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Similarly, Canada applies non-final withholding tax only to services “of an industrial, commercial or scientific character”. There is no equivalent withholding applicable to income from other types of services.

In countries where services income is generally subject to withholding tax, special rates may apply to fees for technical services or other specified services. In Peru, for example, the rate of withholding applicable to technical fees is lower than the general rate. i.e. the effective tax rate on general services is 24 per cent, while a 15 per cent rate applies to technical services.

Where fees for technical or similar services are treated as a separate category of income, especially where such fees are subject to withholding tax, special source rules often apply. It would appear that the place in which the services are performed is of little importance in determining whether the fees fall within the tax net of a jurisdiction. Withholding taxes apply to such income in a variety of circumstances.

Tax evasion or collection concerns are sometimes partially addressed, e.g. in Denmark, by making deductions in respect of payments for services dependent on the payer providing information about the transaction to the tax authorities. In Mexico, deductions for payments to non-residents may be denied to payers if withholding tax has not been collected and remitted to the tax authorities.

Some countries require their residents (and sometimes PEs) to give details of their dealings with foreign entities, especially with related parties or residents of tax haven countries.

A final withholding tax imposed on non-resident SPs and collected by resident payers (or PEs of non-residents situated in the jurisdiction) at the time of payment offers a straightforward process for compliance. The compliance burden under this approach falls entirely, or almost entirely, on the resident, who is usually responsible for withholding the tax from the payment and remitting it to the revenue authority.

Where a non-resident SP has a PE in the jurisdiction, withholding tax ordinarily will not apply to income attributable to that PE. In most countries, such income is taxed on a net basis.

There can be practical difficulties in collecting withholding tax where the services are performed in a State and/or utilised in that State but paid by a non-resident. It is often not clear whether withholding taxes would apply under domestic law where the payer is not a resident or a PE of a non-resident.


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