Personal
and Subject Jurisdiction of the Convention:
The
Convention will apply to citizens and residents of either
or both states, including former citizens and residents
who have deliberately lost their citizenship or residency
in an attempt to evade taxes.(12)
The
second paragraph of article 1 states that notwithstanding
any provision of the convention except for paragraph
3 of this Article, a state may tax its citizens and
residents as if the Convention had not come into effect.
Paragraph
3 provides a number of exceptions to the broad reservation
of rights stated in paragraph 2. Thus the exceptions
in paragraph 3 delineate those taxpayer activities which
would create a complete tax exemption in one or the
other state. Those taxpayer activities that fall outside
the activities specified in paragraph 3 are those activities
where the tax debt would be apportioned between the
two states; and according to paragraph 2, each state
could mandate its own procedure for the reporting, assessment,
and collection of their portion of these apportioned
taxes.
Taxes
Covered: The Convention will apply only to income
taxes.(13) Applicable
United States taxes will exclude the social security
tax. In Thailand, however, the Convention will apply
to both the general income tax and the petroleum income
tax.(14)
Residency
Defined: Residency under the convention will be
determined by criteria set by the laws of each state,
but will not be decided by the "source" of income.(15)
In cases where a person has ties to both states , the
Convention provides for a balancing of the various factors
in order to determine legal residency.(16)
Permanent
Establishment Defined: Article 5 of the Convention
sets forth the basic principle that a "permanent establishment"
means a fixed place of business through which the business
is wholly or partly carried on. Paragraph 2 illustrates
this principle with the following examples: a place
of management, a branch, an office, a factory, a workshop,
a warehouse, and a place of extraction of natural resources.
In the absence of a treaty the United States taxes income
connected with trade or business on the basis of relatively
minimal contact with the United States.(17)
Therefore, the "permanent establishment provision"
has the effect of limiting and generally elevating the
minimum level of "nexus" with a state that
must be present before an enterprise can be subject
to taxation. Furthermore, the concept of "permanent
establishment"is relevant to those provisions of
the Convention which grant tax reductions on dividends,
interest, royalties, and business profits, because these
tax reductions are only available if the foreign person
has no "permanent establishment" to the country
to which the income is connected.(18)
Income
from Immovable (Real) Property:
Article 5 provides that income derived by a resident
of a contracting state from real property (including
income from agriculture and forestry) situated in the
other state may be taxed in that other state.
Business
Profits: Article 7 of the treaty
provides that the income of an enterprise shall be taxable
in that enterprise's state. However, the other state
or the "source" may also tax business profits
but only if those profits are attributable to a "permanent
establishment" in that state.(19)
In the absence of a treaty, if a foreign person is engaged
in trade or business in the United States such person
is subject to tax in the United States on all his business
profits derived from sources within the United States(20),
and on certain foreign source business profits related
to any office or fixed place of business in the United
States.(21)
