Special Features of the UN Model Convention

1. S. 49Introduction

Cross-border trade has increased and brought with it undeniable economic benefits, while also giving rise to various problems regarding cross-border direct taxation. Cross-border direct taxation is facilitated by the use of tax treaties. The OECD and the UN have each established a Model Convention that serves as a draft model and starting point in tax treaty negotiations for countries. Although the OECD and UN Models may appear highly similar at first, some of their provisions deviate significantly from each other in their wording, as well as in their purpose and historical background. One such provision is “Permanent Establishments”. It is one of the longest Articles in the entire model convention spreading over nine paragraphs. It is also one of the most important and challenging topics in international taxation that is prone to many controversies and different interpretations. The problem often derives from the fact that permanent establishments are not separate legal entities but are rather one part of the overall enterprise. Nonetheless, for taxation purposes, a permanent establishment in one state and the head office in the other state are considered to be sepa...