TECHNICAL EXPLANATION OF THE CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND THE GOVERNMENT OF THE KINGDOM OF MOROCCO FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME SIGNED AT RABAT AUGUST 1, 1977 AND RELATED EXCHANGES OF NOTES General effective date under Article 28: 1 January 1981 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 the Kingdom of Morocco was signed August 1, 1977, and submitted by the President to the Senate on May 2, 1978. On September 24, 1981, the Senate Committee on Foreign Relations held hearings and this Technical Explanation was presented. The Senate voted it’s advised and consent on November 18, 1981, and instruments of ratification were exchanged on December 30, 1981. The technical explanation is an official guide to the Convention. it reflects policies behind particular Convention provisions, as well as understandings reached with respect to the interpretation and application of the Convention. Table of articles Article 1---------------------------------Taxes Covered Article 2---------------------------------General Definitions Article 3---------------------------------Fiscal Residence Article 4---------------------------------Permanent Establishment Article 5---------------------------------Source of Income Article 6---------------------------------Income From Real Property Article 7---------------------------------Business Profits Article 8---------------------------------Shipping And Air Transport Article 9---------------------------------Related Persons Article 10-------------------------------Dividends Article 11-------------------------------Interest Article 12-------------------------------Royalties Article 13-------------------------------Capital Gains Article 14-------------------------------Independent Personal Services Article 15-------------------------------Dependent Personal Services Article 16-------------------------------Artistes And Athletes Article 17-------------------------------Governmental Functions Article 18-------------------------------Students And Trainees Article 19-------------------------------Private Pensions and Annuities Article 20-------------------------------General Rules of Taxation Article 21-------------------------------Relief From Double Taxation Article 22.------------------------------Nondiscrimination Article 23-------------------------------Diplomatic And Consular Officers Article 24-------------------------------Investment or Holding Companies Article 25-------------------------------Mutual Agreement Procedure Article 26-------------------------------Exchange of Information Article 27-------------------------------Extension to Territories Article 28-------------------------------Entry Into Force Article 29-------------------------------Termination Exchanges of Notes-------------------of 1 August, 1977 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"). However, see paragraph 5 of Article 20 (General Rules of Taxation) with respect to the application of the personal holding company tax and accumulated earnings tax. The Convention does not apply to the estate, gift, and generation-skipping transfer taxes, the Windfall Profits Tax, Federal unemployment taxes, social security taxes or the excise taxes on premiums paid to foreign insurers. The covered taxes are referred to collectively in the treaty, and hereafter in this memorandum, as the “United States tax.” In the case of Morocco, paragraph 1 provides that the subject taxes are the agricultural tax; the taxes on urban property; the tax on public and private salaries, emoluments, fees, wages, pensions, and annuities; the complementary tax; the business profits tax; and the compulsory investment provided in Article 37 of Royal Decree No.1.010-65 of the 8th Ramadan 1385 (December 31,1965) containing the Finance Law for the year 1966. These taxes are referred to in the treaty, and hereafter in this memorandum, as the "Moroccan tax." Under paragraph 2, the Convention will apply to any taxes substantially similar to those covered by paragraph 1 which are imposed in addition to, or in place of, existing taxes, after August 1, 1977 (the date of signature of the convention). For example, the temporary national solidarity tax introduced by Morocco in 1979, is covered by virtue of this paragraph. Paragraph 3 provides that for the purpose of Article 22 (Nondiscrimination), the Convention will apply to taxes of every kind imposed at the national, state, or local level by either Contracting State; and for the purposes of Article 26 (Exchange of Information), the Convention will apply to taxes of every kind imposed at the national level by either Contracting State. 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. For example, the terms "resident" and "permanent establishment" are defined in Articles 3 (Fiscal Residence) and 4 (Permanent Establishment), respectfully. 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, the District of Columbia, the territorial sea and, in general accord with the principles of section 638 of the Code, the continental shelf. The Convention does not apply to taxes payable to possessions of the United States or to the Commonwealth of Puerto Rico and confers no benefit on taxpayers by virtue of their residence in the possessions or in Puerto Rico. The term "Morocco" means the Kingdom of Morocco, and when used in a geographical sense includes the territorial sea and, to the extent that exploration for or exploitation of natural resources takes place thereon, the continental shelf. The term "Contracting State" means the United States or Morocco 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 of the United States, or the District of Columbia, or any unincorporated entity treated as a corporation for United States tax purposes. The term "Moroccan corporation" or "corporation of Morocco" means any body corporate or any entity which is treated as a body corporate under Moroccan tax law and which is a resident of Morocco for Moroccan tax purposes. Morocco considers a corporation created or organized under the laws of Morocco as a Moroccan national, but a corporation created or organized outside Morocco can be a resident of Morocco for tax purposes if its seat of management is in Morocco. With respect to the United States, the term "competent authority" means the Secretary of the Treasury or his delegate. With respect to Morocco, that term means the Minister in Charge of Finance or his delegate. This term "State" means the United States, Morocco, or any other national state. Paragraph 2 provides that in the application of any term used in the Convention which is not defined in the Convention, the term will, unless the context otherwise requires, be given the meaning which the term has under the laws of the Contracting State to the determination