Contracting State.

Paragraph 7

Paragraph 7 provides that in cases involving special relationships between persons,

Article 11 applies only to that portion of the total interest payments that would have been made
absent such special relationships (i.e., an arm's length interest payment). Any excess amount of
interest paid remains taxable according to the laws of the United States and Thailand,
respectively, with due regard to the other provisions of the Convention. Thus, if the excess
amount would be treated under the source country's law as a distribution of profits by a
corporation, such amount could be taxed as a dividend rather than as interest, but the tax would
be subject, if appropriate, to the rate limitations of paragraph 2 of Article 10 (Dividends).

The term "special relationship" is not defined in the Convention. In applying this
paragraph the United States considers the term to include the relationships described in Article 9,
which in turn corresponds to the definition of "control" for purposes of section 482 of the Code.

This paragraph does not address cases where, owing to a special relationship between the
payer and the beneficial owner or between both of them and some other person, the amount of
the interest is less than an arm's length amount. In those cases a transaction may be characterized
to reflect its substance and interest may be imputed consistent with the definition of interest in
paragraph 4. The United States would apply section 482 or 7872 of the Code to determine the
amount of imputed interest in those cases.

Paragraph 8

Paragraph 8 provides an anti-abuse exception to the reduced source-country taxation

provided for in paragraphs 2 and 3. This exception is consistent with the policy of Code sections
860E(e) and 860G(b) that excess inclusions with respect to a real estate mortgage investment
conduit (REMIC) should bear full U.S. tax in all cases. Without a full tax at source foreign
purchasers of residual interests would have a competitive advantage over U.S. purchasers at the
time these interests are initially offered. Also, absent this rule the U.S. FISC would suffer a
revenue loss with respect to mortgages held in a REMIC because of opportunities for tax
avoidance created by differences in the timing of taxable and economic income produced by
these interests.

Relation to Other Articles

Notwithstanding the limitations on source country taxation of interest in this Article, the
saving clause of paragraph 2 of Article 1 permits the United States to tax its residents and
citizens as if the Convention had not come into force. Thus, a U.S. citizen living in Thailand who
receives U.S.-source interest includes that income in his worldwide income that is subject to U.S.
tax at ordinary rates.

As with other benefits of the Convention, the benefits of reduced source-State taxation, or
source-State exemption, under paragraphs 2 and 3 of this Article, are available to a resident of
the other State only if that resident is entitled to those benefits under the provisions of Article 18
(Limitation on Benefits).

ARTICLE 12
Royalties

Article 12 provides rules for the taxation of royalties paid by a resident of one
Contracting State to a beneficial owner that is a resident of the other Contracting State. The
Article provides for full residence country taxation of such royalties and a limited source country
right to tax.

Paragraph 1

Paragraph 1 preserves the right of a Contracting State to tax royalties paid to its residents
and arising in the other Contracting State, subject to exceptions provided in paragraph 4 (for
royalties taxable as business profits and independent personal services).

Paragraphs 2 and 3
 Paragraph 2 allows the state of source to tax royalties. If, however, the beneficial owner
of the royalty payment is a resident of the other Contracting State, the tax may not exceed the
ceilings stated in subparagraphs (a), (b) and (c) for the different classes of royalties described in
paragraph 3. Paragraph 3 defines the term “royalties” for purposes of Article 12.

Subparagraph (a) of paragraph 2 applies to the classes of royalties described in

subparagraph (a) of paragraph 3. These are royalties paid for the use of or the right to use
copyrights of literary, artistic or scientific work, including software, and motion pictures and
works on film, tape or other means of reproduction for radio or television broadcasting.
Subparagraph (a) of paragraph 2 limits the tax that may be imposed by the source country on
such royalties to a maximum rate of 5 percent of the gross amount of the royalties.

Computer software generally is protected by copyright laws around the world. Under the
Convention consideration received for the use or the right to use computer software is treated
either as royalties or as income from the alienation of tangible personal property, depending on
the facts and circumstances of the transaction giving rise to the payment. It is also understood
that payments received in connection with the transfer of so-called “shrink-wrap” computer
software are treated as business profits.

Consideration for the use or right to use works on film, tape or other means of
reproduction for use in connection with radio or television broadcasting is specifically included
in the definition of royalties. It is intended that subsequent technological advances in the field of
radio and television broadcasting will not affect the inclusion of payments relating to use of such
means of reproduction in the definition of royalties.

It is also understood that if an artist who is resident in one Contracting State records a
performance in the other Contracting State, retains a copyrighted interest in a recording, and
receives payments for the right to use the recording based on the sale or public playing of the
recording, then the right of such other Contracting State to tax those payments is governed by
Article 12. See Boulez v. Commissioner, 83 T.C. 584 (1984), aff'd, 810 F.2d 209 (D.C. Cir.
1986).

Subparagraph (b) of paragraph 2 applies to royalties described in subparagraph (b) of

paragraph 3. These are royalties paid for the use of or the right to use industrial, commercial or
scientific equipment. Subparagraph (b) of paragraph 2 limits the source-country tax that may be
imposed on such royalties to 8 percent of the gross amount of the royalty. In the U.S. Model and
in most U.S. treaties such income is treated as business profits, and not as royalties. Thailand's
treaty policy is to include such income within the scope of the royalties article and tax the
income as an industrial royalty. The Convention includes the income within the scope of Article
12, but applies a rate lower than that applicable to industrial royalties.

Subparagraph (c) of paragraph 2 applies to royalties described in subparagraph (c) of

paragraph 3. The royalties that fall into this category are payments for the use of or the right to
use any patent, trademark, design or model, plan, secret formula or process, or for information
concerning industrial, commercial or scientific experience. The source-country tax imposed on
such royalties by subparagraph (c) of paragraph 2 may not exceed 15 percent of such royalties.

The term "industrial, commercial, or scientific experience" (sometimes referred to as

"know-how") has the meaning ascribed to it in paragraph 11 of the Commentary to Article 12 of
the OECD Model Convention. Consistent with that meaning, the term may include information
that is ancillary to a right otherwise giving rise to royalties, such as a patent or secret process.

Know-how also may include, in limited cases, technical information that is conveyed
through technical or consultancy services. It does not include general educational training of the
user's employees, nor does it include information developed especially for the user, for example,
a technical plan or design developed according to the user's specifications. Thus, as provided in
paragraph 11 of the Commentaries to Article 12 of the OECD Model, the term “royalties” does
not include payments received as consideration for after-sales service, for services rendered by a
seller to a purchaser under a guarantee, or for pure technical assistance.

The term "royalties" as used in all three subparagraphs of these paragraphs includes gain
derived from the alienation of any right or property that would give rise to royalties, to the extent
the gain is contingent on the productivity, use, or further alienation thereof. Gains that are not so
contingent are dealt with under Article 13 (Gains).

The term "royalties" is defined in the Convention and therefore is generally independent
of domestic law. Certain terms used in the definition are not defined in the Convention, but these
may be defined under domestic tax law. For example, the term "secret process or formulas" is
found in the Code, and its meaning has been elaborated in the context of sections 351 and 367.
See Rev. Rul. 55-17, 1955-1 C.B. 388; Rev. Rul. 64-56, 1964-1 C.B. 133; Rev. Proc. 69-19,
1969-2 C.B. 301.

The term “royalties” does not include payments for professional services (such as
architectural, engineering, legal, managerial, medical and software development services). For
example, income from the design of a refinery by an engineer (even if the engineer employed
know-how in the process of rendering the design) or the production of a legal brief by a lawyer is
not income from the transfer of know-how taxable under Article 12, but is income from services
taxable under either Article 15 (Independent Personal Services) or Article 16 (Dependent
Personal Services). Professional services may be embodied in property that gives rise to
royalties, however. Thus, if a professional contracts to develop patentable property and retains
rights in the resulting property under the development contract, subsequent license payments
made for those rights would be royalties.

The term “beneficial owner” is not defined in the Convention, and is, therefore, defined
as under the internal law of the country imposing tax (i.e., the source country). The beneficial
owner of a royalty for purposes of Article 12 is the person to which the royalty income is
attributable for tax purposes under the laws of the source State. Thus, if a royalty paid by a
resident of one of the States (as determined under Article 4 (Residence)) is received by a
nominee or agent that is a resident of the other State on behalf of a person that is not a resident of
that other State, the royalty is not entitled to the benefits of this Article. However, a royalty
received by a nominee on behalf of a resident of that other State would be entitled to benefits.
Further, in accordance with paragraph 4 of the OECD Commentaries to Article 12, the source
State may disregard as beneficial owner certain persons that nominally may receive a royalty but
in substance do not control it. See also, paragraph 24 of the OECD Commentaries to Article 1
(General Scope).

Paragraph 4

Paragraph 4 provides an exception to the rules of paragraph 2 that limit the rate of source
country taxation of royalties. This paragraph applies in cases where the beneficial owner of the
royalties carries on business through a permanent establishment in the State of source or
performs independent personal services from a fixed base situated in that State and the royalties
are effectively connected with that permanent establishment or fixed base, or with activities
referred to in subparagraph (c) of paragraph 1 of Article 7 (Business Profits) (i.e., activities
similar to those carried on through the permanent establishment, but not carried on through the
permanent establishment for tax avoidance reasons). In these cases the provisions of Article 7
(Business Profits) or Article 15 (Independent Personal Services) will apply and the State of
source will retain the right to impose tax on such royalty income, consistent with the rules of
those Articles.

In the case of a permanent establishment or fixed base that once existed in the State but
that no longer exists, the provisions of paragraph 4 also apply, by virtue of paragraph 9 of Article
7 (Business Profits), to royalties that would be attributable to such a permanent establishment or
fixed base if it did exist in the year of payment or accrual. See the Technical Explanation of
paragraph 9 of Article 7.

Paragraph 5

Paragraph 5 provides rules for sourcing royalty payments. Under paragraph 5 (a), royalty
payments are deemed to arise in a Contracting State when the payer is that State itself, a political
subdivision, a local authority or a resident of that State. However, when the person paying the
royalty has a permanent establishment or fixed base in a Contracting State in connection with
which the liability to pay the royalty was incurred and the royalty is borne by the permanent
establishment or fixed base, then the royalty is deemed to arise in the Contracting State in which
the permanent establishment or fixed base is located. This rule applies whether or not the payer
is a resident of a Contracting State. Under paragraph 5 (b), in cases where paragraph 5 (a) does
not operate to deem the royalty to arise in one of the Contracting States, and the royalty relates to
the use or right to use any property or rights described in paragraph 3 in one of the Contracting
States, then the royalty is deemed to arise in that State.

Paragraph 6

Paragraph 6 provides that in cases involving special relationships between the payor and
beneficial owner of royalties, Article 12 applies only to the extent the royalties would have been
paid absent such special relationships (i.e., an arm's length royalty). Any excess amount of
royalties paid remains taxable according to the laws of the two Contracting States with due
regard to the other provisions of the Convention. If, for example, the excess amount is treated as
a distribution of corporate profits under domestic law, such excess amount will be taxed as a
dividend rather than as royalties, but the tax imposed on the dividend payment will be subject to
the rate limitations of paragraph 2 of Article 10 (Dividends).

Relation to Other Articles

Notwithstanding the foregoing limitations on source country taxation of royalties, the

saving clause of paragraph 2 of Article 1 (Personal Scope) permits the United States to tax its
residents and citizens as if the Convention had not come into force.

As with other benefits of the Convention, the benefit of limited source State taxation of
royalties under paragraph 2 of Article 12 is available to a resident of the other State only if that
resident is entitled to those benefits under Article 18 (Limitation on Benefits).

ARTICLE 13
Gains

Paragraph 1

Paragraph 1 of Article 13 preserves for both Contracting States the non-exclusive right to
tax gains attributable to the alienation of property in accordance with its domestic law. The
paragraph therefore permits the United States to apply section 897 of the Code to tax gains
derived by a resident of the other Contracting State that are attributable to the alienation of real
property situated in the United States (as defined in paragraph 2). Gains attributable to the
alienation of real property include gain from any other property that is treated as a real property
interest. This includes real property referred to in Article 6 (i.e., an interest in the real property
itself), a "United States real property interest" (when the United States is the other Contracting
State under paragraph 1), and an equivalent interest in real property situated in Thailand. Under
section 897(c) of the Code the term "United States real property interest" includes shares in a
U.S. corporation that owns sufficient U.S. real property interests to satisfy an asset-ratio test on
certain testing dates. The term also includes certain foreign corporations that have elected to be
treated as U.S. corporations for this purpose. Section 897(i). In applying paragraph 1 the United
States will look through distributions made by a REIT. Accordingly, distributions made by a
REIT are taxable under paragraph 1 of Article 13 (not under Article 10 (Dividends)) when they
are attributable to gains derived from the alienation of real property. Furthermore, both the
residence state and the source state under the domestic law of each may tax gains from the
alienation of movable property forming part of the business property of a permanent
establishment that an enterprise of a Contracting State has in the other Contracting State or of
movable property pertaining to a fixed base available to a resident of a Contracting State in the
other Contracting State for the purpose of performing independent personal services. This also
includes gains from the alienation of such a permanent establishment (alone or with the whole
enterprise) or of such fixed base.

A resident of Thailand that is a partner in a partnership doing business in the United

States generally will have a permanent establishment in the United States as a result of the
activities of the partnership, assuming that the activities of the partnership rise to the level of a
permanent establishment. Rev. Rul. 91-32, 1991-1 C.B. 107. Further, the United States generally
may tax a partner's distributive share of income realized by a partnership on the disposition of
movable property forming part of the business property of the partnership.

Paragraph 2

Paragraph 2 grants exclusive taxing jurisdiction to the state of residence of the alienator
with respect to gains from the alienation of ships, aircraft, or containers operated in international
traffic or movable property pertaining to the operation of such ships, aircraft, or containers.
Under paragraph 2 when such income is derived by an enterprise of a Contracting State it is
taxable only in that Contracting State. The rules of this paragraph apply even if the income is
attributable to a permanent establishment maintained by the enterprise in the other Contracting
State. This result is generally consistent with Article 8 (Shipping and Air Transport), which
confers exclusive taxing rights over international air transport income on the state of residence of
the enterprise deriving such income.

ARTICLE 14
Branch Tax

Paragraph 1

Paragraph 1 permits a Contracting State to impose tax on a corporation resident in the

other Contracting State in addition to the taxes that may be imposed under the other provisions of
the Convention. The scope of the taxes that may be imposed under this paragraph is specified in
paragraph 2 for the United States, and in paragraph 3 for Thailand. The rates are specified in
paragraph 4. Since the term “corporation” is not defined in the Convention, it will be defined for
this purpose under the law of State imposing the tax.

Paragraph 2

Paragraph 2 describes the branch taxes that the United States may impose. Subparagraph
(a) deals with the U.S. branch profits tax. Under this subparagraph the U.S. branch profits tax
may be imposed on the “dividend equivalent amount” of the income of a corporation resident in
Thailand to the extent of the corporation's business profits that are effectively connected (or
treated as effectively connected) with the conduct of a trade or business in the United States and
which meet one of three additional tests:
(1) they are attributable to a permanent establishment in the United States;
(2) the income is subject to tax under Article 6 (Income from Immovable (Real)
Property); or
(3) the income is in the form of a gain subject to tax under Article 13.

