At the signing today of the Convention between the United States of America and the Portuguese Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, the Contracting States have agreed upon the following provisions, which shall form an integral part of the Convention: 　　1. With reference to Article 1 (Personal Scope): 　　(a) (i) It is understood that the Convention will not impose a tax that is not otherwise imposed under the laws of the Contracting State concerned. This means that the Convention shall not restrict in any manner any exclusion, exemption, deduction, credit, other allowance, or tax incentive now or hereafter accorded by the laws of the Contracting States. The Convention shall not restrict the benefits conferred under any other agreement between the Contracting States that entered into force prior to the date of signature of this Protocol. 　　(ii) 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, as defined in subparagraph 1(i) of Article 3 (General Definitions) of this Convention, and the procedures under this Convention exclusively shall apply to the dispute. 　　(iii) Unless the competent authorities determine that a taxation measure is not within the scope of this Convention, the non-discrimination obligations of this Convention exclusively shall apply with respect to that measure, except for such national treatment or most-favored-nation obligations as may apply to trade in goods under the General Agreement on Tariffs and Trade. No national treatment or most-favored-nation obligation of any other agreement shall apply with respect to that measure. 　　(iv) For the purpose of this paragraph, a "measure" is a law, regulation, rule, procedure, decision, administrative action, or any other form of measure. 　　(b) Notwithstanding any provision of the Convention except paragraph (c) of this provision, a Contracting State may tax its residents (as determined under Article 4 (Residence)), and the United States may tax its citizens, as if the Convention had not come into effect. For this purpose, the term "citizen" shall include a former citizen whose loss of citizenship had as one of its principal purposes the avoidance of tax, but only for a period of 10 years following such loss. For the application of the preceding sentence to a resident of Portugal, the competent authorities shall consult under Article 27 (Mutual Agreement Procedure), upon request by the Portuguese competent authority, on the purposes of such loss of citizenship. 　　(c) The provisions of the preceding subparagraph (b) shall not affect: 　　(i) the benefits conferred by a Contracting State under paragraph 2 of Article 9 (Associated Enterprises), under paragraphs 1(b) and 4 of Article 20 (Pensions, Annuities, Alimony, and Child Support), and under Articles 25 (Relief From Double Taxation), 26 (Non-Discrimination), and 27 (Mutual Agreement Procedure); and 　　(ii) the benefits conferred by a Contracting State under Articles 21 (Government Service), 22 (Teachers and Researchers), 23 (Students and Trainees), and 29 (Diplomatic Agents and Consular Officers), upon individuals who are neither citizens of, nor have immigrant status in, that State. 　　2. With reference to Article 2 (Taxes Covered): 　　(a) Article 2 does not apply to social security contributions established under Portuguese law. 　　(b) Notwithstanding the provisions of paragraph 1(b) of Article 2: 　　(i) a company that is a resident of Portugal shall be exempt from the United States personal holding company tax in any taxable year only if all its stock is owned by one or more individuals, who are not residents or citizens of the United States, in their individual capacities for that entire year, and 　　(ii) a company that is a resident of Portugal shall be exempt from the accumulated earnings tax in any taxable year only if it is a company described in paragraph 1(c) of Article 17 (Limitation on Benefits). 　　3. With reference to paragraph 1 of Article 4 (Residence): 　　(a) The term "resident of a Contracting State" applies to partnerships, similar pass-through entities, estates, and trusts only to the extent that income derived by such partnership, similar entity, estate, or trust is subject to tax in that State as the income of a resident, either in its hands or in the hands of its partners or beneficiaries. 　　(b) The term "resident of a Contracting State" includes: 　　(i) any not-for-profit organization constituted and maintained in that State, provided that the laws of such State or of a political or administrative subdivision thereof limit the use of the organization's resources, both currently and upon the dissolution or liquidation of such organization, to the accomplishment of the purposes that serve as the basis for such organization's exemption from income tax; and 　　(ii) a pension trust and any other organization or arrangement constituted in that State and operated exclusively to administer or provide pension, retirement, or employee benefits, that is established or sponsored by a person that is otherwise a resident under Article 4 (Residence), notwithstanding that all or part of the income of such organization, trust, or arrangement may be exempt from income taxation in that State. 　　(c) Portugal shall treat a United States citizen or an alien admitted to the United States for permanent residence (a "green card" holder) as a resident of the United States only if he has a substantial presence in the United States, or would be a resident of the United States and not of a third country under the principles of subparagraph (a) and (b) of paragraph 2 of Article 4 (Residence). 　　