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theless, be entitled to the benefits of this Convention with respect to an item of income derived from the other Stale if:

a) The resident is engaged in the active conduct of a trade or business in the first-mentioned State (other than the business of making or managing investments, unless these activities are banking or insur-' ance activities carried on by a bank or insurance company); and

b) the item of income is connected with or incidental to the trade or business in the first mentioned State; and

c) Such trade or business is substantial in relation to the activity in the other State that generated the income.

3 — A person that is not entitled to the benefits of the Convention pursuant to the provisions of paragraph 1 or 2 may, nevertheless, be granted the benefits of the Convention if the competent authority of the State in which the income in question arises so determines. For this purpose, one of the factors the competent authorities shall take into account is whether the establishment, acquisition, and maintenance of such person and the conduct of its operations did not have as one of its principal purposes the obtaining of benefits under the Convention.

4 — For purposes of subparagraph c) of paragraph 1, the term «recognized securities exchange» means:

a) The NASDAQ System owned by the National Association of Securities Dealers, Inc., and any stock exchange registered with the Securities and Exchange Commission as a national securities exchange for purposes of the Securities Exchange Act of 1934;

b) The Lisbon and Oporto Stock Exchanges; and

c) Any other stock exchange agreed upon by the competent authorities of the Contracting States.

5 — For purposes of subparagraph e), ii), of paragraph 1, the term «gross income» means, gross receipts, or, where

an enterprise is engaged in a business which includes the manufacture or production of goods, gross receipts reduced by the direct costs of labor and materials attributable to such manufacture or production and paid or payable out of such receipts.

6 — Notwithstanding the provisions of paragraphs 1 through 5, the benefits of this Convention shall not be allowed to any person that is entitled to income tax benefits under the provisions of the legislation and other measures relating, to the tax-free zones (zonas francas) of Madeira and Santa Maria Island, or. to benefits similar to those provided with respect to such tax-free zones that are made available under any legislation or other measure adopted by either Contracting State after die date of signature of this Convention. The competent authorities shall notify each other of any such legislation or measure and shall consult as to whether such benefits are similar.

Article 18

Directors' fees .

Dwectors' fees and other similar payments derived by a resident of a Contracting State for services performed outside that Contracting State in his capacity as a member of the board of directors or supervisory board (in Portugal, conselho fiscal) or of another similar organ of a company that is a resident of the other Contracting State may be taxed in that other State.

,, ' Artistes and sportsmen

•■■'•îsi—Notwithstanding the provisions of articles 15, «In-' dependent personal services», and 16, «Dépendent personal ^•services», "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.-may be taxed in that other State except where the amount of the compensation derived by such entertainer or athlete, including expenses reimbursed to him or borne on his behalf, from such activities does not exceed 10,000 United States dollars or its equivalent in Portuguese escudos for the taxable year concerned.

2 — Where income in respect of personal activities exercised by ah entertainer or an athlete in his capacity as such accrues not to, the "entertainer or athlete but to another person, that income of that other person may, notwithstanding the provisions of articles 7, «Business profits», and 15, «In-dependent personal services», be taxed in thé Contracting State in which the activities of the entertainer or athlete are exercised, unless it is established that neither the entertainer or athlete nor persons related thereto participate directly or indirectly in the profits of that other person in any manner, induing the receipt of deferred remuneration, bonuses, fees, dividends, partnership distributions, or other distributions.

3 — Notwithstanding the provisions of paragraphs 1 and 2, income derived by a resident of a Contracting State as an entertainer or athlète shall be exempt from tax by the other Contracting State if the visit to that other State is substantially supported by public funds of the first-mentioned State or a political or administrative subdivision or local authority thereof.

Article 20

Pensions, annuities, alimony, and child support

1 — Subject to the provisions of article 21, «Government service»:

a) Pensions and other similar remuneration derived and beneficially owned by a resident of a Contracting State in consideration of past employment shall be taxable only in that State; and

b) Social security benefits and other public pensions paid by a Contracting State to a resident of the other Contracting State or a citizen of the United 'States may be taxed in the first-mentioned State.

2 — Annuities derived and beneficially owned 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 a specific time period, under an obligation to make the payments in return for adequate and full consideration (other than services rendered).

3 — Alimony paid to a resident of a Contracting State shall be taxable only in that State. The term «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.

, „ 4—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, paid by a resident'of a'Cpntracting. State to a resident of the other Contracting State; shall be taxable only in the first-mentioned State.