of whose tax the Convention is to be applied. However, in accordance with paragraph 2(d) of Article 25 (Mutual Agreement Procedure), the competent authorities may agree on a single meaning of any term used in the Convention. An agreement by the competent authorities with respect to the meaning of a term used in the Convention would supersede conflicting meanings in the domestic laws of the Contracting States. Article 3 Fiscal residence This Article sets forth rules for determining the residence of individuals, corporations, and other persons for purposes of the Convention. The determination of the residence of an individual plays a central role in the application of the Convention because, in general, only persons who are residents of one of the Contracting States enjoy the benefits of the Convention. The Convention definition is, of course, exclusively for purposes of the Convention. Paragraph 1 defines the term "resident of Morocco" as a Moroccan corporation (as defined in Article 2 (General Definitions)) and any person (except a corporation or an entity treated under Moroccan law as a corporation) resident in Morocco 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 and any unincorporated entity treated as a corporation for United States tax purposes) resident in the United States for purposes of its tax. A resident of the United States includes a resident alien or an alien present in the United States who elects to be treated as a resident under Code section 6013(g) or (h). A citizen of the United States or Morocco is not automatically a resident of the country of his citizenship for purposes of this Convention. Residence for U.S. purposes is to be determined in accordance with the principles of the Treasury regulations under Code section 871. A person acting as a partner or fiduciary is considered a resident of the United States only to the extent that the income derived by such a person is subject to tax in the United States 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 on its income as such. Under the Convention, income received by a partnership, estate or trust will not be treated for purposes of the Convention as income derived by a resident of the United States unless such income is subject to tax by the United States as 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 the income. That person may be the grantor, the beneficiaries, or the trust or estate itself, depending on the character and terms of the trust. 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 that Contracting State in which he has his permanent home (the place at which an individual dwells with his family), his center of vital interests (closest personal and economic relations), a habitual abode, or his citizenship, in the order listed. If the issue is not settled by one of these tests, the competent authorities of the Contracting States are directed to decide by mutual agreement the state of which the individual is to be deemed a resident. Under paragraph 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 paragraph 2 will be deemed to be a resident only of the first-mentioned Contracting State for all purposes of the Convention, including Article 20 (General Rules of Taxation). For example, if an individual is determined to be a resident of Morocco under paragraph 2 and is also considered to be a resident of the United States under United States tax law, the Convention would require that the United States grant the individual the exemptions and special benefits the Convention requires the United States grant to residents of Morocco, unless the individual is a citizen of the United States. (See the saving clause of paragraph 3 of Article 20 (General Rules of Taxation).) The Convention does not provide a rule for establishing a single residence of a corporation which is a dual resident of Morocco and the United States under the laws of the two countries. In such a case the taxpayer could request that the competent authorities attempt to resolve the issue by mutual agreement under Article 25 (Mutual Agreement Procedure) to avoid double taxation. Article 4 Permanent establishment This Article defines the term "permanent establishment." The existence of a permanent establishment under Article 7 (Business Profits) determines the taxation of enterprises deriving industrial and commercial profits within the territory of each of the Contracting States. Under paragraph 1, the term "permanent establishment" means a fixed place of business through which a resident of one of the Contracting States carries on industrial or commercial activity in the other Contracting State. Illustrations in paragraph 2 of a fixed place of business include a seat of management; 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; or 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 permanent establishment unless the facility or premises are 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 when work physically commences within the territory of the Contracting State. A series of contracts or projects which are interdependent both commercially and geographically are to be treated as a single project for the purpose of applying the six month test. If the six month period is exceeded, the site or project constitutes a permanent establishment from the first day. Paragraph 3 specifically provides that a permanent establishment does not include a fixed place of business used only for one or more of a series of activities which are considered to be preparatory or auxiliary to industrial or commercial activity. The exceptions are cumulative and a fixed place of business used only for one or more of those purposes will not be considered a permanent establishment under the Convention. Paragraph 4 provides that, notwithstanding the provisions of paragraphs 1, 2, and 3, a resident of one of the states who maintains substantial equipment for rental in the other Contracting State for a period of more than six months will be deemed to have a permanent establishment in the Contracting State in which the equipment is maintained. In such a case the rental income may be taxed by that State but only to the extent attributable to the permanent establishment and on a net basis in accordance with the rules of Article 7 (Business Profits). Paragraph 5 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 4 of the Article, he shall nevertheless be deemed to have a permanent establishment in that other State if an agent has, and habitually exercises, in that State an authority to conclude contracts in the name of the resident, unless the exercise of the authority is limited to the purchase of goods and merchandise for that resident. 