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Questions and Answers
Which of the following is NOT a requirement for a person to claim benefits under the treaty?
Which of the following is NOT a requirement for a person to claim benefits under the treaty?
The OECD Model Convention allows countries to implement their own definitions of tax residency without any guidelines.
The OECD Model Convention allows countries to implement their own definitions of tax residency without any guidelines.
False
What is the primary factor that determines the taxation of cross-border business profits according to Article 7?
What is the primary factor that determines the taxation of cross-border business profits according to Article 7?
Permanent establishment
Income from immovable property may be taxed in the state where the property is located, known as the __________ state.
Income from immovable property may be taxed in the state where the property is located, known as the __________ state.
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Match the following articles of the OECD Model Convention with their topics:
Match the following articles of the OECD Model Convention with their topics:
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What is required if an individual is considered a tax resident in both contracting states?
What is required if an individual is considered a tax resident in both contracting states?
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The tax treaty applies only to taxes on income and not capital.
The tax treaty applies only to taxes on income and not capital.
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What type of income does Article 6 specifically address?
What type of income does Article 6 specifically address?
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What is the purpose of the Commentary to the OECD Model Convention?
What is the purpose of the Commentary to the OECD Model Convention?
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The OECD Model Convention was last updated in 1963.
The OECD Model Convention was last updated in 1963.
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What is the purpose of Article 23 of the OECD Model Convention?
What is the purpose of Article 23 of the OECD Model Convention?
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The OECD Model Convention defines the scope of the convention in Article ___________.
The OECD Model Convention defines the scope of the convention in Article ___________.
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Match the following articles of the OECD Model Convention with their respective topics:
Match the following articles of the OECD Model Convention with their respective topics:
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What is the topic of Article 3-5 of the OECD Model Convention?
What is the topic of Article 3-5 of the OECD Model Convention?
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According to the OECD Model Convention, which of the following income types are generally taxed in the country of residence of the beneficial owner?
According to the OECD Model Convention, which of the following income types are generally taxed in the country of residence of the beneficial owner?
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The OECD Model Convention outlines specific rules for taxation of income from independent personal services.
The OECD Model Convention outlines specific rules for taxation of income from independent personal services.
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The OECD Model Convention provides two primary methods for eliminating double taxation: the ______ method and the ______ method.
The OECD Model Convention provides two primary methods for eliminating double taxation: the ______ method and the ______ method.
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Study Notes
OECD Model Convention Structure
- The OECD Model Convention has a specific structure, comprising seven parts:
- I. Scope of the Convention (Art. 1-2)
- II. Definitions (Art. 3-5)
- III. Taxation of income (Art. 6-21)
- IV. Taxation of capital (Art. 22)
- V. Methods for elimination of double taxation (Art. 23)
- VI. Special provisions (Art. 24-29)
- VII. Final provisions (Art. 30-31)
Scope of the Convention
- Article 1: Persons covered
- Requirements to claim benefits under the treaty:
- Persons must be residents of one or both of the contracting states
- Requirements to claim benefits under the treaty:
- Article 2: Taxes covered
- Taxes on income and on capital
- List of taxes covered when the treaty was signed
- Extension to new taxes introduced after the treaty has been signed
Definitions
- Article 3: General definitions
- General definitions of treaty terms not defined elsewhere in the model convention
- Definitions apply unless the context otherwise requires
- Article 4: Residence
- Definition of residence under the tax treaty
- Special rule if an individual is tax resident in both contracting states (tie-breaker rules; from 2017, mutual agreement required for companies)
- Article 5: Permanent establishment
- Definition of permanent establishment under the treaty
- Broadly includes place of management, branch, office, factory, workshop, mine, long-term construction sites
Taxation of Income
- Article 6: Income from immovable property
- Income from immovable property may be taxed in the state in which that property is located (source state)
- Article 7: Business profits
- Taxation of cross-border business profits of an enterprise
- Permanent establishment required (Article 5)
- Article 8: International transport (general rule: taxed in country of residence)
- Article 9: Associated enterprises → Section 4. Transfer Pricing
- Article 10: Dividends (taxed in both states; with WHT capped at 15%)
- Article 11: Interest (taxed in both states; with WHT capped at 10%)
- Article 12: Royalties (taxed in country of residence of beneficial owner)
- Article 13: Capital gains (taxed in country of residence of taxpayer; but land)
- Article 14: Independent Personal Services [Deleted]
- Article 15: Income from employment (basic rule: source country if stay >183 days)
- Article 16: Director’s fees (basic rule residence of company)
- Article 17: Artists and sportspersons (basic rule: source country)
- Article 18: Pensions (basic rule: country of residence, but many exceptions)
- Article 19: Government Service (basic rule: source country)
- Article 20: Students (basic rule: source country)
- Article 21: Other income (e.g. gambling winnings; country of residence)
Taxation of Capital
- Article 22: Capital
- Applies to taxes on capital from the possession or ownership of capital
- State of residence has generally the exclusive taxation rights on all items of capital
Methods for Elimination of Double Taxation
- Article 23 A: Exemption method
- Tax exemption with progression
- Article 23 B: Credit method
- Credit for the foreign taxes paid in the other Contracting State
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Description
This quiz covers the basics of the OECD Model Convention, its structure and scope, and its importance in interpreting treaties between Contracting States. It is an essential part of international taxation.