The United States may not impose its branch profits tax on the business profits of a corporation
resident in Thailand that are effectively connected with a U.S. trade or business but that are not
attributable to a permanent establishment or are not otherwise subject to U.S. taxation under
Article 6 or Article 13 (Gains).

The term "dividend equivalent amount" used in paragraph 2 has the same meaning that it
has under section 884 of the Code, as amended from time to time, provided the amendments are
consistent with the purpose of the branch profits tax. Generally, the dividend equivalent amount
for a particular year is the income described above that is included in the corporation's
effectively connected earnings and profits for that year, after payment of the corporate tax under
Articles 6, 7 or 13, reduced for any increase in the branch's U.S. net equity during the year and
increased for any reduction in its U.S. net equity during the year. U.S. net equity is U.S. assets
less U.S. liabilities. See, Treas. Reg. section 1.884-1. The dividend equivalent amount for any
year approximates the dividend that a U.S. branch office would have paid during the year if the
branch had been operated as a separate U.S. subsidiary company.

Paragraph 2(b) permits the United States to impose its branch excess interest tax on a
corporation resident in Thailand. The base of this tax is the excess, if any, of the interest
deductible in the United States in computing the profits of the corporation that are subject to tax
in the United States and are either attributable to a permanent establishment in the United States
or subject to tax in the United States under Article 6 or Article 13 of this Convention over the
interest paid by or from the permanent establishment or trade or business in the United States.

Paragraph 3

Paragraph 3 deals with the Thai tax referred to in paragraph 1. Under this provision, a
company resident in the United States may be subject to a tax, in addition to the other taxes
allowed under this Convention (e.g., the tax on business profits under Article 7), on the disposal
of profits out of Thailand. Any tax imposed under this provision must be consistent with the
provisions of Thai law. The Thai tax, imposed under section 70 bis of the Thai tax law, is
charged on the portion of the profits of a Thai branch of a foreign corporation, after the normal
corporate tax, that is remitted to the foreign head office.

Paragraph 4

Paragraph 4 specifies the rates at which the taxes described in paragraphs 2 and 3 may be
imposed. Paragraph 4 (a) provides that the branch profits taxes described in paragraphs 2(a), for
the United States, and 3, for Thailand, shall not be imposed at a rate exceeding the direct
investment dividend withholding rate of 10 percent, as provided in paragraph 2(a) of Article 10
(Dividends).

Paragraph 4(b) provides that the U.S. branch excess interest tax described in paragraph
2(b) shall not be imposed at a rate exceeding the appropriate rate specified in paragraph 2 of
Article 11 (Interest). Since the excess interest tax is treated as though it is imposed on interest
payments from a U.S. subsidiary to its foreign parent corporation, the rate at which the tax is
imposed will depend on the nature of the business in which the “parent” (i.e., the home office) is
engaged. Thus, for example, if the enterprise is a bank, the excess interest tax would be imposed
at a 10 percent rate, since that is the rate under Article 11 for interest beneficially owned by
financial institutions. For most other types of enterprises, the branch excess interest tax would be
imposed at the 15 percent rate.

Relation to Other Articles

As with other benefits of the Convention, the benefits of reduced rates of branch tax
under this Article are available to a resident of the other State only if that resident is entitled to
those benefits under the provisions of Article 18 (Limitation on Benefits).

ARTICLE 15
Independent Personal Services

The Convention deals in separate articles with different classes of income from personal
services. Article 15 deals with the general class of income from independent personal services
and Article 16 deals with the general class of income from dependent personal services. Articles
17 and 19 through 23 provide exceptions and additions to these general rules for directors' fees
(Article 17); performance income of artistes and sportsmen (Article 19); pensions in respect of
personal service income, social security benefits, annuities, alimony, and child support payments
(Article 20); government service salaries and pensions (Article 21); certain income of students
and trainees (Article 22); and certain income of teachers or researchers (Article 23).

Paragraph 1

Paragraph 1 of Article 15 provides the general rule that an individual who is a resident of
a Contracting State and who derives income from performing professional services or other
activities of an independent character will be exempt from tax in respect of that income by the
other Contracting State, unless the conditions specified in any of subparagraphs (a), (b) or (c) are
met. If one of these three circumstances are met, such income will also be subject to tax by the
other Contracting State (i.e., the host State).

Under subparagraph (a), the income may be taxed by the host State if there is a fixed base
regularly available to the individual for the purposes of performing his services. In that case, the
host State may tax that portion of the income that is attributable to a fixed base. Unlike the U.S.
Model, and most U.S. treaties, this Convention does not require that the services be performed in
the host State to be taxable there, only that they be attributable to a fixed base located there.

The term "fixed base" is not defined in the Convention, but its meaning is understood to
be similar, but not identical, to that of the term "permanent establishment," as defined in Article
5 (Permanent Establishment). The term "regularly available" also is not defined in the
Convention. Whether a fixed base is regularly available to a person will be determined based on
all the facts and circumstances. In general, the term encompasses situations where a fixed base is
at the disposal of the individual whenever he performs services in that State. It is not necessary
that the individual regularly use the fixed base, only that the fixed base be regularly available to
him. For example, a U.S. resident partner in a law firm that has offices in Thailand would be
considered to have a fixed base regularly available to him in Thailand if the law firm had an
office in Thailand that was available to him whenever he wished to conduct business in Thailand,
regardless of how frequently he conducted business in Thailand, or in that office. On the other
hand, an individual who had no office in Thailand and occasionally rented a hotel room to serve
as a temporary office would not be considered to have a fixed base regularly available to him.

It is not necessary that the individual actually use the fixed base. It is only necessary that
the fixed base be regularly available to him. For example, if an individual has an office in the
other State, that fixed base will be considered to be regularly available to him regardless of
whether he conducts his activities there.

Because of the absence of a “place of performance” test in this Article, if, for example, an
American lawyer who has an office available to him in Bangkok visits Bangkok to work on a
case, and the case requires him to spend some work time in Vietnam, the income from the
services performed in Vietnam, since they are part of the services being carried on through the
Bangkok law office, would be attributable to that fixed base.

Under paragraph 1(b), the income may be taxed in the host State if the individual's stay in
that State is for a period or periods aggregating 90 days or more during the fiscal year. If that
time threshold is met, only the income that is derived from his activities performed in that State
may be taxed there. This rule is consistent with the provisions of paragraph 3(b) of Article 5
(Permanent Establishment), under which the furnishing of services by an enterprise constitutes a
permanent establishment if the activities continue for a period of 90 days or more in a 12-month
period.

Under paragraph 1(c), the income may be taxed in the host State if the remuneration for
the individual’s activities is paid by a resident of that other State or borne by a permanent
establishment or fixed base situated in that other State and the remuneration exceeds in that fiscal
year 10,000 United States dollars or its equivalent in Thai currency. This dollar threshold does
not include expenses reimbursed to the individual or borne on his behalf.

Although, unlike the U.S. Model, this Article does not specify that the income subject to
tax under this article is to be taxed on a net basis, it is understood that the principles of paragraph
3 of Article 7 (Business Profits) should be applied in computing the individual’s income for
purposes of taxation under this Article.

Income derived by persons other than individuals or groups of individuals from the
performance of independent personal services is not covered by Article 15. Such income
generally would be business profits taxable in accordance with Article 7 (Business Profits).
Income derived by employees of such persons generally would be taxable in accordance with
Article 16 (Dependent Personal Services).

This Article applies to income derived by a partner resident in the Contracting State that
is attributable to personal services of an independent character performed in the other State
through a partnership that has a fixed base in that other Contracting State. Income which may be
taxed under this Article includes all income attributable to the fixed base in respect of the
performance of the personal services carried on by the partnership (whether by the partner
himself, other partners in the partnership, or by employees assisting the partners) and any income
from activities ancillary to the performance of those services (for example, charges for facsimile
services). Income that is not derived from the performance of personal services and that is not
ancillary thereto (for example, rental income from subletting office space), will be governed by
other Articles of the Convention.

The application paragraph 1(a) of Article 15 to a service partnership may be illustrated by

the following example: a partnership formed in the U.S. has five partners (who agree to split
profits equally), four of whom are resident and perform personal services only in the U.S. at
Office A, and one of whom performs personal services from Office B, a fixed base in Thailand.
In this case, the four partners of the partnership resident in the U.S. may be taxed in Thailand in
respect of their share of the income attributable to the fixed base, Office B. The services giving
rise to income which may be attributed to the fixed base would include not only the services
performed by the one resident partner, but also, for example, if one of the four other partners
went to Thailand and worked on an Office B matter there, the income in respect of those
services. As noted above in the discussion of the term "regularly available", this would be the
case regardless of whether the partner from the U.S. actually visited or used Office B when
performing services in Thailand.

Paragraph 9 of Article 7 (Business Profits) refers to paragraph 1(a) of Article 15. That
rule clarifies that income that is attributable to a permanent establishment or a fixed base, but
that is deferred and received after the permanent establishment or fixed base no longer exists,
may nevertheless be taxed by the State in which the permanent establishment or fixed base was
located. Thus, under Article 15, income derived by an individual resident of a Contracting State
from services performed in the other Contracting State and attributable to a fixed base there may
be taxed by that other State even if the income is deferred and received after there is no longer a
fixed base available to the resident in that other State.

Paragraph 2

Paragraph 2 notes that the term "professional services" includes scientific, literary,
artistic, educational or teaching activities as well as the independent activities of physicians,
lawyers, engineers, architects, dentists, and accountants. This list, which is derived from the
OECD Model, is not exhaustive. The term includes all personal services performed by an
individual for his own account, where he receives the income and bears the risk of loss arising
from the services. However, the taxation of income from types of independent services that are
covered by Articles 17 and 19 through 23 are governed by the provisions of those articles.

Relation to Other Articles

If an individual resident of Thailand who is also a U.S. citizen performs professional

services or other independent activities in the United States, the United States may, by virtue of
the saving clause of paragraph 2 of Article 1 (Personal Scope) tax his income without regard to
the restrictions of this Article.
 ARTICLE 16
Dependent Personal Services

Article 16 apportions taxing jurisdiction over remuneration derived by a resident of a

Contracting State as an employee between the States of source and residence.

Paragraph 1

The general rule of Article 16 is contained in paragraph 1. Remuneration derived by a

resident of a Contracting State as an employee may be taxed by the State of residence, and the
remuneration also may be taxed by that other Contracting State to the extent derived from
employment exercised (i.e., services performed) in the other Contracting State. Paragraph 1 also
provides that the more specific rules of Articles 17 (Directors' Fees), 20 (Pensions and Social
Security Payments), 21 (Government Service), 22 (Students and Trainees) and 23 (Teachers)
apply in the case of employment income described in one of these articles. Thus, even though the
State of source has a right to tax employment income under Article 16, it may not have the right
to tax that income under the Convention if the income is described, e.g., in Article 20 (Pensions,
Social Security, Annuities, Alimony and Child Support) and is not taxable in the State of source
under the provisions of that Article.

Article 16 applies to "salaries, wages and other similar remuneration." The U.S. Model
has deleted the term "similar." Even with the inclusion of the term "similar," Article 16 should be
understood to apply to any form of compensation for employment, including payments in kind,
regardless of whether the remuneration could be characterized as salaries and wages.

Consistently with section 864(c)(6), Article 16 also applies regardless of the timing of
actual payment for services. Thus, a bonus paid to a resident of a Contracting State with respect
to services performed in the other Contracting State with respect to a particular taxable year
would be subject to Article 16 for that year even if it was paid after the close of the year.
Similarly, an annuity received for services performed in a taxable year would be subject to
Article 16 despite the fact that it was paid in subsequent years. In either case, whether such
payments were taxable in the State where the employment was exercised would depend on
whether the tests of paragraph 2 were satisfied. Consequently, a person who receives the right to
a future payment in consideration for services rendered in a Contracting State would be taxable
in that State even if the payment is received at a time when the recipient is a resident of the other
Contracting State.

Paragraph 2

Paragraph 2 sets forth an exception to the general rule that employment income may be
taxed in the State where it is exercised. Under paragraph 2, the State where the employment is
exercised may not tax the income from the employment if three conditions are satisfied:
(a) the individual is present in the other Contracting State for a period or periods
not exceeding 183 days in any 12-month period that begins or ends during the relevant
(i.e., the year in which the services are performed) calendar year;
(b) the remuneration is paid by, or on behalf of, an employer who is not a resident
 of that other Contracting State; and
(c) the remuneration is not borne as a deductible expense by a permanent
establishment or fixed base that the employer has in that other State.

In order for the remuneration to be exempt from tax in the source State, all three conditions must
be satisfied. This exception is identical to those set forth in the OECD and U.S. Models.

The 183-day period in condition (a) is to be measured using the "days of physical
presence" method. Under this method, the days that are counted include any day in which a part
of the day is spent in the host country. (Rev. Rul. 56-24, 1956-1 C.B. 851.) Thus, days that are
counted include the days of arrival and departure; weekends and holidays on which the employee
does not work but is present within the country; vacation days spent in the country before, during
or after the employment period, unless the individual's presence before or after the employment
can be shown to be independent of his presence there for employment purposes; and time during
periods of sickness, training periods, strikes, etc., when the individual is present but not working.
If illness prevented the individual from leaving the country in sufficient time to qualify for the
benefit, those days will not count. Also, any part of a day spent in the host country while in
transit between two points outside the host country is not counted. These rules are consistent
with the description of the 183-day period in paragraph 5 of the Commentary to Article 15 in the
OECD Model.

Conditions (b) and (c) are intended to ensure that a Contracting State will not be required
to allow a deduction to the payor for compensation paid and at the same time to exempt the
employee on the amount received. Accordingly, if a foreign person pays the salary of an
employee who is employed in the host State, but a host State corporation or permanent
establishment reimburses the payor with a payment that can be identified as a reimbursement,
neither condition (b) nor (c), as the case may be, will be considered to have been fulfilled.

The reference to remuneration "borne by" a permanent establishment or fixed base is

understood to encompass all expenses that economically are incurred and not merely expenses
that are currently deductible for tax purposes. Accordingly, the expenses referred to include
expenses that are capitalizable as well as those that are currently deductible. Further, salaries
paid by residents that are exempt from income taxation may be considered to be borne by a
permanent establishment or fixed base notwithstanding the fact that the expenses will be neither
deductible nor capitalizable since the payor is exempt from tax.

Paragraph 3

Paragraph 3 contains a special rule applicable to remuneration for services performed by

an individual resident of one Contracting State as an employee aboard a ship or aircraft operated
in international traffic. Under this paragraph, the employment income of such persons may be
taxed in the State of residence of the enterprise operating the ship or aircraft. This is not an
exclusive taxing right. The State of residence of the employee may also tax the remuneration.
This provision is based on the OECD Model. The United States Model does not contain this rule,
because U.S. internal law does not impose tax on non-U.S. source income of a person who is
neither a U.S. citizen nor a U.S. resident, even if that person is an employee of a U.S. resident
enterprise. Thus, the United States may not tax the salary of a resident of Thailand who is
employed by a U.S. carrier, except as provided in paragraph 2.

Relation to Other Articles

If a U.S. citizen who is resident in Thailand performs services as an employee in the

United States and meets the conditions of paragraph 2 for source country exemption, he
nevertheless is taxable in the United States by virtue of the saving clause of paragraph 2 of
Article 1 (Personal Scope).