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 he uses the services of a broker, general commission agent, or any other independent agent in the other Contracting State where the broker or agent acts for the resident in the ordinary course of the broker's own 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 State or with respect to a person who engages in industrial or commercial activity in that other State (whether through a permanent establishment or otherwise) may 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 9 (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. For purposes of the Convention, the provisions of this Article also apply in determining whether any person has a permanent establishment in any State. Thus, these principles would determine whether a resident of a third State has a permanent establishment in Morocco or the United States, in applying the Convention, and whether a resident of Morocco or the United States has a permanent establishment in a third State. Article 5 Source of income This Article contains the rules which determine the source of income for purposes of the Convention. The Convention's general rules, set forth in Article 20 (General Rules of Taxation), restrict each Contracting State to taxing the income of residents of the other Contracting State only on income from sources within the first-mentioned State (provided that the resident is not a citizen of the first-mentioned State). Paragraph 1 provides that dividends will be treated as income from sources within a Contracting State if and only if paid by a corporation of that State. Thus, dividends paid by a Moroccan corporation which would be of U.S. source under section 861(a)(2)(B) of the Internal Revenue Code are of Moroccan source under this provision. Under paragraph 2, with two exceptions, interest is to be treated as income from sources within a Contracting State only if paid by that State, by a political subdivision or a local authority of that State, or by a resident of that 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 as a deduction by the permanent establishment, the interest will be deemed to be from sources within the Contracting State in which the permanent establishment is situated. For example, assume that a resident of France has a permanent establishment in Morocco; the resident borrows money from a resident of the United States in connection with the permanent establishment; and the interest paid is borne as a deduction by the permanent establishment in Morocco. That interest will be deemed to have its source in Morocco and any Moroccan tax on such interest will be subject to the limitation in paragraph 2 of Article 11 (Interest). The principles of Article 4 (Permanent Establishment) are to be applied to determine whether a resident of a third country has a permanent establishment in Morocco. Paragraph 2 also provides a second exception. If a resident of a Contracting State pays interest to a resident of the other Contracting State and if the indebtedness in respect of which the interest is paid was incurred in connection with a third country permanent establishment of that person paying the interest, and the interest is borne as a deduction by the permanent establishment, the interest will be deemed to be from sources within the state in which the permanent establishment is situated. This interest will be exempt from tax in a Contracting State where the payor is a resident if it is paid to a resident of the other Contracting State because, under Article 20 (General Rules of Taxation), a resident of one Contracting State, who is not a citizen of the other Contracting State, may be taxed by that other Contracting State only on income sources within that other State. Paragraph 3 provides that royalties described in paragraph 3 of Article 12 (Royalties) may be treated as income from sources within a Contracting State only to the extent that the royalties are for the use of, or the right to use, the property or rights involved or for the performance of accessory services within that State; or if the royalties are paid for technical and economic studies described in paragraph 3(c) of Article 12. 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 of the rights giving rise to such royalties) will be treated as income from sources within a Contracting State only if the property is situated in that 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 the property is situated in that 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, will be treated as income from sources within a Contracting State only to the extent that the services are performed within that State. Income from personal services aboard ships or aircraft operated by a resident of a Contracting State in international traffic will be treated as income from sources within that 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 19 (Private Pensions and Annuities), paid in respect of such services. However, remuneration described in Article 17 (Government Functions) is treated as income from sources within a Contracting State if and only if paid by or from the public funds of that State or of a political subdivision or local authority of that State. 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 3(b) of Article 12 (Royalties)), shall be treated as income from sources within a Contracting State only if the property is sold in that State. Paragraph 8 contains a general qualification of 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 the State in which the permanent establishment is situated. Industrial or commercial profits attributable to such a 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 in paragraph 4(b) of Article 7 (Business Profits) for a discussion of the concept of "effectively connected" income. Under paragraph 9, the source of any item of income to which paragraphs 1 through 8 are not applicable is to 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 20 (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 if the Code rules are more beneficial. Article 6 Income from real property Under paragraph 1, income from real property, including royalties in respect of the natural resources and gains derived from the sale, exchange or other disposition of such property or of the rights giving rise to such royalties, 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 in respect of the operation of mines, quarries, or other natural resources. Such interest income is subject to the rules set forth by Article 11 (Interest). Paragraph 1 applies to income derived from the usufruct, direct use, letting, or use in any other form of real property. Article 7 Business profits Paragraph 1 sets forth the general rule that industrial or commercial profits, as defined in paragraph 4, 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 the other 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 State, unless the