CONVENTION BETWEEN

THE GOVERNMENT OF THE UNITED STATES OF AMERICA

AND

THE GOVERNMENT OF THE ITALIAN REPUBLIC

FOR THE AVOIDANCE OF DOUBLE TAXATION

WITH RESPECT TO TAXES ON INCOME

AND THE PREVENTION OF FRAUD OR FISCAL EVASION

The Government of the United States of America and the

Government of the Italian Republic, desiring to conclude a

Convention for the avoidance of double taxation with respect to

taxes on income and the prevention of fraud or fiscal evasion,

have agreed as follows: 

ARTICLE 1

Personal Scope

1. Except as otherwise provided in this Convention, this

Convention shall apply to persons who are residents of one or

both of the Contracting States. 

2. Notwithstanding any provision of this Convention except

paragraph 3 of this Article, a Contracting State may tax: 

(a) its residents (as determined under Article 4

(Resident); and 

(b) its citizens by reason of citizenship 

as if there were no convention between the Government of the

United States of America and the Government of the Italian

Republic for the avoidance of double taxation with respect to

taxes on income and the prevention of fraud or fiscal evasion. 

3. The provisions of paragraph 2 shall not affect: 

(a) the benefits conferred by a Contracting State

under paragraph 2 of Article 9 (Associated Enterprises),

paragraphs 5 and 6 of Article 18 (Pensions, Etc.), and

under Articles 23 (Relief from Double Taxation), 24

(Non-Discrimination), and 25 (Mutual Agreement Procedure);

and
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(b) the benefits conferred by a Contracting State

under Articles 19 (Government Service), 20 (Professors and

Teachers), 21 (Students and Trainees), and 27 (Diplomatic

Agents and Consular Officials), upon individuals who are

neither citizens of, nor have immigrant status in, that

State. 

ARTICLE 2

Taxes Covered

1. This Convention shall apply to taxes on income imposed

on behalf of a Contracting State. 

2. The existing taxes to which this Convention shall apply

are: 

(a) in the case of the United States: the Federal

income taxes imposed by the Internal Revenue Code (but

excluding social security taxes), and the Federal excise

taxes imposed on insurance premiums paid to foreign

insurers and with respect to private foundations

(hereinafter referred to as "United States tax");

(b) in the case of Italy: 

(i) the individual income tax (l'imposta sul

reddito delle persone fisiche); 

(ii) the corporation income tax (l'imposta sul

reddito delle persone giuridiche); and

(iii) the regional tax on productive activities

(l'imposta regionale sulle attività produttive), but

only that portion of such tax that is considered to be

an income tax pursuant to paragraph 2(c) of Article 23

(Relief from Double Taxation);

even if they are collected by withholding taxes at the

source (hereinafter referred to as "Italian tax"). 

3. The Convention shall apply also to any identical or

substantially similar taxes which are imposed by a Contracting

State after the date of signature of this Convention in addition
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to, or in place of, the existing taxes. The competent

authorities of the Contracting States shall notify each other of

any significant changes which have been made in their respective

taxation laws and shall transmit to each other any significant

official published material concerning the application of this

Convention, including explanations, regulations, rulings, or

judicial decisions. 

ARTICLE 3 

General Definitions

1. For the purposes of this Convention, unless the context

otherwise requires: 

(a) the term "person" includes an individual, a

company, an estate, a trust, a partnership, and any other

body of persons; 

(b) the term "company" means any body corporate or any

entity which is treated as a body corporate for tax

purposes; 

(c) the terms "enterprise of a Contracting State" and

"enterprise of the other Contracting State" mean

respectively an enterprise carried on by a resident of a

Contracting State and an enterprise carried on by a

resident of the other Contracting State;

(d) the term "international traffic" means any

transport by a ship or aircraft, except where such

transport is solely between places in the other Contracting

State; 

(e) the term "competent authority" means: 

(i) in the United States: the Secretary of the

Treasury or his delegate; and 

(ii) in Italy: the Ministry of Finance; 

(f) the term "United States" means the United States

of America, and includes the states thereof and the

District of Columbia; such term also includes the
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territorial sea thereof and any area beyond the territorial

sea which is designated as an area within which the United

States, in compliance with its legislation and in

conformity with international law, exercises sovereign

rights in respect of the exploration and exploitation of

the natural resources of the seabed, the subsoil and the

superjacent waters; the term, however, does not include

Puerto Rico, the Virgin Islands, Guam or any other United

States possession or territory;

(g) the term "Italy" means the Italian Republic and

includes any area beyond the territorial sea which is

designated as an area within which Italy, in compliance

with its legislation and in conformity with international

law, exercises sovereign rights in respect of the

exploration and exploitation of the natural resources of

the seabed, the subsoil and the superjacent waters;

(h) the term "nationals" means: 

(i) all individuals possessing the citizenship of

a Contracting State; and 

(ii) all legal persons, partnerships, and

associations deriving their status as such from the

law in force in a Contracting State. 

(i) the term "qualified governmental entity" means:

(i) any person or body of persons that

constitutes a governing body of a Contracting State,

or of a political or administrative subdivision or

local authority of a Contracting State;

(ii) a person that is wholly owned, directly or

indirectly, by a Contracting State or a political or

administrative subdivision or local authority of a

Contracting State, provided (A) it is organized under

the laws of the Contracting State, (B) its earnings

are credited to its own account with no portion of its

income inuring to the benefit of any private person,

and (C) its assets vest in the Contracting State,

political or administrative subdivision or local authority upon dissolution; and
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(iii) a pension trust or fund of a person described in subparagraph (i) or (ii) that is

constituted and operated exclusively to administer or

provide pension benefits described in Article 19

(Government Service);

provided that an entity described in subparagraph (ii) or

(iii) does not carry on commercial activities.

2. As regards the application of this Convention by a

Contracting State any term not defined therein shall, unless the

context otherwise requires, have the meaning which it has under

the laws of that State concerning the taxes to which this

Convention applies. 

ARTICLE 4

Resident

1. For purposes of this Convention, the term "resident of a

Contracting State" means any person who, under the laws of that

State, is liable to tax therein by reason of his domicile,

residence, place of management, place of incorporation, or any

other criterion of a similar nature, provided, however, that:

(a) this term does not include any person who is

liable to tax in that State in respect only of income from

sources in that State; and 

(b) in the case of income derived or paid by a

partnership, estate, or trust, this term applies only to

the extent that the income derived by such partnership,

estate, or trust is subject to tax in that State, either in

its hands or in the hands of its partners or beneficiaries.

2. Where by reason of the provisions of paragraph 1 an

individual is a resident of both Contracting States, then his

status shall be determined as follows: 

(a) he shall be deemed to be a resident of the State

in which he has a permanent home available to him; if he

has a permanent home available to him in both States, he

shall be deemed to be a resident of that State with which
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his personal and economic relations are closer (center of

vital interests); 

(b) if the State in which he has his center of vital

interests cannot be determined, or if he has not a

permanent home available to him in either State, he shall

be deemed to be a resident of the State in which he has an

habitual abode; 

(c) if he has an habitual abode in both States or in

neither of them, he shall be deemed to be a resident of the

State of which he is a national; 

(d) if he is a national of both States or neither of

them, the competent authorities of the Contracting States

shall settle the question by mutual agreement. 

3. Where by reason of the provisions of paragraph 1 a

person other than an individual is a resident of both

Contracting States, the competent authorities of the Contracting

States shall by mutual agreement endeavor to settle the question

and to determine the mode of application of the Convention to

such person. 

ARTICLE 5 

Permanent Establishment

1. For the purposes of this Convention, the term "permanent

establishment" means a fixed place of business in which the

business of the enterprise is wholly or partly carried on. 

