• Paragraph 1
• Paragraph 2
• Paragraph 3
• Paragraph 4
• Relation to Other Articles

ARTICLE 20 -- Students, Trainees and Researchers

This Article deals with visiting students, trainees and researchers. Unlike the U.S. Model, which deals only with maintenance, education or training payments that arise outside the host State, the Article also provides limited earned income exemption for persons covered by the Article, in order to reflect the particular economic and cultural relationships in this area between the United States and Latvia.

Paragraph 1

Paragraph 1 of this Article generally provides that a resident of a Contracting State who visits the other Contracting State for the primary purpose of studying at a university or other recognized educational institution, securing training in a professional specialty, or studying or doing research as the recipient of a grant from a government or a charitable institution shall be exempt from tax in that Contracting State with respect to certain items of income derived during that period of study, research or training, provided certain conditions are met. Subparagraph 1(b) defines those exempt items of income as:

(1)

payments from abroad for maintenance, education, study, research, or training;

(2)

grants, allowances or awards; and

(3)

income from personal services performed in that other Contracting State to the extent of $5,000 United States dollars or its equivalent in Latvian lats per taxable year.

The exemptions provided in paragraph 1 are available to the visiting student or trainee for a period not exceeding five taxable years from the beginning of the visit. The religious, charitable, etc. organization, described in subparagraph 1(a)(iii) is, for U.S. purposes, an organization that qualifies as tax-exempt under Code section 501(c)(3).

The exemption threshold in this, and subsequent paragraphs of the Article, applies in addition to, and not in lieu of, any allowances (e.g., personal exemptions and deductions) available to the person under the internal laws of the Contracting States. If the amount earned exceeds $5,000 per annum, under this paragraph, only the excess is taxable.

The reference in paragraph 1 to ``primary purpose'' is meant to describe individuals who are participating in a full time program of study, training or research. ``Primary purpose'' was substituted for the reference in the OECD Model to ``exclusive purpose'' to prevent too narrow an interpretation. It is not the intention, for example, to exclude full time students who, in accordance with their visas, may hold part-time employment.

A student must be studying at a university or other accredited educational institution to qualify for the benefits of this Article. An educational institution is understood to be an institution that normally maintains a regular faculty and normally has a regular body of students in attendance at the place where the educational activities are carried on. An educational institution will be considered to be accredited if it is accredited by an authority that generally is responsible for accreditation of institutions in the particular field of study.

The host-country exemption in the Article applies in subparagraph (b)(i) to payments received by the student, trainee or researcher from abroad for the purpose of his maintenance, education or training. A payment will be considered to be from abroad if the payer is located outside the host State. In all cases substance over form will prevail in determining the location and/or identity of the payer. Consequently, payments made directly or indirectly by the U.S. person with whom the visitor is training, but which have been routed through a non-host-country, such as, for example, a foreign affiliated organization, should not be treated as arising outside the United States for this purpose. Moreover, if a U.S. person reimbursed a foreign person for payments by the foreign person to the visitor, the payments by the foreign person would not be treated as arising outside the United States.

Paragraph 2

Paragraph 2 deals with an individual resident of a Contracting State who is an employee of, or under contract with, an enterprise of that State, and who is temporarily present in the other Contracting State for the primary purpose of studying at an accredited educational institution in the host State or acquiring technical, professional or business experience from a person other than his employer. Such resident will be exempt from tax by the host State for a period of 12 consecutive months on compensation for personal services in an aggregate amount not exceeding $8,000 or its equivalent in Latvian lats.

Paragraph 3

Paragraph 3 of the Article deals with an individual resident of a Contracting State who is temporarily present in the other Contracting State for a period not exceeding one year, as a participant in a program sponsored by the Government of the host State, for the primary purpose of training, research or study. Such an individual will be exempt from tax by the host State on compensation for personal services in respect of such training, research or study performed in the host State in an aggregate amount not exceeding $10,000 or its equivalent in Latvian lats.

Paragraph 4

Paragraph 4 clarifies that, for the exemption of the preceding paragraphs to apply to income from research, the research must be undertaken in the public interest, and not primarily for the private benefit of a specific person or persons. For example, the exemption would not apply to a grant from a tax-exempt research organization to search for the cure to a disease if the results of the research become the property of a for-profit company. The exemption would not be denied, however, if the tax-exempt organization licensed the results of the research to a for-profit enterprise in consideration of an arm's length royalty consistent with its tax-exempt status.

Relation to Other Articles

Under paragraph 5(b) of Article 1 (General Scope), the saving clause (paragraph 4 of Article 1) does not apply to this Article if the individual is neither a citizen of the host State nor admitted for permanent residence there. The saving clause, however, does apply with respect to citizens and permanent residents of the host State. Thus, a U.S. citizen who is a resident of Latvia and who visits the United States as a full time student at an accredited university will not be exempt from U.S. tax on remittances from abroad that otherwise constitute U.S. taxable income. A person, however, who is not a U.S. citizen, and who visits the United States as a student and remains long enough to become a resident under U.S. tax law, but does not become a permanent resident (i.e., does not acquire a green card), will be entitled to the full benefits of the Article.

Under subparagraph (g) of paragraph 3 of Article 26(Mutual Agreement Procedure), the competent authorities of the Contracting States may, by mutual agreement, increase any or all of the dollar thresholds in this article.

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