the signing today of the Convention between the Government of the United States of America and the Government of the Republic of Kazakhstan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital, the undersigned have agreed upon the following provisions, which shall form an integral part of the Convention:
1. With regard to Article 5,
It is understood that a fixed place of business through which a resident of a Contracting State carries on business in the other Contracting State constitutes a permanent establishment, whether or not such place of business is owned by the resident. For example, the operation of a mine, an oil or gas well, a quarry or any other place of extraction of natural resources constitutes a permanent establishment of the operator, without regard to whether the operator owns the property from which the natural resources are extracted.
2. With regard to Article 10,
(a) In the case of dividends from a United States Regulated Investment Company, subparagraph (b), and not subparagraph (a) of paragraph 2 shall apply. In the case of dividends from a United States Real Estate Investment Trust, the rate of withholding applicable under domestic law shall apply.
(b) The term dividend equivalent amount, as used in paragraph 5, refers to the portion of the profits of a permanent establishment subject to a tax under Article 6 (Business Profits), or that portion of the profits of a resident of one State subject to tax on a net basis in the other State under paragraph 4 of Article 9 (Income from Real Property), paragraphs 2 and 3(b) of Article 12 (Royalties), or paragraphs 1 or 2 of Article 13 (Gains), that is comparable to the amount that would be distributed as a dividend if such income were earned by a locally incorporated subsidiary. In the case of the United States, the term dividend equivalent amount shall have the same meaning that it has under the law of the United States as it may be amended from time to time without changing the general principle of this paragraph 2(b) of the Protocol.
3. With regard to Article 11,
a) If Kazakhstan agrees in a treaty with another country which is a member of the Organization for Economic Cooperation and Development to impose a lower rate on interest than the rate specified in paragraph 2, both Contracting States shall apply that lower rate instead of the rate specified in paragraph 2.
b) For purposes of paragraph 3 (b), the agencies and instrumentalities referred to shall be the Export-Import Bank and the Overseas Private Investment Corporation of the United States and similar agencies of either Contracting State as may be agreed upon in future by the competent authorities. The provisions of this paragraph shall apply provided that the lender does not have a right of recourse for payment of principal or interest to any person other than the borrower or a governmental body in the country of the borrower.
c) Notwithstanding the provisions of paragraph 1, the United States may tax an excess inclusion with respect to a Real Estate Mortgage Interest Conduit (REMIC) in accordance with its domestic law.
d) Where a resident of Kazakhstan conducts business in the United States through a permanent establishment in the United States or derives income subject to tax in the United States on a net basis by reason of paragraph 4 of Article 9 (Income from Real Property), paragraphs 2 and 3(b) of Article 12 (Royalties), paragraphs 1 or 2 of Article 13 (Gains), or Article 14 (Independent Personal Services), the excess interest amount shall be the excess if any, of
(i) interest borne by the permanent establishment or trade or business subject to tax on a net basis in the United States, over
(ii) the interest paid by such permanent establishment or trade or business subject to tax on a net basis. Where a resident of the United States conducts business in Kazakhstan through a permanent establishment in Kazakhstan or derives income subject to tax in Kazakhstan on a net basis by reason of paragraph 4 of Article 9 (Income from Real Property), paragraphs 2 and 3(b) of Article 12 (Royalties), paragraph 1 or 2 of Article 13 (Gains), or Article 14 (Independent Personal Services), the excess interest amount shall be the amount of interest expense that is deductible in computing the resident’s profits attributable to the permanent establishment in Kazakhstan or to the trade or business subject to tax in Kazakhstan on a net basis and that is comparable to the meaning of excess interest amount in the preceding sentence.
4. With regard to Articles 10, 11 and 12,
Taxes may be withheld at the source in a Contracting State at the rates provided by domestic law, but any excess amount will be refunded in a timely manner on application by the taxpayer if the right to collect the said taxes is waived or limited by the provisions of the Convention.
5. Regarding Articles 9 and 12,
Where a resident of a Contracting State elects to Compute the tax due under Article 9 or 12 on a net basis, as provided for in those articles, the competent authorities of each Contracting State may adopt reasonable rules for the determination and reporting of taxable income. Each competent authority may also adopt procedures to ensure that a person deriving such income provides books and records as necessary to determine the proper amount of the tax.
6. With regard to paragraph 3 of Article 13,
If either Contracting State introduces such a tax, it shall inform the other Contracting State in a timely manner, and agrees to consult with that other State as to whether it is appropriate to amend the treaty to provide non-recognition treatment in certain cases.
7. With regard to Article 21,
In the United States, the term officially recognized securities exchange means the NASDAQ System owned by the National Association of Securities Dealers, Inc., and any stock exchange registered with the Securities Exchange Commission as a national securities exchange for purposes the Securities Exchange Act of 1934.
8. With regard to Article 23,
a) It is understood that in the case of an individual resident in Kazakhstan who is also a citizen of the United States, the credit required to be granted against Kazakhstan tax on income shall include a credit for the income tax paid by such individuals to the United States imposed solely by reason of citizenship, subject only to a limitation of such credit to Kazakhstan tax on income from all sources outside Kazakhstan.
b) The Republic of Kazakhstan confirms that in computing the taxes on profits and income under current law, an entity that is a resident of Kazakhstan and is a joint venture with participation by residents of the United States or which is wholly owned by residents of the United States, or a permanent establishment (subject to the provisions of Article 6), is permitted deductions for actual wages paid and for interest expense whether or not paid to a bank and without regard to the term of the debt. The deduction may not exceed the limitation under Kazakh tax law, as long as the limitation is not less than an arm’s length rate taking into account a reasonable risk premium.
c) It is understood that income tax paid by a Kazakh person which is treated as a partnership under U.S. Federal income tax rules shall be treated for purposes of this Article as paid by the U.S. partner, pursuant to the rules of the Internal Revenue Code.
d) Both sides agree that a tax sparing credit shall not be provided in Article 25 (Relief from Double Taxation) of the Convention at this time. However, the Convention shall be promptly amended to incorporate a tax sparing credit provision if the United States hereafter amends its laws concerning the provision of tax sparing credits, or the United States reaches agreement on the provision of a tax sparing credit with any other country.
9. With regard to Article 25,
When the competent authority of one of the Contracting States considers that the law of the other Contracting State is or may be applied in a manner that eliminates or significantly limits a benefit provided by the Convention, that State shall inform the other Contracting State in a timely manner and may request consultations with a view to restoring the balance of benefits of the Convention. If so requested, the other State shall begin such consultations within three months of the date of such request.
If the Contracting States are unable to agree on the way in which the Convention should be modified to restore the balance of benefits, the affected State may terminate the Convention in accordance with the procedures of paragraph 1, notwithstanding the five year period referred to in that paragraph, or take such other action regarding this Convention as may be permitted under the general principles of international law.
10. With regard to Article 28,
Where any legal rules applicable as of the dates of entry into force of this Convention provided greater benefits with respect to taxation than are provided under this Convention, the taxpayer may elect to apply those rules, in their entirety, for the first taxable year with respect to which the provisions of this Convention would otherwise have effect under paragraph 2
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