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（七） ARTICLE 17 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, in some circumstances, over those of Articles 14 (Independent Personal Services) and 15 (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 14 and 15. In addition, except as provided in paragraph 2, income earned by juridical persons is not covered by Article 17. 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 $20,000 (or its equivalent in Irish pounds) for the taxable year. The $20,000 includes expenses reimbursed to the individual or borne on his behalf. If the gross receipts exceed $20,000, 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. This treaty introduces the dollar threshold test to distinguish between two groups of entertainers and athletes -- those who are paid very 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. The United States has entered a reservation to the OECD Model on this point. 　　Tax may be imposed under paragraph 1 even if the performer would have been exempt from tax under Articles 14 (Independent Personal Services) or 15 (Dependent Personal Services). On the other hand, if the performer would be exempt from host-country tax under Article 17, but would be taxable under either Article 14 or 15, 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 17 if his remuneration exceeds $20,000 annually, despite the fact that he generally would be exempt from host State taxation under Article 14. However, a performer who receives less than the $20,000 threshold amount and therefore is not taxable under Article 17, nevertheless may be subject to tax in the host country under Articles 14 or 15 if the tests for host-country taxability under those Articles are met. For example, if an entertainer who is an independent contractor earns $19,000 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 14. This interpretation is consistent with the prevailing understanding under Article 17 of other U.S. tax treaties, but has been clarified by amendments to the text of paragraph 1 in the U.S. Model and this Convention. 　　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 $20,000, 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. 　　Article 17 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. This interpretation is consistent with paragraph 9 of the OECD Commentaries on Article 17. 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 14 (Independent Personal Services). For example, if an entertainer receives royalty income from the sale of live recordings, the royalty income would be exempt from source country tax 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 17 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 17. 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 17 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 17 but would be dealt with under Article 7, 14 or 15. 　　As explained 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 15 (Dependent Personal Services), Article 17 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 17 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 income arguably could escape host-country tax because the recipient 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) or independent personal services (Article 14). 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 Ireland, and promoters of the performance in Ireland pay the circus, which, in turn, pays salaries to the circus performers. The circus is determined to have no permanent establishment in Ireland. 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 $20,000 threshold 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 17 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. Relationship to Other Articles 　　This Article is subject to the provisions of the saving clause of paragraph 4 of Article 1 (General Scope). Thus, if an entertainer or a sportsman who is resident in Ireland 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, subject, however, to the special foreign tax credit provisions of paragraph 3 of Article 24 (Relief from Double Taxation). In addition,benefits of this Article are subject to the provisions of Article 23 (Limitation on Benefits). ARTICLE 18 Pensions, Social Security, Annuities, Alimony and Child Support 　　This Article deals with the taxation of private (i.e., non-government service) pensions and annuities, social security benefits, alimony and child support payments and with the tax treatment of contributions to pension plans. Subparagraph 1(a) Subparagraph 1(a) provides that pensions and other similar remuneration derived and beneficially owned by a resident of a Contracting State in consideration of past employment are taxable only in the State of residence of the beneficiary. Although the Convention does not make explicit the fact that the term "pensions and other similar remuneration" includes both periodic and single sum payments, it is understood that this would be the case under the domestic law of both Contracting States. The treatment of such payments under the Convention is essentially the same as under the 1951 Convention. The term "pensions and other similar remuneration" is intended to encompass payments made by all private retirement plans and arrangements in consideration of past employment, regardless of whether they are qualified plans under U.S. law, including plans and arrangements described in section 457 or 414(d) of the Internal Revenue Code. It also includes an Individual Retirement Account. 　　Pensions in respect of government service are not covered by this paragraph. They are covered either by subparagraph 1(b) of this Article, if they are in the form of social security benefits, or by paragraph 2 of Article 19 (Government Service). Thus, Article 19 covers section 457, 401(a) and 403(b) plans established for government employees. If a pension in respect of government service is not covered by Article 19 solely because the services were rendered in connection with a business, the pension is covered by this Article. Subparagraph 1(b) 　　The treatment of social security benefits is dealt with in subparagraph 1(b). This subparagraph provides that payments made by one of the Contracting States under the provisions of its social security or similar legislation to a resident of the other Contracting State will be taxable only in the other Contracting State. This subparagraph applies to social security beneficiaries whether they have contributed to the system as private sector or Government employees. 　　The reference to "provisions of the social security" legislation is not restricted to old age pensions but refers to all sorts of social security benefits, including benefits granted in kind and payments made as compensation for work-related diseases or accidents. Paragraph 2 of the diplomatic notes explains that the phrase "similar legislation" is intended to refer to United States tier 1 Railroad Retirement benefits. Paragraph 2 　　Under paragraph 2, 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 or for life, 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 15 (Dependent Personal Services). Paragraphs 3 and 4 　　Paragraphs 3 and 4 deal with alimony and child support payments. Both alimony, under paragraph 3, and child support payments, under paragraph 4, are defined as periodic payments made pursuant to a written separation agreement or a decree of divorce, judicial separation, separate maintenance, or compulsory support. Paragraph 3, however, deals only with payments of that type that are deductible to the payor. 