resident is a citizen of that other State. (See the saving clause in paragraph 3 of Article 20 (General Rules of Taxation).) Under paragraph 8 of Article 5 (Source of Income), industrial or commercial profits 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 that other State. Under this rule, 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 a permanent establishment the profits which the establishment would have earned had it been an independent entity engaged in the same or similar activities under the same or similar conditions dealing wholly independently with the resident of which it is a permanent establishment. Under paragraph 3, expenses reasonably connected to profits attributable to the permanent establishment, including costs and general expenses related to services rendered for the benefit of the permanent establishment, 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. Paragraph 4(a) defines the term "industrial or commercial profits." It includes income from insurance and from the rental of personal property, except that film rentals are covered under Article 12 (Royalties). Accordingly, rentals of other personal property derived by a resident of one Contracting State may be taxed by the other Contracting State only to the extent attributable to a permanent establishment. Paragraph 4 of Article 4 (Permanent Establishment) provides that maintaining substantial equipment for rental for more than 6 months constitutes a permanent establishment. Profits may also include income derived from real property and natural resources, dividends, interest, royalties (as defined in Article 12 (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 the income such property gives rise to is itself derived from industrial or commercial activity. )See paragraph 3 of Article 10 (Dividends), paragraph 3 of Article 11 (Interest), paragraph 4 of Article 12 (Royalties), and paragraph 1(b) of Article 13 (Capital Gains).) It does not include employment income of employees or self-employed persons. Paragraph 4(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 are a material factor in the realization of the income derived from such property or rights. For this purpose, due regard is to be given to whether or not such property or rights or such income were accounted for through such permanent establishment. The effectively connected test established by this paragraph. is substantially similar to the effectively connected test in section 864(c) of the Code. Under paragraph 5, where industrial or commercial profits include items 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 11 (interest) and not by this Article unless, as provided by paragraph 3 of Article 11, the interest is effectively connected with a permanent establishment. Article 8 Shipping and air transport Paragraph 1 provides that, notwithstanding Article 7 (Business Profits) and Article 13 (Capital Gains), income and gains derived by a resident of one of the Contracting States from the operation in international traffic of ships registered in that State, or from the disposition of such ships, will be exempt from tax by the other Contracting State. Paragraph 2 provides that, notwithstanding Article 7 (Business Profits) and Article 13 (Capital Gains), income and gains derived by a resident of one of the Contracting States from the operation in international traffic of aircraft registered in either Contracting State, or in any State with which the other Contracting State has an income tax treaty exempting such income, or from the disposition of such aircraft, shall be exempt from taxation in the other Contracting State. For example, a U.S. resident would be exempt from tax by Morocco on income from the international operation of aircraft registered in the United States or in any country with which Morocco has a treaty providing exemption of income from the international operation of aircraft registered in that country. Article 9 Related persons This Article complements section 482 of the Code and confirms the authority of the United States to apply that section to transactions between United States persons and residents of Morocco. Under paragraph 1, where a resident of one of the Contracting States and a resident at the other Contracting State are related and where those related persons make arrangements 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 the person. It is anticipated that if a Contracting State makes an adjustment in accordance with paragraph 1 to the income of one of its residents, the other Contracting State will, if it accedes to the propriety of the redetermination and if it is necessary to prevent double taxation, make a corresponding adjustment to the income of the related person resident in the other Contracting State. If the other Contracting State disputes the propriety of the redetermination, it is intended that the two Contracting States will endeavor to reach agreement in accordance with the mutual agreement procedure in Article 25 (Mutual Agreement Procedure). Paragraph 2 provides that for purposes of the Convention a person is related to another person if either owns or controls directly or indirectly the other, or if a third person or persons own or control both directly or indirectly. "Control" includes any kind of control, whether or not legally enforceable, and however exercised or exercisable. Article 10 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 States. Paragraph 2, however, limits the rate of tax imposed by the first-mentioned Contracting State to a rate not in excess of fifteen percent of the gross amount actually distributed, or ten percent of the gross amount actually distributed in the case of certain dividends paid by a subsidiary to its parent corporation. The ten percent rate applies if the dividend recipient is a corporation which (a) owned at least ten percent of the outstanding shares of the voting stock of the paying corporation 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), and (b) not more than twenty-five percent of the gross income of the paying corporation for such prior taxable year (if any) consisted of interest or dividends other than interest derived from the conduct of a banking, insurance, or financing business and other than interest or dividends from subsidiary corporations of which the paying corporation owned fifty percent or more of the outstanding shares of the voting stock at the time such dividends or interest were received. The ten percent rate also applies to profits of Moroccan branches and establishments available for remittance to their U.S. home offices, as confirmed in an exchange of notes of April 17, 1981. 