2. The term "permanent establishment" shall include

especially: 

(a) a place of management; 

(b) a branch; 

(c) an office; 

(d) a factory; 

(e) a workshop; 

(f) a mine, quarry, or other place of extraction of

natural resources; and 

(g) a building site or construction or assembly

project which exists for more than twelve months; 
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3. The term "permanent establishment" shall be deemed not

to include: 

(a) the use of facilities solely for the purpose of

storage, display, or delivery of goods or merchandise

belonging to the enterprise; 

(b) the maintenance of a stock of goods or merchandise

belonging to the enterprise solely for the purpose of

storage, display, or delivery; 

(c) the maintenance of a stock of goods or merchandise

belonging to the enterprise solely for the purpose of

processing by another enterprise; 

(d) the maintenance of a fixed place of business

solely for the purpose of purchasing goods or merchandise,

or for collecting information, for the enterprise; 

(e) the maintenance of a fixed place of business

solely 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 enterprise. 

4. A person acting in a Contracting State on behalf of an

enterprise of the other Contracting State -- other than an agent

of an independent status to whom paragraph 5 applies -- shall be

deemed to be a permanent establishment in the first-mentioned

State if he has, and habitually exercises in that State, an

authority to conclude contracts in the name of the enterprise,

unless his activities are limited to the purchase of goods or

merchandise for the enterprise. 

5. An enterprise of a Contracting State shall not be deemed

to have a permanent establishment in the other Contracting State

merely because it carries on business in that other State

through a broker, general commission agent, or any other agent

of an independent status, where such persons are acting in the

ordinary course of their business as independent agents. 

6. The fact that a company which is a resident of a

Contracting State controls or is controlled by a company which

is a resident of the other Contracting State, or which carries

on business in that other State (whether through a permanent
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establishment or otherwise), shall not of itself constitute

either company a permanent establishment of the other.

ARTICLE 6 

Income from Immovable Property

1. Income derived by a resident of a Contracting State from

immovable property, including income from agriculture or

forestry, situated in the other Contracting State may be taxed

in that other State. 

2. The term "immovable property" ("real property") shall

have the meaning which it has under the law of the Contracting

State in which the property in question is situated. The term

shall in any case include property accessory to immovable

property, livestock and equipment used in agriculture and

forestry, and rights to which the provisions of general law

respecting landed property apply. Usufruct of immovable property

and rights to variable or fixed payments as consideration for

the working of, or the right to work, mineral deposits, sources,

and other natural resources shall also be considered immovable

property; ships, boats, and aircraft shall not be regarded as

immovable property. 

3. The provisions of paragraph 1 shall apply to income

derived from the direct use, letting, or use in any other form

of immovable property. 

4. The provisions of paragraphs 1 and 3 shall also apply to

the income from immovable property of an enterprise and to

income from immovable property used for the performance of

independent personal services. 

ARTICLE 7 

Business Profits

1. The profits of an enterprise of a Contracting State

shall be taxable only in that State unless the enterprise

carries on business in the other Contracting State through a

permanent establishment situated therein. If the enterprise

carries on business as aforesaid, the profits of the enterprise
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may be taxed in the other State but only so much of them as is

attributable to that permanent establishment. 

2. Subject to the provisions of paragraph 3, where an

enterprise of a Contracting State carries on business in the

other Contracting State through a permanent establishment

situated therein, there shall in each Contracting State be

attributed to that permanent establishment the profits which it

might be expected to make if it were a distinct and separate

enterprise engaged in the same or similar activities under the

same or similar conditions and dealing wholly independently with

the enterprise of which it is a permanent establishment and

other associated enterprises. 

3. In determining the profits of a permanent establishment,

there shall be allowed as deductions expenses that are

attributable to the activities of the permanent establishment,

including a reasonable allocation of executive and general

administrative expenses, whether incurred in the State in which

the permanent establishment is situated or elsewhere. 

4. No profits shall be attributable to a permanent

establishment by reason of the mere purchase by that permanent

establishment of goods or merchandise for the enterprise. 

5. For the purposes of the preceding paragraphs, the

profits to be attributed to the permanent establishment shall be

determined by the same method year by year unless there is good

and sufficient reason to the contrary. 

6. In applying paragraphs 1 and 2 of Article 7 (Business

Profits), paragraph 4 of Article 10 (Dividends), paragraph 5 of

Article 11 (Interest), paragraph 5 of Article 12 (Royalties),

paragraph 2 of Article 13 (Capital Gains), Article 14

(Independent Personal Services) and paragraph 2 of Article 22

(Other Income), any income or gain attributable to a permanent

establishment or fixed base during its existence is taxable in

the Contracting State where such permanent establishment or

fixed base is situated even if the payments are deferred until

after such permanent establishment or fixed base has ceased to

exist.

7. Where profits include items of income which are dealt

with separately in other Articles of this Convention, then the

provisions of those Articles shall not be affected by the

provisions of this Article.
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ARTICLE 8 

Shipping and Air Transport

1. Profits of an enterprise of a Contracting State from the

operation in international traffic of ships or aircraft shall be

taxable only in that State. 

2. The provisions of paragraph 1 shall also apply to

profits derived from the participation in a pool, a joint

business, or an international operating agency.

ARTICLE 9 

Associated Enterprises

1. Where: 

(a) an enterprise of a Contracting State participates

directly or indirectly in the management, control, or

capital of an enterprise of the other Contracting State; or 

(b) the same persons participate directly or

indirectly in the management, control, or capital of an

enterprise of a Contracting State and an enterprise of the

other Contracting State, 

and in either case conditions are made or imposed between the

two enterprises in their commercial or financial relations which

differ from those which would be made between independent

enterprises, then any profits which would, but for those

conditions, have accrued to one of the enterprises, but, by

reason of those conditions, have not so accrued, may be included

in the profits of that enterprise and taxed accordingly. 

2. Where a Contracting State includes in the profits of an

enterprise of that State - and taxes accordingly - profits on

which an enterprise of the other Contracting State has been

charged to tax in that other State and the profits so included

are profits which would have accrued to the enterprise of the

first-mentioned State if the conditions made between the two

enterprises had been those which would have been made between
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independent enterprises, then that other State shall make an

appropriate adjustment to the amount of the tax charged therein

on those profits. In determining such adjustment, due regard

shall be had to the other provisions of this Convention and, in

any case, any such adjustment shall be made only in accordance

with the mutual agreement procedure in Article 25 (Mutual

Agreement Procedure) of the Convention.

ARTICLE 10

Dividends

1. Dividends paid by a company which is a resident of a

Contracting State to a resident of the other Contracting State

may be taxed in that other State.

2. However, such dividends may also be taxed in the

Contracting State of which the company paying the dividends is a

resident and according to the laws of that State, but if the

beneficial owner of the dividends is a resident of the other

Contracting State, the tax so charged shall not exceed: 

(a) 5 percent of the gross amount of the dividends if

the beneficial owner is a company which has owned at least

25 percent of the voting stock of the company paying the

dividends for a 12 month period ending on the date the

dividend is declared; and

(b) 15 percent of the gross amount of the dividends in

all other cases. 

This paragraph shall not affect the taxation of the company in

respect of the profits out of which the dividends are paid. 

3. The term "dividends" as used in this Article means

income from shares, "jouissance" shares or "jouissance" rights,

mining shares, founder's shares, or other rights, not being

debt-claims, participating in profits, as well as income which

is subjected to the same taxation treatment as income from

shares by the laws of the State of which the company making the

distribution is a resident. 

4. The provisions of paragraphs 1 and 2 shall not apply if

the beneficial owner of the dividends, being a resident of a
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Contracting State, carries on business in the other Contracting

State, of which the company paying the dividends is a resident,

through a permanent establishment situated therein, or performs

in that other State independent personal services from a fixed

base situated therein, and the holding in respect of which the

dividends are paid is effectively connected with such permanent

establishment or fixed base. In such case, the dividends are

taxable in that other Contracting State according to its own

laws.

5. Where a company which is a resident of a Contracting

State and not a resident of the other Contracting State derives

profits or income from the other Contracting State, that other

State may not impose any tax on the dividends paid by the

company, except insofar as such dividends are paid to a resident

of that other State or insofar as the holding in respect of

which the dividends are paid is effectively connected with a

permanent establishment or a fixed base situated in that other

State, nor subject the company's undistributed profits to a tax

on the company's undistributed profits, except as provided in

paragraph 6, even if the dividends paid or the undistributed

profits consist wholly or partly of profits or income arising in

such other State. 

