OECD vs.

UN Model Income Tax

Convention
Prof.dr. Stef van Weeghel
University of Amsterdam (Amsterdam Center for Tax Law)/PwC

ITC Mumbai 2013

 OECD vs. UN Model Income Tax
Convention
• Models are mostly identical
• But with significant exceptions:
– Historically UN Model more source state taxation
rights (e.g., services PE, force of attraction,
royalty withholding, capital gains real property
companies)
– UN has not followed OECD’s new Article 7
– UN has not dropped Article 14
 Article 5 – Permanent establishment

OECD – Building site UN – Building site

3. A building site or 3. The term "permanent
construction or installation establishment" also
project constitutes a encompasses: (a) a building
permanent establishment site, a construction, assembly
only if it lasts more than or installation project or
twelve months. supervisory activities in
connection therewith, but
only if such site, project or
activities last more than six
months;
 Article 5 – Permanent establishment

OECD - Services UN - Services

None. (b) The furnishing of services,
including consultancy services,
by an enterprise through
employees or other personnel
engaged by the enterprise for
such purpose, but only if
activities of that nature continue
(for the same or a connected
project) within a Contracting
State for a period or periods
aggregating more than 183 days
in any 12-month period
commencing or ending in the
fiscal year concerned.
 Article 5 – Permanent establishment

OECD – Agent/Delivery goods UN - Agent/Delivery goods

5.(…) *W+here a person (…) and 5. (…) *W+here a person is acting
has, and habitually exercises, in a on behalf of an enterprise (…)
Contracting State an authority to a. (…) *agent; same as OECD+
conclude contracts in the name b. Has no such authority, but
of the enterprise, that enterprise habitually maintains in the
shall be deemed to have a first-mentioned State a stock
permanent establishment in that of goods or merchandise
State in respect of any activities from which he regularly
which that person undertakes delivers goods or
for the enterprise, unless (…). merchandise on behalf of
the enterprise.
 Article 5 – Permanent establishment

OECD – Insurance company UN – Insurance company

None. 6.Notwithstanding the preceding
provisions of this Article, an
insurance enterprise of a
Contracting State shall, except in
regard to re-insurance, be
deemed to have a permanent
establishment in the other
Contracting State if it collects
premiums in the territory of that
other State or insures risks
situated therein through a
person other than an agent of an
independent status to whom
paragraph 7 applies.
 Article 5 – Permanent establishment