ARTICLE 17
Directors' Fees

This Article provides that a Contracting State may tax the fees and other compensation
paid by a company that is a resident of that State for services performed outside of the other State
by a resident of the other Contracting State in his capacity as a director of the company. This rule
is an exception to the more general rules of Article 15 (Independent Personal Services) and
Article 16 (Dependent Personal Services). Thus, for example, in determining whether a director's
fee paid to a non-employee director is subject to tax in the country of residence of the
corporation, it is not relevant to establish whether the fee is attributable to a fixed base in that
State. The Article deals with the compensation both of directors themselves and of designees of a
director who are serving in the capacity of a director.

The analogous OECD and U.S. Model provisions reach different results in certain cases.
Under the OECD Model provision, a resident of one Contracting State who is a director of a
corporation that is resident in the other Contracting State is subject to tax in that other State in
respect of his directors' fees regardless of where the services are performed. Under the U.S.
Model, a resident of one Contracting State who is a director of a corporation that is resident in
the other Contracting State is subject to tax in that other State in respect of this directors’ fees
only for services performed in that State. Article 17 represents a compromise between the U.S.
position and the OECD Model. Under Article 17, the State of residence of the corporation may
tax nonresident directors with no time or dollar threshold, but only with respect to remuneration
for services that are not performed in the other State.

This Article is subject to the saving clause of paragraph 2 of Article 1 (Personal Scope).
Thus, if a U.S. citizen who is a resident of Thailand is a director of a U.S. corporation, the United
States may tax his full remuneration regardless of where he performs his services.

ARTICLE 18
Limitation on Benefits

Purpose of Limitation on Benefits Provisions

The United States views an income tax treaty as a vehicle for providing treaty benefits to
residents of the two Contracting States. This statement begs the question of who is to be treated
as a resident of a Contracting State for the purpose of being granted treaty benefits. The
Commentaries to the OECD Model authorize a tax authority to deny benefits, under substance-
over-form principles, to a nominee in one State deriving income from the other on behalf of a
third-country resident. In addition, although the text of the OECD Model does not contain
express anti-abuse provisions, the Commentaries to Article 1 contain an extensive discussion
approving the use of such provisions in tax treaties in order to limit the ability of third state
residents to obtain treaty benefits. The United States holds strongly to the view that tax treaties
should include provisions that specifically prevent misuse of treaties by residents of third
countries. Consequently, all recent U.S. income tax treaties contain comprehensive Limitation on
Benefits provisions.

A treaty that provides treaty benefits to any resident of a Contracting State permits "treaty
shopping": the use, by residents of third states, of legal entities established in a Contracting State
with a principal purpose to obtain the benefits of a tax treaty between the United States and the
other Contracting State. It is important to note that this definition of treaty shopping does not
encompass every case in which a third state resident establishes an entity in a U.S. treaty partner,
and that entity enjoys treaty benefits to which the third state resident would not itself be entitled.
If the third country resident had substantial reasons for establishing the structure that were
unrelated to obtaining treaty benefits, the structure would not fall within the definition of treaty
shopping set forth above.

Of course, the fundamental problem presented by this approach is that it is based on the
taxpayer's intent, which a tax administration is normally ill-equipped to identify. In order to
avoid the necessity of making this subjective determination, Article 18 sets forth a series of
objective tests. The assumption underlying each of these tests is that a taxpayer that satisfies the
requirements of any of the tests probably has a real business purpose for the structure it has
adopted, or has a sufficiently strong nexus to Thailand (e.g., a resident individual) to warrant
benefits even in the absence of a business connection, and that this business purpose or
connection outweighs any purpose to obtain the benefits of the Treaty.

For instance, the assumption underlying the active trade or business test under paragraph
2 is that a third country resident that establishes a "substantial" operation in Thailand and that
derives income from a similar activity in the United States would not do so primarily to avail
itself of the benefits of the Treaty; it is presumed in such a case that the investor had a valid
business purpose for investing in Thailand, and that the link between that trade or business and
the U.S. activity that generates the treaty-benefited income manifests a business purpose for
placing the U.S. investments in the entity in Thailand. It is considered unlikely that the investor
would incur the expense of establishing a substantial trade or business in Thailand simply to
obtain the benefits of the Convention. A similar rationale underlies the other tests in Article 18.

While these tests provide useful surrogates for identifying actual intent, these mechanical
tests cannot account for every case in which the taxpayer was not treaty shopping. Accordingly,
Article 18 also includes a provision (paragraph 4) authorizing the competent authority of a
Contracting State to grant benefits. While an analysis under paragraph 4 may well differ from
that under one of the other tests of Article 18, its objective is the same: to identify investors
whose residence in the other State can be justified by factors other than a purpose to derive treaty
benefits.

Article 18 and the anti-abuse provisions of domestic law complement each other, as
Article 18 effectively determines whether an entity has a sufficient nexus to the Contracting State
to be treated as a resident for treaty purposes, while domestic anti-abuse provisions (e.g.,
business purpose, substance-over-form, step transaction or conduit principles) determine whether
a particular transaction should be recast in accordance with its substance. Thus, internal law
principles of the source State may be applied to identify the beneficial owner of an item of
income, and Article 18 then will be applied to the beneficial owner to determine if that person is
entitled to the benefits of the Convention with respect to such income.

Structure of the Article

Article 18 follows the form used in other recent U.S. income tax treaties. The structure of
the Article is as follows: Paragraph 1 states the general rule that residents are entitled to benefits
otherwise accorded to residents only to the extent provided in the Article and lists a series of
attributes of a resident of a Contracting State, the presence of any one of which will entitle that
person to all the benefits of the Convention. Paragraph 2 provides that, with respect to a person
not entitled to benefits under paragraph 1, benefits nonetheless may be granted to that person
with regard to certain types of income. Paragraph 3 states that a resident of Thailand that is an
"international banking facility", as defined under Thai law, is not entitled to U.S. benefits under
the Convention with respect to income received from the United States. Paragraph 4 provides
that benefits also may be granted if the competent authority of the State from which benefits are
claimed determines that it is appropriate to provide benefits in that case. Paragraph 5 defines the
term "recognized stock exchange" as used in paragraph 1(d). Paragraph 6 limits the relief
allowed under the Convention for remittance taxes. Paragraph 7 provides that the competent
authorities will exchange information necessary to carry out the provisions of the Article.

Paragraph 1

Paragraph 1 provides that a resident of a Contracting State deriving income from the
other Contracting State will be entitled in that other Contracting State to all benefits of the
Convention only if such person is described in paragraph 1. Some provisions of the Convention
do not require that a person be a resident in order to enjoy the benefits of those provisions. These
include paragraph 1 of Article 25 (Non-Discrimination), Article 27 (Mutual Agreement
Procedure), and Article 29 (Diplomatic Agents and Consular Officers). It is to be understood that
Article 22 does not limit the availability of the benefits of these provisions.

Paragraph 1 has six subparagraphs, each of which describes a category of residents that
are entitled to all benefits of the Convention.

Individuals -- Subparagraph 1(a)

Subparagraph (a) provides that individual residents of a Contracting State will be entitled
to all treaty benefits. If such an individual receives income as a nominee on behalf of a third-
country resident, benefits may be denied under the respective articles of the Convention by the
requirement that the beneficial owner of the income be a resident of a Contracting State.

Governmental Entities -- Subparagraph 1(b)

Subparagraph (b) provides that a Contracting State or a political subdivision or local

authority thereof, which are all treated as residents under Article 4 (Residence), will be entitled
to all benefits of the Convention.

Ownership/Base Erosion -- Subparagraph 1(c)

Subparagraph 1(c) provides a two-part test, the so-called ownership and base erosion test.
This test applies to any form of legal entity that is a resident of a Contracting State. Both prongs
of the test must be satisfied for the resident to be entitled to benefits under subparagraph 1(c).

The ownership prong of the test, under clause i), requires that more than 50 percent of the
beneficial interest in the person (in the case of a corporation, more than 50 percent of the number
of shares of each class of its shares) be owned by persons who are themselves entitled to benefits
under the other tests of paragraph 1 (i.e., subparagraphs (a), (b), (d), (e) or (f)) or who are
citizens of the United States. The ownership may be indirect, although it is to be understood that
the indirect ownership must be through persons that are themselves entitled to benefits under
paragraph 1 or are U.S. citizens.

Trusts may be entitled to benefits under this provision if they are treated as residents
under Article 4 (Residence) and they otherwise satisfy the requirements of this subparagraph. For
purposes of this subparagraph, the beneficial interests in a trust will be considered to be owned
by its beneficiaries in proportion to each beneficiary's actuarial interest in the trust. The interest
of a remainder beneficiary will be equal to 100 percent less the aggregate percentages held by
income beneficiaries. A beneficiary's interest in a trust will not be considered to be owned by a
person entitled to benefits under the other provisions of paragraph 1 or who is a U.S. citizen if it
is not possible to determine the beneficiary's actuarial interest. Consequently, if it is not possible
to determine the actuarial interest of any beneficiaries in a trust, the ownership test under clause
i) cannot be satisfied, unless all beneficiaries are persons entitled to benefits under the other
subparagraphs of paragraph 1 or are U.S. citizens.

The base erosion prong of the test under subparagraph 1(c) requires that more than 50
percent of the person's gross income not be used, directly or indirectly, to meet liabilities,
including liabilities for interest or royalties, to persons not entitled to the benefits under the other
tests of paragraph 1 (i.e., subparagraphs (a), (b), (d), (e) or (f)) or who not are citizens of the
United States.

The term "gross income" is not defined in the Convention. Thus, in accordance with
paragraph 2 of Article 3 (General Definitions), in determining whether a person deriving income
from United States sources is entitled to the benefits of the Convention, the United States will
ascribe the meaning to the term that it has in the United States. In such cases, "gross income"
will be defined as gross receipts less cost of goods sold.
Publicly-Traded Corporations -- Subparagraph 1(d)

Subparagraphs (d) and (e) of paragraph 1 apply to two categories of corporations:

publicly-traded corporations and subsidiaries of publicly-traded corporations. Clause (i) of
subparagraph 1(d) provides that a company will be entitled to all the benefits of the Convention
if there is substantial and regular trading in the company's principal class of shares on a
"recognized stock exchange" located in either State. The term "recognized stock exchange" is
defined in paragraph 5.

If a company has only one class of shares, it is only necessary to consider whether the
shares of that class are regularly traded on a recognized stock exchange. If the company has
more than one class of shares, it is necessary as an initial matter to determine the principal class
of shares. The term "principal class of shares" is to be interpreted as the class of shares that
represents the majority of the voting power and value of the company. When no single class of
shares represents the majority of the voting power and value of the company, the "principal class
of shares" is generally those classes that in the aggregate possess more than 50 percent of the
voting power and value of the company. The term "shares" shall include depository receipts
thereof or trust certificates thereof. In determining voting power, any shares or class of shares
that are authorized but not issued shall not be counted; and, in mutual agreement between the
competent authorities, appropriate weight shall be given to any restrictions or limitations on
voting rights of, or entitlement to disproportionately higher participation in, issued shares.

The term "substantial and regular trading" is not defined in the Convention. In
accordance with paragraph 2 of Article 3 (General Definitions), the term will be defined by
reference to the domestic tax laws of the State from which treaty benefits are sought, generally
the source State. In the case of the United States, this term is to be understood to have the
meaning given "regularly traded" in Treas. Reg. section 1.884-5(d)(4)(i)(B), relating to the
branch tax provisions of the Code. Under these regulations, a class of shares is considered to be
"regularly traded" if two requirements are met: trades in the class of shares are made in more
than de minimis quantities on at least 60 days during the taxable year, and the aggregate number
of shares in the class traded during the year is at least 10 percent of the average number of shares
outstanding during the year. Sections 1.884-5(d)(4)(i)(A), (ii) and (iii) will not be taken into
account for purposes of defining the term "substantial and regular trading" under the Convention.

The substantial and regular trading requirement can be met by trading on any recognized
exchange or exchanges located in either State. Trading on one or more recognized stock
exchanges may be aggregated for purposes of this requirement. Thus, a U.S. company could
satisfy the substantial and regular trading requirement through trading, in whole or in part, on a
recognized stock exchange located in Thailand. Authorized but unissued shares are not
considered for purposes of this test.

Subsidiaries of Publicly-Traded Corporations -- Subparagraph 1(e)

Subparagraph 1(e) provides a test under which certain companies that are directly or
indirectly wholly owned by companies satisfying the publicly-traded test of subparagraph 1(d)
may be entitled to the benefits of the Convention. Under this test, a company will be entitled to
the benefits of the Convention if the company is wholly owned by a company described in
subparagraph 1(d).

Subparagraph 1(e) permits indirect ownership. Consequently, the ownership by a

publicly-traded company described in subparagraph (d) need not be direct. However, each
intermediate owner in the chain of ownership must be a resident of a Contracting State.
Tax Exempt Organizations -- Subparagraph 1(f)

Subparagraph 1(f) provides that certain not-for-profit organizations will be entitled to all
the benefits of the Convention. These entities are entities that by virtue of their not-for-profit
status generally are exempt from tax in their Contracting State of residence, as long as more than
half of the beneficiaries, members or participants, if any, in such organization are persons
entitled under this Article to the benefits of the Convention. For purposes of this provision, the
term "beneficiaries" should be understood to refer to the persons receiving benefits from the
organization.

It is intended that all of the provisions of paragraph 1 will be self-executing. Unlike the
provisions of paragraph 4, discussed below, claiming benefits under paragraph 1 does not require
advance competent authority ruling or approval. The tax authorities may, of course, on review,
determine that the taxpayer has improperly interpreted the paragraph and is not entitled to the
benefits claimed.

Paragraph 2

Paragraph 2 sets forth two tests under which a resident of a Contracting State that is not
generally entitled to benefits of the Convention under paragraph 1 may receive treaty benefits
with respect to certain items of income that are connected with or incidental to an active trade or
business conducted in its State of residence.

Subparagraph 2(a) sets forth a two-pronged test that if satisfied entitles a resident of a
Contracting State to the benefits of the Convention with respect to a particular item of income.
First, the income must be derived from the other State and must be derived in connection with an
active trade or business in which the resident engages in its State of residence. Second, the trade
or business must be substantial in relation to the business or activity in the other State giving rise
to the item of income.

Subparagraph 2(b) provides a second test. A resident of a Contracting State shall be

entitled to the benefits of the Convention with respect to a particular item of income if the
income is derived from the other Contracting State and is incidental to an active trade or business
in which the resident engages in its State of residence.

The determinations required for each test are made separately for each item of income
derived from the other State. It therefore is possible that a person would be entitled to the
benefits of the Convention with respect to one item of income but not with respect to another. If
a resident of a Contracting State is entitled to treaty benefits with respect to a particular item of
income under paragraph 2, the resident is entitled to all benefits of the Convention insofar as
they affect the taxation of that item of income in the other State. Set forth below is a more
detailed discussion of the two disjunctive tests under paragraph 2.

Trade or Business -- Subparagraphs 2(a) and (b)

The term "trade or business" is not defined in the Convention. Pursuant to paragraph 2 of
Article 3 (General Definitions), when determining whether a resident of the other State is entitled
to the benefits of the Convention under paragraph 2 with respect to income derived from U.S.
sources, the United States will ascribe to this term the meaning that it has under the law of the
United States. Accordingly, the United States competent authority will refer to the regulations
issued under section 367(a) for the definition of the term "trade or business." In general,
therefore, a trade or business will be considered to be a specific unified group of activities that
constitute or could constitute an independent economic enterprise carried on for profit.
Furthermore, a corporation generally will be considered to carry on a trade or business only if the
officers and employees of the corporation conduct substantial managerial and operational
activities. See, Code section 367(a)(3) and the regulations thereunder.

