한미조세조약 - 영문판한미조세조약 - 영문판

Posted at 2012.08.14 16:41 | Posted in 기타법령

[1979.10.20]
Signed at Seoul June 4, 1976
Entered into force October 20, 1979

The Government of the Republic of Korea and the Government of the United States of America, desiring to conclude a convention for the avoidance of double taxation of income and the prevention of fiscal evasion and the encouragement of international trade and investment, have appointed for that purpose as their respective Plenipotentiaries :
The Government of the Republic of Korea: Excellency Park Tong-Jin
Minister of Foreign Affairs of the Republic of Korea
The Government of the United States of America: His Excellency Richard L. Sneider
Ambassador Extraordinary and Plenipotentiary of the United States of America to the Republic of Korea who having communicated to each other their full powers, found in good and due form,
have agreed upon the following articles.


Article 1.【TAXES COVERED】[1979.10.20]
(1) The taxes which are the subject of this Convention are:
   (a) In the case of Korea, the income tax and the corporation tax (the Korean tax); and
   (b) In the case of the United States the Federal income taxes imposed by the Internal Revenue Code (the United States tax).

(2) This Convention shall also apply to taxes substantially similar to those covered by paragraph (1) which are imposed in addition to, or in place of existing taxes after the date of signature of this Convention.

(3) For the purpose of Article 7 (Nondiscrimination), the Convention shall also apply to taxes of every kind imposed at the National, state or local level. For the purpose of Article 28 (Exchange of Information) this Convention shall also apply to taxes of every kind imposed at the National level.


Article 2.【GENERAL DEFINITIONS】[1979.10.20]
(1) In this Convention, unless the context otherwise requires:
   (a) (i) The term "Korea" means the Republic of Korea; and
      (ii) When used in a geographical sense, the term "Korea" means all the territory in which the laws relating to Korean tax are in force. The term also includes :
      (A) The territorial sea thereof; and
      (B) The seabed and subsoil of the submarine areas adjacent to the coast thereof, but beyond the territorial sea, over which Korea exercises sovereign rights, in accordance with international law, for the purpose of exploration of the natural resources of such areas, but only to the extent that the person, property, or activity to which this Convention is being applied is connected with such exploration or exploitation;
   (b) (i) The term "United States" means the United States of America; and
      (ii) When used in a geographical sense, the term "United States" means the states thereof and the District of Columbia, Such term also includes :
      (A) The territorial sea thereof ; and
      (B) The seabed and subsoil of the submarine areas adjacent to the coast thereof but beyond the territorial sea, over which the United States exercises sovereign rights, in accordance with international law, for the purpose of exploration and exploitation of the natural resources of such areas, but only to the extent that the person, property, or activity to which the Convention is being applied is connected with such exploration or exploitation ;
   (c) The term "Contracting State" means Korea or the United Slates, as the context requires ;
   (d) The term "person" includes an individual, a partnership a corporation, an estate, a trust, or any body of persons;
   (e) (i) The term "Korea corporation" or "corporation of Korea" means a corporation (other than a United States corporation) which has its head or main office in Korea, or any entity treated as a Korean corporation for Korean tax purposes ; and
      (ii) The term "United States corporation" or "corporation of the United States" means a corporation which is created or organized under the laws of the United States or any state thereof or the District of Columbia, or any unincorporated entity treated as a United States corporation for United States tax purpose ;
   (f) The term "competent authority" means :
      (i) In the case of Korea, the Minister of Finance or his delegate; and
      (ii) In the case of the United States, the Secretary of the Treasury or his delegate :
   (g) The term "State" means any .national State, whether or not one of the Contracting States;
   (h) The term "citizen" means:
      (i) In the case of Korea, a national of Korea; and
      (ii) In the case of the United States, a citizen of the United States.

(2) Any other term used in this Convention and not defined in this Convention shall, unless the context otherwise would have the meaning which it has under the laws of the Contracting state whose tax is being determined. Notwithstanding the preceding sentence, if the meaning of such a term under the laws of one Contracting State is different from the meaning of the term under the laws of the other Contracting State, or if the meaning of such a term is not readily determinable under the laws of one of the Contracting States, the competent authorities of the Contracting States may in order to prevent doble taxation or to further any other purpose of this Convention, establish a common meaning of the term for the purposes of this Convention.


Article 3.【FISCAL DOMICILE】[1979.10.20]
(1) In this Convention:
   (a) The term "resident of Korea" means:
      (i) A Korean corporation; and
      (ii) Any other person (except a corporation or any entity treated under Korean law as a corporation) resident in Korea for purposes of its tax, but in the case of a Person acting as a partner or fiduciary only to the extent that the income derived by such person is subject to Korean tax as the income of a resident;
   (b) The term "resident of the United States" means:
      (i) A United States corporation; and
      (ii) Any other person (except a corporation or any entity treated under United States law as a corporation) resident in the United States for purposes of its tax, but in the case of a person acting as a partner or fiduciary only to the extent that the income derived by such person is subject to United States tax as the income of a resident :
   (c) In determining the residence of a partnership which makes a payment, a partnership shall be considered a resident of the State under the laws of which it was created or organized.

(2) Where by reason of the provisions of paragraph (1) an individual resident of both Contracting States :
   (a) He shall be deemed to be a resident of that Contracting State in which he maintains his permanent home ;
   (b) If he has a permanent home in both Contracting States or in neither of the Contracting States, he shall be deemed to be a resident of that Contracting State with which his personal and economic relations are closest (center of vital interests) ;
   (c) If his center of vital interests is in neither of the Contracting States or cannot be determined, he shall be deemed to be a resident of that Contracting State in which he has a habitual abode :
   (d) If he has a habitual abode in both Contracting States or in neither of the Contracting States, he shall be deemed to be a resident of the Contracting State of which he is a citizen; and
   (e) If he is a citizen of both Contracting State or of neither Contracting State the competent authorities of the Contracting States shall settle the question by mutual agreement. For the purpose of this paragraph, a permanent home in the place where an individual dwells with his family.

(3) An individual who is deemed to be a resident of one of the Contracting States and not a resident of the other Contracting State by reason of the provisions of paragraph (2) shall be deemed to be a resident only of the first-mentioned Contracting State for all purposes of this Convention, including Article 4 (General Rules of Taxation).


Article 4.【GENERAL RULES OF TAXATION】[1979.10.20]
(1) A resident of one of the Contracting States may be taxed by the other Contracting State on any income from sources within that other Contracting State and only on such income subject to any limitations set forth in this Convention. For this purpose, the rules set forth in Article 6 (Source of income) shall be applied to determine the source of income.

(2) The provisions of this Convention shall not be construed to restrict in any manner any exclusion, exemption, deduction, credit, or other allowance now or hereafter accorded :
   (a) By the laws of one of the Contracting States in the determination of the tax imposed by that Contracting States;
   (b) By any other agreement between the Contracting States.

(3) The provisions of this convention shall nor affect Korean law so as to deny benefits accorded residents of the United States under the provisions of the Korean Foreign Capital Inducement Law No. 2598 of March 12, 1973 as amended or any similar law to encourage investment in Korea.

(4) Notwithstanding any provisions of this Convention except paragraph (5) of this Article, a Contracting State may tax a citizen or resident of that Contracting State as if this Convention had not come into effect.

(5) The provisions of paragraph (4) shall not affect :
   (a) The benefits conferred by a Contracting State under Article 5 (Relief from Double Taxation), 7 (Nondiscrimination), 24 (Social Security Payments), and 27 (Mutual Agreement Procedure) ; and
   (b) The benefits conferred by a Contracting State under Articles 20(Teachers), 21 (Students and Trainees) and 22 (Governmental Functions), upon individuals who are neither citizens of, nor have immigrant status in, that Contracting State.

(6) The competent authorities of the two Contracting States may prescribe regulations necessary to carry out the provisions of this Convention.

(7) There shall be allowed, for purposes of United States tax, in the case of a resident of Korea who is not a resident of the United States (other than an officer or employee of the Government of Korea or local authority thereof), as long as the United States Internal Revenue Code provides only one personal exemption, a deduction for personal exemptions, subject to the conditions prescribed in sections 151 through 154 of the Internal Revenue Code as in effect on the date of the signature of this Convention, for the spouse of the taxpayer and for each child of the taxpayer present in the United States and residing with him in the United States at any time during the taxable year, but such additional deduction shall not exceed that proportion thereof which the taxpayer's gross income from source within the United States which is treated as effectively connected with the conduct of a trade or business within the United States within the meaning of section 864(c) of the Internal Revenue Code for the taxpayer's taxable year bears to his entire income from all source for such taxable year.

(8) The United States may impose its personal holding company tax and its accumulated earnings tax notwithstanding any provision of this Convention. However, a Korean corporation shall be exempt from the United States personal holding company tax in any taxable year if all of its stock is owned, directly or indirectly, by one or more individuals who are residents of Korea (and not citizens of the United States) for that entire year. A Korean corporation shall be exempt from the United States accumulated earnings tax in any taxable year unless such corporation is engaged in trade or business in the United States through a permanent establishment at any time during such year.


Article 5.【RELIEF FROM DOUBLE TAXATION】[1979.10.20]
Double taxation of income shall be avoided in the following manner:
(1) In accordance with the provisions and subject to the limitations of the law of Korea (as it may be amended from time to time without changing the principles hereof), Korea shall allow to a citizen or resident of Korea as a credit against Korean tax the appropriate amount of income taxes paid to the United Stated and, in the case of a Korean corporation owning at least 10 percent of the voting power of the United States corporation from which it receives dividends in any taxable year, shall allow credit for the appropriate amount of taxes paid to the United States by the United States corporation paying such dividends with respect to the profits out of which such dividends are paid. Such appropriate amount shall be based upon the amount of tax paid to the United States but shall not exceed that portion of Korean tax which such citizen's or resident's net income from sources within the United States bears to his entire net income for the same taxable year. For the purpose of applying the Korean credit in relation to taxes paid to the United States, the rules set forth in Article 6 (Source of Income) shall be applied to determine the source of income ;

(2) In accordance with the provisions and subject to the limitations of the law of the United States (as it may be amended from time to time without changing the principles hereof), the United States shall allow to a citizen or resident of the Untied States as a credit against the United Stated tax the appropriate amount of Korean tax and, in the case of a United States corporation owning at least, 10 percent of the voting power of a Korean corporation from which it received dividends in any taxable year, shall allow credit for the appropriate amount of taxes paid to Korea by the Korean corporation paying such dividends with respect to the profits out of which such dividends are paid. Such appropriate amount shall be based upon the amount of tax paid to Korea but the credit shall not exceed the limitations (for the purpose limiting the credit to the United States tax on income from sources within Korea or on income from sources outside the United States) provided by United States law for the taxable year. For the purpose of applying the United States credit in relation to taxes paid to Korea, the rules set forth in Article 6 (Source of Income) shall be applied to determine the source of income.


Article 6.【SOURCE OF INCOME】[1979.10.20]
For purposes of this Convention :
(1) Dividends shall be treated as income from sources within a Contracting State only if paid by a corporation of that Contracting State.

(2) Interest shall be treated as income from sources within one Contracting States only if paid by that Contracting State, a political subdivision or a local authority thereof, or by a resident of that Contracting State.
Notwithstanding the preceding sentence :
   (a) If the person paying the interest (whether or not he is a resident of one of the Contracting States) has a permanent establishment in one of the Contracting States in connection with which the indebtedness on which the interest is paid was incurred and such interest is borne by such permanent establishment ; or
   (b) If the person paying the interest is a resident of one of the Contracting States and has a permanent establishment in a State other than a Contracting State in connection with which the indebtedness on which the interest is paid was incurred and such interest is paid to a resident of the other Contracting State, and such interest is borne by such permanent establishment, such interest shall be deemed to be from sources within the State in which the permanent establishment is situated.

(3) Royalties described in paragraph (4) of Article 14 (Royalties) for the use of, or the right to use, property (other than as provided in paragraph (5) with respect to ships or aircraft) described in such paragraph shall be treated as income from sources within one of the Contracting States only if paid for the use of, or the right to use, such property within that Contracting State.

(4) Income from real property and royalties from the operation of mines, quarries, or other natural resources (including gains derived from the sale of such property or the right giving rise to such royalties) shall be treated as in come from sources within one of the Counteractingly States only if such property is located in that Contracting State.

(5) Income from the rental of tangible property (movable property) shall be treated as income from sources within one of the Contracting States only if such property is located in that Contracting State. Income from the rental of ships or aircraft derived by a person not engaged in the operation of ships or aircraft in international traffic shall be treated as income from sources within a Contracting State only if the lessee is a resident of that Contracting State.

(6) Income received by an individual for his performance of labor or personal services, whether as an employee or in an independent capacity, or for furnishing the personal services of other person and income received by a corporation for furnishing the personal services of its employees or others, shall be treated as income from sources within one of the Contracting States only to the extent that such services are performed in that Contracting State. Income from personal services performed aboard ships or aircraft operated by a resident of one of the Contracting States in international traffic shall be treated as income from sources within that Contracting State if rendered by a member of the regular complement of the ship or aircraft. For purposes of this paragraph, income from labor or personal services includes pensions (as defined in paragraph (3) of Article 23 (private Pensions and Annuities) paid in respect of such services. Notwithstanding the preceding provisions of this paragraph remuneration described in Article 22 (Governmental Functions, and payments described in Article 24(Social Security Payments) shall be treated as income from sources within one of the Contracting States only if paid by or from the public fund of that Contracting State or local authority thereof.

