DEPARTMENT OF THE TREASURY TECHNICAL EXPLANATION OF THE CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND THE GOVERNMENT OF IRELAND FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME AND CAPITAL GAINS（二） 　　　　　　　　　　　　　　　ARTICLE 3 　　　　　　　　　　　　General Definitions 　　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 unintended results. Terms that are not defined in the Convention are dealt with in paragraph 2. Paragraph 1 　　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, subparagraph 1(a) of Article 4 treats only a "person" as a "resident" that can qualify for most benefits under the treaty. Also, all "persons" are eligible to claim relief under Article 26 (Mutual Agreement Procedure). 　　This definition corresponds to the definition in the U.S. Model, which is more specific but not substantively different from the corresponding provision in the OECD Model. Unlike the OECD Model, it specifically includes an estate, a trust, 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" under the law of the Contracting State making the determination. Furthermore, because the OECD Model uses the term "includes," trusts and estates would be persons. Under paragraph 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. Although the Convention does not add "in the state in which it is organized," as does the U.S. Model, the result should be the same, as the Commentaries to the OECD Model interprets language identical to that of the Convention in a manner consistent with the U.S. Model. 　　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 U.S. Model or 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. 　　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 Ireland 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 within a Contracting State. This definition is applicable principally in the context of Article 8 (Shipping and Air Transport). The definition in the OECD Model refers to the operator of the ship or aircraft having its place of effective management in a Contracting State (i.e., being a resident of that State). The Convention, like the U.S. Model, does not include this limitation. The broader definition combines with paragraphs 2 and 3 of Article 8 to exempt from tax by the source State income from the rental of ships, aircraft or containers that is earned both by lessors that are operators of ships and aircraft and by those lessors that are not (e.g., a bank or a container leasing company). 　　The exclusion from international traffic of transport solely between places within a Contracting State means, for example, that carriage of goods or passengers solely between New York and Chicago would not be treated as international traffic, whether carried by a U.S. or a foreign carrier. 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. Thus, if the carrier engaged in internal U.S. traffic were a resident of Ireland (assuming that were possible under U.S. law), the United States would not be required to exempt the income from that transport under Article 8. 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 foreign carrier, and then only on a net basis. The gross basis U.S. tax imposed by section 887 would never apply under the circumstances described. If, however, goods or passengers are carried by a carrier resident in Ireland 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, like the U.S. Model 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 d efinition 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 Ireland, 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 term "United States" is defined in subparagraph 1(f) to mean the United States of America, including 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. The term also explicitly includes certain areas under the sea within the definition of the United States. For certain purposes, the definition is extended to include the seabed and subsoil of undersea areas adjacent to the territorial sea of the United States. This extension applies to the extent that the United States exercises sovereignty in accordance with international law for the purpose of natural resource exploration and exploitation of such areas. 　　The definition of United States produces results consistent with the result that would be obtained under the sometimes less precise definitions in some U.S. treaties. In the absence of a precise definition incorporating the continental shelf, the term "United States of America" would be interpreted by reference to the U.S. internal law definition. Section 638 treats the continental shelf as part of the United States. 　　The term "Ireland" is defined in subparagraph 1(g) and also includes the seabed in circumstances similar to those in which the seabed will be considered part of the United States.. 　　Subparagraph 1(h) defines the term "Contracting States" as Ireland and the United States. The terms "Contracting State," "one of the Contracting States" and "the other Contracting State" mean Ireland or the United States, as the context requires. 　　The term "national," as it relates to the United States and to Ireland, is defined in subparagraphs 1(i). This term is relevant for purposes of Articles 19 (Government Service) and 24 (Non-Discrimination). A national of one of the Contracting States is (1) an individual who is a citizen of that State, and (2) any legal person, association or other entity deriving its status as such from the law in force in that Contracting State. This definition is closely analogous to that found in the U.S. and OECD Models. 　　The inclusion of juridical persons in the definition may have significance in relation to paragraph 1 of Article 25 (Non-Discrimination), which provides that nationals of one Contracting State may not be subject in the other to any taxes or connected requirements that are other or more burdensome than those applicable to nationals of that other State who are in the same circumstances. 　　