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 4 deals with those periodic payments that are for the support of a child and that are not covered by paragraph 3 (i.e., those payments that are not deductible to the payor). These types of payments by a resident of a Contracting State to a resident of the other Contracting State may not be taxed by either Contracting State. Paragraphs 5 and 6 　　Paragraphs 5 and 6 deals with cross-border pension contributions in order to remove barriers to the flow of personal services between the Contracting States that could otherwise result from a failure of the two Contracting States' laws regarding the deductibility of pension contributions to mesh properly. Many countries allow deductions or exclusions to their residents for contributions, made by them or on their behalf, to resident pension plans, but do not allow deductions or exclusions for payments made to plans resident in another country, even if the structure and legal requirements of such plans in the two countries are similar. 　　Paragraph 5 provides for deductions (or exclusions) from the taxable income of an individual in one State for contributions paid by that individual to a pension plan in the other State if certain conditions are satisfied. Paragraph 5 also provides that payments made to such a plan by or on behalf of the individual's employer are deductible from the profits of the employer in that State and are not considered part of the taxable income of the individual. The benefits granted by a State under this paragraph (i.e., the deductibility of contributions) are limited to the benefits allowed by that State to its own residents for contributions to a pension plan recognized for tax purposes by that State. 　　Where the United States is the host country, the exclusion of employee contributions from the employee's income under this paragraph is limited to elective contributions not in excess of the amount specified in section 402(g). Deduction of employer contributions is subject to the limitations of sections 415 and 404. The section 404 limitation on deductions would be calculated as if the individual were the only employee covered by the plan. 　　The benefits of this paragraph are allowed to an individual who is present in one of the Contracting States to perform either dependent or independent personal services. Subparagraph 5(a) provides that the individual can receive the benefits of this paragraph only if he was contributing to the plan in his home country, or to a similar plan that was replaced by the plan to which he is contributing, before coming to the host country. The allowance of a successor plan would apply if, for example, the employer has been taken over by another corporation that replaces the existing plan with its own plan, rolling membership in the old plan over into the new plan. 　　Subparagraph 5(b) limits the duration of the benefit by restricting eligibility to individuals who have performed personal services in the host country for a cumulative period not exceeding five calendar years. 　　In addition, Subparagraph 5(c) provides that the host-country competent authority must determine that the pension plan to which a contribution is made in the home country of the individual generally corresponds to a plan recognized for tax purposes in the host country. It is understood that United States plans eligible for the benefits of paragraph 5 include qualified plans under section 403(a), individual retirement plans (including individual retirement plans that are part of a simplified employee pension plan that satisfies section 408(k), IRAs and section 408(p) accounts), section 403(a) qualified annuity plans, individual retirement accounts, and section 403(b) plans. 　　The benefits under paragraph 5 are limited to the benefits that the host country accords, under its law, to the host country plan most similar to the home country plan, even if the home country would have afforded greater benefits under its law. Thus, for example, if the host country has a cap on contributions equal to, say, five percent of the remuneration, and the home country has a seven percent cap, the deduction is limited to five percent, even though if the individual had remained in his home country he would have been allowed to take the larger deduction. Paragraph 6 　　Paragraph 6 is included in the Convention because Ireland continues to maintain a remittance system of taxation for individuals who are resident but not domiciled in Ireland. Such persons are subject to tax in Ireland on non-Irish source income only to the extent the income or chargeable gains are remitted to the Irish resident. Paragraph 6 limits the deductibility from an individual's taxable income provided under paragraph 5 for contributions to a foreign pension plan in cases in which the host State taxes only so much of that individual's income as is remitted to or received by the individual in that State. In such a case, the deduction that would otherwise be permitted under paragraph 5 is reduced by a proportion equal to the proportion of the individual's income that is untaxed in that State because it was not remitted to or received by the individual in that State. 　　Domicile is a legal concept that is not necessarily related to residence. An individual receives a domicile of origin at birth. The individual may change that domicile by physically relocating with the intention of changing his domicile. Relation to Other Articles 　　Paragraphs 1, 2, and 3 of Article 18 are subject to the saving clause of paragraph 4 of Article 1 (General Scope). Thus, a U.S. citizen who is resident in Ireland, and receives either a pension, social security, 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. Paragraph 4 is excepted from the saving clause by virtue of paragraph 5(a) of Article 1. Thus, the United States will allow U.S. citizens and residents the benefits of paragraph 4. By virtue of paragraph 5(b) of Article 1, paragraph 5 is excepted from the saving clause with respect to individuals who are residents of a Contracting State but are neither citizens nor permanent residents of that State. ARTICLE 19 Government Service Paragraph 1 　　Subparagraphs (a) and (b) of paragraph 1 deal with the taxation of government compensation (other than a pension addressed in paragraph 2). Subparagraph (a) provides that remuneration paid by one of the States or its political subdivisions or local authorities to any individual who is rendering services to that State, political subdivision or local authority is exempt from tax by the other State. Under subparagraph (b), such payments are, however, taxable exclusively in the other State (i.e., the host State) if the services are rendered in that other State and the individual is a resident of that State who is either a national of that State or a person who did not become resident of that State solely for purposes of rendering the services. 　　This paragraph follows the OECD Model, but differs from the U.S. Model, in applying only to government employees and not to independent contractors engaged by governments to perform 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 that such a pension is taxable only in that State. Subparagraph (b) provides an exception under which such a pension is taxable only in the other 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 subparagraph 1(b) of Article 18 (Pensions, Social Security, Annuities, Alimony and Child Support). As a general matter, the result will differ depending upon whether Article 18 or 19 applies, since social security benefits are generally taxable exclusively by the residence country while government pensions are generally taxable exclusively by the source country. The result will be the same 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, government pensions become taxable only in the residence country and social security benefits continue to be taxable only in the residence country. Paragraph 3 　　Paragraph 3 specifies that paragraphs 1 and 2 do not apply to remuneration and pensions paid for services performed in connection with a business carried on by a Contracting State or a political subdivision or local authority thereof. In such cases, the remuneration and pensions are subject instead to the provisions of Articles 14 (Independent Personal Services), 15 (Dependent Personal Services), 16 (Director's Fees), 17 (Artistes and Sportsmen), or 18 (Pensions, Social Security, Annuities, Alimony and Child Support). This language conforms to the OECD model.