(7) Income from the purchase and sale of intangible or, tangible personal (including movable) property (other than gain defined as royalties by paragraph (4) (b) of Article 14 (Royalties)) shall be treated as income from sources within one of the Contracting States only if such property is sold in that Contracting State.

(8) Notwithstanding paragraphs (1) through (7), industrial or commercial profits which are attributable to a permanent establishment which the recipient, a resident of one of the Contracting States, has in the other Contracting State, including income derived from real property and natural resources and dividends, interest, royalties (as defined in paragraph (4) of Article 14(Royalties)), and capital gains, but only if the rights or property giving rise to such income, dividends, interest, royalties, or capital gains are effectively connected with such permanent establishment, shall be treated as income from sources within that other Contracting State.

(9) The source of any item of income to which paragraphs (1) through (8) of this Article are not applicable shall be determined by each of the Contracting States in accordance with its own law. Notwithstanding the preceding sentence, if the source of any item of income under the laws of one Contracting State is different from the source of such item of income under the laws of the other Contracting State or if the source of such income is not readily determinable under the laws of one of the Contracting States, the competent authorities of the Contracting States may, in order to prevent double taxation or further any other purpose of this Convention, establish a common source of the item of income for purposes of this Convention.


Article 7.【NON-DISCRIMINATION】[1979.10.20]
(1) A citizen of one of the Contracting States who is a resident of the other Contracting State shall not be subjected in that other contracting State to more burdensome taxes than a citizen of that other Contracting State who is a resident thereof.

(2) A permanent establishment which a resident of one of the Contracting States has in the other Contracting State shall not be subjected in that other Contracting State to more burdensome taxes than a resident of that other Contracting State carrying on the same activities. This paragraph shall not be construed as obliging one of the Contracting States to grant to individual residents of the other Contracting State any personal allowances, reliefs, or deductions for taxation purposes on account of civil status or family responsibilities which the first-mentioned Contracting State grants to its own individual residents.

(3) A corporation of one of the Contracting States, the capital of which is wholly or partly owned or controlled directly or indirectly, by one or more residents of the her Contracting State, shall not be subjected in the first-mentioned Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which a corporation of the first-mentioned Contracting State carrying on the same activities, the capital of which is wholly owned or controlled by one or more residents of the first- mentioned Contracting State, is or may be subjected.


Article 8.【BUSINESS PROFITS】[1979.10.20]
(1) Industrial or commercial profits of a resident of one of the Contracting States shall be exempt from tax by the other Contracting State unless such resident is engaged in industrial or commercial activity in that other Contracting State through a permanent establishment situated therein. If such resident is so engaged, tax may be imposed by that other Contracting State on the industrial or commercial profits of such resident but only on so much of such profits as are attributable to the permanent establishment.

(2) Where a resident of one of the Contracting States is engaged in industrial or commercial activity in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to the permanent establishment the industrial or commercial profits which would be attributable to such permanent establishment if such permanent establishment were an independent entity engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the resident of which it is a permanent establishment.

(3) In the determination of the industrial or commercial profits of a permanent establishment, there shall be allowed as deductions expenses which are reasonably connected with such profits, including executive and general administrative expenses, whether incurred in the Contracting State in which the permanent establishment is situated or elsewhere.

(4) No profits shall be attributed to a permanent establishment of a resident of one of the Contracting States in other Contracting State merely by reason of the purchase of goods or merchandise by that permanent establishment, or by the resident of which it is a permanent establishment, for the account of that resident.

(5) The term "industrial or commercial activity" means the active conduct of a trade or business. It includes the conduct of manufacturing, mercantile, insurance, banking, financing, agricultural, fishing, or mining activities, the operation of ships or aircraft, the furnishing of services, and the rental of tangible personal property (including ships or aircraft). Such term does not include the performance of personal services by an individual either as an employee or in an independent capacity.

(6) (a) The term "industrial or commercial profits" means income derived from industrial or commercial activity, and income derived from real property and natural resources, and dividends, interest, royalties (as defined in paragraph (4) of Article 14 (Royalties)) and capital gains but only if the property or rights giving rise to such income, dividends, interest, royalties, or capital gains are effectively connected with a permanent establishment which the recipient, being a resident of one of the Contracting States, has in the other Contracting State, whether or not such income is derived from industrial or commercial activity.
   (b) To determine whether property or rights are effectively connected with a permanent establishment, the factors taken into account shall include whether the rights or property are used in or held for use in carrying on industrial or commercial activity through such permanent establishment and whether the activities carried on through such permanent establishment were a material factor in the realization of the income from such property or rights. For this purpose, due regard shall be given to whether or not such property or rights or such income were accounted for through such permanent establishment.

(7) Where industrial or commercial profits include items of income which are dealt with separately in other articles of this Convention, the provisions of those articles shall, except as otherwise provided therein, supersede the provisions of this Article.


Article 9.【PERMANENT ESTABLISHMENT】[1979.10.20]
(1) For purposes of this Convention, the term "permanent establishment" means a fixed place of business through which a resident of one of the Contracting States engages in industrial or commercial activity.

(2) The term "fixed place of business" includes but is not limited to:
   (a) A branch;
   (b) An office;
   (c) A factory;
   (d) A workshop;
   (e) A warehouse ;
   (f) A store or other sales outlet;
   (g) A mine, quarry, or other place of extraction of natural resources; and
   (h) A building site or construction or installation project which exists for more than 6 months.

(3) Notwithstanding paragraphs (1) and (2), a permanent establishment shall not include a fixed place of business used only for one or more of the following:
   (a) The use of facilities for the purpose of storage, display, or delivery of goods or merchandise belonging to the resident ;
   (b) The maintenance of a stock of goods or merchandise belonging to the resident for the purpose of storage, display, or deliverer ;
   (c) The maintenance of a stock of goods or merchandise belonging to the resident for the purpose of processing by another person ;
   (d) The maintenance of a fixed place of business for the purpose of purchasing goods or merchandise, or for collecting information, for the resident ;
   (e) The maintenance of a fixed place of business for the purpose of advertising, for the supply of information, for scientific research, or for similar activities which have a preparatory or auxiliary character, for the resident; or
   (f) The maintenance of a building site or construction or installation project which does not exist for more than 6 months.

(4) Even if a resident of one of the Contracting States does not have a permanent establishment in the other Contracting State under paragraphs (1) through (3) of this Article, nevertheless he shall by deemed to have a permanent establishment in that other Contracting State if he engages in trade or business in that other Contracting State through an agent who:
   (a) Has an authority to conclude contracts in the name of that resident and regularly exercises that authority in that other Contracting State, unless the exercise of the authority is limited to the purchase of goods or merchandise for the account of the resident; or
   (b) Maintains in that other Contracting State a stock of goods or merchandise belonging to that resident from which he regularly fills orders or makes deliveries.

(5) Notwithstanding subparagraphs (a), (c) and (d) of paragraph (3), if a resident of one of the Contracting States has a fixed place of business in the other Contracting State and goods or merchandise are either: (a) Subjected to processing in that other Contracting State by another person (whether or not purchased in that other Contracting State) ; (b) Purchased in that other Contracting State (and such goods or merchandise are not subjected to processing outside that other Contracting State) ; such resident shall be considered to have a permanent establishment in that other Contracting State, if all or part of such goods or merchandise is sold by or on behalf of such resident for use, consumption, or disposition in that other Contracting State.

(6) Notwithstanding the provisions of paragraphs (4) and (5), a resident of one of the Contracting States shall not be deemed to have a permanent establishment in the other Contracting State merely because such resident engages in industrial or commercial activity in that other Contracting State through a broker, general commission agent or any other agent of an independent status, where such broker or agent is acting in the ordinary course of his business.

(7) The fact that a resident of one of the Contracting States is a related person (as defined under Article 11 (Related Persons)) with respect to a resident of the other Contracting State or with respect to a person who engages in industrial or commercial activity in that other Contracting State (whether through a permanent establishment or otherwise) shall not be taken into account in determining whether that resident of the first-mentioned Contracting State has a permanent establishment in that other Contracting State.

(8) The principles set forth in paragraphs (1) through (7) shall be applied in determining for the purpose of this Convention whether there is a permanent establishment in a State other than one of the Contracting States or whether a person other than a resident of one of the Contracting States has a permanent establishment in one of the Contracting States.


Article 10.【SHIPPING AND AIR TRANSPORT】[1979.10.20]
Notwithstanding Article 8 (Business Profits), income which a resident of one of the Contracting States derives from the operation in international traffic of ships or aircraft shall be exempt from tax by the other Contracting State. For purposes of this Article, income derived from the operation in international traffic of ships or aircraft includes income incidental to such operation, such as income derived from the use or lease of containers, trailers for the inland transportation of containers and other related equipment, but does not include other income from the inland transportation of containers.


Article 11.【RELATED PERSONS】[1979.10.20]
(1) Where a person subject to the taxing jurisdiction of one of the Contracting States and any other person are related and where such related persons make arrangement or impose conditions between themselves which are different from those which would be made between independent persons, any income, deductions, credits, or allowances which would, but for those arrangements or conditions, have been taken into account in computing the income (or loss) of, or the tax payable by, one of such persons, may be taken into account in computing the amount of the income subject to tax and the taxes payable by such person.

(2) For the purposes of this Convention, a person is related to another person if either person owns or controls directly or indirectly the other, or if any third person or persons owns or controls directly or indirectly both. for this purpose, the term "control" includes any kind of control, whether or not legally enforceable, and however exercised or exercisable.


Article 12.【DIVIDENDS】[1979.10.20]
(1) Dividends derived from sources within one of the other Contracting State may be taxed by both Contracting States.

(2) The rate of tax imposed by one of the Contracting States on dividends derived from sources within that Contracting State by a resident of the other Contracting State shall not exceed:
   (a) 15 percent of the gross amount of the dividend; or
   (b) When the recipient is a corporation, 10 percent of the gross amount of the dividend if:
      (i) During the part of the paying corporation's taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year (if any), at least 10 percent of the outstanding shares of the voting stock of the paying corporation was owned by the recipient corporation; and
      (ii) Not more than 25 percent of the gross income of the paying corporation for such prior taxable year (if any) consists of interest or dividends (other titian interest derived from the conduct of a banking, insurance, or financing business and dividends or interest received from subsidiary corporations, 50 percent or more of the outstanding shares of the voting stock of which is owned by the paying corporation at the time such dividends or interest is received.)

(3) Paragraph (2) shall not apply if the recipient of the dividends, being a resident of one of the Contracting States, has a permanent establishment in the other Contracting State and the shares with respect to which the dividends are paid are effectively connected with such permanent establishment. In such a case, Paragraph (6) (a) of Article 8 (Business Profits) shall apply.


Article 13.【INTEREST】[1979.10.20]
(1) Interest derived from sources within one of the Contracting States by a resident of the other Contracting State may be taxed by both Contracting States.

(2) The rate of tax imposed by one of the Contracting States on interest derived from source within that Contracting State by a resident of the other Contracting State shall not exceed 12 percent of the gross amount thereof.

(3) Notwithstanding paragraph (1) and (2), interest derived from sources within one of the Contracting States shall be exempt from tax by that Contracting State if it is beneficially derived by the Government of the other Contracting State, by any local authority thereof, the central bank of that other Contracting State, or any instrumentality wholly owned by that Government or that central bank or both, not subject to tax by that other Contracting State on its income.

(4) Paragraph (2) shall not apply if the recipient of the interest, being a resident of one of the Contracting States, has a permanent establishment in the other Contracting State and the indebtedness giving rise to the interest is effectively connected with such permanent establishment. In such case, paragraph (6) (a) of Article 8 (Business Profits) shall apply.

(5) Where any amount designated as interest paid to any related person exceeds an amount which would have been paid to an unrelated person, the provisions of this Article shall apply only to so much of the interest as would have been paid to an unrelated person. In such a case the excess payment may be taxed by each Contracting State according to its own law, including the provisions of this Convention where applicable.

(6) The term "interest" as used in this Convention means income from bonds, debentures, Government securities, notes, or other evidences of indebtedness, whether or not secured and whether or not carrying a right to participate in profits, and debt-claims of every kind as well as all other income which, under the taxation law of the Contracting State in which the income has its source, is assimilated to income from money lent.


Article 14.【ROYALTIES】[1979.10.20]
(1) The tax imposed by one of the Contracting States on royalties derived from source within that Contracting State by a resident of the other Contracting State shall not exceed 15 percent of the gross amount thereof, except as provided in paragraphs (2) and (3).

(2) Royalties derived from copyrights or rights to produce or reproduce any literary, dramatic, musical, or artistic work, by a resident of one Contracting State, as well as royalties received as consideration of the use of, or the right to use, motion picture films including films and tapes used for radio or television broadcasting, may not be taxed by the other Contracting State at a rate of tax which exceeds 10 percent of the gross amount of such royalties.

(3) Paragraph (1) and (2) shall not apply if the recipient of the royalty, being a resident of one of the Contracting States, has in the other Contracting State a permanent establishment and the right or property giving rise to the royalties is effectively connected with such permanent establishment. In such a case,
paragraph (6) (a) of Article 8 (Business Profits) shall apply.

(4) The term "royalties" as used in this Article means:
   (a) Payment of any kind made as consideration for the use of, or the right to use, copyrights of literary, artistic, or scientific works, copy rights of motion picture films or films or tapes used for radio or television broadcasting, patents, designs, models, plans, secret processes or formulae, trademarks, or other like property or rights, or knowledge, experience, or skill (know-how), or ships or aircraft (but only if the lessor is a person not engaged in the operation in international traffic of ships or aircraft) ; and
   (b) Gains derived from the sale, exchange, or other disposition of any such property or rights (other than ships or aircraft) to the extent that the amounts realized on such sale, exchange, or other disposition for consideration are contingent on the productivity, use, or disposition or such property or rights, The term does not include any royalties, rentals or other amount paid in respect of the operation of mines, quarries, or other natural resources.