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 dividends are attributable to the permanent establishment and are treated as industrial or commercial profits subject to Article 7 (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 3 of Article 20 (General Rules of Taxation). Paragraph 4 provides that dividends paid by a corporation of one of the Contracting States to a person other than a resident of the other Contracting State, or, in the case of a payment by a Moroccan corporation, to a person who is neither a resident nor a citizen of the United States, shall be exempt from tax by the other Contracting State. This paragraph does not apply if the recipient of the dividends has a permanent establishment in the other Contracting State and the shares with respect to which the dividends are paid are effectively connected, within the meaning of paragraph 4(b) of Article 7, with the recipient's permanent establishment. Article 11 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 States. Paragraph 2, however, limits the tax imposed by the first-mentioned Contracting State to a rate not in excess of fifteen percent. Paragraph 6 provides an exemption for interest paid to certain Government instrumentalities. This Article is subject to the saving clause of paragraph 3 of Article 20 (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. Paragraph 3 provides that paragraph 2 will not apply if the 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 is attributable to the permanent establishment and will be treated as industrial or commercial profits of the permanent establishment subject to Article 7 (Business Profits). Paragraph 4 defines the term "interest" for purposes of the Convention as income from bonds, Government securities, or debentures, whether or not secured by mortgage 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. Paragraph 5 provides that if excessive interest payments are made between related persons, the provisions of the Article will apply only to the amount which would have been agreed upon in the absence of the relationship. The excess part of the payment shall remain taxable according to the laws of each of the Contracting States, due regard being given to the other provisions of the Convention. Paragraph 6 provides that interest received by one of the Contracting States itself, or by an instrumentality of that State which is not subject to income tax by such State, such as the U.S. Export-Import Bank and the Overseas Private Investment Corporation, shall be exempt from tax by the State of source. Article 12 Royalties Paragraph 1 provides that royalties derived from sources within one Contracting State by a resident of the other Contracting State may be taxed by both States. Paragraph 2, however, limits the tax imposed by the first-mentioned State to a rate not in excess of ten percent. This Article is subject to the saving clause of paragraph 3 of Article 20 (General Rules of Taxation). Therefore, royalties derived by a citizen of a Contracting State may be taxed by that State without regard to this Article. Paragraph 3 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 formulas, trademarks, or other like property or rights, or knowledge, experience, or skill (know-how), including the performance of accessory technical assistance for the use of such property or rights to the extent that the assistance is provided in the State where the payment has its source. The term also includes gains derived from the sale, exchange, or other disposition of any such property or rights 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 13 (Capital Gains) will apply. In addition, payments for technical and economic studies made from the public funds of the Moroccan Government in the discharge of functions of a governmental nature by the Moroccan Government or by a political subdivision or local authority thereof are defined as royalties and therefore may be profits under Article 7 (Business Profits). 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 6 (Income from Real Property). Paragraph 4 provides that paragraph 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 the permanent establishment. In such a case, the royalty will be attributable to the permanent establishment and will be treated as industrial or commercial profits subject to Article 7 (Business Profits). 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. For example, the excessive portion may be treated as a dividend or interest, or in whatever other manner is appropriate according to the law of the State of source. As noted under paragraph 3 of Article 6 (Source of Income), royalties described in paragraph 3, 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 3 within that Contracting State. Article 13 Capital gains Under paragraph 1, a resident of one of the Contracting States is taxable on gains from the sale or exchange of capital assets only in the State of which he is a resident. There are, however, three circumstances in which a resident of one of the Contracting States will be taxable in the other Contracting State. These are set forth in paragraph 2. Under paragraph 2(a), the gain realized by a resident of one of the Contracting States from the sale or exchange of property described in Article 6 (Income from Real Property) located within the other Contracting State, or from the disposition of shares or comparable interests in a corporation or cooperative whose assets consist principally of such property, is taxable in the Contracting State in which the property is situated. Under paragraph 2(b), if the recipient of the gain is a resident of one Contracting State who has a permanent establishment in the other Contracting State, and if the gain is effectively connected with the permanent establishment, then the gain may be taxed by the State in which the permanent establishment is situated. See paragraph 4(b) of Article 7 for a discussion of what constitutes income "effectively connected" with a permanent establishment. Under paragraph 3, the provisions of Article 7 apply to gains described in paragraph 2(b). Under paragraph 2(c), if an individual resident of one of the Contracting States maintains a fixed base in the other Contracting State and the gain is effectively connected with that fixed base, or if the individual is present in that other State for a period or periods exceeding in the aggregate 183 days during a taxable year, the gain is taxable by that other State. 