Special Features of the UN Model Convention

1. S. 26Introduction

A country can choose to exercise its tax sovereignty on the basis of a personal and/or an objective nexus between the taxpayer and the country. Under domestic law, it is usually enough to have a “genuine link” between the taxpayer and the domestic jurisdiction – it is sufficient that the person or the transaction has a connection with the taxing state. Consequently, in international law practice, the thresholds for a country to tax are not very high, and it may happen that the same event is taxed in two or more states in cross-border transactions (double taxation). Imposing a double tax burden to a given taxpayer is extremely problematic, as, in a nutshell, it may have a direct influence on the profits and, therefore, cause harmful effects on the exchange of goods and services, and movements of capital, technology and persons.

To avoid double taxation and all negative consequences attached to it, bilateral agreements were concluded to, at least, mitigate these issues – the double tax treaties. Consequently, “the central issue in tax treaty negotiations is generally whether and to what extent, in respect of particular income, profits or gains, the source country (the h...