(5) Where an amount is paid to a related person which would be treated as royalty but for the fact that it exceeds an amount which would have been paid to an unrelated person, the provisions of this Article shall apply only to so much of the royalty as would have been paid to an unrelated person. In such a case, the excess payment may be taxed by each Contracting State according to its own law, including the provisions of this Convention where applicable.


Article 15.【INCOME FROM REAL PROPERTY】[1979.10.20]
(1) Income from real property, including royalties and other payments in respect of the exploitation of natural resources and gains derived from the sale, exchange, or other disposition of such property or of the right giving rise to such royalties or other payments, may be taxed by the Contracting State in which such real property or natural resources are situated. For purposes of this Convention, interest on indebtedness secured by real property or secured by a right giving rise to royalties or other payments in respect of the exploitation of natural resources shall not be regarded as income from real property.

(2) Paragraph (1) shall apply to income derived from the usufruct, direct use, letting, or use in any other form of real property


Article 16.【CAPITAL GAINS】[1979.10.20]
(1) A resident of one of the Contracting States shall be exempt from tax by the other Contracting State on gains from the sale, exchange, or other disposition of capital assets unless ;
   (a) The gain is derived by a resident of one of the Contracting States from the sale, exchange, or other disposition of property described in Article 15 (Income from Real Property) situated within the other Contracting State;
   (b) The recipient of the gain, being a resident of one of the Contracting States, has a permanent establishment in the other Contracting State and the property giving rise to the gain is effectively connected with such permanent establishment ; or
   (c) The recipient of the gain, being an individual who is a resident of one of the Contracting States :
      (i) Maintains a fixed base in the other Contracting State for a period or periods aggregating 183 days or more during the taxable year and the property giving rise to such gains is effectively connected with such fixed base; or
      (ii) Is present in the other Contracting State for a period or periods aggregating 183 days or more during the taxable year.

(2) In the case of gains described in paragraph (1) (a), the provisions of Article 15 (Income from Real Property) shall apply. In the case of gains described in paragraph (1) (b), the provisions of Article 8(Business Profits) shall apply.


Article 17.【INVESTMENT OR HOLDING COMPANIES】[1979.10.20]
A corporation of one of the Contracting States deriving dividends, interest, royalties, or capital gains from sources within the other Contracting State shall not be entitled to the benefits of Article 12(Dividends), 13(Interest), 14(Royalties), or 16 (Capital Gains) if:
   (a) By reason of special measures the tax imposed on such corporation by the first-mentioned Contracting State with respect so such dividends, interest, royalties, or capital gains is substantially less than the tax generally imposed by such Contracting State on corporate profits ; and
   (b) 25 percent or more of the capital of such corporation is held of record or is otherwise determined, after consultation between the competent authorities of the Contracting States, to be owned directly or indirectly, by one or more persons who are not individual residents of the first-mentioned Contracting State (or, in the case of a Korean corporation, who are citizens of the United States).


Article 18.【INDEPENDENT PERSONAL SERVICES】[1979.10.20]
(1) Income derived by an individual who is a resident of one of the Contracting States from the performance of personal services in an independent capacity, may be taxed by that Contracting State. Except as provided in paragraph (2), such income shall be exempt from tax by the other Contracting State.

(2) Income derived by an individual who is a resident of one of the Contracting States from the performance of personal services in an independent capacity in the other Contracting State may be taxed by that other Contracting State, if:
   (a) The individual is present in that other Contracting State for a period or periods aggregating 183 days or more in the taxable year;
   (b) Such income exceeds 3,000 United States dollars or its equivalent in Korean won in a taxable year; or
   (c) The individual maintains a fixed base in that other Contracting State for a period or periods aggregating 183 days or more in the taxable year, but only so much of his income as is attributable to such fixed base.


Article 19.【DEPENDENT PERSONAL SERVICES】[1979.10.20]
(1) Wages, salaries, and similar remuneration derived by an individual who is a resident of one of the Contracting States from labor or personas services performed as an employee, including remuneration from services performed by an officer of a corporation, may be taxed by that Contracting State. Except as provided by paragraph (2) such remuneration derived from sources within the other Contracting State may also be taxed by that other Contracting State.

(2) Remuneration described in paragraph (1) derived by an individual who is a resident of one of the Contracting States shall be exempt from tax by the other States if:
   (a) He is present in that other Contracting State for a period or periods aggregating less than 183 days in the taxable year;
   (b) He is an employee of a resident of the first mentioned Contracting State or of a permanent establishment maintained in the first-mentioned Contracting State;
   (c) The remuneration is not borne as such by a permanent establishment which the employer has in that other Contracting State; and
   (d) Such income does not exceed 3,000 United States dollars or its equivalent in Korean won.

(3) Notwithstanding paragraph (2), remuneration derived by an individual from the performance of labor or personal services as an employee aboard ships or aircraft operated by a resident of one of the Contracting States in international traffic shall be exempt from tax by the other Contracting State if such individual is a member of the regular complement of the ship or aircraft.


Article 20.【TEACHERS】[1979.10.20]
(1) Where a resident of one of the Contracting States is invited by the Government of the other Contracting State, a political subdivision, or local authority thereof, or by a university or other recognized educational institution in that other Contracting State to come to that other Contracting State for a period not expected to exceed 2 years for the purpose of teaching or engaging in research, or both, at a university or other recognized educational institution and such resident comes to that other Contracting State primarily for such purpose, his income from personal services for teaching or research at such university or educational institution shall be exempt from tax by that other Contracting State for a period not exceeding 2 years from the date of his arrival in that other Contracting State.

(2) This Article shall not apply to income from research if such research is undertaken not in the public interest primarily for the private benefit of a specific person or persons.


Article 21.【STUDENTS AND TRAINEES】[1979.10.20]
(1) (a) An individual who is a resident of one of the Contracting States at the time he becomes temporarily present in the other Contracting State and who is temporarily present in that other Contracting State for the primary purpose of :
      (j) Studying at a university or other recognized educational institution in that other Contracting State; or
      (ii) Securing training required to qualify him to practice a profession or professional specialty; or
      (iii) Studying or doing research as a recipient of a grant, allowance, or award from a governmental, religious, charitable, scientific, literary, or educational organization, shall be exempt from tax by that other Contracting State with respect to amounts described in subparagraph (b) for a period not exceeding 5 taxable years from the date of his arrival in that other Contracting State.
   (b) The amounts referred to in subparagraph (a) are:
      (i) Remittances from abroad for the purpose of his maintenance, education, study research, or training ;
      (ii) The grant, allowance, or award; and
      (iii) Income from personal services performed in that other Contracting State in an amount not in excess of 2,000 United States dollars or its equivalent in Korean won for any taxable year.

(2) An individual who is a resident of one of the Contracting States at the time he becomes temporarily present in the other Contracting State and who is temporarily present in that other Contracting State as an employee of, or under contract with, a resident of the first-mentioned Contracting State, for the primary purpose of :
   (a) Acquiring technical, professional, or business experience from a person other than that resident of the first-mentioned Contracting State or other than a person related to such resident; or
   (b) Studying at a university or other recognized educational institution in that other Contracting State, shall be exempt from tax by that other Contracting State for a period not exceeding 1 year with respect to his income from personal services in an aggregate amount not in excess of 5,000 United States dollars or its equivalent in Korean won.

(3) An individual who is a resident of one of the Contracting States at the time he becomes temporarily present in the other Contracting State and who is temporarily present in that other Contracting State for a period not exceeding 1 year, as a participant in a program sponsored by the Government of that other Contracting State, for the primary purpose of training, research, or study, shall be exempt from tax by that other Contracting State with respect to his income from personal services in respect of such training, research, or study performed in that other Contracting State in an aggregate amount not in excess of 10,000 United States dollars or its equivalent in Korean won.

(4) The benefits provided under Article 20 (Teachers) and paragraph (1) of this Article shall, when taken together, extend only for such period of time, not to exceed 5 taxable years from the date of arrival of the individual claiming such benefits, as may reasonably or customarily be required to effectuate the purpose of the visit.


Article 22.【GOVERNMENTAL FUNCTIONS】[1979.10.20]
Wages, salaries, and similar remuneration including pensions, annuities, or similar benefits, paid from public funds of one of the Contracting States to a citizen of that Contracting State for labor or personal services performed as an employee of that Contracting State or an instrumentality thereof in the discharge of governmental functions shall be exempt from tax by the other contracting State.


Article 23.【】[1979.10.20]
(1) Except as provided in Article 22 (Governmental Functions), pensions and other similar remuneration paid to an individual who is a resident of one of the Contracting States in consideration of past employment shall be taxable only in that Contracting State.

(2) Alimony and annuities paid to an individual who is a resident of one of the Contracting States shall be taxable only in that Contracting State.

(3) The term "pensions and other similar remuneration" as used in this Article, means periodic payments made (a) by reason of retirement or death in consideration for services rendered, or (b) by way or compensation for injuries received in connection with past employment.

(4) The term "annuities", as used in this Article, means a stated sum paid periodically at stated times during life, or during a specified number of years, under an obligation to make the payments in return for adequate and full consideration (other than services rendered).

(5) The term "alimony", as used in this Article, means periodic payments made pursuant to a decree of divorce, separate maintenance agreement, or support or separation agreement which is taxable to the recipient under the internal laws of the Contracting State of which he is a resident.


Article 24.【SOCIAL SECURITY PAYMENTS】[1979.10.20]
Social security payments and other public pensions paid by one of the Contracting States to an individual who is a resident of the other Contracting State (or in the case of such payments by Korea, to an individual who is a citizen of the United States) shall be taxable only in the first-mentioned Contracting State. This Article shall not apply to payments described in Article 22 (Governmental Functions).


Article 25.【EXEMPTION FROM SOCIAL SECURITY TAXES】[1979.10.20]
(1) The taxes imposed by Chapter 21 of the Internal Revenue Code shall not apply with respect to wages paid for services performed in Guam by a resident of Korea while in Guam on a temporary basis as a non-immigrant alien admitted to Guam pursuant to section 101 (a) (15) (H) (ii) of the United States Immigration and Nationality Act (8 U. S C. 1101(a) (15) (H) (ii)).

(2) The exemption provided in paragraph (1) shall continue only so long as the similar exemption provided by section 3121 (b) (18) of the Internal Revenue Code.


Article 26.【DIPLOMATIC AND CONSULAR OFFICERS】[1979.10.20]
Nothing in this Convention shall affect the fiscal privileges of diplomatic and consular officials under the general rules of international law or under the provisions of special agreements.


Article 27.【】[1979.10.20]
(1) Where a resident of one of the Contracting States considers that the action of one or both of the Contracting States results or will result for him in taxation not in accordance with this Convention, he may, notwithstanding the remedies provided by the national laws of the Contracting States, present his case to the competent authority of the Contracting State of which he is a resident. Should the resident's claim be considered to have merit by the competent authority of the Contracting State to which the claim is made, it shall endeavor to come to
an agreement with the competent authority of the other Contracting State with a view to avoiding taxation contrary to the provisions of this Convention.

(2) The competent authorities of the Contracting States shall endeavor to resolve by mutual agreement any difficulties or doubts arising as to the application of this Convention. In particular, the competent authorities of the Contracting States may agree :
   (a) To the same attribution of industrial or commercial profits to a resident of one of the Contracting States and its permanent establishment situated in the other Contracting State;
   (b) To the same allocation of income, deductions, credits, or allowances between a person subject to the taxing jurisdiction of one of the Contracting States and any related person;
   (c) To the same determination of the source of particular items of income ;
   (d) To the uniform accounting for income and deductions; or
   (e) To the same meaning of any term used in this Convention.

(3) The competent authorities of the Contracting States may communicate with each other directly for the purpose of reaching an agreement in the sense of this Article. When it seems advisable for the purpose of reaching agreement, the competent authorities may meet together for an oral exchange of opinions.

(4) In the event that the competent authorities reach such an agreement, taxes shall be imposed on such income, and refund
r credit of taxes shall be allowed, by the Contracting States in accordance with such agreement.


Article 28.【EXCHANGE OF INFORMATION】[1979.10.20]
under the laws and administrative practices of each Contracting State with respect to its own taxes.
(2) Any information so exchanged shall be treated as secret, except that such information may be :
   (a) Disclosed to any person concerned with; or
   (b) Made part of a public record with respect to, the assessment, collection, or enforcement of, or litigation with respect to, the taxes to which this Convention applies ;

(3) No information shall be exchanged which would be contrary to public policy.

(4) If specifically requested by the competent authority of one of the Contracting States, the competent authority of the other Contracting State shall provide information under this Article in the form of depositions of witnesses and copies of unedited original document.(including books, papers, statements, records, accounts, or writings), to the same extent such depositions and document. can be obtained under the laws and administrative practices of each Contracting State with respect to its own taxes.

(5) The exchange of information shall be either on a routine basis or on request with reference to particular cases. The competent authorities of the Contracting States may agree on the list of information which shall be furnished on a routine basis.

(6) The competent authorities of the Contracting States shall notify each other of any amendments of the tax laws referred to in paragraph (1) of Article 1 (Taxes Covered) and of the adoption of any taxes referred to in paragraph (2) of Article 1 (Taxes Covered) by transmitting the texts of any amendments or new statutes at least once a year.

