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Tag Archive for OECD Model Treaty

OECD Model Treaty Post Series – Permanent Establishment & Agents, Part II

Yesterday we looked at dependent agents and their ability on the treaty to create a permanent establishment for an enterprise. Today I’ll be looking at independent agents, which do not lead to the determination of a permanent establishment for tax purposes and hence do not create a tax presence.

The commentaries provide this general definition to begin the discussion:

37. A person will come within the scope of paragraph 6, i.e. he will not constitute a permanent establishment of the enterprise on whose behalf he acts only if

a) he is independent of the enterprise both legally and economically, and Read more

OECD Model Treaty Post Series – Agents – Part I

The permanent establishment section in the OECD Model Tax Treaty is a remarkably complete section; it anticipates the work-arounds that most attorney’s would consider to avoid PE status. Case in point: the agent rules.

Remember that a permanent establishment is “a fixed place of business through which the business of an enterprise is wholly or partly carried out. In seeing that definition, an attorney would start to think,” what if, instead of a bricks and mortar establishment, we contract with a person?” Well, the treaty has that covered as well.

5. Notwithstanding the provisions of paragraphs 1 and 2, where a person — other than an Read more

OECD Model Treaty Post Series: Permanent Establishment, Part III

Continuing the look at the OECD Model Treaty’s definition of permanent establishment, we find the treaty specifically stating the following are PEs in Article 5, Section 2:

2. The term “permanent establishment” includes especially
a) a place of management;
b) a branch;
c) an office;
d) a factory;
e) a workshop, and
f) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources. Read more

The OECD Model Tax Treaty – Permanent Establishment – Part II

Today I’m going to continue looking at the OECD model tax treaty’s definition of permanent establishment. Let me start with, Article 5, Section 2, which states:

2. The term “permanent establishment” includes especially:

a) a place of management;
b) a branch;
c) an office;
d) a factory;
e) a workshop, and
f) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources. Read more

OECD Model Treaty Post Series – Permanent Establishment Part I

Today, I’m going to move forward and look at the OECD Model Treaty’s rules on permanent establishment. This is important for a simple reason: in order to exert its taxing rights over a transaction or individual, a jurisdiction must either prove the person/business is a resident (which we covered over the last few weeks) or prove the transaction took place within the jurisdiction’s borders. A permanent establishment is where a transaction occurs; hence the determination of a permanent establishment is of vital importance.

Let’s start with the basic definition: “For the purposes of this Convention, the term “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on.” The commentary adds important, further clarification. Read more

OECD Model Treaty Post Series – Residence, Part II

Last week, I looked at the residence provisions of the OECD Model Tax Treaty for individuals. This week, I’ll take a look at the provisions for non-individuals.

Before moving forward, however, it is important to briefly diverge into an area of academic discussion: partnerships, and how the OECD treaty deals with these business entities. Under Article 1, the treaty applies to “persons who are residents of one or both of the contracting states.” This leads to the question of, “how does the treaty deal with a pass-through entity?” Is the entity actually a separate company or is the entity a collection of its partners? If the latter, how do we deal with that? While this might seem like an academic debate, in reality it’s not, as some jurisdictions treat these business entities in a very different manner. The debate went so far as to have the OECD issue a paper on this Read more

OECD Model Treaty Post Series – Residence – Part I

Article 1 of the OECD treaty states, “This Convention shall apply to persons who are residents of one or both of the Contracting States..” As such, for a person to claim treaty benefits, they must be residents. Today, I’ll focus on residence for individuals, which is covered in Article four of the treaty:

Article 1, Section 4 states,

For the 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 or any other criterion of a similar nature, and also includes that State and any political subdivision or local authority thereof. This term, however, does Read more

OECD Model Treaty Post Series – Background

An Overview of the OECD Tax Treaty: Some Background

Assume that company XYZ — which is domiciled in the United States — wants to sell goods to Germany. While this looks like a great idea on paper it may wind up being counter-productive. Why? Because the transaction may be subject to double taxation. The US taxes income of its residents on a world wide basis — meaning that wherever in the world you earn money, if you are a US citizen you have to pay US tax on the earnings. In addition, Germany will also tax the transaction because it occurs within its geographic borders. So, if the US company sells a good in Germany, it will pay both a US tax and a German tax on the transaction, making this a possibly money losing proposition. Read more

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