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HMRC internal manual

Double Taxation Relief Manual

USA: Double taxation agreement, Article 14: Income from employment

  1. Subject to the provisions of Articles 15 (Directors’ Fees), 17 (Pensions, Social Security, Annuities, Alimony, and Child Support) and 19 (Government Service) of this Convention, 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 of this Article, 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 any twelve-month period commencing or ending in the taxable year or year of assessment 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 which the employer has in the other State.

  1. Notwithstanding the preceding provisions of this Article, remuneration described in paragraph 1 of this Article that is derived by a resident of a Contracting State in respect of an employment as a member of the regular complement of a ship or aircraft operated in international traffic shall be taxable only in that State.

Further clarification to the Article in respect of stock options is provided by the following:

With reference to Article 14 (Income from Employment):

it is understood that any benefits, income or gains enjoyed by employees under share/stock option plans are regarded as “other similar remuneration” for the purposes of Article 14.

It is further understood that where an employee:

(a) has been granted a share/stock option in the course of an employment in one of the Contracting States;

(b) has exercised that employment in both States during the period between grant and exercise of the option;

(c) remains in that employment at the date of the exercise; and

(d) under the domestic law of the Contracting States, would be taxable by both Contracting States in respect of the option gain,

then, in order to avoid double taxation, a Contracting State of which, at the time of the exercise of the option, the employee is not a resident will tax only that proportion of the option gain which relates to the period or periods between the grant and the exercise of the option during which the individual has exercised the employment in that Contracting State.

With the aim of ensuring that no unrelieved double taxation arises the competent authorities of the Contracting States will endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of Article 14 and Article 24 (Relief from Double Taxation) in relation to employee share/stock option plans.