Notwithstanding this general definition of trade or business, paragraph 2 provides that the
business of making or managing investments, when part of banking or insurance activities
conducted by a bank or insurance company, will be considered to be a trade or business.
Conversely, such activities conducted by a person other than a bank or insurance company will
not be considered to be the conduct of an active trade or business, nor would they be considered
to be the conduct of an active trade or business if conducted by a banking or insurance company
but not as part of the company's banking or insurance business.

Because a headquarters operation is in the business of managing investments, a company

that functions solely as a headquarter company will not be considered to be engaged in an active
trade or business for purposes of paragraph 2.

Derived in Connection With Requirement of Subparagraph 2(a) Test -- Subparagraph 2(a)(i)

It is to be understood that income is derived in connection with a trade or business if the

income-producing activity in the other State is a line of business that forms a part of or is
complementary to the trade or business conducted in the State of residence by the income
recipient. Although no definition of the terms "forms a part of" or "complementary" is set forth
in the Convention, it is intended that a business activity generally will be considered to "form a
part of" a business activity conducted in the other State if the two activities involve the design,
manufacture or sale of the same products or type of products, or the provision of similar services.
In order for two activities to be considered to be "complementary," the activities need not relate
to the same types of products or services, but they should be part of the same overall industry
and be related in the sense that the success or failure of one activity will tend to result in success
or failure for the other. In cases in which more than one trade or business is conducted in the
other State and only one of the trades or businesses forms a part of or is complementary to a
trade or business conducted in the State of residence, it is necessary to identify the trade or
business to which an item of income is attributable. Royalties generally will be considered to be
derived in connection with the trade or business to which the underlying intangible property is
attributable. Dividends will be deemed to be derived first out of earnings and profits of the
treaty-benefited trade or business, and then out of other earnings and profits. Interest income may
be allocated under any reasonable method consistently applied. A method that conforms to U.S.
principles for expense allocation will be considered a reasonable method. The following
examples illustrate the application of this understanding.

Example 1. USCo is a corporation resident in the United States. USCo is engaged in an active
manufacturing business in the United States. USCo owns 100 percent of the
shares of ThaiCo, a corporation resident in Thailand. ThaiCo distributes USCo
products in Thailand. Since the business activities conducted by the two
corporations involve the same products, ThaiCo's distribution business is
considered to form a part of USCo's manufacturing business for purposes of
subparagraph 2(a)(i).

Example 2. The facts are the same as in Example 1, except that USCo does not manufacture.
Rather, USCo operates a large research and development facility in the United
States that licenses intellectual property to affiliates worldwide, including ThaiCo.
ThaiCo and other USCo affiliates then manufacture and market the USCo-
designed products in their respective markets. Since the activities conducted by
ThaiCo and USCo involve the same product lines, these activities are considered
to form a part of the same trade or business.

Example 3. Americair is a corporation resident in the United States that operates an

international airline. ThaiSub is a wholly-owned subsidiary of Americair resident
in Thailand. ThaiSub operates a chain of hotels in Thailand that are located near
airports served by Americair flights. Americair frequently sells tour packages that
include air travel to Thailand and lodging at ThaiSub hotels. Although both
companies are engaged in the active conduct of a trade or business, the businesses
of operating a chain of hotels and operating an airline are distinct trades or
businesses. Therefore ThaiSub's business does not form a part of Americair's
business. However, ThaiSub's business is considered to be complementary to
Americair's business because they are part of the same overall industry (travel)
and the links between their operations tend to make them interdependent.

Example 4. The facts are the same as in Example 3, except that ThaiSub owns an office
building in Thailand instead of a hotel chain. No part of Americair's business is
conducted through the office building. ThaiSub's business is not considered to
form a part of or to be complementary to Americair's business. They are engaged
in distinct trades or businesses in separate industries, and there is no economic
dependence between the two operations.

Example 5. USFlower is a corporation resident in the United States. USFlower produces and
sells flowers in the United States and other countries. USFlower owns all the
shares of ThaiHolding, a corporation resident in Thailand. ThaiHolding is a
holding company that is not engaged in a trade or business. ThaiHolding owns all
 the shares of three corporations that are resident in Thailand: ThaiFlower,
ThaiLawn, and ThaiFish. ThaiFlower distributes USFlower flowers under the
USFlower trademark in Thailand. ThaiLawn markets a line of lawn care products
in Thailand under the USFlower trademark. In addition to being sold under the
same trademark, ThaiLawn and ThaiFlower products are sold in the same stores
and sales of each company's products tend to generate increased sales of the
other's products. ThaiFish imports fish from the United States and distributes it to
fish wholesalers in Thailand. For purposes of paragraph 2, the business of
ThaiFlower forms a part of the business of USFlower, the business of ThaiLawn
is complementary to the business of USFlower, and the business of ThaiFish is
neither part of nor complementary to that of USFlower.

Substantiality Requirement of Subparagraph 2(a) Test -- Subparagraph 2(a)(ii)

As indicated above, subparagraph 2(a)(ii) provides that income that a resident of a State
derives from the other State will be entitled to the benefits of the Convention under paragraph
2(a) only if the income is derived in connection with a trade or business conducted in the
recipient's State of residence and that trade or business is "substantial" in relation to the income-
producing activity in the other State. It is to be understood that whether the trade or business of
the income recipient is substantial will be determined based on all the facts and circumstances.
These circumstances generally would include the relative scale of the activities conducted in the
two States and the relative contributions made to the conduct of the trade or businesses in the
two States.

Incidental Requirement of Subparagraph 2(b) Test -- Subparagraph 2(b)

A resident in one of the States also will be entitled to the benefits of the Convention with
respect to an item of income if the income is derived from the other State and if the income is
"incidental" to the trade or business conducted in the recipient's State of residence. The term
"incidental" is not defined in the Convention, but it is to be understood that income derived from
a State will be incidental to a trade or business conducted in the other State if the production of
such income facilitates the conduct of the trade or business in the other State. An example of
incidental income is the temporary investment of working capital derived from a trade or
business.

Paragraph 3

Paragraph 3 provides that a Thai resident that is an "international banking facility" under
the laws of Thailand or that is subject to the same taxation treatment under the laws of Thailand
as an international banking facility shall not be entitles to any U.S. benefits under the Convention
with respect to any income such resident receives from the United States.

Paragraph 4

Paragraph 4 provides that a person that is not entitled to the benefits of the Convention
pursuant to paragraphs 1, 2 and 3 of this Article may be granted benefits under the Convention if
the competent authority of the State in which the income in question arises so determines. This
discretionary provision is included in recognition of the fact that, with the increasing scope and
diversity of international economic relations, there may be cases where significant participation
by third country residents in an enterprise of a Contracting State is warranted by sound business
practice or long-standing business structures and does not necessarily indicate a motive of
attempting to derive unintended Convention benefits.

The competent authority of a State will base a determination under this paragraph on
whether the establishment, acquisition, or maintenance of the person seeking benefits under the
Convention, or the conduct of such person's operations, has or had as one of its principal
purposes the obtaining of benefits under the Convention. Thus, persons that establish operations
in one of the States with the principal purpose of obtaining the benefits of the Convention
ordinarily will not be granted relief under paragraph 4.

The competent authority may determine to grant all benefits of the Convention, or it may
determine to grant only certain benefits. For instance, it may determine to grant benefits only
with respect to a particular item of income in a manner similar to paragraph 2. Further, the
competent authority may set time limits on the duration of any relief granted.

It is assumed that, for purposes of implementing paragraph 4, a taxpayer will not be

required to wait until the tax authorities of one of the States have determined that benefits are
denied before he will be permitted to seek a determination under this paragraph. In these
circumstances, it is also expected that if the competent authority determines that benefits are to
be allowed, they will be allowed retroactively to the time of entry into force of the relevant treaty
provision or the establishment of the structure in question, whichever is later.

Paragraph 5

Paragraph 5 provides that the term "recognized stock exchange" means

(i) the NASDAQ System owned by the National Association of Securities
Dealers, and any stock exchange registered with the Securities and Exchange
Commission as a national securities exchange for purposes of the Securities
Exchange Act of 1934;
(ii) any securities exchange recognized by the Securities and Exchange
Commission of Thailand; and
(iii) any stock exchange agreed upon by the competent authorities of the
Contracting States.

Paragraph 6

Paragraph 6 provides that if income arising in one of the Contracting States is relieved in
whole or in part from tax in that Contracting State under any provision of this Convention and a
person is subject to tax in respect of the such income under the law in force in the other
Contracting State by reference to the amount of the income which is remitted to or received in
that other Contracting State (as opposed to being subject to tax by reference to the full amount of
the income), then the relief to be allowed under the Convention in the Contracting State in which
the income arises shall apply only to so much of the income as is remitted to or received in the
other Contracting State during the calendar year such income accrues or the next succeeding
year.

Paragraph 7

Paragraph 7 provides that the competent authorities of the Contracting States shall
exchange such information as is necessary for carrying out the provisions of this Article.

ARTICLE 19
Artistes and Sportsmen

This Article deals with the taxation in a Contracting State of artistes (i.e., performing
artists and entertainers) and sportsmen resident in the other Contracting State from the
performance of their services as such. The Article applies both to the income of an entertainer or
sportsman who performs services on his own behalf and one who performs services on behalf of
another person, either as an employee of that person, or pursuant to any other arrangement. The
rules of this Article take precedence over those of Articles 15 (Independent Personal Services)
and 16 (Dependent Personal Services).

This Article applies only with respect to the income of performing artists and sportsmen.
Others involved in a performance or athletic event, such as producers, directors, technicians,
managers, coaches, etc., remain subject to the provisions of Articles 15 and 16. In addition,
except as provided in paragraph 2, income earned by legal persons is not covered by Article 19.

Paragraph 1

Paragraph 1 describes the circumstances in which a Contracting State may tax the
performance income of an entertainer or sportsman who is a resident of the other Contracting
State. Under the paragraph, income derived by an individual resident of a Contracting State from
activities as an entertainer or sportsman exercised in the other Contracting State may be taxed in
that other State if the amount of the gross receipts derived by the performer exceeds the lesser of
$100 (or its equivalent in the currency of Thailand) per day or $3,000 or its equivalent in Thai
currency in the aggregate for the taxable year. This amount is the gross compensation for the
services rendered. If the gross receipts exceed this amount, the full amount, not just the excess,
may be taxed in the State of performance.

The OECD Model provides for taxation by the country of performance of the
remuneration of entertainers or sportsmen with no dollar or time threshold. The Convention
introduces the dollar threshold tests to distinguish between two groups of entertainers and
athletes -- those who are paid large sums of money for very short periods of service, and who
would, therefore, normally be exempt from host country tax under the standard personal services
income rules, and those who earn relatively modest amounts and are, therefore, not easily
distinguishable from those who earn other types of personal service income.
 Tax may be imposed under paragraph 1 even if the performer would have been exempt
from tax under Articles 15 (Independent Personal Services) or 16 (Dependent Personal Services).
On the other hand, if the performer would be exempt from host-country tax under Article 19, but
would be taxable under either Article 15 or 16, tax may be imposed under either of those
Articles. Thus, for example, if a performer derives remuneration from his activities in an
independent capacity, and the remuneration is not attributable to a fixed base, he may be taxed
by the host State in accordance with Article 19 if his remuneration exceeds the threshold
amounts, despite the fact that he generally would be exempt from host State taxation under
Article 15. However, a performer who receives less than the threshold amount and therefore is
not taxable under Article 19, nevertheless may be subject to tax in the host country under
Articles 15 or 16 if the tests for host-country taxability under those Articles are met. For
example, if an entertainer who is an independent contractor earns $2,000 of income in a State for
the calendar year, but the income is attributable to a fixed base regularly available to him in the
State of performance, that State may tax his income under Article 15.

Since it frequently is not possible to know until year-end whether the income an
entertainer or sportsman derived from a performance in a Contracting State will exceed the
threshold amounts, nothing in the Convention precludes that Contracting State from withholding
tax during the year and refunding after the close of the year if the taxability threshold has not
been met.

As explained in paragraph 9 of the OECD Commentaries to Article 17 (Artistes and

Sportsmen), Article 19 applies to all income connected with a performance by the entertainer,
such as appearance fees, award or prize money, and a share of the gate receipts. Income derived
from a Contracting State by a performer who is a resident of the other Contracting State from
other than actual performance, such as royalties from record sales and payments for product
endorsements, is not covered by this Article, but by other articles of the Convention, such as
Article 12 (Royalties) or Article 15 (Independent Personal Services). For example, if an
entertainer receives royalty income from the sale of live recordings, the royalty income would be
subject to source country tax at a maximum rate of 5 percent under Article 12, even if the
performance was conducted in the source country, although he could be taxed in the source
country with respect to income from the performance itself under this Article if the dollar
threshold is exceeded.

In determining whether income falls under Article 19 or another article, the controlling
factor will be whether the income in question is predominantly attributable to the performance
itself or other activities or property rights. For instance, a fee paid to a performer for
endorsement of a performance in which the performer will participate would be considered to be
so closely associated with the performance itself that it normally would fall within Article 19.
Similarly, a sponsorship fee paid by a business in return for the right to attach its name to the
performance would be so closely associated with the performance that it would fall under Article
19 as well. As indicated in paragraph 9 of the Commentaries to Article 17 of the OECD Model, a
cancellation fee would not be considered to fall within Article 19 but would be dealt with under
Article 7, 15 or 16.
 As indicated in paragraph 4 of the Commentaries to Article 17 of the OECD Model,
where an individual fulfills a dual role as performer and non-performer (such as a player-coach
or an actor-director), but his role in one of the two capacities is negligible, the predominant
character of the individual's activities should control the characterization of those activities. In
other cases there should be an apportionment between the performance-related compensation and
other compensation.

Consistently with Article 16 (Dependent Personal Services), Article 19 also applies

regardless of the timing of actual payment for services. Thus, a bonus paid to a resident of a
Contracting State with respect to a performance in the other Contracting State with respect to a
particular taxable year would be subject to Article 19 for that year even if it was paid after the
close of the year.

Paragraph 2

Paragraph 2 is intended to deal with the potential for abuse when a performer's income
does not accrue directly to the performer himself, but to another person. Foreign performers
commonly perform in the United States as employees of, or under contract with, a company or
other person.

The relationship may truly be one of employee and employer, with no abuse of the tax
system either intended or realized. On the other hand, the "employer" may, for example, be a
company established and owned by the performer, which is merely acting as the nominal income
recipient in respect of the remuneration for the performance (a “star company”). The performer
may act as an "employee," receive a modest salary, and arrange to receive the remainder of the
income from his performance in another form or at a later time. In such case, absent the
provisions of paragraph 2, the star company arguably could escape host-country tax because it
earns business profits but has no permanent establishment in that country. The performer may
largely or entirely escape host-country tax by receiving only a small salary in the year the
services are performed, perhaps small enough to place him below the dollar threshold in
paragraph 1. The performer might arrange to receive further payments in a later year, when he is
not subject to host-country tax, perhaps as deferred salary payments, dividends or liquidating
distributions.