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. Article 14 Independent personal services In dealing with the taxation of income from personal services, the Convention distinguishes between "independent" and "dependent" personal services. Under paragraph 1 of this Article, 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 provided in paragraph 2 (or in the "saving" clause of paragraph 3 of Article 20), such income will be exempt from tax by the other Contracting State. Under paragraph 2, income derived from performing independent personal services in the other Contracting State may be taxed by that other Contracting State if any of three conditions is met: (1) the individual is present therein for a period or periods aggregating 183 days or more in the taxable year; or (2) the individual maintains a fixed base therein for a period or periods aggregating 90 days or more in the taxable year (but only on the income attributable to the fixed base); or (3) the gross amount of such income exceeds $5,000 or its equivalent in Moroccan dirhams for the year. The term "fixed base" is not defined but is intended to be analogous to a "permanent establishment" (see Article 4). Paragraph 3 defines “personal services in an independent capacity” to mean all activities - other than commercial, industrial, or agricultural activities - 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. Commercial, industrial or agricultural activities carried on by a sole proprietor are covered by Article 7 (Business Profits). Article 15 Dependent personal services Paragraph 1 provides that 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 State and, if for services performed in the other State, may also be taxed by that other State subject to the exceptions in paragraph 2 and to the provisions of Articles 17 (Government Functions) and 18 (Students and Trainees). The term “wages, salaries and similar remuneration” includes income for services performed as an officer of a corporation, but not income for services as a member of the board of directors; the latter is covered under Article 14 (Independent Personal Services). 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 three conditions are met: (a) the individual is present in the other 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; and (c) the remuneration is not borne as a deduction by a permanent establishment which the employer has in the other Contracting State. Such income may nevertheless be taxed by the other Contracting State if the individual is a citizen of that Contracting State, because of paragraph 3 of Article 20 (General Rules of Taxation). Paragraph 3 provides a special rule, which overrides paragraph 2, that remuneration derived by an individual for performing 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 3 of Article 20 (General Rules of Taxation) so that the other Contracting State may tax a citizen or resident of that State without regard to this paragraph. Article 16 Artistes and athletes Notwithstanding the provisions of Articles 14 (Independent Personal Services) and 15 (Dependent Personal Services), the remuneration of professional entertainers and athletes may be taxed by the Contracting State where the services are performed without any threshold period of time spent in that State or amount of income received for the services performed there. However, paragraph 3 provides an exception for nonprofit organizations and their members (unless the members are acting on their own account). Thus, income from services performed in Morocco by a U.S. orchestra, ballet or theater group which qualifies as a nonprofit organization under section 501(c)(3) of the Internal Revenue Code would not be taxable by Morocco under this Article but under the provisions of Articles 14 (Independent Personal Services) or 15 (Dependent Personal Services) as appropriate. Paragraph 2 provides that when income from the performing personal services by an entertainer or athlete is attributed to another person, that income may be taxed by the Contracting State where the services are performed without regard to the threshold conditions provided in Articles 7 (Business Profits), 14 (Independent Personal Services) and 15 (Dependent Personal Services). Although worded more broadly, this provision is intended to reach abuse situations where the personal service income of an entertainer or athlete is diverted to another person to avoid tax. The drafting and interpretation are consistent with that of the OECD Model of January 1977 (see Article 17 and paragraph 4 of the commentary on that Article). Article 17 Governmental functions Under this Article remuneration, including pensions or similar benefits, paid by or from public funds of a Contracting State to an employee who is a citizen of that State for personal services performed in the discharge of governmental functions for that State or a political subdivision will be exempt from tax by the other Contracting State. The exemption does not extend to income for services of a commercial nature. The determination of what functions are governmental in nature may be made by comparison with the concept of a governmental function in the State where the income arises. Nor does it extend to employees of a Contracting State who are citizens of the other State or of a third State. If the individual becomes a citizen of, or acquires immigrant status in, the other Contracting State, that other State may tax the individual without regard to this Article. See paragraphs 3 and 4 of Article 20 (General Rules of Taxation). Article 18 Students and trainees This Article provides an exemption from tax by a Contracting State of certain income of visiting students and trainees from the other Contracting State. Paragraph 1(a) specifies the conditions under which an individual may claim the benefits of the Article and paragraph 1(b) specifies the exempt amounts. This Article applies to an individual who is a resident of one Contracting State at the time he becomes temporarily present in the other Contracting State and whose primary purpose for going to the other State is to study at a university or other recognized educational institution in that other State, or to secure training required to qualify him to practice a profession or professional specialty, or to study or do research as a recipient of a grant, allowance, or award from a governmental, religious, charitable, scientific, literary, or educational organization. Such an individual may be exempt from tax by that other State for a period not exceeding five taxable years from the date of his arrival in that State on: (1) Gifts 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 Moroccan dirhams for any taxable year. These exemptions are in addition to the amounts allowed by statute as personal exemptions or allowable itemized deductions. A nonresident alien is only allowed one personal exemption and may not take advantage of the zero bracket amount. The benefits conferred by the host State under this Article are not subject to the saving clause of paragraph 3 of Article 20 (General Rules of Taxation), with respect to individuals who are neither citizens of, nor have immigrant status in, that State. In other cases, the saving clause does apply. Article 19 Private pensions and annuities Except as provided in Article 17 (Governmental Functions), pensions and other similar remuneration paid to an individual who is a resident of a Contracting State in consideration of past employment are taxable only by that 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 by the first-mentioned State. Similarly, paragraph 2 provides that alimony and annuities paid to an individual resident of a Contracting State are taxable only by that 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. It does not include social security payments. Morocco may, therefore, tax residents of Morocco on their U.S. social security benefits (subject to a credit under Article 21 (Relief from Double Taxation) if there were a U.S. tax at source on such payments). 