Special Features of the UN Model Convention

1. S. 120Introduction

1.1. The Role of Art. 7 of the OECD and UN Models

For most tax systems around the globe, business profits are considered to be the most important kind of income. In the international tax context, either in developed or developing countries, Article 7 of the OECD Model Tax Convention and the UN Model Double Taxation Convention is the relevant provision concerning the taxation of business profits. The discussion regarding the determination of the profits of PEs in the international tax law context is primarily based on the role of this provision.

In essence, Article 7 of the OECD and UN Models deals with the allocation of taxing rights regarding business profits between residence and source state. In terms of the first paragraph of Article 7, the profits of an enterprise of a contracting state may only be taxed in that state unless such enterprise carries on business in the other contracting state through a PE located therein.

The distributive rule underlying in Article 7, paragraph 1 provides for the distribution of taxing rights in order to tax the business profits of an enterprise in the jurisdiction of source, whenever a PE is deemed to exist in the source jurisdictio...