Paragraph 2 seeks to prevent this type of abuse while at the same time protecting the
taxpayers' rights to the benefits of the Convention when there is a legitimate employee-employer
relationship between the performer and the person providing his services. Under paragraph 2,
when the income accrues to a person other than the performer, and the performer or related
persons participate, directly or indirectly, in the receipts or profits of that other person, the
income may be taxed in the Contracting State where the performer's services are exercised,
without regard to the provisions of the Convention concerning business profits (Article 7),
independent personal services (Article 15), or dependent personal services (Article 16). Thus,
even if the "employer" has no permanent establishment or fixed base in the host country, its
income may be subject to tax there under the provisions of paragraph 2. Taxation under
paragraph 2 is on the person providing the services of the performer. This paragraph does not
affect the rules of paragraph 1, which apply to the performer himself. The income taxable by
virtue of paragraph 2 is reduced to the extent of salary payments to the performer, which fall
under paragraph 1.

For purposes of paragraph 2, income is deemed to accrue to another person (i.e., the
person providing the services of the performer) if that other person has control over, or the right
to receive, gross income in respect of the services of the performer. Direct or indirect
participation in the profits of a person may include, but is not limited to, the accrual or receipt of
deferred remuneration, bonuses, fees, dividends, partnership income or other income or
distributions.

Paragraph 2 does not apply if it is established that neither the performer nor any persons
related to the performer participate directly or indirectly in the receipts or profits of the person
providing the services of the performer. Assume, for example, that a circus owned by a U.S.
corporation performs in Thailand, and promoters of the performance in Thailand pay the circus,
which, in turn, pays salaries to the circus performers. The circus is determined to have no
permanent establishment in Thailand. Since the circus performers do not participate in the profits
of the circus, but merely receive their salaries out of the circus' gross receipts, the circus is
protected by Article 7 and its income is not subject to host-country tax. Whether the salaries of
the circus performers are subject to host-country tax under this Article depends on whether they
exceed the thresholds in paragraph 1.

Since pursuant to Article 1 (General Scope) the Convention only applies to persons who
are residents of one of the Contracting States, if the star company is not a resident of one of the
Contracting States then taxation of the income is not affected by Article 19 or any other
provision of the Convention.

This exception from paragraph 2 for non-abusive cases is not found in the OECD Model.
The United States has entered a reservation to the OECD Model on this point.

Paragraph 3

Paragraph 3 provides an exception to the rules of paragraphs 1 and 2 in the case of a visit
to a Contracting State by a public entertainer who is a resident of the other Contracting State, if
the visit is substantially supported by public funds of his state of residence, including any
political subdivision or local authority of that State. In the circumstances described, only the
Contracting State of residence of the public entertainer may tax his income from performances.
Although this rule is not found in the U.S. or OECD Models, a similar exception is provided in
some other U.S. treaties.

Relation to Other Articles

This Article is subject to the provisions of the saving clause of paragraph 2 of Article 1
(Personal Scope). Thus, if an entertainer or a sportsman who is resident in Thailand is a citizen
of the United States, the United States may tax all of his income from performances in the United
States without regard to the provisions of this Article. In addition, benefits of this Article are
subject to the provisions of Article 18 (Limitation on Benefits).
 ARTICLE 20
Pensions and Social Security Payments

Article 20 deals with the taxation of private (i.e., non-government) pensions, annuities,
social security, and similar benefits.

Paragraph 1

Paragraph 1 provides that private pensions and other similar remuneration paid in
consideration of past employment are generally taxable only in the residence State of the
recipient. It is understood that the rules of this paragraph apply even if the payee of the pension
is not the person who performed the past employment. For example, a pension paid to a
surviving spouse who is a resident of Thailand would be exempt from tax by the United States
on the same basis as if the right to the pension had been earned directly by the surviving spouse.
A pension may be paid periodically or in a lump sum. The rules of this paragraph do not apply to
government service pensions, which are dealt with in paragraph 2 of Article 21 (Government
Service), nor do they deal with social security benefits, which are dealt with in paragraph 2 of
Article 20.

The phrase “pensions and other similar remuneration” is intended to encompass

payments made by private retirement plans and arrangements in consideration of past
employment. In the United States, the plans encompassed by Paragraph 1 include: qualified
plans under section 401(a), individual retirement plans (including individual retirement plans that
are part of a simplified employee pension plan that satisfies section 408(k), individual retirement
accounts and section 408(p) accounts), non-discriminatory section 457 plans, section 403(a)
qualified annuity plans, and section 403(b) plans. The Competent Authorities may agree that
distributions from other plans that generally meet similar criteria to those applicable to other
plans established under their respective laws also qualify for the benefits of Paragraph 1. In the
United States, these criteria are as follows:
a) The plan must be written;
b) In the case of an employer-maintained plan, the plan must be
nondiscriminatory insofar as it (alone or in combination with other comparable plans)
must cover a wide range of employees. including rank and file employees, and actually
provide significant benefits for the entire range of covered employees;
c) In the case of an employer-maintained plan the plan must contain provisions
that severely limit the employees’ ability to use plan assets for purposes other than
retirement, and in all cases be subject to tax provisions that discourage participants from
using the assets for purposes other than retirement; and
d) The plan must provide for payment of a reasonable level of benefits at death, a
stated age, or an event related to work status, and otherwise require minimum
distributions under rules designed to ensure that any death benefits provided to the
participants’ survivors are merely incidental to the retirement benefits provided to the
participants.
 In addition, certain distribution requirements must be met before distributions from these
plans would fall under paragraph 1. To qualify as a pension distribution or similar remuneration
from a U.S. plan the employee must have been either employed by the same employer for five
years or be at least 62 years old at the time of the distribution. In addition, the distribution must
be made either
(A) on account of death or disability,
(B) as part of a series of substantially equal payments over the
employee’s life expectancy (or over the joint life expectancy of the
employee and a beneficiary), or
(C) after the employee attained the age of 55. Finally, the
distribution must be made either after separation from service or on or
after attainment of age 65. A distribution from a pension plan solely due to
termination of the pension plan is not a distribution falling under
paragraph 1.

Paragraph 2

The treatment of social security benefits is dealt with in paragraph 2. This paragraph
provides that, notwithstanding the provision of paragraph 1 under which private pensions are
taxable exclusively in the State of residence of the beneficial owner, payments made by one of
the Contracting States as a social security benefit or similar public pension to a resident of the
other Contracting State or to a citizen of the United States will be taxable only in the Contracting
State making the payment. This paragraph applies to social security beneficiaries whether they
have contributed to the system as private sector or government employees.

The phrase "similar public pension" is intended to include United States tier 1 Railroad
Retirement benefits. The reference to U.S. citizens is necessary to insure that a social security
payment by Thailand to a U.S. citizen not resident in the United States will not be taxed by the
United States.

Paragraph 3

Under paragraph 3, annuities that are derived and beneficially owned by a resident of a
Contracting State are taxable only in that State. An annuity, as the term is used in this paragraph,
means a stated sum paid periodically at stated times during a specified number of years, under an
obligation to make the payment in return for adequate and full consideration (other than for
services rendered). An annuity received in consideration for services rendered would be treated
as deferred compensation and generally taxable in accordance with Article 16 (Dependent
Personal Services).

Paragraphs 4 and 5

Paragraphs 4 and 5 deal with alimony and child support payments. Both alimony, under
paragraph 4, and child support payments, under paragraph 5, are defined as periodic payments
made pursuant to a written separation agreement or a decree of divorce, separate maintenance, or
compulsory support. Paragraph 4, however, deals only with payments of that type that are
taxable to the payee. Under that paragraph, alimony paid by a resident of a Contracting State to a
resident of the other Contracting State is taxable under the Convention only in the State of
residence of the recipient. Paragraph 5 deals with those periodic payments that are for the
support of a child and that are not covered by paragraph 4 (i.e., those payments that are not
taxable to the payee). These types of payments by a resident of a Contracting State to a resident
of the other Contracting State are taxable only in the first-mentioned Contracting State.

Relation to Other Articles

Paragraphs 1, 3 and 4 of Article 20 are subject to the saving clause of paragraph 2 of

Article 1 (Personal Scope). Thus, a U.S. citizen who is resident in the other Contracting State,
and receives either a pension, annuity or alimony payment from the United States, may be
subject to U.S. tax on the payment, notwithstanding the rules in those three paragraphs that give
the State of residence of the recipient the exclusive taxing right. Paragraphs 2 and 5 are excepted
from the saving clause by virtue of paragraph 3(a) of Article 1. Thus, the United States will
allow U.S. citizens and residents the benefits of paragraph 5.

ARTICLE 21
Government Service

Article 21 deals with the taxation of income (including pensions) from governmental
employment. It generally follows the corresponding provisions of both the U.S. and OECD
Models.

Paragraph 1

Subparagraphs (a) and (b) of paragraph 1 deal with the taxation of government
compensation other than a pension. Subparagraph a) provides the general rule that wages,
salaries, and other remuneration paid by one of the Contracting States or by its political
subdivisions or local authorities to any individual are generally exempt from tax by the other
State, if the compensation is in respect of governmental services rendered to that State,
subdivision or authority. Under subparagraph b), however, such payments are taxable only in the
other State if the services are rendered there and if the individual is a resident of that State who is
either a national (i.e., in the case of the United States, a citizen) of that State or who did not
become resident of that State solely for purposes of rendering the services. Thus, an individual
who, after establishing U.S. residence, is hired by the Thai Embassy in Washington, would be
subject to U.S. (and not Thai) tax on his Thai salary. The paragraph applies both to governmental
employees and to independent contractors engaged by governments to perform governmental
services for them.

Paragraph 2

Paragraph 2 deals with the taxation of a pension paid by, or out of funds created by, one
of the States or a political subdivision or a local authority thereof to an individual in respect of
services rendered to that State or subdivision or authority. Subparagraph (a) provides the general
rule that such a pension is taxable only by the paying State. Subparagraph (b), however, provides
an exception under which such a pension is taxable only in the residence State if the individual is
a resident of, and a national of, that other State. Pensions paid to retired civilian and military
employees of a Government of either State are intended to be covered under paragraph 2. When
benefits paid by a State in respect of services rendered to that State or a subdivision or authority
are in the form of social security benefits, however, those payments are covered by paragraph 2
of Article 20 (Pensions and Social Security Payments). As a general matter, the result will be the
same whether Article 20 or 21 applies, since social security benefits are taxable exclusively by
the source country and so are government pensions. The result will differ only when the payment
is made to a citizen and resident of the other Contracting State, who is not also a citizen of the
paying State. In such a case, social security benefits continue to be taxable at source while
government pensions become taxable only in the residence country.

Paragraph 3

Paragraph 3 provides that the provisions of Articles 16 (Dependent Personal Services), 17

(Directors' Fees), and 20 (Pensions and Social Security Payments) shall apply to remuneration
and pensions in respect of services rendered in connection with a business carried on by one of
the States or a political subdivision or a local authority thereof.

Relation to Other Articles

Under paragraph 3(b) of Article 1 (Personal Scope), the saving clause (paragraph 2 of
Article 1) does not apply to the benefits conferred by one of the States under this Article if the
recipient of the benefits is neither a citizen of, nor has immigrant status in, that State. Thus, for
example, a Thai resident who receives a pension paid by Thailand in respect of services rendered
to the Government of Thailand shall be taxable on this pension only in Thailand unless the
individual is a U.S. citizen or acquires a U.S. green card.

ARTICLE 22
Students and Trainees

This Article differs from the U.S. Model in order to reflect the particular economic and
cultural relationships in this area between the United States and Thailand. This Article reflects
the important benefits to each country from the student and trainee exchanges the Article covers.

Paragraph 1

Paragraph 1 of this Article generally provides that a resident of a Contracting State who
visits the other Contracting State for the primary purpose of studying at a university or other
recognized educational institution, securing training in a professional specialty, or studying or
doing research as the recipient of a grant from a government or a charitable institution shall be
exempt from tax in that Contracting State with respect to certain items of income during that
period of study, research or training provided certain conditions are met. Paragraph 1(b) defines
those exempt items of income as:
(1) payments from abroad for maintenance, education, study, research, or training;
(2) grants, allowances or awards; and
(3) income from personal services performed in that other Contracting State to the extent
of $3,000 United States dollars or its equivalent in Thai currency per taxable year.

The exemptions provided in paragraph 1 are available to the visiting student or trainee for a
period not exceeding five taxable years from the beginning of the visit.

The reference in paragraph 1 to "primary purpose" is meant to describe individuals

participating in a full time program of study, training or research, the term used in the U.S.
Model. "Primary purpose" was substituted for the reference in the OECD Model to "exclusive
purpose" to prevent too narrow an interpretation. It is not the intention to exclude full time
students who, in accordance with their visas, may hold part time employment jobs.

A student must be studying at a recognized educational institution. An educational

institution is understood to be an institution that normally maintains a regular faculty and
normally has a regular body of students in attendance at the place where the educational
activities are carried on. An educational institution will be considered to be recognized if it is
accredited by an authority that generally is responsible for accreditation of institutions in the
particular field of study.

The host-country exemption in the Article applies in subparagraph (b)(i) to gifts received
by the student from abroad for the purpose of his maintenance, education or training. A payment
will be considered to be from abroad if the payor is located outside the host State. In all cases
substance over form should prevail in determining the identity of the payor. Consequently,
payments made directly or indirectly by the U.S. person with whom the visitor is training, but
which have been routed through a non-host-country source, such as, for example, a foreign bank
account, should not be treated as arising outside the United States for this purpose.

Paragraph 2

Paragraph 2 of this Article generally provides an exemption for residents of a Contracting

State who are employed by, or under contract with, a resident of the same Contracting State and
who temporarily visit the other Contracting State for the purpose of studying at a university or
other recognized educational institution, or acquiring technical, professional, or business
experience in that other Contracting State, provided such training is from a person other than the
employer or contractor. Such student or trainee is exempt from taxation in the other Contracting
State for a period not in excess of twelve consecutive months on personal services income to the
extent of $7,500 (or the equivalent in Thai currency) during that period. In addition, the student
or trainee is exempt from taxation in the other Contracting State on expenses reimbursed to him
or borne on his behalf.

Paragraph 3

Paragraph 3 of this Article deals with a resident of a Contracting State who is temporarily
present in the other Contracting State for a period not exceeding one year, as a participant in a
program sponsored by the Government of the host State, for the primary purpose of training,
research or study. Such an individual will be exempt from tax by the host State on compensation
for personal services in respect of such training, research or study performed in the host State in
an aggregate amount not exceeding $10,000 United States dollars (or its equivalent in Thai
currency) during a taxable year. In addition, the participant is exempt from taxation in the other
Contracting State on expenses reimbursed to him or borne on his behalf.

Paragraph 4

Paragraph 4 of this Article provides that the benefits provided under Article 23
(Teachers) and the benefits of paragraph 1 of this Article, when taken together, shall extend for
such period of time, not to exceed five years from the date of arrival of the person claiming such
benefits, as may be reasonable or customarily required to effectuate the purpose of the visit. The
benefits of Article 23 (Teachers) are not available to an individual who during the immediately
preceding period enjoyed the benefits of paragraph 1 of this Article.

The exemptions in this Article apply in addition to, and not in lieu of, any allowance
(e.g., personal exemptions and deductions) available to the person under the internal laws of the
Contracting States. If the amount earned exceeds the specified amount per annum, only the
excess is subject to tax.