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. A payment which would not be taxable to the recipient under the laws of the Contracting State in which the recipient is a resident would not be treated as alimony for purposes of this Article, and therefore would be taxable at source in accordance with the laws of the Contracting States and in accordance with paragraph 1 of Article 20 (General Rules of Taxation). The Article does not apply to child support payments, which are therefore taxable at source in accordance with paragraph 1 of Article 20 (General Rules of Taxation). This Article is subject to the “saving” clause of paragraph 3 of Article 20 (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 20 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 of income is determined according to the rules contained in Article 5 (Source of Income). 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. Thus, a Contracting State may not impose tax solely by virtue of the Convention if it does not impose a tax, in such cases, under its domestic law. Paragraph 2 does not, however, authorize a taxpayer to make inconsistent choices between rules of the Code and rules of the Convention. In no event are the rules of the Convention to increase overall U.S. tax liability above what liability would be if there were no Convention. Paragraph 3 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 Residence)) as if the Convention had not come into effect. However, under paragraph 4, 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, or the mutual agreement procedure. Moreover, the saving clause does not affect the benefits conferred by the Convention on students and trainees, and on individuals performing governmental functions, who are neither citizens of, nor have immigrant status tn, the Contracting State imposing the tax. In the case of the United States, "immigrant status" means the status of having been admitted to the United States for permanent residence. Paragraph 5 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, a Moroccan corporation will be exempt from the personal holding company tax in any taxable year if all of its stock is owned by one or more individuals who are residents of Morocco for that entire year. In addition, a Moroccan 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. 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 exists under section 7805 of the Code. Paragraph 7 provides that where, pursuant to any provision of the Convention, a Contracting State is required to reduce its rate of tax on, or to exempt, income of a resident of the other Contracting State, and where, under the law in force in that other State, the resident is subject to tax only upon income remitted to or received in that State, then the required rate of reduction of exemption shall apply only with respect to the income subject to taxation in that State. Article 21 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 income tax the appropriate amount of income taxes paid to Morocco. The Moroccan taxes covered in paragraphs 1(b) and 2 of Article 1 (Taxes Covered) are considered creditable income taxes for this purpose. The appropriate amount is based upon the amount actually paid to Morocco, but is not to exceed the portion of United States tax which the citizen's or resident's net income from sources within Morocco bears to his entire net income for the taxable year. As long as the Internal Revenue Code authorizes an overall limitation on the foreign tax credit the taxpayer may elect that limitation if it is more beneficial. However, if the taxpayer chooses the treaty credit for an otherwise non-creditable payment (e.g., the compulsory investment in equipment bonds) he must use the per-country limitation provided by the Convention. Paragraph 2 provides that for purposes of computing the appropriate amount of taxes paid to Morocco, a citizen or resident of the United States who receives income or dividends from Morocco may elect to include in the computation of Moroccan taxes paid the amount the citizen or resident was required to invest in Moroccan equipment bonds under, Article 37 of the Royal Decree No. 1.010-65 of the 8th Ramadan 1385 (December 31, 1965) containing the Finance Law for the year 1966. The amount required to be invested in such bonds is generally fifty percent for industrial companies and eighty percent for other companies (e.g., services and trade) or eight percent of taxable income for purposes of the corporate income tax and the urban property tax; i.e., four percent or six point four percent of taxable income. That amount must be invested in nonnegotiable 10 year bonds which pay interest at five percent. The Article provides that, in order to include these amounts, the citizen or resident must agree that any repayment by the Moroccan Government of such bonds would be treated as a refund of Moroccan taxes for the year of repayment. An exchange of notes of October 25, 1979 confirms that, with respect to a U.S. taxpayer who elects to include an amount invested in Moroccan equipment bonds in his Moroccan tax for which foreign tax credit is claimed, interest paid on the bonds net of any Moroccan tax on such interest will belong to the U.S. Government, in accordance with section 905(c) of the Internal Revenue Code. The Treasury Department will issue regulations implementing this provision. Under paragraph 3, Morocco will allow a citizen or resident of Morocco a credit against Moroccan income tax the appropriate amount of income taxes paid to the United States. This appropriate amount is to be based upon the amount of tax paid to the United States but is not to exceed the portion of the Moroccan tax which the citizen's or resident's net income from sources within the United States bears to his entire net income for the taxable year. Article 22 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 Morocco 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. 