6. A corporation that is a resident of one of the States

and that has a permanent establishment in the other State or

that is subject to tax in the other State on a net basis on its

income that may be taxed in the other State under Article 6

(Income from Immovable Property) or under paragraph 1 of Article

13 (Capital Gains) may be subject in that other State to a tax

in addition to the tax allowable under the other provisions of

this Convention. Such tax, however, may be imposed on only the

portion of the business profits of the corporation attributable

to the permanent establishment and the portion of the income

referred to in the preceding sentence that is subject to tax

under Article 6 (Income from Immovable Property) or under

paragraph 1 of Article 13 (Capital Gains) that, in the case of

the United States, represents the dividend equivalent amount of

such profits or income and, in the case of Italy, is an amount

that is analogous to the dividend equivalent amount.

7. The tax referred to in paragraph 6 may not be imposed at

a rate in excess of the rate specified in paragraph 2(a).

8. Notwithstanding paragraph 2, dividends shall not be

taxed in the Contracting State of which the company paying the
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dividends is a resident if the beneficial owner of the dividends

is a resident of the other Contracting State that is a qualified

governmental entity that holds, directly or indirectly, less

than 25 percent of the voting stock of the company paying the

dividends.

9. Subparagraph (a) of paragraph 2 shall not apply in the

case of dividends paid by a United States Regulated Investment

Company (RIC) or a United States Real Estate Investment Trust

(REIT). In the case of dividends from a RIC, subparagraph (b)

of paragraph 2 shall apply. In the case of dividends paid by a

REIT, subparagraph (b) of paragraph 2 shall apply only if:

(a) the beneficial owner of the dividends is an

individual holding an interest of not more than 10 percent

in the REIT;

(b) the dividends are paid with respect to a class of

stock that is publicly traded and the beneficial owner of

the dividends is a person holding an interest of not more

than 5 percent of any class of the REIT’s stock; or

(c) the beneficial owner of the dividends is a person

holding an interest of not more than 10 percent in the REIT

and the REIT is diversified.

10. The provisions of this Article shall not apply if it

was the main purpose or one of the main purposes of any person

concerned with the creation or assignment of the shares or other

rights in respect of which the dividend is paid to take

advantage of this Article by means of that creation or

assignment.

ARTICLE 11 

Interest

1. Interest arising in a Contracting State and paid to a

resident of the other Contracting State may be taxed in that

other State. 

2. However, such interest may also be taxed in the

Contracting State in which it arises and according to the laws

of that State, but if the beneficial owner of the interest is a
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resident of the other Contracting State, the tax so charged

shall not exceed 10 percent of the gross amount of the interest. 

3. Notwithstanding paragraph 2, interest shall not be

taxed in the Contracting State in which it arises if:

(a) the interest is beneficially owned by a resident

of the other Contracting State that is a qualified

governmental entity that holds, directly or indirectly,

less than 25 percent of the capital of the person paying

the interest;

(b) the interest is paid with respect to debt

obligations guaranteed or insured by a qualified

governmental entity of that Contracting State or the other

Contracting State and is beneficially owned by a resident

of the other Contracting State;

(c) the interest is paid or accrued with respect to a

sale on credit of goods, merchandise, or services provided

by one enterprise to another enterprise; or

(d) the interest is paid or accrued in connection with

the sale on credit of industrial, commercial, or scientific

equipment.

4. The term "interest" as used in this Article means income

from Government securities, bonds, 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 assimilated to income from money lent by the

taxation law of the State in which the income arises. Income

dealt with in Article 10 (Dividends) shall not be regarded as

interest for the purposes of this Convention.

5. The provisions of paragraphs 1, 2, and 3 shall not apply

if the beneficial owner of the interest, being a resident of a

Contracting State, carries on business in the other Contracting

State in which the interest arises, through a permanent

establishment situated therein, or performs in that other State

independent personal service from a fixed base situated therein,

and the debt-claim in respect of which the interest is paid is

effectively connected with such permanent establishment or fixed

base. In such case, the interest is taxable in that other

Contracting State according to its own laws.
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6. Interest shall be deemed to arise in a Contracting State

when the payer is that State itself, a political or

administrative subdivision, a local authority, or a resident of

that State. Where, however, the person paying the interest,

whether he is a resident of a Contracting State or not, has in a

Contracting State a permanent establishment or a fixed base in

connection with which the indebtedness on which the interest is

paid was incurred, and such interest is borne by such permanent

establishment or fixed base, then such interest shall be deemed

to arise in the State in which the permanent establishment or

fixed base is situated. 

7. Where, by reason of a special relationship between the

payer and the beneficial owner or between both of them and some

other person, the amount of the interest, having regard to the

debt-claim for which it is paid, exceeds the amount which would

have been agreed upon by the payer and the beneficial owner in

the absence of such relationship, the provisions of this Article

shall apply only to the last-mentioned amount. In such case, the

excess part of the payments is taxable according to the laws of

each Contracting State, due regard being had to the other

provisions of this Convention.

8. In the case of the United States, the excess, if any,

of the amount of interest allocable to the profits of a company

resident in the other Contracting State that are either

attributable to a permanent establishment in the United States

or subject to tax in the United States under Article 6 (Income

from Immovable Property) or paragraph 1 of Article 13 (Capital

Gains) over the interest paid by that permanent establishment or

trade or business in the United States shall be deemed to arise

in the United States and be beneficially owned by a resident of

the other Contracting State. The tax imposed under this Article

on such interest shall not exceed the rate specified in

paragraph 2.

9. The provisions of this Article shall not apply if it was

the main purpose or one of the main purposes of any person

concerned with the creation or assignment of the debt-claim in

respect of which the interest is paid to take advantage of this

Article by means of that creation or assignment.
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ARTICLE 12 

Royalties

1. Royalties arising in a Contracting State and paid to a

resident of the other Contracting State may be taxed in that

other State.

2. However, such royalties may also be taxed in the

Contracting State in which they arise and according to the laws

of that State, but if the recipient of the royalties is the

beneficial owner thereof, the tax so charged shall not exceed:

(a) 5 percent of the gross amount in the case of

royalties for the use of, or the right to use, computer

software or industrial, commercial, or scientific

equipment; and

(b) 8 percent of the gross amount in all other cases.

3. Notwithstanding the provisions of paragraph 2, royalties

arising in a State and paid to a resident of the other State for

the use of, or right to use, a copyright of literary, artistic

or scientific work (excluding royalties for computer software,

motion pictures, films, tapes or other means of reproduction

used for radio or television broadcasting) shall be taxable only

in that other State if such resident is the beneficial owner

thereof.

4. The term "royalties" as used in this Article means

payments of any kind received as a consideration for the use of,

or the right to use, any copyright of literary, artistic, or

scientific work including computer software, motion pictures,

films, tapes or other means of reproduction used for radio or

television broadcasting, any patent, trademark, design or model,

plan, secret formula or process, or other like right or

property, or for the use of, or right to use, industrial,

commercial, or scientific equipment, or for information

concerning industrial, commercial, or scientific experience.

5. The provisions of paragraphs 1, 2, and 3 shall not apply

if the beneficial owner of the royalties, being a resident of a

Contracting State, carries on business in the other Contracting

State in which the royalties arise, through a permanent

establishment situated therein, or performs in that other State

independent personal services from a fixed base situated
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therein, and the right or property in respect of which the

royalties are paid is effectively connected with such permanent

establishment or fixed base. In such case, the royalties are

taxable in that other Contracting State according to its own

laws. 

6. Royalties shall be deemed to arise in a Contracting

State when the payer is that State itself, a political or

administrative subdivision, a local authority, or a resident of

that State. Where, however, the person paying the royalties,

whether he is a resident of a Contracting State or not, has in a

Contracting State a permanent establishment or a fixed base in

connection with which the obligation to pay the royalties was

incurred, and such royalties are borne by such permanent

establishment or fixed base, then such royalties shall be deemed

to arise in the State in which the permanent establishment or

fixed base is situated. Notwithstanding the preceding provisions

of this paragraph, royalties with respect to the use of, or the

right to use, rights or property within a Contracting State may

be deemed to arise within that State. 

