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Many combinations of and variations to these three approaches are found in treaties. The OECD Model approach is adopted in the majority of existing tax treaties of reporting jurisdictions. However, a significant minority of treaties include additional nexus rules that would allow source taxation of services income in the absence of a fixed place of business. The UN Model approach is the one most commonly found in such treaties, although the branch reports suggest that the majority of jurisdictions would endorse the three principles set out in the OECD Commentary with respect to such taxation.

With respect to the latter, most countries would appear to be prepared to accept that a time threshold of around six months or 183 days would constitute a sufficient level of presence. The time threshold may apply to the time required to establish that a place of business or base is sufficiently “fixed”, or to the time spent in the jurisdiction by the SP.

The UN Model deemed services PE provision is generally applied in reporting jurisdictions in accordance with these three principles, and has been widely adopted in existing treaties that provide additional nexus rules. The OECD alternative services PE provision meets all of the desirable conditions for source taxation, and also excludes preparatory and auxiliary activities from source taxation.

Under both the OECD Model and UN Model approaches, once the threshold (whether PE, fixed base or time) has been met, a significant compliance burden arises and there are administrative difficulties in enforcing tax liabilities on the mobile activities of non-resident SPs. While some of the enforcement difficulties can be ameliorated by the imposition of a non-final withholding tax, this increases both the compliance obligations of payers for the services of non-resident SPs, and the administrative burden on revenue authorities.

Provisions that permit royalty-type taxation of income from services reduce the compliance and administration burden, but do not meet any of the above conditions. Such provisions may lead to uncertainty as to scope (e.g. if limited to technical services), multiple source taxation, and taxation of income from preliminary, minor or very short-term services. Such provisions may also lead to excessive taxation - and therefore unrelieved double taxation - unless the withholding tax rate set under the treaty is low.

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