Special Features of the UN Model Convention

1. S. 284Introduction

The supply of technical services without forming a fixed base or a permanent establishment (PE) is increasing. There are many cases where an enterprise is based in one country and operates its business by supplying technical services to another country without forming a physical presence in the other country. Customers who pay fees for technical services to the enterprise are residents of the other country, while the enterprise which receives the payment is resident in the first-mentioned country. In order to clarify, the terms used in this paper will indicate as follows: “resident country” indicates the country in which the enterprise is seated; “source country” indicates the country where the payments arise; “foreign suppliers” or “non-resident suppliers” indicate the suppliers that render technical services to the payers in the source country.

The issues concerning the taxation on fees for technical services have arisen as the source country cannot tax income or profits from rendering technical services. According to the United Nations Model Double Taxation Convention between Developed and Developing Countries (UN Model), presented in 2011, the right to tax on inco...