7. Where, by reason of a special relationship between the

payer and the beneficial owner or between both of them and some

other person, the amount of the royalties, having regard to the

use, right, or information for which they are paid, exceeds the

amount which would have been agreed upon by the payer and the

beneficial owner in the absence of such relationship, the

provisions of this Article shall apply only to the

last-mentioned amount. In such case, the excess part of the

payments is taxable according to the laws of each Contracting

State, due regard being had to the other provisions of this

Convention. 

8. The provisions of this Article shall not apply if it was

the main purpose or one of the main purposes of any person

concerned with the creation or assignment of the rights in

respect of which the royalties are paid to take advantage of

this Article by means of that creation or assignment.
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ARTICLE 13 

Capital Gains

1. Gains derived by a resident of a Contracting State from

the alienation of immovable property situated in the other

Contracting State may be taxed in that other State. 

2. Gains from the alienation of movable property forming

part of the business property of a permanent establishment which

an enterprise of a Contracting State has in the other

Contracting State or of movable property pertaining to a fixed

base available to a resident of a Contracting State in the other

Contracting State for the purpose of performing independent

personal services, including such gains from the alienation of

such permanent establishment (alone or with the whole

enterprise) or of such fixed base, may be taxed in that other

State. 

3. Gains derived by an enterprise of a Contracting State

from the alienation of ships or aircraft operated by such

enterprise in international traffic or of movable property

pertaining to the operation of such ships or aircraft shall be

taxable only in that State.

4. Gains from the alienation of any property other than

that referred to in paragraphs 1, 2, and 3 shall be taxable only

in the Contracting State of which the alienator is a resident. 

ARTICLE 14 

Independent Personal Services

1. Income derived by an individual who is a resident of a

Contracting State from the performance of personal services in

an independent capacity shall be taxable only in that State

unless such services are performed in the other Contracting

State and the individual has a fixed base regularly available to

him in that other State for the purpose of performing his

activities, but only so much of the income as is attributable to

that fixed base may be taxed in that other State. 

2. The term "personal services in an independent capacity"

includes, but is not limited to, scientific, literary, artistic,
-19-

educational, and teaching activities as well as independent

activities of physicians, lawyers, engineers, architects,

dentists, and accountants. 

ARTICLE 15 

Dependent Personal Services

1. Subject to the provisions of Articles 16 (Directors'

Fees), 18 (Pensions, Etc.), 19 (Government Service), 20

(Professors and Teachers), and 21 (Students and Trainees),

salaries, wages, and other similar remuneration derived by a

resident of a Contracting State in respect of an employment

shall be taxable only in that State unless the employment is

exercised in the other Contracting State. If the employment is

so exercised, such remuneration as is derived therefrom may be

taxed in that other State. 

2. Notwithstanding the provisions of paragraph 1,

remuneration derived by a resident of a Contracting State in

respect of an employment exercised in the other Contracting

State shall be taxable only in the first-mentioned State if: 

(a) the recipient is present in the other State for a

period or periods not exceeding in the aggregate 183 days

in the fiscal year concerned; 

(b) the remuneration is paid by, or on behalf of, an

employer who is not a resident of the other State; and 

(c) the remuneration is not borne by a permanent

establishment or a fixed base which the employer has in the

other State. 

3. Notwithstanding the preceding provisions of this

Article, remuneration in respect of an employment regularly

exercised aboard a ship or aircraft operated in international

traffic by an enterprise of a Contracting State may be taxed in

that State.
-20-

ARTICLE 16

Directors' Fees

Directors' fees and other similar payments derived by a

resident of a Contracting State in his capacity as a member of

the board of directors of a company which is a resident of the

other Contracting State may be taxed in that other State. 

ARTICLE 17 

Artistes and Athletes

1. Income derived by a resident of a Contracting State as

an entertainer, such as a theatre, motion picture, radio, or

television artiste, or a musician, or as an athlete, from his

personal activities as such exercised in the other Contracting

State, which income would be exempt from tax in that other

Contracting State under the provisions of Articles 14

(Independent Personal Services) and 15 (Dependent Personal

Services), may be taxed in that other State, if:

(a) the amount of the gross receipts derived by such

entertainer or athlete, including expenses reimbursed to

him or borne on his behalf, from such activities exceeds

twenty thousand United States dollars ($20,000) or its

equivalent in Italian currency for the fiscal year

concerned; or 

(b) such entertainer or athlete is present in that

other State for a period or periods aggregating more than

90 days in the fiscal year concerned. 

2. Where income in respect of activities exercised by an

entertainer or an athlete in his capacity as such accrues not to

him but to another person, that income may, notwithstanding the

provisions of Articles 7 (Business Profits), 14 (Independent

Personal Services), and 15 (Dependent Personal Services), be

taxed in the Contracting State in which the activities of the

entertainer or athlete are exercised. For purposes of the

preceding sentence, income of an entertainer or athlete shall be

deemed not to accrue to another person if it is proved by the

entertainer or athlete that neither he nor persons related to

him participate directly or indirectly in the profits of such
-21-

other person in any manner, including the receipt of deferred

remuneration, bonuses, fees, dividends, partnership

distributions, or other distributions. 

ARTICLE 18 

Pensions, Etc.

1. Subject to the provisions of paragraph 2 of Article 19

(Government Service), pensions and other similar remuneration

beneficially derived by a resident of a Contracting State in

consideration of past employment shall be taxable only in that

State.

2. Payments made by a Contracting State under provisions of

the social security or similar legislation of that State to a

resident of the other Contracting State shall be taxable only in

the other State.

3. Notwithstanding the provisions of paragraph 1, if a

resident of a Contracting State becomes a resident of the other

Contracting State, lump-sum payments or severance payments

(indemnities) received after such change of residence that are

paid with respect to employment exercised in the first-mentioned

State while a resident thereof, shall be taxable only in that

first-mentioned State. For purposes of this paragraph, the term

“severance payments (indemnities)” includes any payment made in

consequence of the termination of any office or employment of a

person.

4. Annuities beneficially derived by a resident of a

Contracting State shall be taxable only in that State. The term

"annuities" as used in this paragraph 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 in money or money's

worth (other than services rendered). 

5. Alimony and child support payments paid to a resident of

a Contracting State by a resident of the other Contracting State

shall be taxable only in the first-mentioned State. However,

such payments shall not be taxable in either State if the person

making such payments is not entitled to a deduction for such

payments in the State of which he is a resident. The term
-22-

"alimony" as used in this paragraph means periodic payments made

pursuant to a written separation agreement or a decree of

divorce, separate maintenance, or compulsory support, which

payments are taxable to the recipient under the laws of the

State of which he is a resident. The term "child support" as

used in this paragraph means periodic payments for the support

of a minor child made pursuant to a written separation agreement

or a decree of divorce, separate maintenance, or compulsory

support.

6. For purposes of this Convention, where an individual who

is a participant in a pension plan that is established and

recognized under the legislation of one of the Contracting

States performs personal services in the other Contracting

State: 

(a) Contributions paid by or on behalf of the

individual to the plan during the period that he performs

such services in the other State shall be deductible (or

excludible) in computing his taxable income in that State. 

Any benefits accrued under the plan or payments made to the

plan by or on behalf of his employer during that period

shall not be treated as part of the employee's taxable

income and shall be allowed as a deduction in computing the

profits of his employer in that other State. 

(b) The provisions of this paragraph shall apply only

if: 

(i) contributions by or on behalf of the

individual to the plan (or to another similar plan for

which this plan was substituted) were made before he

arrived in the other State; and

(ii) the competent authority of the other State

has agreed that the pension plan generally corresponds

to a pension plan recognized for tax purposes by that

State. 