Relation to Other Articles

Under paragraph 3(b) of Article 1 (Personal Scope), the saving clause (paragraph 2 of
Article 1) does not apply to this Article if the individual is neither a citizen of the host State nor
has been admitted for permanent residence there. The saving clause, however, does apply with
respect to citizens and permanent residents of the host State. Thus, a U.S. citizen who is a
resident of Thailand and who visits the United States as a full-time student at an accredited
university will not be exempt from U.S. tax on remittances from abroad that otherwise constitute
U.S. taxable income. A person, however, who is not a U.S. citizen, and who visits the United
States as a student and remains long enough to become a resident under U.S. law, but does not
become a permanent resident (i.e., does not acquire a green card), will be entitled to the full
benefits of the Article.

ARTICLE 23
Teachers

Paragraph 1

Paragraph 1 provides an exemption from tax in one Contracting State for an individual
who visits that State (the "host State") for a period not exceeding two years for the purpose of
teaching or engaging in research at a university, college or other recognized educational
institution in that State. This rule applies only if the individual is a resident of the other
Contracting State immediately before his visit begins. The exemption applies to any
remuneration for such teaching or research. The exemption from tax applies only if the visit does
not exceed two years from the date he first visits the host State for the purpose of teaching or
engaging in research at a university, college or other recognized educational institution there.

The host State exemption will apply if the teaching or research is carried on at an
accredited university, college, school or other recognized educational institution. An educational
institution will be considered to be accredited if it is accredited by an authority that generally is
responsible for accreditation of institutions in the particular field of study.

Paragraph 2

Paragraph 2 provides that the Article shall apply to income from research only if such
research is undertaken by the individual in the public interest and not primarily for the benefit of
some other private person or persons.

Relation to Other Articles

Under paragraph 3(b) of Article 1 (Personal Scope), the saving clause (paragraph 2 of
Article 1) does not apply to the benefits conferred by one of the States under this Article if the
recipient of the benefits is neither a citizen of that State, nor, in the case of the United States, a
lawful permanent resident (i.e., a "green card" holder). Thus, a resident of Thailand who visits
the United States for two academic years as a professor and becomes a U.S. resident according to
the Code, other than by virtue of acquiring a green card, would continue to be exempt from U.S.
tax in accordance with this article so long as he is not a U.S. citizen and does not acquire
immigrant status in the United States. The saving clause does apply in this case to U.S. citizens
and immigrants.

ARTICLE 24
Other Income

Article 24 generally assigns taxing jurisdiction over income not dealt with in the other
articles (Articles 6 through 23) of the Convention to the State of residence of the beneficial
owner of the income and defines the terms necessary to apply the article. However, the other
State may also tax such income if it arises in the other State. An item of income is "dealt with" in
another article if it is the type of income described in the article and it has its source in a
Contracting State. For example, all royalty income that arises in a Contracting State and that is
beneficially owned by a resident of the other Contracting State is "dealt with" in Article 12
(Royalties).

Examples of items of income covered by Article 24 include income from gambling,

punitive (but not compensatory) damages, covenants not to compete, and income from certain
financial instruments to the extent derived by persons not engaged in the trade or business of
dealing in such instruments (unless the transaction giving rise to the income is related to a trade
or business, in which case it is dealt with under Article 7 (Business Profits)). The article also
applies to items of income that are not dealt with in the other articles because of their source or
some other characteristic. For example, Article 11 (Interest) addresses only the taxation of
interest arising in a Contracting State. Interest arising in a third State that is not attributable to a
permanent establishment, therefore, is subject to Article 24.

Distributions from partnerships and distributions from trusts are not generally dealt with
under Article 24 because partnership and trust distributions generally do not constitute income.
Under the Code, partners include in income their distributive share of partnership income
annually, and partnership distributions themselves generally do not give rise to income. Also,
under the Code, trust income and distributions have the character of the associated distributable
net income and therefore would generally be covered by another article of the Convention. See
Code section 641 et seq.

Paragraph 1

Paragraph 1 provides that items of income not dealt with in other articles that are earned
by a resident of a Contracting State generally will be taxable in the State of residence. This right
of taxation applies whether or not the residence State exercises its right to tax the income
covered by the Article.

The residence taxation provided by paragraph 1 applies only when a resident of a

Contracting State is the beneficial owner of the income. This is understood from the phrase
"income of a resident of a Contracting State." Thus, source taxation of income not dealt with in
other articles of the Convention is not limited by paragraph 1 if it is nominally paid to a resident
of the other Contracting State, but is beneficially owned by a resident of a third State.

Paragraph 2

Paragraph 2 provides an exception to the general rule of paragraph 1 for income, other
than income from real property, that is attributable to a permanent establishment or fixed base
maintained in a Contracting State by a resident of the other Contracting State. The taxation of
such income is governed by the provisions of Articles 7 (Business Profits) and 15 (Independent
Personal Services). Therefore, income arising outside the United States that is attributable to a
permanent establishment maintained in the United States by a resident of Thailand generally
would be taxable by the United States under the provisions of Article 7. This would be true even
if the income is sourced in a third State.

There is an exception to this general rule with respect to income a resident of a

Contracting State derives from immovable (or real) property located outside the other
Contracting State (whether in the first-mentioned Contracting State or in a third State) that is
attributable to the resident's permanent establishment or fixed base in the other Contracting State.
In such a case, only the first-mentioned Contracting State (i.e., the State of residence of the
person deriving the income) and not the host State of the permanent establishment or fixed base
may tax that income. This special rule for foreign-situs property is consistent with the general
rule, also reflected in Article 6 (Income from Immovable (Real) Property), that only the situs and
residence States may tax real property and real property income. Even if such property is part of
the property of a permanent establishment or fixed base in a Contracting State, that State may not
tax if neither the situs of the property nor the residence of the owner is in that State.

Paragraph 3

Paragraph 3 is not found in the U.S. or OECD Models. It is taken from the U.N. Model. It
modifies the general rule of paragraph 1. It provides that, notwithstanding paragraphs 1 and 2,
items of income of a resident of a Contracting State not dealt with in the other articles of the
Convention and arising in the other Contracting State, may also be taxed in that other
Contracting State. Thus, gambling income of a resident of the United States that arises in
Thailand may be taxed both in the United States and in Thailand. Paragraph 1, therefore,
provides exclusive residence-based taxation only to income of a resident of a Contracting State
that does not arise in the other Contracting State.

Relation to Other Articles

This Article is subject to the saving clause of paragraph 2 of Article 1 (Personal Scope).
Thus, the United States may tax the income of a resident of Thailand that is not dealt with
elsewhere in the Convention, if that resident is a citizen of the United States. The Article is also
subject to the provisions of Article 18 (Limitation on Benefits). Thus, if a resident of Thailand
earns income that falls within the scope of paragraph 1 of Article 24, but that is taxable by the
United States under U.S. law, the income would be exempt from U.S. tax under the provisions of
Article 24 only if the resident satisfies one of the tests of Article 18 for entitlement to benefits.

ARTICLE 25
Relief from Double Taxation

This Article describes the manner in which each Contracting State undertakes to relieve
double taxation. Both the United States and Thailand use the foreign tax credit method under
their internal laws, and by treaty.

Paragraph 1

The United States agrees, in paragraph 1, to allow to its citizens and residents a credit
against U.S. tax for income taxes paid or accrued to Thailand. Paragraph 1 also provides that
Thailand's covered taxes are income taxes for U.S. purposes. This provision is based on the
Treasury Department’s review of Thailand's laws. The Treasury Department has determined that
the Thai Petroleum Income Tax Act is a "tax in lieu of an income tax" under section 903 of the
Internal Revenue Code.

The credit under the Convention is allowed in accordance with the provisions and subject
to the conditions and limitations of U.S. law, as that law may be amended over time, so long as
the general principle of this Article, i.e., the allowance of a credit, is retained. Thus, although the
Convention provides for a foreign tax credit, the terms of the credit are determined by the
provisions, at the time a credit is given, of the U.S. statutory credit.
 Subparagraph (b) provides for a deemed-paid credit, consistent with section 902 of the
Code, to a U.S. corporation in respect of dividends received from a corporation resident in
Thailand of which the U.S. corporation owns at least 10 percent of the voting stock. This credit is
for the tax paid by the Thai corporation on the profits out of which the dividends are considered
paid.

As indicated, the U.S. credit under the Convention is subject to the various limitations of
U.S. law (see Code sections 901 - 908). For example, the credit against U.S. tax generally is
limited to the amount of U.S. tax due with respect to net foreign source income within the
relevant foreign tax credit limitation category (see Code section 904(a) and (d)), and the dollar
amount of the credit is determined in accordance with U.S. currency translation rules (see, e.g.,
Code section 986). Similarly, U.S. law applies to determine carryover periods for excess credits
and other inter-year adjustments. When the alternative minimum tax is due, the alternative
minimum tax foreign tax credit generally is limited in accordance with U.S. law to 90 percent of
alternative minimum tax liability. Furthermore, nothing in the Convention prevents the limitation
of the U.S. credit from being applied on a per-country basis (should internal law be changed), an
overall basis, or to particular categories of income (see, e.g., Code section 865(h)).

The reference in paragraph 1 to the "conditions" of U.S. law is explained in an exchange

of diplomatic notes, described below.

Paragraph 2

Paragraph 2 provides the specific rules under which Thailand, in imposing tax on its
residents, provides relief for U.S. taxes paid by those residents. The paragraph requires that
Thailand allow as a credit against Thai tax payable in respect of income any United States tax
payable in respect of the income that is from sources within the United States. The credit under
this paragraph is allowed in accordance with the provisions and subject to the limitations of Thai
law, as that law may be amended over time, so long as the general principles of this Article (i.e.,
the allowance of a credit) is retained. The paragraph also provides that the credit shall not exceed
that the Thai tax, determined without regard to the credit given, appropriate to the item of
income. The paragraph shall not apply with respect to income that has been denied benefits of
the Convention under the provisions of Article 18 (Limitation on Benefits).

Paragraph 3

Paragraph 3 provides the exclusive sourcing rules for purposes of allowing relief from
double taxation pursuant this Article. Subparagraph 3(a) states that income derived by a resident
of a Contracting State which under the Convention may be taxed in the other Contracting State
(other than solely by reason of citizenship under the saving clause of paragraph 2 of Article
1(Personal Scope)) shall be deemed to arise in that other State. Subparagraph 3(b) states that
income derived by a resident of a Contracting State which in accordance with this Convention
may not be taxed in the other Contracting State shall be deemed to arise in that resident's
Contracting State of residence.

The paragraph also provides, however, that, notwithstanding the general rules of
subparagraphs (a) and (b), the determination of the source of income for purposes of double tax
relief pursuant to this Article shall be subject to any source rules in the domestic laws of the
Contracting State that apply to limit the foreign tax credit. In general, the source rules provided
in the Convention are consistent with the Code source rules for foreign tax credit and other
purposes. Where, however, the Convention and Code source rules are inconsistent, the Code
source rules (e.g., Code section 904(g)) will be used to determine the limits for the allowance of
a credit under the Convention. The paragraph also provides that the general source rules
paragraph 3 shall not apply in determining foreign tax credits for taxes other than the taxes
referred to in Article 2 (Taxes Covered).

Relation to Other Articles

By virtue of the exceptions in subparagraph 2(a) of Article 1 this Article is not subject to
the saving clause of paragraph 2 of Article 1 (General Scope). Thus, the United States will allow
a credit to its citizens and residents in accordance with the Article, even if such credit were to
provide a benefit not available under the Code.

Exchange of Notes

Paragraph 1 of Article 25 of the treaty provides that the United States shall allow a credit
for taxes paid to Thailand "subject to the conditions and limitations of the law of the United
States..." (emphasis added). As stated in the diplomatic notes exchanged at the time of signature
of the Convention, it was mutually understood that the addition of the word "conditions" is
intended to make clear that U.S. rules regarding "dual capacity" taxpayers apply. The diplomatic
notes also provide that if the United States alters its policy to authorize tax-sparing credits or
grants such a credit in a tax treaty with another country, negotiations will be opened with a view
to concluding a protocol that would amend the Convention to incorporate such a credit.

ARTICLE 26
Non-Discrimination

This Article assures that nationals of a Contracting State, in the case of paragraph 1, and
residents of a Contracting State, in the case of paragraphs 2 through 4, will not be subject,
directly or indirectly, to discriminatory taxation in the other Contracting State. For this purpose,
nondiscrimination means providing national treatment. Not all differences in tax treatment, either
as between nationals of the two States, or between residents of the two States, are violations of
this national treatment standard. Rather, the national treatment obligation of this Article applies
only if the nationals or residents of the two States are comparably situated.

Each of the relevant paragraphs of the Article provides that two persons that are
comparably situated must be treated similarly. Although the actual words differ from paragraph
to paragraph (e.g., paragraph 1 refers to two nationals “in the same circumstances,” paragraph 2
refers to two enterprises “carrying on the same activities” and paragraph 4 refers to two
enterprises that are “similar”), the common underlying premise is that if the difference in
treatment is directly related to a tax-relevant difference in the situations of the domestic and
foreign persons being compared, that difference is not to be treated as discriminatory (e.g., if one
person is taxable in a Contracting State on worldwide income and the other is not, or tax may be
collectible from one person at a later stage, but not from the other, distinctions in treatment
would be justified under paragraph 1). Other examples of such factors that can lead to non-
discriminatory differences in treatment will be noted in the discussions of each paragraph.

The operative paragraphs of the Article also use different language to identify the kinds
of differences in taxation treatment that will be considered discriminatory. For example,
paragraphs 1 and 4 speak of "any taxation or any requirement connected therewith which is other
or more burdensome," while paragraph 2 specifies that a tax "shall not be less favorably levied."
Regardless of these differences in language, only differences in tax treatment that materially
disadvantage the foreign person relative to the domestic person are properly the subject of the
Article.

Paragraph 1

Paragraph 1 provides that a national of one Contracting State may not be subject to
taxation or connected requirements in the other Contracting State that are other or more
burdensome than the taxes and connected requirements imposed upon a national of that other
State in the same circumstances. As noted above, whether or not the two persons are both taxable
on worldwide income is a significant circumstance for this purpose. The term "other" does not
simply refer to different requirements; the only relevant question under this provision should be
whether the requirement imposed on a national of the other State is more burdensome. A
requirement may be different from the requirements imposed on U.S. nationals without being
more burdensome.

Thus, a national of a Contracting State is afforded protection under this paragraph even if
the national is not a resident of either Contracting State. Accordingly, a U.S. citizen who is
resident in a third country is entitled, under this paragraph, to the same treatment in Thailand as a
national of Thailand who is in similar circumstances (i.e., presumably one who is resident in a
third State). The term "national" in relation to a Contracting State is defined in subparagraph 1(j)
of Article 3 (General Definitions).

Because the relevant circumstances referred to in the paragraph relate, among other
things, to taxation on worldwide income, paragraph 1 does not obligate the United States to
apply the same taxing regime to a national of Thailand who is not resident in the United States
and a U.S. national who is not resident in the United States. United States citizens who are not
residents of the United States but who are, nevertheless, subject to United States tax on their
worldwide income are not in the same circumstances with respect to United States taxation as
citizens of Thailand who are not United States residents. Thus, for example, Article 26 would not
entitle a national of Thailand resident in a third country to taxation at graduated rates of U.S.
source dividends or other investment income that applies to a U.S. citizen resident in the same
third country.

