Special Features of the UN Model Convention

1. S. 410Introduction

Article 21 UN Model is a provision for ‘other income’, i.e., income not dealt with in other articles of a tax treaty. The first tax treaty to introduce a special clause for other income was concluded between Germany and Czechoslovakia in 1921. The early model conventions, instead of containing a special provision for dealing with ‘other income’, adopted a principle that income should be taxed by the residence State unless otherwise provided.

In its first draft, the OECD Model 1963 contained a special provision for ‘income not expressly mentioned’ which provided for exclusive taxation by the residence country. Later, the OECD Model 1977 introduced Article 21(2), creating an exception to residence jurisdiction in cases of income connected to a permanent establishment or a fixed base. The wording of Article 21 OECD Model has not substantially changed since then.

However, the prevalence of residence jurisdiction to the taxation of ‘other income’ was not entirely followed by UN Group of Experts. The UN Model deviated from the OECD Model by adding a provision that allocates unlimited taxing rights to the source State. Article 21(3) rests unchanged since its first 1979 draft ...