ARTICLE 16 　　　　　　　　　　　　　Capital Gains 　　The 1954 Convention provided no special rules for gains derived in one State from the sale or exchange of stock, securities, commodities, or other capital assets by a resident of the other State. The new Convention provides that such gains shall be taxable only by the resident's State. However, the other State may also tax such gain if 　　(1) the gain derived by the resident arises out of the sale or exchange of property described in Article 15 (relating to income from real property) which is situated within the other State, 　　(2) the gain arises out of a sale or exchange described in paragraph 　　(3)(b) of Article 14 (relating to royalties) and is taxable in the other State under that Article, 　　(3) the recipient of the gain has a permanent establishment in the other State and the property giving rise to the gain is effectively connected with such permanent establishment, or 　　(4) the recipient of the gain, being an individual, either is present in the other State for a period or periods aggregating more than 183 days in the taxable year or maintains, for a period or periods aggregating more than 183 days during the taxable year, a fixed base in the other State with which the property giving rise to such gains is effectively connected. 　　Gains arising from property which is effectively connected with a permanent establishment may be taxed as industrial or commercial profits under Article 8 (relating to business profits). Gains on real property are subject to the provisions of Article 15 (relating to income from real property) which permits taxation of such gains by the State in which the real property is situated. The fixed base concept is discussed in greater detail in relation to Article 17 (relating to independent personal services). 　　Under Japanese tax law, without regard to the Convention, gains from the sale of patents and similar intangible property or rights are considered royalties. By reason of this article (and Article 14), however, such gains, except those described in paragraph (3)(b) of Article 14 (relating to sales of intangibles where the purchase price is contingent upon productivity or use) are treated as capital gains and not as royalties for all purposes of the Convention. 　　Although under Japanese law, in certain circumstances, a foreign stockholder of a Japanese corporation is subject to Japanese tax on the disposition of the stock of the Japanese corporation regardless of the reorganization nature or place of the disposition, this article may nevertheless apply to exempt U.S. stockholders from such tax. ARTICLE 17 Independent Personal Services 　　The 1954 Convention combined the rules pertaining to independent and dependent personal services into one article. 　　The new Convention generally deals with personal services in two articles and creates a distinction based upon whether the services are independent or dependent personal services. The Convention also provides a special rule for independent individuals who are public entertainers and a special rule dealing with directors' fees. A doctor or lawyer, for example, typically renders independent personal services. Also an entertainer who under common law concepts is an independent contractor is considered as rendering independent personal services. 　　Generally, under Article 17, income earned by an individual resident of one State from independent personal services performed in the other State may not be taxed in that other State. However, such income may be subject to tax in the State of source (i.e., where the services are performed) if the recipient is present in that State for a period or periods aggregating more than 183 days in the taxable year or if the individual maintains a fixed base in that other State for a period or periods aggregating more than 183 days in the taxable year, but in the latter case only on the income attributable to such fixed base. 　　Commercial, industrial, or agricultural activities would not normally be considered independent personal services and the income therefrom would, therefore, be industrial or commercial profits subject to the rules of Article 8 (relating to business profits). 　　Under the fixed base concept if a physician, resident in one State, has an office regularly available in the other State for a period aggregating more than 183 days during the taxable year, the income he earns from the performance of services within the other State will be subject to tax in that other State regardless of whether he is physically present in that other State for more than 183 days during the taxable year and regardless of whether others make use of this office. 　　An individual who derives income from independent personal services as a public entertainer is nevertheless subject to tax in the other State if his stay in such State exceeds 90 days during the taxable year or his income (excluding reimbursed travel expenses) is in excess of $3,000, or its equivalent in Japanese yen, in the aggregate during the taxable year. ARTICLE 18 Dependent Personal Services 　　Generally, under the Convention income from labor or personal services derived as an employee (including remuneration derived by an officer or a member of the board of directors of a corporation) may be taxed by the State of source (which, except in the case of directors' fees described in paragraph (5) of this article, is the State in which such labor or personal services are performed). However, such income will be exempt from tax in the State of source if 　　(1) the recipient, being a resident of the other State, is present in the State of source for a period or periods not exceeding in the aggregate 183 days during the taxable year; 　　(2) the recipient is an employee of either a resident of the State of his residence or of a permanent establishment of a resident of a State other than the State of his residence (if the permanent establishment is situated in the State of his residence) ; and 　　(3) the remuneration is not borne as such by a permanent establishment which the employer has in the State of source. 　　