In order to conform to the OECD Model, the definition of "national" in the Convention,
as in the U.S. Model, extends beyond citizens to cover juridical persons that are nationals of a
Contracting State as well. This expanded definition, however, generally may add little as a
practical matter to the scope of the Article. A corporation that is a national of Thailand and is
doing business in the United States is already protected, vis-a-vis a U.S. corporation, by
paragraph 2. If a Thai corporation is not doing business in the United States it is, in relevant
respect, in different circumstances from a U.S. corporation, and is, therefore, not entitled to
national treatment in the United States. With respect to U.S. nationals claiming
nondiscrimination protection from Thailand, U.S. juridical persons that are "nationals" of the
United States are also U.S. residents (e.g., U.S. corporations but not partnerships), and are,
therefore, protected by paragraphs 2 and 4 in any event.

Paragraph 2

Paragraph 2 of the Article, like the comparable paragraph in the OECD Model, provides
that a Contracting State may not tax a permanent establishment of an enterprise of the other
Contracting State less favorably than an enterprise of that first-mentioned State that is carrying
on the same activities. This provision, however, does not obligate a Contracting State to grant to
an enterprise of the other Contracting State any tax allowances, reliefs, etc., that it grants to its
own residents on account of their civil status or family responsibilities. Thus, if a sole proprietor
who is a resident of Thailand has a permanent establishment in the United States, in assessing
income tax on the profits attributable to the permanent establishment, the United States is not
obligated to allow to the resident of Thailand the personal allowances for himself and his family
that he would be permitted to take if the permanent establishment were a sole proprietorship
owned and operated by a U.S. resident, despite the fact that the individual income tax rates
would apply.

The fact that a U.S. permanent establishment of an enterprise of Thailand is subject to

U.S. tax only on income that is attributable to the permanent establishment, while a U.S.
corporation engaged in the same activities is taxable on its worldwide income is not, in itself, a
sufficient difference to deny national treatment to the permanent establishment. There are cases,
however, where the two enterprises would not be similarly situated and differences in treatment
may be warranted. For instance, it would not be a violation of the nondiscrimination protection
of paragraph 2 to require the Thai enterprise to provide information in a reasonable manner that
may be different from the information requirements imposed on a resident enterprise, because
information may not be as readily available to the Internal Revenue Service from a foreign as
from a domestic enterprise. Similarly, it would not be a violation of paragraph 2 to impose
penalties on persons who fail to comply with such a requirement (see, e.g., sections 874(a) and
882(c)(2)). Further, a determination that income and expenses have been attributed or allocated
to a permanent establishment in conformity with the principles of Article 7 (Business Profits)
implies that the attribution or allocation was not discriminatory.

Section 1446 of the Code imposes on any partnership with income that is effectively
connected with a U.S. trade or business the obligation to withhold tax on amounts allocable to a
foreign partner. In the context of the Convention, this obligation applies with respect to a share
of the partnership income of a partner resident in Thailand, and attributable to a U.S. permanent
establishment. There is no similar obligation with respect to the distributive shares of U.S.
resident partners. It is understood, however, that this distinction is not a form of discrimination
within the meaning of paragraph 2 of the Article. No distinction is made between U.S. and non-
U.S. partnerships, since the law requires that partnerships of both U.S. and non-U.S. domicile
withhold tax in respect of the partnership shares of non-U.S. partners. Furthermore, in
distinguishing between U.S. and non-U.S. partners, the requirement to withhold on the non-U.S.
but not the U.S. partner's share is not discriminatory taxation, but, like other withholding on
nonresident aliens, is merely a reasonable method for the collection of tax from persons who are
not continually present in the United States, and as to whom it otherwise may be difficult for the
United States to enforce its tax jurisdiction. If tax has been over-withheld, the partner can, as in
other cases of over-withholding, file for a refund. (The relationship between paragraph 2 and the
imposition of the branch tax is dealt with below in the discussion of paragraph 5.)

Paragraph 3

Paragraph 3 prohibits discrimination in the allowance of deductions. When an enterprise

of a Contracting State pays interest, royalties or other disbursements to a resident of the other
Contracting State, the first-mentioned Contracting State must allow a deduction for those
payments in computing the taxable profits of the enterprise as if the payment had been made
under the same conditions to a resident of the first-mentioned Contracting State. An exception to
this rule is provided for cases where the provisions of paragraph 1 of Article 9 (Associated
Enterprises), paragraph 7 of Article 11 (Interest) or paragraph 6 of Article 12 (Royalties) apply,
because all of these provisions permit the denial of deductions in certain circumstances in respect
of transactions between related persons. This exception would include the denial or deferral of
certain interest deductions under Code section 163(j).

The term "other disbursements" is understood to include a reasonable allocation of

executive and general administrative expenses, research and development expenses and other
expenses incurred for the benefit of a group of related persons that includes the person incurring
the expense.

Paragraph 4

Paragraph 4 requires that a Contracting State not impose more burdensome taxation or
connected requirements on an enterprise of that State that is wholly or partly owned or
controlled, directly or indirectly, by one or more residents of the other Contracting State, than the
taxation or connected requirements that it imposes on other similar enterprises of that
first-mentioned Contracting State. For this purpose it is understood that “similar” refers to
similar activities or ownership of the enterprise.

The Tax Reform Act of 1986 changed the rules for taxing corporations on certain
distributions they make in liquidation. Prior to 1986, corporations were not taxed on distributions
of appreciated property in complete liquidation, although non-liquidating distributions of the
same property, with several exceptions, resulted in corporate-level tax. In part to eliminate this
disparity, the law now generally taxes corporations on the liquidating distribution of appreciated
property. The Code provides an exception in the case of distributions by 80 percent or more
controlled subsidiaries to their parent corporations, on the theory that the built-in gain in the asset
will be recognized when the parent sells or distributes the asset. This exception does not apply to
distributions to parent corporations that are tax-exempt organizations or, except to the extent
provided in regulations, foreign corporations. The policy of the legislation is to collect one
corporate-level tax on the liquidating distribution of appreciated property. If, and only if, that tax
can be collected on a subsequent sale or distribution does the legislation defer the tax. It is
understood that the inapplicability of the exception to the tax on distributions to foreign parent
corporations under section 367(e)(2) does not conflict with paragraph 4 of the Article. While a
liquidating distribution to a U.S. parent will not be taxed, and, except to the extent provided in
regulations, a liquidating distribution to a foreign parent will, paragraph 4 merely prohibits
discrimination among corporate taxpayers on the basis of U.S. or foreign stock ownership.
Eligibility for the exception to the tax on liquidating distributions for distributions to
non-exempt, U.S. corporate parents is not based upon the nationality of the owners of the
distributing corporation, but rather is based upon whether such owners would be subject to
corporate tax if they subsequently sold or distributed the same property. Thus, the exception does
not apply to distributions to persons that would not be so subject -- not only foreign corporations,
but also tax-exempt organizations. A similar analysis applies to the treatment of section 355
distributions subject to section 367(e)(1).

For the reasons given above in connection with the discussion of paragraph 2 of the
Article, it is also understood that the provision in section 1446 of the Code for withholding of tax
on Thai partners does not violate paragraph 4 of the Article.

It is further understood that the ineligibility of a U.S. corporation with nonresident alien
shareholders to make an election to be an "S" corporation does not violate paragraph 4 of the
Article. If a corporation elects to be an S corporation (requiring 35 or fewer shareholders), it is
generally not subject to income tax and the shareholders take into account their pro rata shares of
the corporation's items of income, loss, deduction or credit. (The purpose of the provision is to
allow an individual or small group of individuals to conduct business in corporate form while
paying taxes at individual rates as if the business were conducted directly.) A nonresident alien
does not pay U.S. tax on a net basis, and, thus, does not generally take into account items of loss,
deduction or credit. Thus, the S corporation provisions do not exclude corporations with
nonresident alien shareholders because such shareholders are foreign, but only because they are
not net-basis taxpayers. Similarly, the provisions exclude corporations with other types of
shareholders where the purpose of the provisions cannot be fulfilled or their mechanics
implemented. For example, corporations with corporate shareholders are excluded because the
purpose of the provisions to permit individuals to conduct a business in corporate form at
individual tax rates would not be furthered by their inclusion.

Paragraph 5

Paragraph 5 of the Article confirms that no provision of the Article will prevent either
Contracting State from imposing the branch taxes described in Article 14 (Branch Tax). Since
imposition of the branch taxes under the Convention is specifically sanctioned by Article 14, its
imposition could not be precluded by Article 26, even without paragraph 5. Under the generally
accepted rule of construction that the specific takes precedence over the more general, the
specific branch tax provision of Article 14 would take precedence over the more general national
treatment provision of Article 26.
 Paragraph 6 of the U.S. Model provides nondiscrimination protection with respect to all
taxes imposed by a Contracting State. Under this Article, nondiscrimination protection only
applies to taxes covered by the Convention in Article 2 (Taxes Covered).

Relation to Other Articles

The saving clause of paragraph 2 of Article 1 (Personal Scope) does not apply to this
Article, by virtue of the exceptions in paragraph 3(a) of Article 1. Thus, for example, a U.S.
citizen who is a resident of Thailand may claim benefits in the United States under this Article.

Nationals of a Contracting State may claim the benefits of paragraph 1 regardless of

whether they are entitled to benefits under Article 18 (Limitation on Benefits), because that
paragraph applies to nationals and not residents. They may not claim the benefits of the other
paragraphs of this Article with respect to an item of income unless they are generally entitled to
treaty benefits with respect to that income under a provision of Article 18.

ARTICLE 27
Mutual Agreement Procedure

This Article provides the mechanism for taxpayers to bring to the attention of competent
authorities issues and problems that may arise under the Convention. It also provides a
mechanism for cooperation between the competent authorities of the Contracting States to
resolve disputes and clarify issues that may arise under the Convention and to resolve cases of
double taxation not provided for in the Convention. The competent authorities of the two
Contracting States are identified in paragraph 1(e) of Article 3 (General Definitions).

Paragraph 1

Paragraph 1 provides that where a resident of a Contracting State considers that the
actions of one or both Contracting States will result in taxation that is not in accordance with the
Convention he may present his case to the competent authority of the Contracting State of which
he is a resident or, if his case comes under paragraph 1 of Article 26 (Non-Discrimination), to the
Contracting State of which he is a national.

Although the typical cases brought under this paragraph will involve economic double
taxation arising from transfer pricing adjustments, the scope of this paragraph is not limited to
such cases. For example, if a the United States treats income derived by a Thai company as
attributable to a permanent establishment in the United States, and the Thai resident believes that
the income is not attributable to a U.S. permanent establishment, the Thai resident may bring a
complaint under paragraph 1 to the competent authority of Thailand.

It is not necessary for a person bringing a complaint first to have exhausted the remedies
provided under the national laws of the Contracting States before presenting a case to the
competent authorities. The case must be presented within three years of the first notification of
the action resulting in taxation not in accordance with the Convention. Although the U.S. Model
treaty would avoid any time limits for competent authority action, Thailand advocated a three-
year limit, which is consistent with the OECD Model treaty.

Paragraph 2

Paragraph 2 instructs the competent authorities in dealing with cases brought by

taxpayers under paragraph 1. It provides that if the competent authority of the Contracting State
to which the case is presented judges the case to have merit, and cannot reach a unilateral
solution, it shall seek an agreement with the competent authority of the other Contracting State
pursuant to which taxation not in accordance with the Convention will be avoided. In a case
where the taxpayer has entered a closing agreement (or other written settlement) with the United
States prior to bringing a case to the competent authorities, the U.S. competent authority will
endeavor only to obtain a correlative adjustment from Thailand. See, Rev. Proc. 96-13, 1996-1
C.B. 616, section 7.05.

Paragraph 3

Paragraph 3 authorizes the competent authorities to resolve difficulties or doubts that may
arise as to the application or interpretation of the Convention. This Article follows the OECD
Model treaty. The U.S. Model contains a non-exhaustive list of examples of the kinds of matters
about which the competent authority may reach agreement. This list is not in the Convention.
The U.S. Model list is merely illustrative, and is not intended to grant any authority that is not
implicitly present as a result of the introductory sentence of paragraph 3. Thus, under this
Article, the competent authorities may agree to settle a variety of conflicting applications of the
Convention. The competent authorities may, for example, agree to the same attribution of
income, deductions, credits or allowances between an enterprise in one Contracting State and its
permanent establishment in the other or between related persons. These allocations are to be
made in accordance with the arm's length principle underlying Article 7 (Business Profits) and
Article 9 (Associated Enterprises). Agreements reached under these circumstances may include
agreement on a methodology for determining an appropriate transfer price, common treatment of
a taxpayer's cost sharing arrangement, or upon an acceptable range of results under that
methodology. They may also agree to apply this methodology and range of results prospectively
to future transactions and time periods pursuant to advance pricing agreements.

The competent authorities may also agree to characterize particular items of income in
the same way, to characterize entities in a particular way, to apply the same source rules to
particular items of income, and to adopt a common meaning of a term. The competent authorities
can agree to the common application, consistent with the objective of avoiding double taxation,
of procedural provisions of the internal laws of the Contracting States, including those regarding
penalties, fines and interest. The competent authorities may seek agreement on a uniform set of
standards for the use of exchange rates, or agree on consistent timing of gain recognition with
respect to a transaction to the extent necessary to avoid double taxation.

Paragraph 3 explicitly authorizes the competent authorities to consult for the purpose of
eliminating double taxation in cases not provided for in the Convention and to resolve any
difficulties or doubts arising as to the interpretation or application of the Convention. This
provision is intended to permit the competent authorities to implement the treaty in particular
cases in a manner that is consistent with its expressed general purposes. It permits the competent
authorities to deal with cases that are within the spirit of the provisions but that are not
specifically covered. An example of such a case might be double taxation arising from a transfer
pricing adjustment between two permanent establishments of a third-country resident, one in the
United States and one in Thailand. Since no resident of a Contracting State is involved in the
case, the Convention does not apply, but the competent authorities nevertheless may use the
authority of the Convention to prevent the double taxation.

Agreements reached by the competent authorities under paragraph 3 need not conform to
the internal law provisions of either Contracting State. Paragraph 3 is not, however, intended to
authorize the competent authorities to resolve problems of major policy significance that
normally would be the subject of negotiations between the Contracting States themselves. For
example, this provision would not authorize the competent authorities to agree to allow a U.S.
foreign tax credit under the treaty for a tax imposed by the other country where that tax is not
otherwise a covered tax and is not an identical or substantially similar tax imposed after the date
of signature of the treaty. Whether or not the tax is creditable under the Code is a separate matter.

Paragraph 3 also authorizes the competent authorities to increase any dollar amounts
referred to in the Convention to reflect economic and monetary developments. This refers to
Article 15 (Independent Personal Services), Article 17 (Artistes and Sportsmen), and Article 22
(Students and Trainees). The rule under paragraph 4 is intended to operate as follows: if, for
example, after the Convention has been in force for some time, inflation rates have been such as
to make the threshold for entertainers unrealistically low in terms of the original objectives
intended in setting the threshold, the competent authorities may agree to a higher threshold
without the need for formal amendment to the treaty and ratification by the Contracting States.
This authority can be exercised, however, only to the extent necessary to restore those original
objectives. Because of paragraph 2 of Article 1 (General Scope), it is clear that this provision can
be applied only to the benefit of taxpayers, i.e., only to increase thresholds, not to reduce them.

