Special Features of the UN Model Convention

1. S. 96Introduction

Bilateral tax treaties are based, to a large extent, on two particular models, the OECD Model Tax Convention (OECD Model) and the UN Model Tax Convention (UN Model). The former has been historically influenced and drafted by develop countries whereas the latter was introduced as an answer to an identified need to increase the conclusion of tax treaties with developing countries under fairer conditions.

The way to achieve this objective (i.e., conditions that are more equitable for developing countries under double tax treaties) was by broadening the taxing rights of source States, which are usually the developing countries due to their vocation as importing capital countries.

Thus, regardless of the fact that the UN Model is largely based on the OECD Model and, therefore, both models are very similar; important differences arise in the distribution of certain taxing rights as a result of the intention of the UN Model to focus on granting broader taxing rights to developing countries.

This chapter addresses one of those differences in particular: the limited force of attraction (LFA) principle. This provision appears in Article 7 of the UN Model but is explicitly rejecte...