The use of the term "as such" generally restricts the scope of the third standard to situations in which the remuneration is paid by the permanent establishment to the employee. In contrast, if the head office regularly charges the permanent establishment for "home office" expenses attributable to the permanent establishment, which expenses include the remuneration paid by the home office to the employee, the remuneration is not borne "as such" by the permanent establishment. 　　Under the 1954 Convention, income from labor or personal services performed in one State by an employee who was a resident of the other State was exempt from the tax of the first State in any taxable year in which the employee was temporarily present in the first State for a period or periods not exceeding a total of 180 day's during such taxable year and such income was received for labor or personal services performed as an officer or employee of a resident, corporation, or other entity of the employee's State of residence. 　　The exemption provided by this Article of the new Convention does not apply to an employee if 　　(1) such employee is a substantial owner (as defined below) of the corporation or other entity which is the employer, and 　　(2) at least 50 percent of the income of the employer for the taxable year from sources within the State of source is derived from furnishing labor or personal services of one or more individuals each of whom is a substantial owner of the employer. 　　Such income of the employer is computed without deductions for compensation paid to such individual substantial owners. An individual will be treated as a substantial owner of the employer if 　　(1) he owns directly or indirectly at least 25 percent of the total voting power of all classes of stock entitled to vote, or of the total value of all classes of stock of such corporation or other entity, or 　　(2) he has directly or indirectly an interest of 25 percent or more in the assets, or has a right to 25 percent or more of the profits of such other entity. An individual is deemed to own the stock, assets, or rights owned directly or indirectly by his brother, sister, spouse, ancestor, or descendant. 　　The Convention also provides that income from personal services aboard ships or aircraft operated by a resident of one State in international traffic will not be taxed in the other State so long as the services are rendered by a member of the regular complement of the ship or aircraft. 　　The 1954 Convention contained no specific provision concerning fees received by an individual resident of one State for services performed in the other State as a director of a corporation of such other State. However, such fees were exempt from the tax of such other State if the individual qualified under the general provision for exemption of compensation for personal services. If the individual was not an employee of the corporation, the exemption applied if he was temporarily present in such other State for a period or periods not exceeding a total of 90 days during the taxable year and his compensation for labor or personal services performed in such other State did not exceed $3,000 (or its equivalent in Japanese yen). Under Japanese tax law, a portion of the remuneration paid to directors of a company may be treated as a sharing in the profits of the company and, accordingly, taxed as a distribution of profits rather than as compensation for services and no deduction is allowed to the corporation. Under the new Convention, a director's fee derived by an individual resident of a State in his capacity as a member of the board of directors of a corporation of the other State which is treated as described above may be taxed by that other State. Paragraph (6) of Article 6 (relating to source of income) provides that such payments are sourced in that other State. Accordingly, in the case of a director's fee paid to a United States resident by a Japanese corporation and taxed by Japan, the foreign tax credit is available to such resident with respect to the fee. ARTICLE 19 Teachers and Researchers 　　This article substantially follows the rules contained in the 1954 Convention. The new Convention provides an exemption from tax which applies to an individual who, at the invitation of either the Government of a State or an accredited educational institution of that State, is temporarily present in such State for the primary purpose of teaching or engaging in research, or both, at such an accredited educational institution. In order for the exemption to apply, the individual must either be a resident of the other State at the time he comes to visit the host State or, until the time the exemption commences under this article, he must