The benefits granted under this paragraph shall not exceed the

benefits that would be allowed by the other State to its

residents for contributions to, or benefits otherwise accrued

under a pension plan recognized for tax purposes by that State.
-23-

ARTICLE 19 

Government Service

1. (a) Remuneration, other than a pension, paid by a

Contracting State or a political or administrative

subdivision or local authority thereof to an individual in

respect of services rendered to that State or subdivision

or authority shall be taxable only in that State. 

(b) However, such remuneration shall be taxable only

in the other Contracting State if the services are rendered

in that State and the individual is a resident of that

State who: 

(i) is a national of that State and is not a

national of the other State; or 

(ii) did not become a resident of that State

solely for the purpose of rendering the services; 

provided that the provisions of clause (ii) shall not apply

to the spouse or dependent children of an individual who is

receiving remuneration to which the provisions of

subparagraph (a) apply and who does not come within the

terms of clause (i) or (ii). 

2. Subject to the provisions of paragraph 2 of Article 18

(Pensions, Etc.):

(a) Any pension paid by, or out of funds created by, a

Contracting State or a political or administrative

subdivision or local authority thereof to an individual in

respect of services rendered to that State or subdivision

or local authority shall be taxable only in that State. 

(b) However, such pension shall be taxable only in the

other Contracting State if the individual is a resident and

a national of that State. 

3. The provisions of Article 14 (Independent Personal

Services), 15 (Dependent Personal Services), 16 (Directors'

Fees), 17 (Artistes and Athletes), or 18 (Pensions, Etc.), as

the case may be, shall apply to remuneration and pensions in

respect of services rendered in connection with a business
-24-

carried on by a Contracting State or a political or

administrative subdivision or a local authority thereof.

ARTICLE 20 

Professors and Teachers

1. A professor or teacher who makes a temporary visit to a

Contracting State for a period that is not expected to exceed

two years for the purpose of teaching or conducting research at

a university, college, school, or other recognized educational

institution, or at a medical facility primarily funded from

governmental sources, and who is, or immediately before such

visit was, a resident of the other Contracting State shall, for

a period not exceeding two years, be exempt from tax in the

first-mentioned Contracting State in respect of remuneration

from such teaching or research. 

2. This Article shall not apply to income from research if

such research is undertaken not in the general interest but

primarily for the private benefit of a specific person or

persons.

ARTICLE 21 

Students and Trainees

Payments which a student or business apprentice (trainee)

who is, or immediately before visiting a Contracting State was,

a resident of the other Contracting State and who is present in

the first-mentioned State exclusively for the purpose of his

education at a recognized educational institution or training

receives for the purpose of his maintenance, education, or

training shall not be taxed in that State provided that such

payments arise outside that State. 
-25-

ARTICLE 22 

Other Income

1. Items of income of a resident of a Contracting State,

wherever arising, not dealt with in the foregoing Articles of

this Convention shall be taxable only in that State. 

2. The provisions of paragraph 1 shall not apply to income,

other than income from immovable property as defined in

paragraph 2 of Article 6 (Income from Immovable Property), if

the person deriving the income, being a resident of a

Contracting State, carries on business in the other Contracting

State through a permanent establishment situated therein, or

performs in that other State independent personal services from

a fixed base situated therein, and the right or property in

respect of which the income if paid is effectively connected

with such permanent establishment or fixed base. In such case

the items of income are taxable in the other Contracting State

according to its own law. 

3. The provisions of this Article shall not apply if it was

the main purpose or one of the main purposes of any person

concerned with the creation or assignment of the rights in

respect of which the income is paid to take advantage of this

Article by means of that creation or assignment.

ARTICLE 23 

Relief from Double Taxation

1. It is agreed that double taxation shall be avoided in

accordance with the following paragraphs of this Article. 

2. (a) 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 general

principle hereof), the United States shall allow to a

resident or citizen of the United States as a credit

against the United States tax on income the appropriate

amount of income tax paid to Italy; and in the case of a

United States company owning at least ten percent of the

voting stock of a company which is a resident of Italy from

which it receives dividends in any taxable year, the United
-26-

States shall allow as a credit against the United States

tax on income the appropriate amount of income tax paid to

Italy by that company 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 Italy, but

shall not exceed the limitations of the law of the United

States (for the purpose of limiting the credit to the

United States tax on income from sources without the United

States). 

(b) For purposes of applying the United States credit

in relation to tax paid to Italy, the taxes referred to in

paragraphs 2(b)(i), 2(b)(ii) and 3 of Article 2 (Taxes

Covered) shall be considered to be income taxes. In

addition, for purposes of applying the United States credit

in relation to tax paid to Italy, the portion of the tax

referred to in paragraph 2(b)(iii) of Article 2 (Taxes

Covered) as is described in subparagraph (c) of this

paragraph shall be considered to be an income tax. 

(c) The portion of the tax referred to in paragraph

2(b)(iii) of Article 2 (Taxes Covered) that shall be

considered to be an income tax shall be calculated by

multiplying the applicable ratio by the total amount of the

tax referred to in paragraph 2(b)(iii) of Article 2 (Taxes

Covered) that is paid or accrued to Italy.

(i) The term "applicable ratio" means the

adjusted base divided by the total tax base upon which

the tax referred to in paragraph 2(b)(iii) of Article

2 (Taxes Covered) is actually imposed.

(ii) The term "adjusted base" means the greater

of:

(A) zero (0), or

(B) the total tax base upon which the tax

referred to in paragraph 2(b)(iii) of Article 2

(Taxes Covered) is actually imposed, less the

total amount of labor expense and interest

expense not otherwise taken into account in

determining the total tax base upon which the tax

referred to in paragraph 2(b)(iii) of Article 2

(Taxes Covered) is actually imposed.
-27-

3. If a resident of Italy derives items of income which are

taxable in the United States under the Convention (without

regard to paragraph 2(b) of Article 1 (Personal Scope)), Italy

may, in determining its income taxes specified in Article 2 of

this Convention, include in the basis upon which such taxes are

imposed the said items of income (unless specified provisions of

this Convention otherwise provide). In such case, Italy shall

deduct from the taxes so calculated the tax on income paid to

the United States, but in an amount not exceeding that

proportion of the aforesaid Italian tax which such items of

income bear to the entire income. However, no deduction will be

granted if the item of income is subjected in Italy to a final

withholding tax by request of the recipient of the said income

in accordance with Italian law. For purposes of applying the

Italian credit in relation to tax paid to the United States the

taxes referred to in paragraphs 2(a) and 3 of Article 2 (Taxes

Covered) shall be considered to be income taxes.

4. Where a United States citizen is a resident of Italy: 

(a) with respect to items of income that under the

provisions of this Convention are exempt from United States

tax or that are subject to a reduced rate of United States

tax when derived by a resident of Italy who is not a United

States citizen, Italy shall allow as a credit against

Italian tax an amount not exceeding the tax that would be

due to the United States if the resident of Italy were not

a citizen of the United States; 

(b) for purposes of computing United States tax on

those items of income referred to in subparagraph (a), the

United States shall allow as a credit against United States

tax the income tax paid to Italy after the credit referred

to in subparagraph (a); the credit so allowed shall not

reduce the portion of the United States tax that is creditable against the Italian tax in accordance with subparagraph (a); and

(c) for the exclusive purpose of relieving double

taxation in the United States under subparagraph (b), items

of income referred to in subparagraph (a) shall be deemed

to arise in Italy to the extent necessary to avoid double

taxation of such income under subparagraph (b).
-28-

5. In the case of an individual who is both a resident and

national of one Contracting State and is also a national of the

other Contracting State, the provisions of paragraph 2 of

Article 1 (Personal Scope) shall apply to remuneration described

in paragraph 1(b)(i) of Article 19 (Government Service), but

such remuneration shall be treated by the Contracting State

where the services in respect of the remuneration are rendered

as income from sources within the other State.