(7) The competent authorities of the Contracting States shall notify each other of the publication by their respective Contracting States of any material concerning the application of this Convention, whether in the form of regulations, rulings, or judicial decisions by transmitting the texts of any such materials at least once a year.


Article 29.【EXTENSION TO TERRITORIES】[1979.10.20]
(1) Either one of the Contracting States may, at any time while this Convention continues in force, by a written notification given to the other Contracting State through diplomatic channels, declare its desire that the operation of this Convention, either in whole or in part or with such modifications as may be found necessary for special application in a particular case, shall extend to all or any of the areas (to which this Convention is not otherwise applicable) for whose international relations it is responsible and which impose taxes substantially similar in character to those which are the subject of this Convention. When the other Contracting State has, by a written communication through diplomatic channels, signified to the first-mentioned Contracting State that such notification is accepted in respect of such area or areas, and the notification and communication have been ratified and instruments of ratification exchanged, this Convention, in whole or in part, or with such modifications as may be found necessary for special application in a particular case, as specified in the notification, shall apply to the area or areas named in the notification and shall enter into force and effect on and after the date or dates specified therein. None of the provisions of this Convention shall apply to any such area in the absence of such acceptance and exchange of instruments of ratification in respect of that area.

(2) At any time after the date of entry into force of an extension under paragraph (1), either of the Contracting States may, by 6 months prior notice of termination given to the other Contracting State through diplomatic channels, terminate the application of this Convention to any area to which it has been extended under paragraph (1), and in such event this Convention shall cease to apply and have force and effect, beginning on or after the first day of January next following the expiration of the 6-month period, to the area or areas named therein, but without affecting its continued application to Korea, the United States, or to any other area to which it has been extended under paragraph (1).

(3) In the application of this Convention, in relation to any area to which it is extended by notification by Korea or the United States, reference to "Korea" or the "United States", as the case may be, shall be construed as referring to that area.

(4) The termination in respect of Korea or the United States of this Convention under Article 32 (Termination) shall, unless otherwise expressly agreed by both Contracting States, terminate the application of this Convention to any area to which the Convention has been extended under this Article by Korea or the United States.


Article 30.【ASSISTANCE IN COLLECTION】[1979.10.20]
(1) Each of the Contracting States shall endeavor to collect on behalf of the other Contracting State such taxes imposed by the other Contracting State as will ensure that any exemption or reduced rate of tax granted under this Convention by that other Contracting State shall not be enjoyed by persons not entitled to such benefits.

(2) In no case shall this Article be construed so as to impose upon one of the Contracting States the obligation to carry out measures at variance with the laws, administrative practices, or public policy of either Contracting State with respect to the collection of its own taxes.


Article 31.【ENTRY INTO FORCE】[1979.10.20]
This Convention shall be ratified and instruments of ratification shall be exchanged at Washington as soon as possible. It shall enter into force on the thirtieth day following the exchange of instruments of ratification and shall then have effect for the first time:
   (a) As respects the rate of withholding taxes and Article 25(Exemption from Social Security Taxes), to amounts paid on or after the first day of the second month following the date on which this Convention enters into force ;
   (b) As respects other taxes, to taxable years beginning on or after January 1 of the year following the date on which this Convention enters into force.


Article 32.【TERMINATION】[1979.10.20]
This Convention shall remain in force until terminated by one of the Contracting States. Either Contracting State may terminate the Convention at any time after 5 years from the date on which this Convention enters into force provided that at least 6 months' prior notice of termination has been given through diplomatic channels. In such event, the Convection shall cease to have force and effect as respects income of taxable years beginning (or, in the case of withholding taxes and social security taxes, payments made) on or after January 1 next following the expiration of the 6-month period.

Done at Seoul in duplicate in the Korean and English languages this 4th day of June, 1976.

FOR THE REPUBLIC OF KOREA
FOR THE UNITED STATES OF AMERICA


Article 998.【】[1979.10.20]
EXCHANGE OF NOTES(THE UNITED STATES OF AMERICA)

DONE at SEOUL in duplicate in the Korean and English languages this 4th day of June 1976.

FOR THE REPUBLIC OF KOREA
Sgd./
Park Tong-Jin
FOR THE UNITED STATES OF AMERICA
Sgd./
Richard L. Sneider

U.S. Proposing Note
Seoul, June 4, 1976

His Excellency
Park Tong-Jin,
Minister of Foreign Affairs
Seoul

Excellency:
I have the honor to refer to the Income Tax Convention signed between the Governments of Korea and the United States. During the course of the negotiations leading up to the signed Convention, the Korean representatives (A) stressed the need for increased provisions in the Convention that would constitute special incentives to promote the flow of United States capital and technology to Korea and (B) stated that the Convention applies to the Korean Defense Tax imposed in connection with the taxes referred to in Al-tide 1 (1) of the Convention.
The United States delegation was unable to agree to provisions for special investment incentives, but I want to assure you that my Government recognizes the importance which your Government places on increased investment in Korea. Accordingly, when circumstances permit, my Government will be prepared to resume discussions with a view to incorporating provisions into this Convention that will minimize the interference of the United States tax system with incentives offered by the Government of the Republic of Korea and that will be consistent with the income tax policies of the United states Government regarding other developing countries.
I should appreciate your confirmation that the government of the Republic of Korea interprets the words "Korean Tax" in Article 1 (1). as including the Korean Defense Tax assessed on the taxes referred to therein.
Accept, Excellency, the renewed assurances of my highest consideration.

Richard L. Sneider

Korea Note In Reply
June 4, 1976

His Excellency
Richard L. Sneider
Ambassador Extraordinary and
Plenipotentiary of the
United States of America to
the Republic of Korea

Excellency:
I have the honor to acknowledge the receipt of your Excellency's Note dated June 4, 1976 with regard to increased investment of the United States in Korea and with regard to the application of the Tax Convention to the Korean Defense Tax imposed in connection with the taxes referred to in Article 1 (1) of the Convention.
I have further the honor to note that the United States will be prepared, when circumstances permit, to resume discussions with a view to incorporating provisions into the Convention that will minimize the interference of the U.S tax system with incentives offered by the Government of Korea and that will be consistent with the income tax policies of the United States Government regarding other developing countries.
I have also the honor to confirm that the definition of Korean Tax in Article 1 (1). of the Tax Convention includes the Korean Defense Tax assessed on the taxes referred to therein.
Accept, Excellency, the renewed assurances of my highest consideration.

Park Tong-Jin
Ministry of Foreign Affairs


Article 999.【】[1979.10.20]

TECHNICAL EXPLANATION OF THE CONVENTION BETWEEN THE UNITED STATES OF AMERICA AND THE REPUBLIC OF KOREA FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME AND THE ENCOURAGEMENT OF INTERNATIONAL TRADE AND
INVESTMENT, SIGNED AT SEOUL ON JUNE 4, 1976

GENERAL EFFECTIVE DATE UNDER ARTICLE 31: 1 JANUARY 1980

It is the practice of the Treasury Department to prepare for the use of the Senate and other
interested persons a Technical Explanation of the tax conventions which are submitted to the
Senate for its advice and consent to ratification.

An Income Tax Convention with Korea was signed June 4, 1976, and submitted by the
President to the Senate on September 3, 1976. On July 19 and 20, 1977 and on June 6, 1979, the
Senate Committee on Foreign Relations held hearings and this Technical Explanation was
presented. The Senate voted its advice and consent on July 9, 1979, and instruments of
ratification were exchanged on September 20, 1979.

TABLE OF ARTICLES

Article 1-------------Taxes Covered
Article 2 ------------General Definitions
Article 3 ------------Fiscal Domicile
Article 4 ------------General Rules of Taxation
Article 5 ------------Relief from Double Taxation
Article 6 ------------Source of Income
Article 7 ------------Nondiscrimination
Article 8 ------------Business Profits
Article 9 ------------Permanent Establishment
Article 10 -----------Shipping and Air Transport
Article 11 -----------Related Persons
Article 12 -----------Dividends
Article 13 -----------Interest
Article 14 -----------Royalties
Article 15 -----------Income from Real Property
Article 16 -----------Capital Gains
Article 17 -----------Investment or Holding Companies
Article 18 -----------Independent Personal Services
Article 19 -----------Dependent Personal Services
Article 20 -----------Teachers
Article 21 -----------Students and Trainees
Article 22 -----------Governmental Functions
Article 23 -----------Private Pensions and Annuities
Article 24 -----------Social Security Payments
Article 25 -----------Exemption from Social Security Taxes
Article 26 -----------Diplomatic and Consular Officers
Article 27 -----------Mutual Agreement Procedure
Article 28 -----------Exchange of Information
Article 29 -----------Extension to Territories
Article 30 -----------Assistance in Collection
Article 31 -----------Entry into Force
Article 32 -----------Termination
Exchange of Notes-----of 4 June, 1976

                     ARTICLE 1
                  Taxes Covered

Paragraph (1) designates the taxes of the Contracting States which are the subject of the
Convention. In the case of the United States, the subject taxes are the Federal income taxes
imposed by the Internal Revenue Code ("Code") (referred to as "United States tax"). However, in
certain situations described in paragraph (8) of Article 4 (General Rules of Taxation), the United
States reserves its right to impose taxes under Sections 531 (accumulated earnings tax) and 541
(personal holding company tax), except as provided in such paragraph (8).

In the case of Korea, paragraph (1) provides that the subject taxes are the income tax and
the corporation tax (referred to as "the Korean tax"). In an exchange of notes, Korea has agreed
that the term "Korean tax" also includes the Korean Defense tax assessed on the taxes referred to
in paragraph (1).

Pursuant to paragraph (2), the Convention will also apply to taxes substantially similar to
those covered by paragraph (1) which are imposed in addition to, or in place of, existing taxes,
after June 4, 1976 (the date of signature of the Convention).

Under paragraph (3), for the purpose of Article 7 (Nondiscrimination), the Convention
will apply to taxes of every kind imposed at the national, state, or local level; and for purposes of
Article 28 (Exchange of Information), the Convention will apply to taxes of every kind imposed
at the national level.

                     ARTICLE 2
                General Definitions

Paragraph (1) sets out definitions of certain basic terms used in the Convention. A
number of important terms, however, are defined elsewhere in the Convention.

The term "United States" means the United States of America. When used in a
geographical sense, the term means the states of the United States and the District of Columbia.
Thus, the Convention does not apply to possessions of the United States or the Commonwealth
of Puerto Rico. The term "Korea" means the Republic of Korea.

When used in a geographical sense, the term "Korea" means all territory in which the laws relating to Korean tax are in force, and the terms "United States" and "Korea" also include
their respective territorial seas and, in general accord with the principles of section 638 of the
Code, their continental shelves.

The term "Contracting State" means the United States or Korea as the context requires.

The term "person" includes an individual, a partnership, a corporation, an estate, a trust or
any body of persons.

The term "United States corporation" or "corporation of the United States" is defined as a
corporation which is created or organized under the laws of the United States, any state thereof,
or the District of Columbia, or any unincorporated entity treated as a United States corporation
for United States tax purposes. A "Korean corporation" or "corporation of Korea" is defined as a
corporation (other than a United States corporation) which has its head or main office in Korea,
or any entity treated as a Korean corporation for Korean tax purposes.

With respect to the United States, the term "competent authority" means the Secretary of
the Treasury or his delegate. With respect to Korea, it means the Minister of Finance or his
delegate.

The term "State" means the United States, Korea or any other National State.

The term "citizen", in the case of the United States, is defined as a citizen of the United
States, and in the case of Korea, the term is defined as a national of Korea.

Paragraph (2) provides that any term used in the Convention which is not defined therein
shall, unless the context otherwise requires, have the meaning which it has under the laws of the
Contracting State whose tax is being determined. However, where a term has a different meaning
under the laws of Korea and the United States or where the meaning under the laws of one of the
Contracting States is not readily determinable, the competent authorities may for purposes of the
Convention establish a common meaning in order to prevent double taxation or to further any
other purpose of the Convention.

                     ARTICLE 3
                  Fiscal Domicile

This Article sets forth rules for determining the residence of individuals, corporations,
and other persons for purposes of the Convention. Residence is important because, in general,
only a resident of one of the Contracting States may qualify for the benefits of the Convention.

In paragraph (1), the term "resident of Korea" is defined as a Korean corporation (as
defined in Article 2 (General Definitions)) and any person (except a corporation or any entity
treated under Korean law as a corporation) resident in Korea for purposes of its tax. Similarly,
"resident of the United States" means a United States corporation (as defined in Article 2
(General Definitions)) and any person (except a corporation or any unincorporated entity treated
as a corporation for United States tax purposes) resident in the United States for purposes of its
tax. Thus, a resident of the United States includes a resident alien individual and a resident
citizen but under no circumstances a foreign corporation. A citizen of the United States or Korea
is not automatically a resident of the United States or Korea for purposes of this Convention.

The Convention provides that a person acting as a partner or fiduciary is considered a
resident of a Contracting State only to the extent that the income derived by such person is
subject to tax in such Contracting State as the income of a resident. For example, under United
States law, a partnership is never, and an estate or trust is often not, taxed as such. Under the
Convention, income received by a partnership, estate, or trust will not be treated for purposes of
the Convention as income received by a resident of the United States unless such income is
subject to tax in the United States as the income of a resident. Thus, the treatment of income
received by a partnership will be determined by the residence and taxation of its partners for
United States tax purposes with respect to that income. To the extent the partners are subject to
United States tax as residents of the United States, the partnership will be treated as a resident of
the United States. Similarly, the treatment of income received by a trust or estate will be
determined by the residence and taxation of the person subject to tax on such income, which may
be the grantor, the beneficiaries or the trust or estate itself, as the case may be.