have been exempt from tax in the host State under paragraph (1)(a) of Article 20 (relating to students and trainees). Since the period of temporary visit may be of such duration that an individual may lose his status as a resident of the State of which he was a resident, the article makes clear that the individual need only be a resident of such state (or exempt under Article 20) at the beginning of his visit. The exemption is for the individual's income from personal services for teaching or research at such accredited educational institution. The exemption extends for a period which in no case may exceed two years from the individual's arrival for the purpose of teaching or research or from the date he completed the study, training, or research with respect to which the exemption in paragraph (1)(a) of Article 20 applied, whichever is applicable. In addition, under Article 22 (relating to rules applicable to personal income articles), the combination of consecutive exemptions under Article 20 and this article may not extend beyond 5 taxable years from the date of the individual's arrival. If the individual's visit exceeds the period of time for which the exemption under this article is applicable, the exemption applies to the income received by the individual before the expiration of such period. The exemption does not apply to income from research undertaken not in the public interest but primarily for private benefit of a specific person or persons. ARTICLE 20 Students and Trainers 　　The 1954 Convention provided that a resident of one State who was temporarily present in the other State solely as a student at a recognized university, college or school was exempt from the tax of the other State with respect to remittances from abroad, including any payments by his employer abroad. There was a similar exemption with respect to a grant, allowance, or award (other than compensation for personal services) from a religious, charitable, scientific, literary, or educational organization of the State of residence of an individual who was temporarily present in the other State and to whom the grant, allowance, or award was remitted from abroad. 　　The new Convention provides an exemption for an individual who is a resident of one State, who, at the time he is a resident of that State, becomes temporarily present in the other State for the purpose of studying at a university or other accredited educational institution, securing training for qualification in a profession, or studying or doing research as a recipient of a grant, allowance, or award from a governmental, religious, charitable, scientific, literary; or educational institution. Such an individual is exempt from tax in the host State on: 　　1. Gifts from abroad for his maintenance and study; 　　2. The grant, allowance, or award; and 　　3. Income from personal services performed in the host State in the aggregate amount not in excess of $2,000 (or its equivalent in Japanese yen) for any taxable year. 　　Under this article and paragraph (3) of Article 22 (relating to rules applicable to personal income articles), these exemptions continue only for such period of time as may be reasonably or customarily required to effectuate the purpose of his visit but in no event may an individual have the benefit of this provision for more than a total of 5 taxable years from the date of his arrival. 　　In addition, a resident of one State employed by, or under contract with, a resident of that State who, at the time he is a resident of that State, becomes temporarily present in the other State for the purpose of studying or acquiring technical, professional, or business experience from a person other than a resident of the first-mentioned State, is exempt from tax in the host State on income not in excess of $5,000 (or its equivalent in Japanese yen) from personal services. The individual is exempt for a period of 12 consecutive months which period commences with the first month in which he begins working or receives compensation. The 1954 Convention provided a corresponding exemption of $6,000 (or its equivalent in Japanese yen). However, the application of the exemption was in other respects more restricted than in the new Convention since it applied only in cases in which the individual was temporarily present solely to acquire technical, professional, or business experience from a person other than his employer. The old exemption applied only to compensation from abroad paid by such individual's employer for his services rendered during the period of his temporary presence. 　　Also, an individual who is a resident of one State who, at the time he is a resident of that State, becomes temporarily present in the host State as a participant in a government program of the host State for the primary purpose of training, research, or study is entitled to an exemption by the host State with respect to his income from personal services relating to such training, research, or study performed in the host State in an amount not in excess of $10,000 (or its equivalent in Japanese yen). To be entitled to this exemption, the individual's presence in the host State must not exceed one year in duration. 　　If a person covered by this article derives income in excess of the amount specified ($2,000; $5,000; or $10,000), the exemption applies up to the applicable maximum and the excess is subject to tax in the normal manner.