ARTICLE 24 

Non-Discrimination

1. Nationals of a Contracting State shall not be subjected

in the other State to any taxation or any requirement connected

therewith, which is other or more burdensome than the taxation

and connected requirements to which nationals of that other

State in the same circumstances are or may be subjected. This

provision shall, notwithstanding the provisions of Article 1

(Personal Scope), also apply to persons who are not residents of

one or both of the Contracting States. However, for purposes of

United States taxation, United States citizens who are subject

to tax on a worldwide basis are not in the same circumstances as

Italian nationals who are not residents of the United States. 

2. The taxation on a permanent establishment which an

enterprise of a Contracting State has in the other Contracting

State shall not be less favorably levied in that other State

than the taxation levied on enterprises of that other State

carrying on the same activities. This provision shall not be

construed as obliging a Contracting State to grant to residents

of the other State any personal allowances, reliefs, and

reductions for taxation purposes on account of civil status or

family responsibilities which it grants to its own residents. 

3. Except where the provisions of paragraph 1 of Article 9

(Associated Enterprises), paragraph 7 of Article 11 (Interest),

or paragraph 7 of Article 12 (Royalties) apply, interest,

royalties, and all other disbursements paid by an enterprise of

a Contracting State to a resident of the other Contracting State

shall, for the purpose of determining the taxable profits of

such enterprise, be deductible under the same conditions as if

they had been paid to a resident of the first-mentioned State. 
-29-

4. Enterprises of a 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 shall

not be subjected in the first-mentioned State to any taxation or

any requirement connected therewith which is other or more

burdensome than the taxation and connected requirements to which

other similar enterprises of the first-mentioned State are or

may be subjected. 

5. For purposes of this Article, notwithstanding the

provisions of Article 2 (Taxes Covered), this Convention shall

apply to taxes of every kind and description imposed by a

Contracting State or a political or administrative subdivision

or local authority thereof.

ARTICLE 25 

Mutual Agreement Procedure

1. Where a person considers that the actions of one or

both of the Contracting States result or will result for him in

taxation not in accordance with the provisions of this

Convention, he may, irrespective of the remedies provided by the

domestic law of those States, present his case to the competent

authority of the Contracting State of which he is a resident or,

if his case comes under paragraph 1 of Article 24 (NonDiscrimination), to that of the Contracting State of which he is

a national. The case must be presented within three years from

the first notification of the action resulting in taxation not

in accordance with the provisions of the Convention.

2. The competent authority shall endeavor, if the

objection appears to it to be justified and if it is not itself

able to arrive at a satisfactory solution, to resolve the case

by mutual agreement with the competent authority of the other

Contracting State, with a view to the avoidance of taxation

which is not in accordance with the Convention. Any agreement

reached shall be implemented notwithstanding any time limits in

the domestic law of the Contracting States.

3. The competent authorities of the Contracting States

shall endeavor to resolve by mutual agreement any difficulties

or doubts arising as to the interpretation or application of the
-30-

Convention. They may also consult together for the elimination

of double taxation in cases not provided for in the Convention.

4. The competent authorities of the Contracting States may

communicate with each other directly for the purpose of reaching

an agreement in the sense of the preceding paragraphs. When it

seems advisable in order to reach agreement to have an oral

exchange of opinions, such exchange may take place through a

Commission consisting of representatives of the competent

authorities of the Contracting States.

5. If an agreement cannot be reached by the competent

authorities pursuant to the previous paragraphs of this Article,

the case may, if both competent authorities and the taxpayer

agree, be submitted for arbitration, provided that the taxpayer

agrees in writing to be bound by the decision of the arbitration

board. The competent authorities may release to the arbitration

board such information as is necessary for carrying out the

arbitration procedure. The award of the arbitration board shall

be binding on the taxpayer and on both States with regard to

that case. The procedures shall be finalized by the Contracting

States by means of notes to be exchanged through diplomatic

channels after consultation between the competent authorities. 

The provisions of this paragraph shall not have effect until the

date specified in the exchange of diplomatic notes.

ARTICLE 26 

Exchange of Information

1. The competent authorities of the Contracting States

shall exchange such information as is necessary for carrying out

the provisions of this Convention or of the domestic laws of the

Contracting States concerning taxes covered by the Convention

insofar as the taxation thereunder is not contrary to the

Convention, and for the prevention of fraud or fiscal evasion.

The exchange of information is not restricted by Article 1

(Personal Scope). Any information received by a Contracting

State shall be treated as secret in the same manner as

information obtained under the domestic laws of that State and

shall be disclosed only to persons or authorities (including

courts and administrative bodies) involved in the assessment or

collection of, the enforcement or prosecution in respect of, or

the determination of appeals in relation to, the taxes covered
-31-

by the Convention. Such persons or authorities shall use the

information only for such purposes. They may disclose the

information in public court proceedings or in judicial

decisions. 

2. In no case shall the provisions of paragraph 1 be

construed so as to impose on a Contracting State the obligation: 

(a) to carry out administrative measures at variance

with the laws and administrative practice of that or of the

other Contracting State;

(b) to supply information which is not obtainable

under the laws or in the normal course of the

administration of that or of the other Contracting State; 

(c) 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 (ordre public). 

ARTICLE 27

Diplomatic Agents and Consular Officials

Nothing in this Convention shall affect the fiscal

privileges of diplomatic agents or consular officials under the

general rules of international law or under the provisions of

special agreements. 

ARTICLE 28

Entry into Force

1. This Convention shall be subject to ratification in

accordance with the applicable procedures of each Contracting

State and instruments of ratification shall be exchanged as soon

as possible. 

2. The Convention shall enter into force upon the exchange

of instruments of ratification and its provisions shall have

effect: 
-32-

(a) in respect of tax withheld at the source, for

amounts paid or credited on or after the first day of the

second month following the date on which this Convention

enters into force, 

(b) in respect of other taxes, for taxable periods

beginning on or after the first day of January next

following the date on which this Convention enters into

force. 

3. Notwithstanding paragraph 2, where a person who was

entitled to the benefits of the Convention for the Avoidance of

Double Taxation with Respect to Taxes on Income and the

Prevention of Fraud or Fiscal Evasion, signed at Rome April 17,

1984, and the Protocol clarifying and supplementing that

Convention, signed at Rome April 17, 1984 (collectively, the

"prior Convention") would have been entitled to any greater

relief from tax under the prior Convention than under this

Convention, the prior Convention shall, at the election of such

person, continue to have effect in its entirety for a twelvemonth period from the date on which the provisions of this

Convention would otherwise have effect under paragraph 2.

4. The provisions of the prior Convention shall cease to

have effect when corresponding provisions of this Convention

take effect in accordance with paragraphs 2 and 3, and the prior

Convention shall terminate on the last date on which it has

effect in accordance with the foregoing provisions of this

paragraph.

ARTICLE 29

Termination

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 Convention shall

cease to have effect: 

(a) in respect of tax withheld at the source, for

amounts paid or credited on or after the first day of
-33-

January next following the expiration of the 6 months'

period; 

(b) in respect of other taxes, for taxable periods

beginning on or after the first day of January next

following the expiration of the 6 months' period.

IN WITNESS WHEREOF, the undersigned, being duly authorized

by their respective Governments, have signed this Convention. 

DONE at Washington, in duplicate, in the English and

Italian languages, the two texts having equal authenticity, this

twenty-fifth day of August, 1999. 

FOR THE GOVERNMENT OF THE FOR THE GOVERNMENT OF THE

UNITED STATES OF AMERICA: ITALIAN REPUBLIC:
PROTOCOL

The Government of the United States of America and the

Government of the Italian Republic, desiring to conclude a

Protocol clarifying and supplementing the Convention for the

Avoidance of Double Taxation with Respect to Taxes on Income and

the Prevention of Fraud or Fiscal Evasion (hereinafter referred

to as "the Convention") to be signed simultaneously with the

signing of this Protocol, have agreed upon the following

provisions, which shall be an integral part of the Convention. 

ARTICLE 1 

1. For purposes of paragraph 2(b) of Article 1 (Personal

Scope) of the Convention, the term "citizen" as applied to the

United States shall include a former citizen or long-term

resident whose loss of such status had as one of its principal

purposes the avoidance of tax, but only for a period of 10 years

following such loss. 