Paragraph (1) also provides that in determining the residence of a partnership which
makes a payment, that partnership shall be considered a resident of the State under the laws of
which it was created or organized. This paragraph is to be used in the determination of the source
of interest. Thus, if a partnership organized in the United States pays interest to a resident of
Korea, the source of the interest would be the United States even if none of the partners are
residents of the United States.

Under paragraph (2), an individual who is a resident of both Contracting States under
paragraph (1) will, for purposes of the Convention, be deemed to be a resident of the Contracting
State in which he has his permanent home (where an individual dwells with his family), his
center of vital interests (closest economic and personal relations), a habitual abode, or his
citizenship, in the order listed. If the issue is not settled by these tests, the competent authorities
will decide by mutual agreement the one Contracting State of which he will be considered to be a
resident.
Since the definitions of residence in this Article apply for purposes of the entire
Convention, an individual who is deemed to be a resident of one Contracting State and not a
resident of the other Contracting State by reason of paragraph (2) will be deemed to be a resident
only of the first-mentioned Contracting State for all purposes of the Convention, including
Article 4 (General Rules of Taxation). For example, if an individual is determined to be a
resident of Korea under paragraph (2) and is also considered to be a resident of the United States
under the laws of the United States, such individual would continue to receive the exemptions
and special benefits granted by the Convention to residents of Korea, unless the individual is a
citizen of the United States (see the saving clause of paragraph (4) of Article 4 (General Rules of
Taxation)).

                     ARTICLE 4
             General Rules of Taxation

Under paragraph (1), a resident of one Contracting State may be taxed by the other
Contracting State on any income from sources within that other Contracting State and only on
such income, subject to any limitations set forth in the Convention. For this purpose, the source
rules contained in Article 6 (Source of Income) are to be applied. However, if the resident is a
citizen of the other Contracting State, that other Contracting State may tax the resident without
regard to this paragraph because of the saving clause of paragraph (4) of this Article.

Paragraph (2) contains the customary rule that the Convention will not restrict in any
manner any exclusion, exemption, deduction, credit, or other allowance now or hereafter
accorded by the laws of a Contracting State in the determination of a tax imposed by it, or by any
other agreement between the Contracting States. This rule reflects the principle that a convention
should not increase the tax burden on residents of the Contracting States.

Paragraph (3) provides that the provisions of the Convention shall not affect Korean law
so as to deny benefits accorded residents of the United States under the provision of the Korean
Foreign Capital Inducement Law No. 2598 of March 12, 1973 as amended or any similar law to
encourage investment in Korea. This paragraph applies only with respect to Korean law, and has
no impact on United States tax on the Korean source income which may benefit from such
provisions.

Paragraph (4) contains the traditional saving clause under which the United States
reserves the right to tax its citizens and residents (as determined under Article 3 (Fiscal
Domicile)) as if the Convention had not come into effect. However, under paragraph (5), the
saving clause does not apply in several cases in which its application would contravene policies
reflected in the Convention. Thus, the saving clause does not affect the provisions with respect to
relief from double taxation, nondiscrimination, social security payments, or the mutual
agreement procedure. Moreover, the saving clause does not affect the benefits of the Convention
to teachers, students and trainees, and individuals performing governmental functions, who are
neither citizens of, nor have immigrant status in, the Contracting State imposing the tax. In the
case of the United States, "immigrant status" means the individual has been admitted to the
United States for permanent residence. The saving clause is reciprocal.

Paragraph (6) authorizes the competent authorities of the Contracting States to prescribe
regulations necessary to carry out the provisions of the Convention. On the United States side,
this authority is also provided by section 7805 of the Code.

Paragraph (7) allows, for purposes of United States tax, in the case of a resident of Korea
who is not a resident of the United States, a deduction for personal exemption (subject to the
conditions prescribed in sections 151 through 154 of the Code as in effect on June 4, 1976) for
the spouse of the taxpayer and for each child of the taxpayer present in the United States and
residing with him in the United States at any time during the taxable year. These additional
deductions shall not exceed that proportion of the taxpayer's entire income from all sources, for
any taxable year, which is from sources within the United States and which is treated as
effectively connected with the conduct of a trade or business within the United States within the
meaning of section 864(c). These additional deductions are to continue as long as section 873 of
the United States Internal Revenue Code provides only one personal exemption for a taxpayer
who is a resident of Korea and not a resident of the United States.

Paragraph (8) reserves the right of the United States to impose its personal holding
company tax (section 541 of the Code) and its accumulated earnings tax (section 531 of the
Code) notwithstanding any provision of the Convention. However, paragraph (8) also provides
that a Korean corporation will be exempt from the personal holding company tax in any taxable
year if all of its stock is owned, directly or indirectly, by one or more individuals who are
residents of Korea (and not citizens of the United States) for that entire year. In addition, a
Korean corporation will be exempt from the accumulated earnings tax in any taxable year unless
it is engaged in trade or business in the United States through a permanent establishment at any
time during such year. Even if a Korean corporation is engaged in trade or business in the United
States through a permanent establishment at any time during the taxable year it may be subjected
to the accumulated earnings tax only with respect to any income derived from sources within the
United States. See Regulation section l.532-1 (c).

                     ARTICLE 5
           Relief from Double Taxation

Under paragraph (1), the United States agrees to allow a United States citizen or resident
as a credit against the United States tax the appropriate amount of Korean tax in accordance with
the provisions and subject to the limitations of the law of the United States (as it may be
amended from time to time without changing the principles of paragraph (1)). In addition, in the
case of a United States corporation owning at least ten percent of the voting power i.e., voting
stock) of a Korean corporation from which it receives dividends in any taxable year, the United
States will allow credit for the appropriate amount of Korean tax paid by the Korean corporation
paying such dividends with respect to the profits out of which such dividends are paid. The
appropriate amount will be based upon the amount of tax paid to Korea, but the credit shall not
exceed the limitations (for the purpose of limiting the credit to the United States tax on income
from sources within Korea or on income from sources outside of the United States) provided by
United States law for the taxable year. This provision does not require the United States to
maintain a per-country or overall limitation in the future so long as the general principle of a
foreign tax credit remains in effect. For the purpose of applying the United States credit in
relation to taxes paid to Korea, the rules set forth in Article 6 (Source of Income) will be applied
to determine the source of income.

Paragraph (2) contains a reciprocal provision under which, in accordance with the
provisions and subject to the limitations of Korean law (as it may be amended without changing
the general principles of the Treaty Article), Korea will allow to its citizens and residents a credit
against Korean tax for the appropriate amount of income taxes paid to the United States.
Furthermore, in the case of a Korean corporation owning at least ten percent of the voting power
of a United States corporation from which it receives dividends in a taxable year, Korea shall
allow a credit for the appropriate amount of taxes paid to the United States by the United States
corporation paying the dividends with respect to the profits out of which such dividends are paid.
The appropriate amount will be based on the amount of tax paid to the United States, but the
credit may not exceed that portion of Korean tax which such citizen's or resident's net income
from sources within the United States bears to his entire net income for the same taxable year.
For the purpose of applying the Korean credit in relation to taxes paid to the United States, the
rules set forth in Article 6 (Source of Income) shall be applied to determine the source of the
income.


                     ARTICLE 6
                Source of Income

This Article contains the source rules which are to be used in applying the provisions of
the Convention, such as Article 5 (Relief from Double Taxation). Under Article 4 (General Rules
of Taxation), one Contracting State may tax a resident of the other Contracting State only on
income from sources within the first-mentioned Contracting State (provided the resident is not a
citizen of the first-mentioned Contracting State).

Paragraph (1) provides that dividends will be treated as income from sources within a
Contracting State only if paid by a corporation of that Contracting State.

Under paragraph (2), with two exceptions, interest will be treated as income from sources
within a Contracting State only if paid by that Contracting State, a political subdivision or a local
authority thereof, or by a resident of that Contracting State. Under the first exception, if the
person paying the interest (whether or not such person is a resident of a Contracting State) has a
permanent establishment in a Contracting State in connection with which the indebtedness on
which the interest is paid was incurred and such interest is borne by the permanent establishment,
the interest will be deemed from sources within the Contracting State in which the permanent
establishment is situated. For example, if a resident of France has a permanent establishment in
Korea which borrows money from a resident of the United States and bears the interest, the
interest will be deemed to be from Korean sources. Thus, if the limitation in paragraph (2) of
Article 13 (Interest) is applicable, this interest will be taxed in Korea at the reduced rate. As
provided in paragraph (8) of Article 9 (Permanent Establishment), the principles of Article 9 will
be applied to determine whether the resident of France has a permanent establishment in Korea.

Under the second exception, paragraph (2) also provides that if the person paying the
interest is a resident of a Contracting State and has a permanent establishment in a State other
than a Contracting State in connection with which the indebtedness on which the interest is paid
was incurred and such interest is paid to a resident of the other Contracting State, and such
interest is borne by the permanent establishment, the interest will be deemed from sources within
the State in which the permanent establishment is situated. This interest will be exempt from tax
in the Contracting State where the payor is a resident if paid to a resident of the other Contracting
State because, under Article 4 (General Rules of Taxation), a resident of one Contracting State,
not a citizen of the other Contracting State, may be taxed by that other Contracting State only on
income from sources within that other Contracting State.

Paragraph (3) provides that royalties described in paragraph (4) of Article 14 (Royalties)
for the use of, or the right to use, property or rights other than as provided in paragraph (5) with
respect to ships or aircraft, described in such paragraph will be treated as income from sources
within a Contracting State only to the extent that such royalties are for the use of, or the right to
use, such property or rights within that Contracting State.

Paragraph (4) provides that income from real property and royalties from the operation of
mines, quarries, or other natural resources (including gains derived from the sale of such
property or the right giving rise to such royalties) will be treated as income from sources within a
Contracting State only if such property is situated in that Contracting State.

Paragraph (5) provides that income from the rental of tangible personal (movable)
property will be treated as income from sources within a Contracting State only if such property
is situated in that Contracting State. Income from the rental of ships or aircraft derived by a
person not engaged in the operation of ships or aircraft in international traffic shall be treated as
income from sources within a Contracting State only if the lessee is a resident of that Contracting
State.
Under paragraph (6), income received by an individual for his performance of labor or
personal services, whether as an employee or in an independent capacity, or for furnishing the
personal services of another person and income received by a corporation for furnishing the
personal services of its employees or others, will be treated as income from sources within a
Contracting State only to the extent that such services are performed in that Contracting State.
Income from personal services performed aboard ships or aircraft operated by a resident of a
Contracting State in international traffic will be treated as income from sources within that
Contracting State if rendered by a member of the regular complement of the ship or aircraft. For
purposes of this paragraph, income from labor or personal services includes pensions (as defined
in paragraph (3) of Article 23 (Private Pensions and Annuities)) paid in respect of such services.
However, remuneration described in Article 22 (Governmental Functions) and payments
described in Article 24 (Social Security Payments) will be treated as income from sources within
the Contracting State only if paid by or from the public funds of that Contracting State or local
authority thereof.

Paragraph (7) provides that income from the purchase and sale of intangible or tangible
personal (including movable) property (other than gains defined as royalties by paragraph (4) (b)
of Article 14 (Royalties) ) will be treated as income from sources within a Contracting State only
if such property is sold in that Contracting State.

Paragraph (8) contains a general qualification to the preceding source rules. It provides
that industrial or commercial profits attributable to a permanent establishment which the
recipient, a resident of one Contracting State, has in the other Contracting State will be treated as
income from sources within that other Contracting State. Industrial or commercial profits
attributable to such permanent establishment may include any item of income described in
paragraphs (1) through (6) if the item of income is "effectively connected" with the permanent
establishment. See the discussion of paragraph (6) (b) of Article 8 (Business Profits) for a
discussion of the effectively connected concept.

Under paragraph (9) the source of any item of income to which paragraphs (1) through
(8) are not applicable will be determined by each Contracting State in accordance with its own
law. However, if the source of any item of income under the laws of one Contracting State is
different from its source under the laws of the other Contracting State or if its source is not
readily determinable under the laws of one of the Contracting States, the competent authorities of
the Contracting States may, in order to prevent double taxation or further any other purpose of
the Convention, establish a common source of the item of income for purposes of the
Convention.

Several of the source rules set out in this Article differ to some degree from those existing
in the Code. Since Article 4 (General Rules of Taxation) provides that the Convention will not
increase a person's United States tax, a taxpayer is not required to apply the Convention rules in
calculating his United States tax liability.

                     ARTICLE 7
                 Nondiscrimination

Paragraph (1) provides that a citizen of one Contracting State who is a resident of the
other Contracting State will not be subjected in that other Contracting State to more burdensome
taxes than a citizen of that other Contracting State who is a resident thereof. The determination
whether there is more burdensome taxation is to be made by comparing the treatment of
individuals who are in comparable positions. Thus, for example, a citizen of Korea who is a
resident of the United States and who otherwise meets the requirements specified in section 911
of the Code would under this Article be eligible for the benefits of section 911 even though not a
citizen of the United States. On the other hand, just as a United States citizen who becomes a
nonresident alien at any time during a taxable year or whose spouse is a nonresident alien at any
time during a taxable year cannot file a joint return for that year, a Korean citizen would not be
entitled to file a joint return with his spouse if either is a nonresident alien at any time during the
taxable year.