4. With reference to Article 5 (Permanent Establishment): 　　The provisions of paragraph 4 shall apply only for the first 5 years in which the provisions of the Convention have effect, as provided in paragraph 2(b) of Article 30 (Entry into Force). 　　5. With reference to Article 6 (Income from Immovable Property (Real Property) : 　　It is understood that the provisions described therein shall also apply to income from associated movable (personal) property and from the provision of services for the maintenance or operation of immovable property (real property). 　　6.. With reference to paragraph 3 of Article 7 (Business Profits): 　　It is understood that each Contracting State may apply its own domestic law, whether based on tracing or allocation, for attributing research and development expenses, interest, and other similar expenses to a permanent establishment situated in its territory, provided that such rules are consistent with the provisions of Article 7. 　　7. With reference to Article 8 (Shipping and Air Transport): 　　The term "income from the operation of ships or aircraft in international traffic" will be defined in accordance with paragraphs 5 through 12 of the Commentary on Article 8 (Shipping, Inland Waterways Transport and Air Transport) of the 1992 model Convention for the Avoidance of Double Taxation with Respect to Taxes on Income and on Capital of the Organization for Economic Cooperation and Development 　　8. With reference to Article 10 (Dividends): 　　Although the substitute gift and inheritance tax (imposto sobre sucessoes e doacoes por avenca) imposed by Portugal is in fact a gift and inheritance tax and not an income tax, it is agreed that if the rate of such tax is increased above the rate applicable on the date of signature of this Convention, such increase shall not apply to dividends beneficially owned by residents of the United States. It is understood that shares that have been subject to the substitute gift and inheritance tax are not subject to taxes imposed by Portugal upon transfer by death or gift. 　　9. With reference to Article 11 (Interest): 　　Paragraphs 2 and 3 shall not apply to the U.S. taxation of an excess inclusion derived by a resident of Portugal with respect to a residual interest in a Real Estate Mortgage Investment Conduit ("REMIC"). Such amounts shall be taxable at the rate provided by domestic law. 　　10. With reference to Article 12 (Branch Tax) : 　　If Portugal establishes hereafter, under its taxation law, a tax comparable to the United States "branch tax," the provisions of this Convention in respect of the "branch tax" shall also apply in respect of such taxation, after any necessary adjustment. 　　11. With reference to paragraph 2 of Article 13 (Royalties): 　　Royalties received in consideration for the use of, or the right to use, containers in international traffic shall be taxable only in the Contracting State of which the recipient is a resident. 　　12. With reference to paragraph 3 of Article 14 (Capital Gains): 　　(a) The term "activo" as used in paragraph 3 of the Portuguese text means "business property". However, the term "activo" is also used in paragraph 2 as the translation of the term "property", it being understood that, in some cases, the term "business property" has a narrower meaning than the term "property". 　　(b) It is understood that gains from the alienation or transfer of movable (personal) property that is effectively connected with a permanent establishment or fixed base that a resident of a Contracting State has or had in the other Contracting State and that is removed from the other Contracting State may be taxed in that other Contracting State in accordance with its law, but only to the extent of the gain that has accrued as of the time of such removal, and may be taxed in the first-mentioned Contracting State in accordance with its law, but only to the extent of the gain accruing subsequent to that time of removal. 　　(c) The tax liability, if any, imposed by Portugal on the incorporation of a permanent establishment of a U.S. company will be determined in accordance with Decree Law 6/93, implementing the provisions of Directive 90/434/EEC of 23 July, 1990, with respect to the incorporation of branches in Portugal of companies resident in other member states of the European Union. 　　13. With reference to Article 15 (Independent Personal Services): 　　The term "fixed base" shall be interpreted according to paragraphs 3 and 4 of the Commentary on Article 14 (Independent Personal Services) of the 1992 Model Convention for the Avoidance of Double Taxation with Respect to Taxes on Income and Capital of the Organization for Economic Cooperation and Development and of any guidelines that, for the application of such term, may be developed by such Organization in the future. 　　14. With reference to Article 28 (Exchange of Information): 　　It is understood that the information that may be exchanged includes information from records of financial institutions, including records relating to third parties involved in transactions with the taxpayer(s) and records relating to persons referred to in paragraph 6 of Article 17 (Limitation on Benefits), and that such information will be made available to the same extent as permitted by the domestic law of the Contracting State from which the information is requested. It is further understood that the appropriate tax authorities are empowered to request and agree to assist in obtaining such records pursuant to requests made by the other Contracting State in accordance with the provisions of Article 28 and the preceding sentence of this paragraph. FOR THE UNITED STATES FOR THE PORTUGUESE OF AMERICA: REPUBLIC: (s) John Kornblum (s) Mr. Knopfli