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 allowances, 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 a Contracting State from subjecting to more burdensome taxation or related requirements a corporation of that State, the capital of which is wholly or partly owned or controlled, directly or indirectly, by 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 State carrying on the same activities, the capital of which are wholly or partly owned or controlled by one or more residents of the first-mentioned Contracting State. The provisions of this Article do not override the right of the United States to impose the tax provided in Code section 897 (relating to gains derived by nonresident aliens or foreign corporations from U.S. real property interests). Article 23 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 20 (General Rules of Taxation). Article 24 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 State will not be entitled to the benefits of Articles 10 (Dividends), 11 (Interest), 12 (Royalties) or 13 (Capital Gains) if, by reason of special measures, the tax imposed on such corporation by the first-mentioned 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 Moroccan corporation, who are not 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 such a case, in the absence of this Article, residents of third countries could organize a corporation in that Contracting State for the purpose of making investments in the other Contracting State and realize unintended benefits of treaty rate reductions. Existing Code rules with respect to the taxation of capital gains do not make this provision applicable with respect to capital gains. Article 25 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 State of which he is a resident. 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 to avoid 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; 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. This result is confirmed in the exchange of notes of October 25, 1979. Article 26 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 carrying out the provisions of the Convention and of the domestic laws of the Contracting States concerning taxes covered by the Convention. Any information so exchanged is required to be treated as secret, and may not be disclosed to persons other than those (including a court or administrative body) concerned with assessment, collection, enforcement, or prosecution in respect of the taxes which are the subject of the Convention. Under paragraph 2, paragraph 1 is not to be construed so as to impose upon one of the Contracting States the obligation to carry out administrative measures at variance with its own laws or administrative practice; to supply particulars which are not obtainable under the laws, or in the normal course of the administration of that Contracting State or of the other Contracting State; or to supply information which would disclose any trade, business, industrial, commercial, or professional secret or trade process, or information, the disclosure of which would be contrary to public policy. Under paragraph 3, 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 a list of items of information to be furnished on a routine basis. For example, information on tax withheld at the source on payments to recipients in the other Contracting State may be routinely furnished to that State. The Article authorizes a Contracting State to obtain information for the other State, even if there is no tax liability in the State which is requested to obtain the information. Paragraphs 4 and 5 provide that the competent authorities will transmit to each other at least once a year amendments to the tax laws referred to in paragraph 1 of Article 1 (Taxes Covered), adopted taxes referred to in paragraph 2 to that Article, or 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. For example, they would apply on the U.S. side to the Federal estate and gift tax provisions. Article 27 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, Morocco, 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 Morocco or the United States, reference to "Morocco" 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 Morocco of the Convention under Article 29 (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 Morocco. Article 28 Entry into force Under paragraph 1, the Convention is to be ratified and instruments of ratification are to be exchanged as soon as possible after ratification at Washington, D.C. Under paragraph 2, the Convention will enter into force upon the exchange of instruments of ratification, and will apply to taxes due at the source on income payable or paid on and after the first day of the month following the exchange of instruments of ratification, and to all other taxes for taxable years beginning on or after the first day of January of the year of ratification. Article 29 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 on which the Convention enters into force. In order to terminate the Convention, a Contracting State must notify the other Contracting State in writing submitted through diplomatic channels of its intention to terminate the Convention before June 30th of any calendar year. In the event a Contracting State so notifies the other Contracting State, the Convention will apply for the last time to taxes due at the source on income payable or paid not later than December 31 of the year in which termination occurs, and to other taxes imposed on income for taxable periods ending not later than December 31 of the year in which termination occurs. Exchanges of notes A note accompanying the Convention and signed at the same time expresses the concern of the Moroccan Government at the absence in the Convention of a "tax sparing" credit by the United States and an agreement by the United States to resume discussions on this point if the Senate approves such a provision for another country An exchange of notes signed on October 25, 1979 by Mr. Alaoui Medaghri, Director of the Tax Division of the Ministry of Finance of Morocco and Mr. Donald Lubick, then Assistant Secretary for Tax Policy of the U.S. Treasury clarifies the treatment of interest paid on Moroccan equipment bonds under Article 21(2) and states that solutions to claims of double taxation reached under the mutual agreement procedure in accordance with Article 25(1) will be implemented notwithstanding statutory time limits. A note signed on April 17, 1981 by Mr. Alaoui Medaghri, Director of the Tax Division of the Ministry of Finance of Morocco and Mr. John Redecker, then Economic Counselor of the U.S. Embassy at Rabat, Morocco, explains that the Moroccan branch profits tax applicable to profits of Moroccan branches of U.S. companies is subject to the ten percent limitation provided in Article 10(2)(b) with respect to parent-subsidiary dividends.