Paragraph (2) provides that a permanent establishment which a resident of one
Contracting State has in the other Contracting State will not be subject in that other Contracting
State to more burdensome taxes than a resident of that other Contracting State carrying on the
same activities. However, this does not obligate a Contracting State to grant to individual
residents of the other Contracting State any personal allowance, reliefs, or deductions for
taxation purposes on account of civil status or family responsibilities which it grants to its own
individual residents.

Paragraph (3) prohibits one Contracting State from subjecting a corporation of such
Contracting State, the capital of which is wholly or partly owned or controlled, directly or
indirectly, by one or more residents of the other Contracting State to any taxation or any
requirement connected with taxation which is other or more burdensome than those applicable to
corporations of the first-mentioned Contracting State carrying on the same activities, the capital
of which is wholly or partly owned or controlled by one or more residents of the first-mentioned
Contracting State.

Under paragraph (3) of Article 1 (Taxes Covered), the provisions of this Article extend to
taxes of every kind imposed at the National, state or local level.

                     ARTICLE 8
                  Business Profits

Paragraph (1) sets forth the general rule that industrial or commercial profits of a resident
of one Contracting State are exempt from tax by the other Contracting State unless the resident is
engaged in industrial or commercial activity in that other Contracting State through a permanent
establishment situated therein. Where the resident is so engaged, only the industrial or
commercial profits attributable to the permanent establishment can be taxed by that other
Contracting State, unless the resident is a citizen of the other Contracting State. (See the saving
clause in paragraph (4) of Article 4 (General Rules of Taxation).) Under paragraph (8) of Article
6 (Source of Income), industrial or commercial profits whether from sources within or without a
Contracting State attributable to a permanent establishment which a resident of one Contracting
State has in the other Contracting State will be considered to be from sources within the other
Contracting State. Thus, items of income described in section 864(c)(4)(B) of the Code
attributable to a permanent establishment situated in the United States will be subject to tax by
the United States.

In determining the proper attribution of industrial or commercial profits under the
Convention, paragraph (2) provides that both Contracting States will attribute to the permanent
establishment such profits which would be attributable to it if it were an independent entity
engaged in the same or similar activities under the same or similar conditions and dealing wholly
independently with the resident of which it is a permanent establishment. Under paragraph (3),
expenses which are reasonably connected with profits attributable to the permanent
establishment, including executive and general administrative expenses, whether incurred in the
Contracting State in which the permanent establishment is situated or elsewhere, will be allowed
as deductions in determining the industrial or commercial profits of the permanent establishment.
However, in determining the amount of the deduction under paragraph (3) for expenses incurred
by the head office, the deduction generally will be limited to the expense incurred without
including a profit element for the head office.

Paragraph (4) provides that no profits shall be attributed to a permanent establishment
merely because of the purchase of goods or merchandise by that permanent establishment, or by
the resident of which it is a permanent establishment, for the account of such resident. Paragraph
(2) of the Article does not override paragraph (4). Thus, where a permanent establishment
purchases goods for its head office, the industrial or commercial profits attributed under
paragraph (2) or to the permanent establishment with respect to its other activities will not be
increased by adding a notional figure for profits from purchasing.

Under paragraph (5) the term "industrial or commercial activity" includes the conduct of
manufacturing, mercantile, insurance, banking, financing, agricultural, fishing or mining
activities, the operation of ships or aircraft, the furnishing of services, and the rental of tangible
personal property (including ships or aircraft when the rental is not covered by Article 10). The
term does not include the performance of personal services by an individual either as an
employee or in an independent capacity.

Paragraph (6)(a) defines the term "industrial or commercial profits" to include income
derived from industrial or commercial activity, and income derived from real property and
natural resources and dividends, interest, royalties (as defined in paragraph (4) of Article 14
(Royalties)), and capital gains but only if the property or rights giving rise to such income,
dividends, interest, royalties, or capital gains is effectively connected with a permanent
establishment which the recipient, being a resident of one Contracting State, has in the other
Contracting State, whether or not such income is derived from industrial or commercial activity.
See paragraph (3) of Article 12 (Dividends), paragraph (4) of Article 13 (Interest), paragraph (3)
of Article 14 (Royalties), and paragraph (1)(b) of Article 16 (Capital Gains).

Paragraph (6)(b) contains criteria for determining whether property or rights are
effectively connected with a permanent establishment. Factors to be taken into account include
whether the rights or property are used in or held for use in carrying on industrial or commercial
activity through a permanent establishment and whether the activities carried on through such
permanent establishment were a material factor in the realization of the income derived from
such property or rights.

For this purpose, due regard shall be given to whether or not such property or rights or
such income were accounted for through such permanent establishment. The effectively
connected test in this paragraph is substantially similar to the effectively connected test in section
864(c) of the Code.

Under paragraph (7), where industrial or commercial profits include items of income
which are dealt with separately in other articles of the Convention, the provisions of those
articles will, except as otherwise provided therein, supersede the provisions of this Article. Thus,
for example, taxation of interest income will be controlled by Article 13 (Interest) and not by this
Article unless, as provided by paragraph (4) thereof, the interest is effectively connected with a
permanent establishment.

                     ARTICLE 9
           Permanent Establishment

This Article defines the term "permanent establishment." The existence of a permanent
establishment is relevant under Article 8 (Business Profits) to the taxation of industrial or
commercial profits and in determining the applicability of other provisions of the Convention.

Under paragraph (1), the term "permanent establishment" means a fixed place of business
through which industrial or commercial activity is carried on. Illustrations in paragraph (2) of a
fixed place of business include a branch; an office; a factory; a workshop; a warehouse; a store
or other sales outlet; a mine, quarry or other place of extraction of natural resources; and a
building Site or construction or installation project which exists for more than six months. As a
general rule, any fixed facility or premises through which a resident conducts industrial or
commercial activity for an indefinite or substantial period of time will be treated as a fixed place
of business unless it is used only for one or more of the activities described in paragraph (3).

Under the construction or installation project rule the six month period begins only when
work physically commences in the other Contracting State. A series of contracts or projects
which are inter-dependent both commercially and geographically is to be treated as a single
project for the purpose of applying the six month test.

Paragraph (3) specifically provides that a permanent establishment does not include a
fixed place of business used only for one or more of the following:
"(a) The use of facilities for the purpose of storage, display, or delivery of goods
or merchandise belonging to the resident;
"(b) The maintenance of a stock of goods or merchandise belonging to the
resident for the purpose of storage, display, or delivery;
"(c) The maintenance of a stock of goods or merchandise belonging to the
resident for the purpose of processing by another person;
"(d) The maintenance of a fixed place of business for the purpose of purchasing
goods or merchandise, or for collecting information, for the resident;
"(e) The maintenance of a fixed place of business for the purpose of advertising,
for the supply of information, for scientific research, or for similar activities which have a
preparatory or auxiliary character, for the resident; or
"(f) The maintenance of a building site or construction or installation project
which does not exist for more than 6 months."

As noted, these exceptions are cumulative and a fixed place of business used only for one or
more of these purposes will not be considered a permanent establishment under the Convention.

Paragraph (4) provides that even if a resident of one of the Contracting States does not
have a permanent establishment in the other Contracting State, under paragraphs (1) through (3)
of this Article, he shall nevertheless be deemed to have a permanent establishment in the other
Contracting State if he engages in trade or business in that other Contracting State through an
agent who has authority to conclude contracts in the name of that resident and regularly exercises
that authority in that other Contracting State, unless the exercise of the authority is limited to the
purchase of goods or merchandise for the account of the resident, or who maintains in that other
Contracting State a stock of goods or merchandise belonging to that resident from which he
regularly fills orders or makes deliveries.

Under paragraph (5), notwithstanding subparagraphs (a), (c) and (d) of paragraph (3), if a
resident of one of the Contracting States has a fixed place of business in the other Contracting
State and goods or merchandise are either:
(1) subjected to processing in that other Contracting State by another person
(whether or not purchased in that other Contracting State), or
(2) are purchased in that other Contracting State (and such goods or merchandise
are not subjected to processing outside that other Contracting State) then such resident
shall be considered to have a permanent establishment in that other Contracting State, if
all or part of such goods or merchandise is sold by or on behalf of such resident for use,
consumption or disposition in that other Contracting State.

On the other hand, notwithstanding the provisions of paragraphs (4) and (5), paragraph
(6) provides that a resident of one Contracting State will not be deemed to have a permanent
establishment in the other Contracting State merely because such resident engages in industrial
or commercial activity in such other Contracting State through a broker, general commission
agent, or any other agent of an independent status, where such broker or agent is acting in the
ordinary course of his business.

Under paragraph (7), the fact that a resident of one Contracting State is a related person
with respect to a resident of the other Contracting State or with respect to a person who engages
in industrial or commercial activity in that other Contracting State (whether through a permanent
establishment or otherwise) shall not be taken into account in determining whether the resident
of the first-mentioned Contracting State has a permanent establishment in that Contracting State.
As defined in Article 11 (Related Persons), a person is related to another person if either person
owns or controls directly or indirectly the other, or if any third person owns or controls directly
or indirectly both such persons.

Paragraph (8) provides that the principles set forth in this Article are to be applied in
determining whether there is a permanent establishment in a State other than one of the
Contracting States or whether a person other than a resident of one of the Contracting States has
a permanent establishment in one of the Contracting States. This is necessary for the proper
application of paragraph (2) of Article 6 (Source of Income). This paragraph is not intended to
extend the benefits of the Convention to persons other than residents of the two Contracting
States.

                    ARTICLE 10
             Shipping and Air Transport

The Article provides that, notwithstanding Article 8 (Business Profits), income derived
by a resident of one of the Contracting States from the operation in international traffic of ships
or aircraft will be exempt from tax by the other Contracting State. Income derived from the
operation in international traffic of ships or aircraft is defined to include income incidental to
such operation, such as income derived from the use or lease of containers, trailers from the
inland transportation of containers and other related equipment. It does not, however, include
other income from the inland transportation of containers.

This Article is subject to the saving clause of paragraph (4) of Article 4 (General Rules of
Taxation). Therefore, a Contracting State may tax the income from international traffic derived
by a resident of the other Contracting State without regard to this Article if such resident is a
citizen of the first-mentioned Contracting State.

                      ARTICLE 11
                   Related Persons

This Article complements section 482 of the Code and confirms the authority of the
United States under that section. Where a person subject to the taxing jurisdiction of one of the
Contracting States and any other person are related and where such related persons make
arrangements or impose conditions between themselves which are different from those which
would be made between independent persons, under paragraph (1) any income, deductions,
credits or allowances which would, but for those arrangements or conditions, have been taken
into account in computing the income or loss of, or the tax payable by, one of such persons, may
be taken into account in computing the amount of the income subject to tax and the taxes payable
by such person.

It is anticipated that if an adjustment is made in accordance with paragraph (1) by a
Contracting State to the income of one of its residents, the other Contracting State will, if it
agrees with such redetermination and if necessary to prevent double taxation, make a
corresponding adjustment to the income of a person in such other Contracting State related to
such resident. If the other Contracting State disagrees with the redetermination, it is intended that
the two Contracting States will endeavor to reach agreement in accordance with the mutual
agreement procedure in Article 27 (Mutual Agreement Procedure).

Paragraph (2) provides that for purposes of the Convention a person is related to another
person if either person owns or controls directly or indirectly the other, or if a third person or
persons own or control directly or indirectly both. "Control" includes any kind of control,
whether or not legally enforceable, and however exercised or exercisable.

                   ARTICLE 12
                     Dividends

Paragraph (1) provides that dividends derived from sources within one Contracting State
by a resident of the other Contracting State may be taxed by both Contracting States. However,
paragraph (2) limits the rate of tax imposed by the Contracting State of source to a rate not in
excess of fifteen percent of the gross amount of the dividend. If the dividend recipient is a
corporation, the rate of tax imposed by the Contracting State of source may not exceed ten
percent of the gross amount of the dividend if during the part of the paying corporation's taxable
year which precedes the date of payment of the dividend and during the whole of its prior taxable
year (if any), at least ten percent of the outstanding shares of the voting stock of the paying
corporation was owned by the recipient corporation, and not more than twenty-five percent of
the gross income of the paying corporation for such prior taxable year (if any) consists of interest
or dividends (other than interest derived from the conduct of a banking, insurance, or financing
business and dividends or interest received from subsidiary corporations, fifty percent or more of
the outstanding shares of the voting stock of which is owned by the paying corporation at the
time such dividends or interest is received). These rate limitations do not affect the taxation of
profits of the corporation which pays the dividends.

Paragraph (3) provides that the limitations of paragraph (2) will not apply if the dividend
recipient, being a resident of one Contracting State, has a permanent establishment in the other
Contracting State and the shares with respect to which the dividends are paid are effectively
connected with the permanent establishment. In such a case, the dividend will be treated as
industrial or commercial profits subject to Article 8 (Business Profits). If the dividend recipient
is a citizen of the source Contracting State, that Contracting State may tax the recipient without
regard to this Article because of the saving clause of paragraph (4) of Article 4 (General Rules of
Taxation).

                    ARTICLE 13
                       Interest

Paragraph (1) provides that interest derived from sources within one Contracting State by
a resident of the other Contracting State may be taxed by both Contracting States.

Paragraph (2) provides that the rate of tax imposed by one of the Contracting States on
interest derived from sources within that State by a resident of the other Contracting State shall
not exceed 12 percent of the gross amount of the interest.