The Convention includes a defined term, "qualified governmental entity," found in the U.S. but not the OECD Model. This definition, found in subparagraph 1(j), is relevant for purposes of Articles 4 (Residence) and 22 (Limitation on Benefits). The term means: 　　(i) the Government of a Contracting State or of a political subdivision or local authority of the Contracting State; 　　(ii) A person wholly owned, directly or indirectly, by a governmental entity described in subparagraph (i), that satisfies certain organizational and　funding standards; and (iii) a pension fund that meets the standards of subparagraphs (i) and (ii) that is constituted and operated exclusively to administer or provide government service pension benefits described in Article 19 (Government Service). 　　A qualified governmental entity may not engage in any commercial activity. Paragraph 2 　　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. In general, if a term is defined under both the tax and non-tax laws of a Contracting State, the definition in the tax law will take precedence over the definition in the non-tax laws. Finally, 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 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, as indicated in paragraph 3(f) of Article 26 (Mutual Agreement Procedure), may establish a common meaning in order to prevent double taxation or to further any other purpose of the Convention. This common meaning need not conform to the meaning of the term under the laws of either Contracting State. 　　Like the U.S. Model, the Convention clarifies that the reference in paragraph 2 to the internal 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. This use of "ambulatory definitions" is understood to have been implicit in the OECD Model. 　　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 negotiators or by the Contracting States is different from the result that would obtain under either the paragraph 1 definition or the statutory definition. Thus, flexibility in defining terms is necessary and permitted. 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. 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 23 (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. Subparagraph (a) incorporates the definitions of residence in U.S. and Irish law 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, 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) unless the alien is a "green card" holder not described in the second sentence of subparagraph (a). Subparagraphs (b) through (d) each address special cases that may arise in the context of Article 4. 　　Subparagraph 1(a) specifically provides that a U.S. citizen would generally be treated as a resident of the United States. However, subparagraph (a) also provides that a U.S. citizen or alien lawfully admitted for permanent residence (i.e., a "green card" holder) will be treated as a resident of the United States for purposes of the Convention, and, thereby entitled to treaty benefits, only if he has a substantial presence (see section 7701(b)(3)), permanent home or habitual abode in the United States. If, however, such an individual is a resident both of the United States and Ireland under the general rule of paragraph 1(a), whether he is to be treated as a resident of the United States or of Ireland for purposes of the Convention is determined by the tie-breaker rules of paragraph 3 of the Article, regardless of how close his nexus to the United States may be. However, the fact that a U.S. citizen who does not have close ties to the United States may not be treated as a U.S. resident under the Convention does not alter the application of the saving clause of paragraph 4 of Article 1 (General Scope) to that citizen. For example, a U.S. citizen who pursuant to the "citizen/green card holder" rule is not considered to be a resident of the United States still is taxable on his worldwide income under the generally applicable rules of the Code. 　　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. 　　Subparagraph (b) specifies that a qualified governmental entity (as defined in Article 3) of a State is to be treated as a resident of that State. Although this provision is not contained in some U.S. treaties, it is generally understood that such entities are to be treated as residents under all of those treaties. The purpose of including the rule in the Convention, and in the new U.S.Model, is to make this understanding explicit. Article 4 of the OECD Model was amended in 1995 to adopt a similar approach. 　　Subparagraph (c) provides that certain tax-exempt entities such as pension funds and charitable organizations will be regarded as residents regardless of whether they are generally liable for income tax in the State where they are established. A pension fund established in a Contracting State will be described in this subparagraph if it is established or sponsored by a person who is otherwise a resident under Article 4 and it is maintained to administer or provide retirement or employee benefits, such as health and disability benefits. A charitable or other exempt organization is a resident if the use of the organization's assets is limited to the accomplishment of the purposes serving as the basis for the exemption from tax. 　　The inclusion of this provision is intended to clarify the generally accepted practice of treating 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) as a resident of that state for purposes of paragraph 1. 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. 　　