Special Features of the UN Model Convention

1. S. 510Introduction

Article 1 and Article 4 establish the personal scope of any Double Taxation Convention (DTC). Article 1 sets out that a treaty is applicable only to persons residing in one of the contracting States, and Article 4 defines who is a resident. Residence is a fundamental concept in tax treaties as it is a prerequisite for a taxpayer to be entitled to tax treaty benefits. In the words of Couzin, residence is the ‘heart of modern comprehensive bilateral income tax conventions’.

Contracting States adopt divergent criteria in their domestic law to define a resident legal entity, for instance, some may give more importance to the place of registration and others to the place of effective management. The result would be a dual residence company that cannot obtain treaty benefits. For the past years and until recent changes, dual residence cases would have been solved attaching residence to the place of effective management (PoEM).

Dual residence situations involving multinationals enterprises tend to occur more often than expected, in particular in the dynamic world we live in today with developed technologies and communication. Directors of companies hold meetings by phone or v...