Paragraph (3) provides that, notwithstanding paragraphs (1) and (2), interest derived from
sources within one of the Contracting States shall be exempt from tax by that Contracting State if
it is beneficially derived by the Government of the other Contracting State, by any local authority
thereof, the central bank of that other Contracting State, or any instrumentality wholly owned by
that Government or that central bank or both, not subject to tax by that other Contracting State on
its income. In the case of the United States, examples of "instrumentalities" wholly owned by the
government are the Export-Import Bank and the Overseas Private Investment Corporation. The
"central bank" in the case of Korea would be the Bank of Korea, and in the case of the United
States, the Federal Reserve Banks.

Paragraph (4) provides that paragraph (2) will not apply if the interest recipient, being a
resident of one Contracting State, has a permanent establishment in the other Contracting State
and the indebtedness giving rise to the interest is effectively connected with the permanent
establishment. In such a case, the interest will be treated as industrial or commercial profits
subject to Article 8 (Business Profits).

If excessive interest is paid to a related person, paragraph (5) provides that the provisions
of the Article do not apply to the excessive portion of the payment. The excessive portion may be
taxed by each Contracting State according to its own law, including the provisions of the
Convention where applicable. In the case of the United States, the excessive portion may be
taxed as a dividend, in which case the provisions of Article 12 (Dividends) will apply.

Paragraph (6) defines the term "interest" for purposes of the Convention as income from
bonds, debentures, Government securities, notes, or other evidences of indebtedness, whether or
not secured and whether or not carrying a right to participate in profits, and debt-claims of every
kind, as well as all other income which, under the taxation law of the Contracting State in which
the income has its source, is assimilated to income from money lent.

This Article is subject to the saving clause of paragraph (4) of Article 4 (General Rules of
Taxation). Therefore, interest derived by a citizen of the source Contracting State may be taxed
by that Contracting State without regard to this Article.

                     ARTICLE 14
                       Royalties

Paragraph (1) provides that tax imposed by one of the Contracting States on royalties
derived from sources within that Contracting State by a resident of the other Contracting State
shall not exceed fifteen percent of the gross amount thereof, except as provided in paragraphs (2)
and (3).

Under paragraph (2) royalties derived from copyrights, or rights to produce or reproduce
any literary, dramatic, musical, or artistic work, by a resident of one Contracting State, as well as
royalties received as consideration for the use of, or the right to use, motion picture films
including films and tapes used for radio or television broadcasting, may not be taxed by the other
Contracting State at a rate of tax which exceeds ten percent of the gross amount of the royalties.

Paragraph (3) provides that paragraphs (1) and (2) will not apply if the royalty recipient,
being a resident of one Contracting State, has in the other Contracting State a permanent
establishment and the property or rights giving rise to the royalty is effectively connected with
such permanent establishment. In such a case, the royalty will be treated as industrial or
commercial profits subject to Article 8 (Business Profits).

Paragraph (4) defines the term "royalties" as payment of any kind made as consideration
for the use of, or the right to use, copyrights of literary, artistic, or scientific works, copyrights of
motion picture films or films or tapes used for radio or television broadcasting, patents, designs,
models, plans, secret processes or formulae, trademarks, or other like property or rights, or
knowledge, experience, or skill (know-how), or ships or aircraft (but only if the lessor is a person
not engaged in the operation in international traffic of ships or aircraft). The term also includes
gains derived from the sale, exchange, or other disposition of any such property or rights (other
than ships or aircraft) to the extent the amounts realized on such sale, exchange or other
disposition for consideration are contingent on the productivity, use, or disposition of the
property or rights. If the amounts realized are not so contingent, the provisions of Article 16
(Capital Gains) will apply. The term "royalties" as used in the Convention does not include any
royalties, rentals or other amounts paid in respect of the operation of mines, quarries, or other
natural resources, which are covered by Article 15 (Income from Real Property).

If excessive royalties are paid to a related person, paragraph (5) provides that the
provisions of the Article do not apply to the excessive portion of the royalty. The excessive
portion may be taxed by each Contracting State according to its own law, including the
Convention where applicable. Thus, in the case of the United States, the excessive portion may
be treated as a dividend or interest, or in whatever other manner is appropriate.

As noted under paragraph (3) of Article 6 (Source of Income), royalties described in
paragraph (4), including contingent gains, will be treated as income from sources within a
Contracting State only to the extent they are payments for the use of, or the right to use, property
or rights described in paragraph (4) within that Contracting State.

This Article is subject to the saving clause of paragraph (4) of Article 4 (General Rules of
Taxation). Therefore, royalties derived by a citizen of the source Contracting State may be taxed
by that Contracting State without regard to this Article.

                     ARTICLE 15
             Income from Real Property

Under paragraph (1), income from real property, including royalties and other payments
in respect of the exploitation of natural resources and gains derived from the sale, exchange or
other disposition of such property or of the right giving rise to such royalties or other payments,
may be taxed by the Contracting State in which the real property or natural resources are
situated. However, income from real property does not include interest on indebtedness secured
by real property (e.g., mortgages) or secured by a right giving rise to royalties or other payments
in respect of the exploitation of natural resources. Such interest income is covered by Article 13
(Interest).

Paragraph (1) applies to income derived from the usufruct, direct use, letting, or use in
any other form of real property.

                     ARTICLE 16
                    Capital Gains

Under paragraph (1), a resident of one Contracting State will be exempt from tax by the
other Contracting State on gains from the sale, exchange, or other disposition of capital assets,
e.g., stock or securities. However, the exemption does not apply if
(1) the gain is from the sale, exchange or other disposition of property described
in Article 15 (Income from Real Property) situated within the other Contracting State;
(2) the recipient of the gain has a permanent establishment in the other
Contracting State and the property giving rise to the gain is effectively connected with the
permanent establishment or
(3) the individual recipient of the gain maintains a fixed base in the other
Contracting State for a period or periods aggregating 183 days or more during the taxable
year and the property giving rise to the gain is effectively connected with the fixed base,
or the individual recipient of the gain is present in the other Contracting State for a period
or periods aggregating 183 days or more during the taxable year.

The term "day" for purposes of the physical presence tests contained in the Convention with
respect to an individual means a calendar day during any portion of which the individual is
physically present in the relevant Contracting State.

Under paragraph (2), the provisions of Article 15 (Income from Real Property) will apply
to real property gains, and the provisions of Article 8 (Business Profits) will apply to gains
effectively connected with a permanent establishment.

If the recipient of the gain is a citizen of the other Contracting State, that Contracting
State may tax the recipient without regard to this Article because of the saving clause of
paragraph (4) of Article 4 (General Rules of Taxation).

                     ARTICLE 17
       Investment or Holding Companies

This Article provides that a corporation of one Contracting State deriving dividends,
interest, royalties or capital gains from sources within the other Contracting State will not be
entitled to the benefits of Articles 12 (Dividends), 13 (Interest), 14 (Royalties) or 16 (Capital
Gains) if by reason of special measures the tax imposed on such corporation by the firstmentioned
Contracting State with respect to such dividends, interest, royalties or capital gains is
substantially less than the tax generally imposed by such Contracting State on corporate profits,
and twenty-five percent or more of the capital of such corporation is held of record or is
otherwise determined, after consultation between the competent authorities of the Contracting
States, to be owned, directly or indirectly, by one or more persons who are not individual
residents of the first-mentioned Contracting State (or, in the case of a Korean corporation, who
are citizens of the United States). For purposes of applying this Article it is intended that the
requisite direct or indirect ownership be tested at the individual shareholder level.

The purpose of this Article is to deal with potential abuse which could occur if one of the
Contracting States provided preferential rates of tax for investment or holding companies. In the
absence of this Article, residents of third countries could organize a corporation in the
Contracting State extending the preferential rates for the purpose of making investments in the
other Contracting State. The combination of low tax rates in the first Contracting State and the
reduced rates or exemptions in the other Contracting State would enable the third country
residents to realize unintended benefits. Existing Code provisions dealing with the taxation of
capital gains do not make this Article applicable with respect to capital gains.

                    ARTICLE 18
         Independent Personal Services

In dealing with the taxation of income from personal services the Convention
distinguishes between "independent" and "dependent" personal services.

Personal services performed in an independent capacity, or independent personal
services, are services performed by an individual for his own account where he receives the
income and bears the losses arising from such services. If an individual is an independent
contractor he is considered as rendering independent personal services. Generally, services
rendered by physicians, lawyers, engineers, architects, dentists and accountants performing
personal services as sole proprietors or partners are independent personal services.

Under paragraph (1), income derived by an individual resident of one Contracting State
from the performance of personal services in an independent capacity may be taxed by that
Contracting State. Except as permitted by paragraph (2), such income will be exempt from tax by
the other Contracting State.

Under paragraph (2) such income derived in the other Contracting State may be taxed by
that other Contracting State if
(1) the individual is present therein for a period or periods aggregating 183 days or more
in the taxable year;
(2) the income exceeds $3,000 or its equivalent in Korean won in the taxable year; or
(3) the individual maintains a fixed base therein for a period or periods aggregating 183
days or more in the taxable year (but only on such income attributable to the fixed base).

Under paragraph (4) of Article 4 (General Rules of Taxation), the other Contracting State may
also tax any individual who is a citizen of that Contacting State without regard to this Article.

                      ARTICLE 19
            Dependent Personal Services

Under paragraph (1), subject to Articles 20 (Teachers), 21 (Students and Trainees), 22
(Governmental Functions) and 23 (Private Pensions and Annuities), wages, salaries, and similar
remuneration derived by an individual who is a resident of one Contracting State from labor or
personal services performed as an employee may be taxed by that Contracting State. Except as
provided by paragraph (2), such remuneration derived from sources within the other Contracting
State may also be taxed by that other Contracting State. It is intended that for purposes of the
Convention the term "wages, salaries and similar remuneration" includes income from services
performed as an officer of a corporation.

Under paragraph (2) such remuneration derived by an individual resident of one
Contracting State will be exempt from tax by the other Contracting State if:
(a) the individual is present in that other Contracting State for a period or periods
aggregating less than 183 days in the taxable year;
(b) the individual is an employee of a resident of the first-mentioned Contracting
State or of a permanent establishment maintained in the first-mentioned Contracting State
by a resident of a State other than that first-mentioned State;
(c) the remuneration is not borne as such by a permanent establishment which the
employer has in that other Contracting State; and
(d) the income does not exceed $3,000 or its equivalent in Korean won.

Such income may nevertheless be taxed by that other Contracting State if the individual is a
citizen of that Contracting State, because of paragraph (4) of Article 4 (General Rules of
Taxation).

Under paragraph (3), notwithstanding paragraph (2), remuneration derived by an
individual from the performance of labor or personal services as an employee aboard ships or
aircraft operated by a resident of a Contracting State in international traffic will be exempt from
tax by the other Contracting State if such individual (even if a resident of a State other than a
Contracting State) is a member of the regular complement of the ship or aircraft. However, this
paragraph is also subject to the saving clause of paragraph (4) of Article 4 (General Rules of
Taxation) so that the other Contracting State may tax a citizen or resident of that other
Contracting State without regard to this paragraph.

                     ARTICLE 20
                       Teachers

Paragraph (1) provides that where a resident of one Contracting State is invited by the
Government of the other Contracting State, a political subdivision, or a local authority thereof, or
by a university or other recognized educational institution in that other Contracting State to come
to that other Contracting State for a period not expected to exceed two years for the purpose of
teaching or engaging in research, or both, at a university or other recognized educational
institution, and such resident comes to that other Contracting State primarily for such purpose,
his income from personal services for teaching or research at the university or educational
institution will be exempt from tax by that other Contracting State for a period not exceeding two
years from the date of his arrival in that other Contracting State.

Since a temporary visit may be of such a duration that an individual may lose his status as
a resident of the Contracting State of which he was a resident at the time he became eligible for
the benefits of this Article, the individual need only be a resident of such Contracting State at the
beginning of his visit. However, if the individual becomes a citizen of, or acquires immigrant
status in, the other Contracting State, that other Contracting State may tax the individual without
regard to this Article. See paragraphs (4) and (5)(b) of Article 4 (General Rules of Taxation). If
the individual's visit exceeds a period of two years from the date of his arrival, the exemption
applies only to the income received by the individual before the expiration of such two year
period.

Pursuant to paragraph (2), this Article does not apply to income from research undertaken
primarily for the private benefit of a specific person or persons.

                     ARTICLE 21
               Students and Trainees

Paragraph (1) provides that an individual who is a resident of one Contracting State at the
time he becomes temporarily present in the other Contracting State and who is temporarily
present therein for the primary purpose of studying at a university or other recognized
educational institution in that other Contracting State, securing training required to qualify him to
practice a profession or professional specialty, or studying or doing research as a recipient of a
grant, allowance, or award from a governmental, religious, charitable, scientific, literary, or
educational organization, will be exempt from tax by that other Contracting State for a period not
exceeding five taxable years from the date of his arrival in that other Contracting State on:
(1) Remittances from abroad for the purpose of his maintenance, education, study,
research or training;
(2) The grant, allowance, or award; and
(3) Income from personal services performed in the other Contracting State not in excess
of $2,000 or its equivalent in Korean won for any taxable year.

Under paragraph (2), an individual who is a resident of one Contracting State at the time
he becomes temporarily present in the other Contracting State and who is temporarily present
therein as an employee of, or under contract with, a resident of the first-mentioned Contracting
State, for the primary purpose of acquiring technical, professional, or business experience from a
person other than that resident of the first-mentioned Contracting State or other than a person
related to such resident, or studying at a university or other recognized educational institution in
that other Contracting State, will be exempt from tax by that other Contracting State for a period
of twelve consecutive months, on income from personal services not in excess of $5,000 or its
equivalent in Korean won.