Paragraph 4

Paragraph 4 provides that if the competent authorities reach an agreement referred to in

paragraphs 2 and 3, taxes shall be imposed on such income, and refund or credit of taxes shall be
allowed by the Contracting States in accordance with such agreement. This is based on a
provision in the Thailand-Finland treaty, and is similar to a provision in paragraph 2 of the U.S.
Model treaty. Because, as specified in paragraph 4 of Article 1 (Personal Scope), the Convention
cannot operate to increase a taxpayer's liability, time or other procedural limitations can be
overridden only for the purpose of making refunds and not to impose additional tax.

Paragraph 5

Paragraph 5 provides that the competent authorities may communicate with each other
for the purpose of reaching an agreement. This makes clear that the competent authorities of the
two Contracting States may communicate without going through diplomatic channels. Such
communication may be in various forms, including, where appropriate, through face-to-face
meetings of representatives of the competent authorities.

Other Issues

Treaty Effective Dates and Termination in Relation to Competent Authority Dispute Resolution

A case may be raised by a taxpayer with respect to a year for which the Convention was
in force after the Convention has been terminated. In such a case the ability of the competent
authorities to act is limited. They may not exchange confidential information, nor may they reach
a solution that varies from that specified in its law.

A case also may be brought to a competent authority under the Convention when it is in
force, but with respect to a year prior to the entry into force. The scope of the competent
authorities to address such a case is not constrained by the fact that the Convention was not in
force when the transactions at issue occurred, and the competent authorities have available to
them the full range of remedies afforded under this Article.

Triangular Competent Authority Solutions

International tax cases may involve more than two taxing jurisdictions (e.g., transactions
among a parent corporation resident in a country A and its subsidiaries resident in countries B
and C). As long as there is a complete network of treaties among the three countries, it should be
possible, under the full combination of bilateral authorities, for the competent authorities of the
three States to work together on a three-sided solution. Although Country A may not be able to
give information received under Article 28 (Exchange of Information) from Country B to the
authorities of country C, if the competent authorities of the three countries are working together,
it should not be a problem for them to arrange for the authorities of Country B to give the
necessary information directly to the tax authorities of country C, as well as to those of Country
A. Each bilateral part of the trilateral solution must, of course, not exceed the scope of the
authority of the competent authorities under the relevant bilateral treaty.

Relation to Other Articles

This Article is not subject to the saving clause of paragraph 2 of Article 1 (Personal
Scope) by virtue of the exceptions in paragraph 3(a) of that Article. Thus, rules, definitions,
procedures, etc. that are agreed upon by the competent authorities under this Article may be
applied by the United States with respect to its citizens and residents even if 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. A person may seek relief
under Article 27 regardless of whether he is generally entitled to benefits under Article 18
(Limitation on Benefits). As in all other cases, the competent authority is vested with the
discretion to decide whether the claim for relief is justified.

ARTICLE 28
 Exchange of Information and Administrative Assistance

Paragraph 1

This Article provides for the exchange of information between the competent authorities
of the Contracting States. The information to be exchanged is that which is necessary for
carrying out the provisions of the Convention or the domestic laws of the United States or of
Thailand concerning the taxes covered by the Convention. Referring, as in the OECD Model, to
information that is "necessary" for carrying out the provisions of the Convention is understood to
be equivalent to the reference in the U.S. Model to information that is "relevant." Thus, use of
the term "necessary" should not be interpreted as requiring a requesting State to demonstrate that
it would be disabled from enforcing its tax laws unless it obtained a particular item of
information.

The taxes covered by the Convention for purposes of this Article constitute a broader
category of taxes than those referred to in Article 2 (Taxes Covered). As provided in paragraph
4, for purposes of exchange of information, covered taxes include all taxes imposed, in the case
of the United States, under the Internal Revenue Code, and in the case of Thailand, under the
Revenue Code and the Petroleum Income Tax Act. Exchange of information with respect to
domestic law is authorized insofar as the taxation under those domestic laws is not contrary to
the Convention. Thus, for example, information may be exchanged with respect to a covered tax,
even if the transaction to which the information relates is a purely domestic transaction in the
requesting State and, therefore, the exchange is not made for the purpose of carrying out the
Convention.

An example of such a case is provided in the OECD Commentary: A company resident in

the United States and a company resident in Thailand transact business between themselves
through a third-country resident company. Neither Contracting State has a treaty with the third
State. In order to enforce their internal laws with respect to transactions of their residents with
the third-country company (since there is no relevant treaty in force), the Contracting State may
exchange information regarding the prices that their residents paid in their transactions with the
third-country resident.

Paragraph 1 states that information exchange is not restricted by Article 1 (General

Scope). Accordingly, information may be requested and provided under this Article with respect
to persons who are not residents of either Contracting State. For example, if a third-country
resident has a permanent establishment in Thailand which engages in transactions with a U.S.
enterprise, the United States could request information with respect to that permanent
establishment, even though it is not a resident of either Contracting State. Similarly, if a
third-country resident maintains a bank account in Thailand, and the Internal Revenue Service
has reason to believe that funds in that account should have been reported for U.S. tax purposes
but have not been so reported, information can be requested from Thailand with respect to that
person's account.

Paragraph 1 also provides assurances that any information exchanged will be treated as
secret, subject to the same disclosure constraints as information obtained under the laws of the
requesting State. Information received may be disclosed only to persons, including courts and
administrative bodies, concerned with the assessment, collection, enforcement or prosecution in
respect of the taxes to which the information relates, or to persons concerned with the
administration of these taxes. The information must be used by these persons in connection with
these designated functions. Persons in the United States concerned with the administration of
taxes include legislative bodies, such as the tax-writing committees of Congress and the General
Accounting Office. Information received by these bodies must be for use in the performance of
their role in overseeing the administration of U.S. tax laws. Information received may be
disclosed in public court proceedings or in judicial decisions.

The Article authorizes the competent authorities to exchange information on a routine

basis, on request in relation to a specific case, or spontaneously. It is contemplated that the
Contracting States will utilize this authority to engage in all of these forms of information
exchange, as appropriate.

Paragraph 2

Paragraph 2 is identical to paragraph 2 of Article 26 of the U.S. Model and paragraph 2

of Article 26 of the OECD Model. It provides that the obligations undertaken in paragraph 1 to
exchange information do not require a Contracting State to carry out administrative measures
that are at variance with the laws or administrative practice of either State. Nor is a Contracting
State required to supply information not obtainable under the laws or administrative practice of
either State, or to disclose trade secrets or other information, the disclosure of which would be
contrary to public policy. Thus, a requesting State cannot obtain information from the other State
if the information would be obtained pursuant to procedures or measures that are broader than
those available in the requesting State.

While paragraph 2 states conditions under which a Contracting State is not obligated to
comply with a request from the other Contracting State for information, the requested State is not
precluded from providing such information, and may, at its discretion, do so subject to the
limitations of its internal law.

Paragraph 3

Paragraph 3 provides that, subject to the provisions of paragraph 2 of Article 31

(Termination), when information is requested by a Contracting State in accordance with this
Article, the other Contracting State is obligated to obtain the requested information as if the tax
in question were the tax of the requested State, even if that State has no direct tax interest in the
case to which the request relates.

The application of paragraph 3 is suspended until such time as the Government of the
United States receives from the Government of Thailand a diplomatic note indicating that
Thailand is prepared and able to implement the provisions of this paragraph. It is understood that
Thailand will not be prepared and able to implement the provisions of this paragraph until
enabling legislation has been enacted and has become effective. Paragraph 3 is subject to the
provisions of paragraph 2 of Article 31 (Termination). Thus, the Convention shall terminate by
operation of that paragraph on January 1 of the sixth year following its entry into force, unless
the Government of the United States has received the diplomatic note described above from the
Government of Thailand by June 30 of the fifth year following entry into force.

Paragraph 4

Notwithstanding the provisions of Article 2 (Taxes Covered), the exchange of

information provided for in this Article shall apply to all taxes imposed by the United States
under the Internal Revenue Code. In addition, the exchange of information provided for in this
Article shall apply to all taxes imposed by Thailand under the Revenue Code, including the
Petroleum Income Tax Act. The U.S. competent authority may, therefore, request information
for purposes of, for example, estate and gift taxes or Federal excise taxes.

Treaty Effective Dates and Termination in Relation to Competent Authority Dispute Resolution

A tax administration may seek information with respect to a year for which the
Convention was in force after the Convention has been terminated. In such a case the ability of
the other tax administration to act is limited. The Convention no longer provides authority for the
tax administrations to exchange confidential information. They may only exchange information
pursuant to domestic law.

The competent authority also may seek information under the Convention at a time when
the Convention is in force, but with respect to a year prior to the entry into force of the
Convention. The scope of the competent authorities to address such a case is not constrained by
the fact that the Convention was not in force when the transactions at issue occurred, and the
competent authorities have available to them the full range of information exchange provisions
afforded under this Article.

ARTICLE 29
Diplomatic Agents and Consular Officers

This Article confirms that any fiscal privileges to which diplomatic or consular officials
are entitled under general provisions of international law or under special agreements will apply
notwithstanding any provisions to the contrary in the Convention. The text of this Article is
identical to the corresponding provision of the U.S. and OECD Models. The agreements referred
to include any bilateral agreements, such as consular conventions, that affect the taxation of
diplomats and consular officials and any multilateral agreements dealing with these issues, such
as the Vienna Convention on Diplomatic Relations and the Vienna Convention on Consular
Relations. The U.S. generally adheres to the latter because its terms are consistent with
customary international law.

The Article does not independently provide any benefits to diplomatic agents and
consular officers. Article 21 (Government Service) does so, as do Code section 893 and a
number of bilateral and multilateral agreements. Rather, the Article specifically reconfirms in
this context the statement in paragraph 4 of Article 1 (General Scope) that nothing in the tax
treaty will operate to restrict any benefit accorded by the general rules of international law or
with any other agreements referred to above. In the event that there is a conflict between the tax
treaty and international law or such other treaties, under which the diplomatic agent or consular
official is entitled to greater benefits under the latter, the latter laws or agreements shall have
precedence. Conversely, if the tax treaty confers a greater benefit than another agreement, the
affected person could claim the benefit of the tax treaty.

Pursuant to subparagraph 3(b) of Article 1, the saving clause of paragraph 2 of Article 1

(Personal Scope) does not apply to override any benefits of this Article available to an individual
who is neither a citizen of the United States nor has immigrant status there.

ARTICLE 30
Entry into Force

This Article contains the rules for bringing the Convention into force and giving effect to
its provisions.

Paragraph 1

Paragraph 1 provides for the ratification of the Convention by both Contracting States
according to their constitutional and statutory requirements, and for the exchange of instruments
of ratification at Washington, D.C.

In the United States, the process leading to ratification and entry into force is as follows:
Once a treaty has been signed by authorized representatives of the two Contracting States, the
Department of State sends the treaty to the President who formally transmits it to the Senate for
its advice and consent to ratification, which requires approval by two-thirds of the Senators
present and voting. Prior to this vote, however, it generally has been the practice for the Senate
Committee on Foreign Relations to hold hearings on the treaty and make a recommendation
regarding its approval to the full Senate. Both Government and private sector witnesses may
testify at these hearings. After receiving the advice and consent of the Senate to ratification, the
treaty is returned to the President for his signature on the ratification document. The President's
signature on the document completes the process in the United States. When signed, it is ready
for exchange.

Paragraph 2

Paragraph 2 provides that the Convention will enter into force upon the exchange of
instruments of ratification. The date on which a treaty enters into force is not necessarily the date
on which its provisions take effect. Paragraph 2, therefore, also contains rules that determine
when the provisions of the treaty will have effect. Under paragraph 2(a), the Convention will
have effect with respect to taxes withheld at source (principally dividends, interest and royalties)
for amounts paid or credited on or after the first day of the sixth month following the date on
which the Convention enters into force. For example, if instruments of ratification are exchanged
on April 25 of a given year, the withholding rates specified in paragraph 2 of Article 10
(Dividends) would be applicable to any dividends paid or credited on or after October 1 of that
year. This rule allows the benefits of the withholding reductions to be put into effect as soon as
possible, without waiting until the following year. The delay of five to six months is required to
allow sufficient time for withholding agents to be informed about the change in withholding
rates.

For all other taxes, paragraph 2(b) specifies that the Convention will have effect for any
taxable year or assessment period beginning on or after January 1 of the year next following
entry into force.

As discussed under Articles 27 (Mutual Agreement Procedure) and 28 (Exchange of

Information), the powers afforded the competent authority under these articles apply
retroactively to taxable periods preceding entry into force.

ARTICLE 31
Termination

The Convention is to remain in effect indefinitely, unless terminated in accordance with

the provisions of Article 31. The Convention may be terminated at any time after five years from
the date in which the Convention enters into force, provided that at least six months notice is
given through diplomatic channels. If notice of termination is given, the provisions of the
Convention with respect to withholding at source will cease to have effect for amounts paid or
credited on or after the first day of January next following the expiration of the six months
period. For other taxes, the Convention will cease to have effect for taxable periods beginning on
or after on the first day of January next following the expiration of the 6 months period.

Paragraph 1

A treaty performs certain specific and necessary functions regarding information

exchange and mutual agreement. In the case of information exchange the treaty's function is to
override confidentiality rules relating to taxpayer information. In the case of mutual agreement
its function is to allow competent authorities to modify internal law in order to prevent double
taxation and tax avoidance. With respect to the effective termination dates for these aspects of
the treaty, therefore, if a treaty is terminated as of January 1 of a given year, no otherwise
confidential information can be exchanged after that date, regardless of whether the treaty was in
force for the taxable year to which the request relates. Similarly, no mutual agreement departing
from internal law can be implemented after that date, regardless of the taxable year to which the
agreement relates. Therefore, for the competent authorities to be allowed to exchange otherwise
confidential information or to reach a mutual agreement that departs from internal law, a treaty
must be in force at the time those actions are taken and any existing competent authority
agreement ceases to apply.

Paragraph 1 of Article 29 relates only to unilateral termination of the Convention by a

Contracting State. Nothing in that Article should be construed as preventing the Contracting
States from concluding a new bilateral agreement, subject to ratification, that supersedes, amends
or terminates provisions of the Convention without the six-month notification period.

Customary international law observed by the United States and other countries, as
reflected in the Vienna Convention on Treaties, allows termination by one Contracting State at
any time in the event of a "material breach" of the agreement by the other Contracting State.

Paragraph 2

Paragraph 2 is a sunset provision, made necessary because the application of paragraph 3

of Article 28 is suspended pending enactment of implementing legislation in Thailand. Under
paragraph 2, the Convention will automatically terminate on January 1 of the sixth year
following the year in which the Convention enters into force, unless the Government of the
United States has received from the Government of Thailand by June 30 of the fifth year
following entry into force a diplomatic note indicating that the Government of Thailand is
prepared and able to implement the provisions of paragraph 3 of Article 28. Thus, the
Convention will terminate, without the notification procedures of paragraph 1, unless the
Government of Thailand indicates in a diplomatic note that if information is requested by the
Government of United States, that the Government of Thailand is willing and able to obtain the
requested information in the same manner and to the same extent as if the United States tax were
being imposed by the Government of Thailand. If the Convention enters into force in 1997, the
Convention will terminate on January 1, 2003 unless the diplomatic note is received by June 30,
2002.