2. The provisions of paragraph 2 of Article 1 (Personal

Scope) of the Convention shall not affect:

(a) the benefits conferred by a Contracting State

under paragraph 2 of Article 18 (Pensions, Etc.) of the

Convention to residents of the other Contracting State who

are nationals of that other State, even if they are also

nationals of the first-mentioned State; 

(b) the benefits conferred by a Contracting State

under Article 4 of this Protocol.

3. For purposes of paragraph 2(a) of Article 2 (Taxes

Covered) of the Convention, the Convention shall apply to the

excise tax imposed by the United States on insurance premiums

paid to foreign insurers only to the extent that the foreign

insurer does not reinsure such risks with a person not entitled

to exemption from such tax under this or any other Convention. 
-2-

4. For purposes of paragraph 1(i) of Article 3 (General

Definitions) of the Convention, the term "qualified governmental

entity" includes:

(a) in the case of the United States:

(i) the Federal Reserve Banks; 

(ii) the Export-Import Bank; and

(iii) the Overseas Private Investment

Corporation;

(b) in the case of Italy:

(i) La Banca d’Italia (the Central Bank);

(ii) L’Istituto per il Commercio con l’Estero

(the Foreign Trade Institute); and

(iii) L’Istituto per l’Assicurazione del Credito

all’Esportazione (the Official Insurance Institute for

Export Credits);

and such financial institutions, the capital of which is wholly

owned by a Contracting State or any state or political or

administrative subdivision or local authority as may be agreed

from time to time between the competent authorities of both of

the Contracting States.

5. For purposes of paragraph 1 of Article 4 (Resident) of

the Convention:

(a) A legal person organized under the laws of a

Contracting State and that is generally exempt from tax in

that State and is established and maintained in that State

either:

(i) exclusively for a religious, charitable,

educational, scientific, or other similar purpose; or

(ii) to provide pensions or other similar

benefits to employees pursuant to a plan

is to be treated as a resident of that Contracting State; 
-3-

(b) A qualified governmental entity is to be treated

as a resident of the Contracting State where it is

established; 

(c) Italy shall treat a United States citizen or an

alien lawfully admitted for permanent residence (a "green

card" holder) as a resident of the United States only if

such person has a substantial presence, permanent home, or

habitual abode in the United States; and

(d) The provisions of subparagraph 1(b) of Article 4

(Resident) of the Convention shall apply to determine the

residence of an entity that is treated as fiscally

transparent under the laws of either Contracting State.

6. For purposes of paragraph 2 of Article 5 (Permanent

Establishment) of the Convention, a drilling rig or ship used

for the exploration or development of natural resources

constitutes a permanent establishment in a Contracting State

only if it remains in that State for more than twelve months. 

7. For purposes of paragraph 1 of Article 8 (Shipping and

Air Transport) of the Convention, profits from the operation in

international traffic of ships or aircraft include: 

(a) profits from the use, maintenance, or rental of

containers (including trailers, barges, and related

equipment for the transport of containers) used for the

transport in international traffic of goods or merchandise;

and 

(b) profits derived from the rental on a full basis of

ships or aircraft and profits derived from the rental on a

bareboat basis of ships or aircraft, provided in the latter

case that such rental profits are incidental to other

profits from the operation of ships or aircraft in

international traffic.

8. For purposes of Article 8 (Shipping and Air Transport)

of the Convention, and notwithstanding any other provision of

the Convention, profits which a national of the United States

not resident in Italy or a United States corporation derives

from operating ships documented or aircraft registered under the

laws of the United States shall be exempt from tax in Italy. 
-4-

9. The provisions of Article 9 (Associated Enterprises) of

the Convention shall not limit any provisions of the law of

either Contracting State which permit the distribution,

apportionment, or allocation of income, deductions, credits, or

allowances between persons owned or controlled directly or

indirectly by the same interests when necessary in order to

prevent evasion of taxes or clearly to reflect the income of any

such persons. 

10. For purposes of paragraph 4 of Article 10 (Dividends),

paragraph 5 of Article 11 (Interest), paragraph 5 of Article 12

(Royalties), and paragraph 2 of Article 22 (Other Income) of the

Convention, it is agreed that the last sentence included therein

cannot be interpreted so that the principles included in

Articles 7 (Business Profits) and 14 (Independent Personal

Services) of the Convention are not taken into consideration. 

11. Notwithstanding the provisions of paragraphs 1, 2, and

3 of Article 11 (Interest) of the Convention, interest that is

an excess inclusion with respect to a real estate mortgage

investment conduit may be taxed by each State in accordance with

its own domestic law.

12. For purposes of paragraph 1 of Article 13 (Capital

Gains) of the Convention: 

(a) the term "immovable property" in the case of the

United States, includes a United States real property

interest; and 

(b) the term "immovable property" in the case of Italy

includes: 

(i) immovable property referred to in Article 6

(Income from Immovable Property); 

(ii) shares or comparable interests in a company

or other body of persons, the assets of which consist

wholly or principally of real property situated in

Italy; and 

(iii) an interest in an estate of a deceased

individual, the assets of which consist wholly or

principally of real property situated in Italy. 
-5-

(c) property described in subparagraph (a) of this

paragraph shall be deemed to be situated in the United

States and property described in subparagraph (b) of this

paragraph shall be deemed to be situated in Italy. 

13. For purposes of paragraph 3 of Article 13 (Capital

Gains) of the Convention, gains derived by an enterprise of a

Contracting State from the alienation of ships or aircraft

operated by such enterprise in international traffic include: 

(a) gains from the alienation of containers (including

trailers, barges, and related equipment for the transport

of containers) used for the transport in international

traffic of goods or merchandise; and 

(b) gains from the alienation of ships or aircraft

rented on a full basis or gains from the alienation of

ships or aircraft rented on a bareboat basis if, in the

latter case, rental profits were incidental to other

profits from the operation of ships or aircraft in

international traffic.

14. Directors' fees and other similar payments derived by a

resident of a Contracting State which are described in Article

16 (Directors' Fees) of the Convention may be taxed in the other

Contracting State only to the extent that the fees and other

payments are attributable to services performed in such other

State. 

15. With respect to paragraph 6 of Article 18 (Pensions,

Etc.), the term "pension plan" in the case of Italy shall mean

"fondi pensione."

16. With respect to Article 19 (Government Service) of the

Convention, it is understood that the competent authorities of

the Contracting States may by mutual agreement apply the

provisions of paragraphs 1 and 2 of Article 19 (Government

Service) to employees of organizations that perform functions of

a governmental nature. 

17. With respect to Articles 20 (Professors and Teachers)

and 21 (Students and Trainees) of the Convention, the term

"recognized educational institution" in the case of the United

States shall mean an accredited educational institution. An

educational institution will be considered to be accredited if

it is accredited by an authority that generally is responsible
-6-

for accreditation of institutions in the particular field of

study.

18. Nothing in Article 24 (Non-Discrimination) of the

Convention shall be construed as preventing either Contracting

State from imposing a tax as described in paragraph 6 of Article

10 (Dividends) or paragraph 8 of Article 11 (Interest) of the

Convention.

19. With respect to paragraph 3 of Article 25 (Mutual

Agreement Procedure) of the Convention, the competent

authorities of the Contracting States may, in particular, agree

that the conditions for the application of paragraph 10 of

Article 10 (Dividends), paragraph 9 of Article 11 (Interest),

paragraph 8 of Article 12 (Royalties), or paragraph 3 of Article

22 (Other Income) of the Convention are met.

20. For purposes of Article 26 (Exchange of Information) of

the Convention, the Convention shall apply to taxes of every

kind imposed by a Contracting State. It is understood that

information may be disclosed to persons or authorities involved

in the oversight of the activities for which information may be

exchanged under Article 26 (Exchange of Information), and such

persons shall use the information only for such oversight

purposes and shall be subject to the limitations of Article 26

(Exchange of Information). 