Subparagraph (d) clarifies that certain investment vehicles are residents of the Contracting States in which they are created or organized, even though the tax on the income they derive may be imposed only or primarily at the level of their shareholders, beneficiaries, or owners. Specific examples of this category given in the Convention include U.S. regulated investment companies, real estate investment trusts and Irish Collective Investment Undertakings; the competent authorities may extend this treatment to additional investment entities. 　　Paragraph 1 of the Protocol addresses special problems presented by fiscally transparent　entities such as partnerships and certain estates and trusts that are not subject to tax at the entity level. This subparagraph applies to any resident of a Contracting State who is entitled to income derived through an entity that is 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 and grantor trusts. This paragraph also applies to U.S. limited liability companies ("LLC's") that are treated as partnerships for U.S. tax purposes. 　　Paragraph 1 of the Protocol provides that an item of income derived by such a fiscally transparent entity 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 an Irish corporation distributes a dividend to an entity that is treated as fiscally transparent for U.S. tax purposes, the dividend will be considered derived by a resident of the United States only to the extent that the taxation laws of the United States treat one or more U.S. residents (whose status as U.S. residents is determined, for this purpose, under U.S. tax laws) as deriving the dividend income for U.S. tax purposes. In the case of a partnership, the persons who are, under U.S. tax laws, treated as partners of the entity would normally be the persons whom the U.S. tax laws would treat as deriving the dividend income through the partnership. Thus, it also follows that persons whom the U.S. treats as partners but who are not U.S. residents for U.S. tax purposes may not claim a benefit for the dividend paid to the entity under the U.S.-Ireland Convention. Although these partners are treated as deriving the income for U.S. tax purposes, they are not residents of the United States for purposes of the treaty. 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 Ireland, they may be entitled to claim a benefit under that convention. In contrast, if an entity is organized under U.S. laws and is classified as a corporation for U.S. tax purposes, dividends paid by an Irish 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 Ireland (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). These results also follow regardless of where the entity is organized, i.e., in the United States, in Ireland, or in a third country. For example, income from Irish sources received by an entity organized under the laws of Ireland, 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 Ireland, the entity is treated as fiscally transparent. Rather, for purposes of the Convention, the income is treated as derived by the Irish entity. These results also follow 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 Irish tax purposes. 　　This rule also applies to trusts to the extent that they are fiscally transparent in either Contracting State. For example, if X, a resident of Ireland, creates a revocable trust with the trustee in a third country 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. However, if the income is not taxed in Ireland, either because Ireland has no rules comparable to those in sections 671 through 679 or because the trustee is not an Irish resident, then, under paragraph 1 of the Protocol, the trust's income would not be regarded as being derived by a resident of Ireland. 　　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, even though Ireland exempts certain dividends derived by an Irish parent corporation from Irish taxation, such income would be regarded as income of a resident of Ireland who otherwise derived the income for purposes of applying Article 10 (Dividends) of the Convention. Paragraph 2 　　Paragraph 2 provides that a person who is liable to tax in a Contracting State only in respect of income from sources within that State or of profits attributable to a permanent establishment in that State will not be treated as a resident of that Contracting State for purposes of the Convention. Thus, a consular official of Ireland 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 under a consular convention, would not be considered a resident of the United States for purposes of the Convention. (See Code section 7701(b)(5)(B)). Similarly, an enterprise of Ireland 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. Paragraph 3 　　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 3 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 attempt to agree on a single State of residence. Paragraph 4 　　Paragraph 4 seeks to settle dual-residence issues for persons other than individuals (such as companies, trusts or estates). A company is treated as resident in the United States if it is created or organized under the laws of the United States or a political subdivision. If the same test were used to determine corporate residence under Irish law, dual corporate residence could not occur. However, under Irish law, a corporation is treated as a resident of Ireland if its place of central management and control is there. Dual residence, therefore, can arise if a corporation organized in the United States is managed in Ireland. Paragraph 4 provides that, if a company is resident in both the United States and Ireland under paragraph 1, the competent authorities shall endeavor to agree on one State of residence for purposes of the Convention.