Under paragraph (3), an individual who is a resident of one Contracting State at the time
he becomes temporarily present in the other Contracting State and who is temporarily present
therein for a period not exceeding one year, as a participant in a program sponsored by the other
Contracting State, for the primary purpose of training, research, or study, will be exempt from
tax by the other Contracting State with respect to his income from personal services in respect of
such training, research, or study performed in that other Contracting State in an aggregate
amount not in excess of $10,000 or its equivalent in Korean won.

Under paragraph (4), the benefits provided in paragraph (1) and the benefits provided
under Article 20 (Teachers) may extend only for such period of time, not to exceed five taxable
years from the date of the individual's arrival, as may reasonably or customarily be required to
effectuate the purpose of the visit.

If an individual qualifies for the benefits of more than one of the provisions of Articles 20
(Teachers) and 21 (Students and Trainees), such individual may choose the most favorable
provision but may not claim the benefits of more than one provision in any taxable year as a
means of avoiding the limitations provided. Thus, for example, an individual who comes to the
other Contracting State for the primary purpose of studying may be able to qualify under either
paragraph (2) or (3) of this Article. However, he cannot combine the maximum exclusion limits
in those two paragraphs to exclude $15,000 during the taxable year. The exclusions permitted by
the Convention are in addition to any exclusions, exemptions, deductions, credits or other
allowances to which the individual is entitled under the laws of the Contracting States. If the
individual becomes a citizen of, or acquires immigrant status in, the other Contracting State, that
other Contracting State may tax the individual without regard to this Article. See paragraphs (4)
and (5)(b) of Article 4 (General Rules of Taxation).

                    ARTICLE 22
             Governmental Functions

Under this Article, wages, salaries, and similar remuneration, including pensions or
similar benefits, paid from public funds of one Contracting State to a citizen of that Contracting
State for labor or personal services performed as an employee of that Contracting State or
instrumentality thereof in the discharge of governmental functions will be exempt from tax by
the other Contracting State.

If the citizen becomes a citizen of, or acquires immigrant status in, the other Contracting
State, that other Contracting State may tax the individual without regard to this Article. See
paragraphs (4) and (5)(b) of Article 4 (General Rules of Taxation).

                      ARTICLE 23
           Private Pensions and Annuities

Except as provided in Article 22 (Governmental Functions), pensions and other similar
remuneration paid to an individual who is a resident of a Contracting State in consideration of
past employment will be taxable under paragraph (1) only in that Contracting State. Thus, private
pensions and similar remuneration derived from sources within one Contracting State by an
individual resident of the other Contracting State in consideration of past employment are
exempt from tax in the first-mentioned Contracting State. The term "pensions and other similar
remuneration" is defined in paragraph (3) as periodic payments made after retirement or death in
consideration for services rendered, or by way of compensation for injuries received in
connection with past employment. The term does not include social security payments covered in
Article 24 (Social Security Payments).

Paragraph (2) provides that alimony and annuities paid to an individual resident of a
Contracting State will be taxable only in that Contracting State. The term "annuities" is defined
in paragraph (4) as a stated sum paid periodically at stated times during life or during a specified
number of years, under an obligation to make the payments in return for adequate and full
consideration (other than for services rendered). The term "alimony" is defined in paragraph (5)
as periodic payments made pursuant to a decree of divorce, separate maintenance agreement, or
support or separation agreement which is taxable to the recipient under the internal laws of the
Contracting State of which he is a resident. Thus, the term "alimony" would not include a
payment which would not be taxable to the recipient under the laws of the Contracting State in
which the recipient is a resident even though such payment is made pursuant to a decree of
divorce or of separate maintenance agreement.

This Article is subject to the savings clause of paragraph (4) of Article 4 (General Rules
of Taxation). Therefore, individuals who are citizens of a Contracting State may be taxed by that
Contracting State without regard to this Article.

                    ARTICLE 24
            Social Security Payments

This Article provides that social security payments and other public pensions, e.g.,
railroad retirement benefits, paid by one Contracting State to an individual who is a resident of
the other Contracting State (or in the case of such payments by Korea, to an individual who is a
citizen of the United States, i.e., such payments by Korea to United States citizens or residents
will be exempt from tax by the United States) will be taxable only in the first-mentioned
Contracting State. Payments described in Article 22 (Governmental Functions) are not covered
by this Article.


                    ARTICLE 25
   Exemption from Social Security Taxes

This Article provides an exemption from social security taxes for Korean residents
working in Guam, on a temporary non-immigrant basis, similar to the exemption contained in the
Internal Revenue Code for residents of the Philippines working in Guam.

Specifically, paragraph (1) provides for an exemption from taxes imposed under Chapter
21 of the Internal Revenue Code with respect to wages paid for services performed in Guam by a
resident of Korea while in Guam on a temporary basis as a nonimmigrant alien admitted to
Guam pursuant to section 101(a)(15)(H)(ii) of the United States Immigration and Nationality Act
(8 U.S.C. 1101(a)(15)(H)(ii)).

Paragraph (2) provides that the exemption shall continue only so long as the similar
exemption for residents of the Republic of the Philippines provided by section 3121(b)(18) of the
Internal Revenue Code.

                   ARTICLE 26
      Diplomatic and Consular Officers

This Article provides that nothing in the Convention will affect the fiscal privileges of
diplomatic and consular officials under the general rules of international law or under the
provisions of special agreements. This is merely a special case of the general rule provided in
paragraph (2) of Article 4 (General Rules of Taxation).

                    ARTICLE 27
      Mutual Agreement Procedure

When a resident of one Contracting State considers that the action of one or both
Contracting States results or will result for him in taxation not in accordance with the
Convention, he may, notwithstanding the remedies provided by the national laws of the
Contracting States, present his case to the competent authority of the Contracting State of which
he is a resident. A resident of a Contracting State need not, although it is anticipated that in the
normal situation he will, exhaust his other administrative or judicial remedies prior to resorting
to the use of the mutual agreement procedure. If the claim is considered to have merit by the
competent authority, that competent authority must endeavor to come to an agreement with the
competent authority of the other Contracting State with a view to the avoidance of taxation
contrary to the Convention.

Paragraph (2) requires the competent authorities of the two Contracting States to
endeavor to resolve by mutual agreement any difficulties or doubts arising as to the application
of the Convention. In particular, the competent authorities may agree to the same attribution of
industrial or commercial profits to a resident of one Contracting State and its permanent
establishment situated in the other Contracting State; the same allocation of income, deductions,
credits, or allowances between a resident of one Contracting State and any related person; the
same determination of the source of particular items of income; uniform accounting for income
and deductions; and the same meaning of any term used in this Convention.

Under paragraph (3), the competent authorities may communicate with each other
directly and, when advisable, meet together for an oral exchange of opinions, for the purpose of
reaching an agreement.

Under paragraph (4), in cases in which the competent authorities reach an agreement,
taxes will be imposed on such income, and refund or credit of taxes allowed, by the Contracting
States in accordance with such agreement. This permits the issuance of a refund or credit
notwithstanding procedural barriers otherwise existing under a Contracting State's law, such as
the statute of limitations. However, it does not authorize imposition of additional taxes after the
statute of limitations has run.

                   ARTICLE 28
          Exchange of Information

Paragraph (1) provides for a system of administrative cooperation between the competent
authorities of the two Contracting States by requiring an exchange of information pertinent to the
carrying out of the Convention and for the prevention of fraud or for the administration of
statutory provisions concerning taxes to which this Convention applies provided the information
is of a class that can be obtained under the laws and administrative practices of each Contracting
State with respect to its own taxes. The competent authorities may exchange information in
connection with tax compliance generally, not merely illegal acts or crimes.

Under paragraph (2) information exchanged must be treated as secret and cannot be
disclosed except when disclosed to persons concerned with, or made part of a public record with
respect to the assessment, collection, enforcement or prosecution in respect of taxes which are
the subject of the Convention. Thus, disclosure is not prohibited as a part of a public proceeding
before a court or administrative body.

Under paragraph (3) no information shall be exchanged which would be contrary to
public policy.

Under paragraph (4) and if specifically requested by the competent authority of one of the
Contracting States, the competent authority of the other Contracting State shall provide
information in the form of depositions of witnesses and copies of unedited original document.
(including books, papers, statements, records, accounts, or writings), to the same extent such
depositions and document. can be obtained under the laws and administrative practices of each
Contracting State with respect to its own taxes.

Under paragraph (5) the exchange of information may be on either a routine basis or on
request with reference to particular cases. The competent authorities may agree on the list of information to be furnished on a routine basis.

Paragraphs (6) and (7) provide for notification and text transmittal at least once a year of
amendments of the tax laws referred to in paragraph (1) of Article 1 (Taxes Covered), of adopted
taxes referred to in paragraph (2) of that Article, or of published material concerning application
of the Convention, whether in the form of regulations, rulings or judicial decisions.

Under paragraph (3) of Article 1 (Taxes Covered), the provisions of this Article extend to
taxes of every kind imposed at the National level.

                   ARTICLE 29
            Extension to Territories

Under paragraph (1), either Contracting State may, at any time while the Convention
continues in force, by a written notification given to the other Contracting State through
diplomatic channels, declare its desire that the Convention, either in whole or in part or with such
modifications as may be found necessary for special application in a particular case, shall extend
to all or any of the areas (to which the Convention is not otherwise applicable) for whose
international relations it is responsible and which impose taxes substantially similar in character
to those which are the subject of the Convention. When the other Contracting State has, by a
written communication through diplomatic channels, signified to the first-mentioned Contracting
State that such notification is accepted in respect of such area or areas, and the notification and
communication have been ratified and instruments of ratification exchanged, the Convention, in
whole or in part, or with such modifications as may be found necessary for special application in
a particular case, as specified in the notification, will apply to the area or areas named in the
notification and will enter into force and effect on and after the date or dates specified therein.
None of the provisions of the Convention will apply to any such area in the absence of such
acceptance and exchange of instruments of ratification in respect of that area.

Under paragraph (2), at any time after the date of entry into force of an extension under
paragraph (1), either Contracting State may, by six months' prior notice of termination given to
the other Contracting State through diplomatic channels, terminate the application of the
Convention to any area to which it has been extended under paragraph (1). In such event the
Convention will cease to apply and have force and effect, beginning on or after the first day of
January next following the expiration of the six-month period, to the area or areas named therein,
but without affecting its continued application to the United States, Korea, or to any other area to
which it has been extended under paragraph (1).

Pursuant to paragraph (3), in the application of the Convention in relation to any area to
which it is extended by notification by Korea or the United States, reference to "Korea" or the
"United States", as the case may be, shall be construed as referring to that area.

Under paragraph (4), termination in respect of the United States or Korea of the
Convention under Article 32 (Termination) will unless otherwise expressly agreed by both
Contracting States, terminate the application of the Convention to any area to which the
Convention has been extended under this Article by the United States or Korea.

                    ARTICLE 30
           Assistance in Collection

This Article provides for mutual assistance in the collection of taxes where required to
ensure that the benefits of the Convention will only be extended to persons entitled to such
benefits. It does not in any way affect rights of residents of the Contracting States under the
Convention.

Paragraph (1) provides that each Contracting State will endeavor to collect on behalf of
the other Contracting State such taxes imposed by that other Contracting State as will ensure that
any exemption or reduced rate of tax granted under the Convention by that other Contracting
State will not be enjoyed by persons not entitled to such benefits.

Paragraph (2) makes clear, however, that in no case shall this Article be construed to
impose upon a Contracting State the obligation to carry out measures at variance with the laws,
administrative practices, or public policy of either Contracting State with respect to the collection
of its own taxes.

                 ARTICLE 31
             Entry into Force

This Article provides that the Convention is subject to ratification and for the exchange of
instruments of ratification. The Convention will enter into force on the thirtieth day following the
exchange of instruments of ratification. The Convention shall first have effect with respect to the
rate of withholding taxes and Article 25 (Exemption from Social Security Taxes), to amounts
paid on or after the first day of the second month following the date on which this Convention
enters into force; and with respect to other taxes for taxable years beginning on or after January 1
of the year following the date on which this Convention enters into force.






                   ARTICLE 32
                   Termination

This Article provides that the Convention will remain in force indefinitely, but that it may
be terminated by either Contracting State at any time after five years from the date it enters into
force. A Contracting State seeking to terminate the Convention must give at least six months'
notice through diplomatic channels. If the Convention is terminated, such termination will be
effective with respect to income of taxable years beginning (or, in the case of withholding taxes
and social security taxes, payments made) on or after January 1 next following the expiration of
the six month period.

                 EXCHANGE OF NOTES

In notes exchanged at the time of the signing of the treaty the United States noted that the
Korean Government had stressed the need for provisions in the Convention which would
constitute special incentives to promote the flow of United States capital and technology to
Korea. While observing that the United States could not agree to such provisions, the United
States did offer assurances that, when circumstances permit, the United States would be prepared
to resume discussions with a view to incorporating provisions into the Convention which will
minimize the interference of the United States tax system with incentives offered by the
Government of Korea. These provisions would be consistent with income tax policies of the
United States Government regarding other developing countries.

In the same exchange of notes, the Korean Government confirmed that the definition of
Korean tax in paragraph (1) of Article 1 of the Convention includes the Korean Defense Tax
assessed on the taxes referred to in that definition, i.e., the Korean income tax and corporation
tax. The Defense Tax is levied as a surcharge on a number of Korean taxes including the income
tax and the corporation tax. The treaty applies only to those parts of the Defense Tax levied with
respect to the income and corporation taxes.


 

 

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