ARTICLE 2 

1. A resident of a Contracting State shall be entitled to

benefits otherwise accorded to residents of a Contracting State

by the Convention only to the extent provided in this Article. 

2. A resident of a Contracting State shall be entitled to

all the benefits of the Convention if the resident is: 

(a) an individual;

(b) a qualified governmental entity; 

(c) a company, if:

(i) all the shares in the class or classes of

shares representing more than 50 percent of the voting
-7-

power and value of the company are regularly traded on

a recognized stock exchange, or

(ii) at least 50 percent of each class of shares

in the company is owned directly or indirectly by five

or fewer companies entitled to benefits under clause

(i), provided that in the case of indirect ownership,

each intermediate owner is a person entitled to

benefits of the Convention under this paragraph; 

(d) described in subparagraph 5(a)(i) of Article 1 of

this Protocol; 

(e) described in subparagraph 5(a)(ii) of Article 1 of

this Protocol, provided that more than 50 percent of the

person's beneficiaries, members or participants are 

individuals resident in either Contracting State; or

(f) a person other than an individual, if:

(i) On at least half the days of the taxable year

persons described in subparagraphs (a), (b), (c), (d)

or (e) own, directly or indirectly (through a chain of

ownership in which each person is entitled to benefits

of the Convention under this paragraph), at least 50

percent of each class of shares or other beneficial

interests in the person, and

(ii) less than 50 percent of the person's gross

income for the taxable year is paid or accrued,

directly or indirectly, to persons who are not

residents of either Contracting State (unless the

payment is attributable to a permanent establishment

situated in either State), in the form of payments

that are deductible for income tax purposes in the

person’s State of residence.

3. (a) A resident of a Contracting State not otherwise

entitled to benefits shall be entitled to the benefits of

this Convention with respect to an item of income derived

from the other State, if:

(i) the resident is engaged in the active conduct

of a trade or business in the first-mentioned State,
-8-

(ii) the income is connected with or incidental

to the trade or business, and 

(iii) the trade or business is substantial in

relation to the activity in the other State generating

the income.

(b) For purposes of this paragraph, the business of

making or managing investments will not be considered an

active trade or business unless the activity is banking,

insurance or securities activity conducted by a bank,

insurance company or registered securities dealer.

(c) Whether a trade or business is substantial for

purposes of this paragraph will be determined based on all

the facts and circumstances. In any case, however, a trade

or business will be deemed substantial if, for the preceding taxable year, or for the average of the three preceding

taxable years, the asset value, the gross income, and the

payroll expense that are related to the trade or business

in the first-mentioned State equal at least 7.5 percent of

the resident's (and any related parties') proportionate

share of the asset value, gross income and payroll expense,

respectively, that are related to the activity that

generated the income in the other State, and the average of

the three ratios exceeds 10 percent.

(d) Income is derived in connection with a trade or

business if the activity in the other State generating the

income is a line of business that forms a part of or is

complementary to the trade or business. Income is

incidental to a trade or business if it facilitates the

conduct of the trade or business in the other State.

4. A resident of a Contracting State not otherwise

entitled to benefits may be granted benefits of the Convention

if the competent authority of the State from which benefits are

claimed so determines. 

5. For purposes of this Article the term "recognized stock

exchange" means:

(a) the NASDAQ System owned by the National Association of Securities Dealers, Inc. and any stock exchange

registered with the U.S. Securities and Exchange Commission
-9-

as a national securities exchange under the U.S. Securities

Exchange Act of 1934; 

(b) any stock exchange constituted and organized

according to Italian laws; and

(c) any other stock exchanges agreed upon by the

competent authorities of both Contracting States.

ARTICLE 3 

1. The Convention shall not restrict in any manner any

exclusion, exemption, deduction, credit, or other allowance now

or hereafter accorded: 

(a) by the laws of either Contracting State, or 

(b) by any other agreement between the Contracting

States. 

2. Notwithstanding the provisions of paragraph 1(b):

(a) the provisions of Article 25 (Mutual Agreement

Procedure) of the Convention exclusively shall apply to any

dispute concerning whether a measure is within the scope of

the Convention, and the procedures under the Convention

exclusively shall apply to that dispute; and

(b) unless the competent authorities determine that a

taxation measure is not within the scope of this

Convention, the nondiscrimination obligations of this

Convention exclusively shall apply with respect to that

measure, except for such national treatment or mostfavored-nation obligations as may apply to trade in goods

under the General Agreement on Tariffs and Trade. No

national treatment or most-favored-nation obligation under

any other agreement shall apply with respect to that

measure. 

(c) For the purpose of this paragraph, a "measure" is

a law, regulation, rule, procedure, decision,

administrative action, or any similar provision or action.
-10-

ARTICLE 4 

It is agreed that a United States citizen resident in Italy

who is a partner of a partnership that is a national of the

United States shall be entitled to a refundable credit against

that partner's individual income tax (l'imposta sul reddito

delle persone fisiche) imposed by Italy for the taxable period

equal to the portion of the corporation income tax (l'imposta

sul reddito delle persone giuridiche) imposed by Italy for the

same period on the partnership that is attributable to that

partner's share of the partnership income. 

ARTICLE 5 

Taxes withheld at the source in a Contracting State at the

rates provided by domestic law will be refunded by request of

the taxpayer if the right to collect the said taxes is limited

by the provisions of the Convention. Claims for refund, which

shall be made within the time limit fixed by the law of the

Contracting State which is obliged to make the refund, shall be

accompanied by an official certificate of the Contracting State

of which the taxpayer is a resident certifying the existence of

the conditions required for being entitled to the benefits

provided for by the Convention. This provision shall not be

construed to prevent the competent authority of each Contracting

State from establishing other modes of application of the

benefits provided for by the Convention.

ARTICLE 6 

Each of the Contracting States may collect on behalf of the

other Contracting State such amounts as may be necessary to

ensure that relief granted by the Convention from taxation

imposed by such other State does not enure to the benefit of

persons not entitled thereto. The preceding sentence shall not,

however, impose upon either of the Contracting States the

obligation to carry out administrative measures which are of a

different nature from those used in the collection of its own

tax, or which would be contrary to its sovereignty, security, or

public policy. 
-11-

ARTICLE 7 

1. The appropriate authority of either Contracting State

may request consultations with the appropriate authority of the

other Contracting State to determine whether amendment to the

Convention is appropriate to respond to changes in the law or

policy of either Contracting State. If these consultations

determine that the effect of the Convention or its application

have been unilaterally changed by reason of domestic legislation

enacted by a Contracting State such that the balance of benefits

provided by the Convention has been significantly altered, the

authorities shall consult with each other with a view to

amending the Convention to restore an appropriate balance of

benefits.

2. Within three years after the entry into force of the

Convention, the competent authorities shall consult with respect

to the implementation of Article 25 (Mutual Agreement Procedure)

and, taking into account experience with respect thereto,

determine whether any modifications to Article 25 (Mutual

Agreement Procedure) would be appropriate and, also taking into

account experience with respect to arbitration of international

tax disputes, shall determine whether it is appropriate to

exchange the diplomatic notes referred to in paragraph 5 of

Article 25 (Mutual Agreement Procedure), and if so the

provisions thereof.
-12-

ARTICLE 8

If any State or locality of the United States imposes tax

on profits of enterprises of Italy from the operation in

international traffic of ships or aircraft, Italy may impose its

regional tax on productive activities (l’imposta regionale sulle

attività produttive) on such profits of enterprises of the

United States, notwithstanding the provisions of subparagraph

2(b)(iii) of Article 2 (Taxes Covered) and Article 8 (Shipping

and Air Transport) of the Convention.

IN WITNESS WHEREOF, the undersigned, being duly authorized

by their respective Governments, have signed this Protocol.

DONE at Washington, in duplicate, in the English and

Italian languages, the two texts having equal authenticity, this

twenty-fifth day of August, 1999. 

FOR THE GOVERNMENT OF THE FOR THE GOVERNMENT OF THE

UNITED STATES OF AMERICA: ITALIAN REPUBLIC: