Special Features of the UN Model Convention

1. S. 239Introduction

Article 8 of both the UN and the OECD Model provides for an exception to the application of the business profits provision (Article 7 of the OECD and UN Model Model), by introducing a special rule for taxing profits arising from international shipping and air transportation activities. In this regard, only the State in which the enterprise is incorporated may tax such profits, even if a permanent establishment that is engaged in the above-mentioned activities is identified in the source country.

1.1. Effects of the Special Provision

One may say that this provision is more favourable to developed countries where shipping and air transportation companies are more often incorporated and managed and where investors are usually located. However, although developing countries lack strong domestic shipping or air transportation enterprises, they might have ports and other facilities that are used by shipping and air transportation companies to carry out their international operations. Moreover, the contribution that may be provided by such developing countries in generating value in the shipping and air transportation business might be relevant.

1.2. S. 240Scope of the UN Model

It sh...