OECD – Independent agent UN – Independent agent

6. An enterprise shall not be 7. [Same]. However, when the
deemed to have a permanent activities of such an agent are
devoted wholly or almost wholly
establishment in a Contracting on behalf of that enterprise, and
State merely because it carries conditions are made or imposed
on business in that State through between that enterprise and the
a broker, general commission agent in their commercial and
financial relations which differ
agent or any other agent of an from those which would have
independent status, provided been made between
that such persons are acting in independent enterprises, he will
the ordinary course of their not be considered an agent of an
independent status within the
business. meaning of this paragraph.
 Article 6 – Income from immovable
property
OECD – Enterprise/Independent UN - Enterprise/Independent Personal
Personal services services
4. The provisions of 4. The provisions of
paragraphs 1 and 3 shall also paragraphs 1 and 3 shall also
apply to the income from apply to the income from
immovable property of an immovable property of an
enterprise. enterprise and to income
from immovable property
used for the performance of
independent personal
services.
 Article 7 – Business profits
OECD UN
New Article 7 – Authorised Old Article 7, with extension:
If the enterprise carries on business
OECD Approach as aforesaid, the profits of the
enterprise may be taxed in the other
State but only so much of them as is
attributable to (a) that permanent
establishment; (b) sales in that
other State of goods or merchandise
of the same or similar kind as those
sold through that permanent
establishment; or (c) other business
activities carried on in that other
State of the same or similar kind as
those effected through that
permanent establishment.
 Article 7 – Business profits UN
3. [Deduction of expenses allowed]. However, no
such deduction shall be allowed in respect of
amounts, if any, paid (otherwise than towards
reimbursement of actual expenses) by the
permanent establishment to the head office of the
enterprise or any of its other offices, by way of
royalties, fees or other similar payments in return
for the use of patents or other rights, or by way of
commission, for specific services performed or for
management, or, except in the case of a banking
enterprise, by way of interest on moneys lent to
the permanent establishment. (…)
 Article 8 - Shipping, inland
waterways, transport and air
transport
OECD UN
None. 2. Profits from the operation of ships in
international traffic shall be taxable only in
the Contracting State in which the place of
effective management of the enterprise is
situated unless the shipping activities arising
from such operation in the other Contracting
State are more than casual. If such activities
are more than casual, such profits may be
taxed in that other State. The profits to be
taxed in that other State shall be determined
on the basis of an appropriate allocation of
the overall net profits derived by the
enterprise from its shipping operations. The
tax computed in accordance with such
allocation shall then be reduced by ___ per
cent. (The percentage is to be established
through bilateral negotiations.)
 Article 9 – Associated enterprises
OECD UN
None. 3.The provisions of paragraph 2
shall not apply where judicial,
administrative or other legal
proceedings have resulted in a
final ruling that by actions giving
rise to an adjustment of profits
under paragraph 1, one of the
enterprises concerned is liable to
penalty with respect to fraud,
gross negligence or wilful
default.
 Articles 10, 11 and 12
OECD UN
Art. 10: 15/5 per cent Artt. 10, 11, 12: no fixed
Art. 11: 10 per cent percentages
Art. 12: exclusive residence
state taxation
 Article 12 - Royalties
OECD UN
2.The term "royalties" as used in 3.The term "royalties" as used in this
this Article means payments of Article means payments of any kind
any kind received as a received as a consideration for the use
of, or the right to use, any copyright of
consideration for the use of, or literary, artistic or scientific work
the right to use, any copyright of including cinematograph films, or
literary, artistic or scientific work films or tapes used for radio or
including cinematograph films, television broadcasting, any patent,
any patent, trade mark, design trademark, design or model, plan,
or model, plan, secret formula or secret formula or process, or for the
use of, or the right to use, industrial,
process, or for information commercial or scientific equipment or
concerning industrial, for information concerning industrial,
commercial or scientific commercial or scientific experience.
experience.
 Article 12 - Royalties
OECD UN
3.The provisions of paragraph 1 shall 4.The provisions of paragraphs 1 and 2
shall not apply if the beneficial owner of
not apply if the beneficial owner of the royalties, being a resident of a
the royalties, being a resident of a Contracting State, carries on business in
Contracting State, carries on the other Contracting State in which the
royalties arise, through a permanent
business in the other Contracting establishment situated therein, or
State in which the royalties arise performs in that other State independent
through a permanent establishment personal services from a fixed base
situated therein and the right or situated therein, and the right or property
in respect of which the royalties are paid is
property in respect of which the effectively connected with (a) such
royalties are paid is effectively permanent establishment or fixed base, or
connected with such permanent with (b) business activities referred to in
(c) of paragraph 1 of Article 7. In such
establishment. In such case the cases the provisions of Article 7 or Article
provisions of Article 7 shall apply. 14, as the case may be, shall apply.
 Article 13 – Capital gains UN
4.Gains from the alienation of shares of the capital stock of a company, or of
an interest in a partnership, trust or estate, the property of which consists
directly or indirectly principally of immovable property situated in a
Contracting State may be taxed in that State. In particular:
(a) Nothing contained in this paragraph shall apply to a company, partnership,
trust or estate, other than a company, partnership, trust or estate engaged in the
business of management of immovable properties, the property of which
consists directly or indirectly principally of immovable property used by such
company, partnership, trust or estate in its business activities.
(b) For the purposes of this paragraph, "principally" in relation to ownership of
immovable property means the value of such immovable property exceeding 50
per cent of the aggregate value of all assets owned by the company, partnership,
trust or estate.
 Article 14 – Independent personal
services
OECD UN
Deleted in 2000. Continued.
 Article 16 – Directors’ fees
OECD UN
Directors' fees and other 1. Directors’ fees and other similar
similar payments derived by a payments derived by a resident of a
Contracting State in his capacity as a
resident of a Contracting State member of the Board of Directors of a
company which is a resident of the other
in his capacity as a member of Contracting State may be taxed in that
the board of directors of a other State.

company which is a resident 2. Salaries, wages and other similar

of the other Contracting State remuneration derived by a resident of a
Contracting State in his capacity as an
may be taxed in that other official in a top-level managerial position
of a company which is a resident of the
State. other Contracting State may be taxed in
that other State.
 Article 18 - Pensions
OECD UN
Article 18 (alternative A)
Subject to the provisions of 1. Subject to the provisions of paragraph 2 of Article 19, pensions
and other similar remuneration paid to a resident of a Contracting
paragraph 2 of Article 19, State in consideration of past employment shall be taxable only in
that State.
2. Notwithstanding the provisions of paragraph 1, pensions paid
pensions and other similar and other payments made under a public scheme which is part of
the social security system of a Contracting State or a political
subdivision or a local authority thereof shall be taxable only in
remuneration paid to a that State.

resident of a Contracting State Article 18 (alternative B)

1. Subject to the provisions of paragraph 2 of Article 19, pensions
in consideration of past and other similar remuneration paid to a resident of a Contracting
State in consideration of past employment may be taxed in that
State.
employment shall be taxable 2. However, such pensions and other similar remuneration may
also be taxed in the other Contracting State if the payment is
made by a resident of that other State or a permanent
only in that State. establishment situated therein.
3. Notwithstanding the provisions of paragraphs 1 and 2, pensions
paid and other payments made under a public scheme which is
part of the social security system of a Contracting State or a
political subdivision or a local authority thereof shall be taxable
only in that State.
 Article 21 – Other income
OECD UN
None. 3.Notwithstanding the
provisions of paragraphs 1
and 2, items of income of a
resident of a Contracting State
not dealt with in the
foregoing Articles of this
Convention and arising in the
other Contracting State may
also be taxed in that other
State.