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The first threshold requires both that the individual providing the services be physically present in that State over a significant period or periods (more than 183 days) and that the majority of the gross active business revenue of the enterprise be derived from services performed in the State by that individual. The presence test is similar to that found in the employment article in tax treaties, and in the independent personal services article in the UN Model. The revenue test is unique to this provision and ensures that a services PE will only be found where the majority of the business activities of the enterprise carried on by the individual are performed in that State.

The second threshold is similar in concept to that found in the UN Model services PE provision, though it may lead to different outcomes in some circumstances. It requires that the enterprise perform services in the State for one project or connected projects over a significant period or periods (more than 183 days) through one or more individuals who are present in that State and performing the services. Such individuals may be the entrepreneur, employees or other persons receiving instructions from the enterprise, but employees of another enterprise, e.g. under outsourcing arrangements, are generally excluded.

The alternative services PE provision applies to services provided to third parties. It is specifically given priority over paragraphs 1, 2 and 3 of Article 5. Unlike the UN Model provision, the alternative services PE provision also ensures that preparatory' and auxiliary services activities will not give rise to a PE.

While it seems that income from sendees performed outside the jurisdiction may be attributed to a fixed place of business PE in some circumstances, the OECD Commentary makes it clear that, for the purposes of determining a PE under the alternative provision, the services must be performed in the State. The OECD Commentary further notes that whether or not the services are furnished to a resident of that State is not relevant.

The OECD Commentary includes an optional anti-avoidance provision to avoid abuse of the 183-day threshold by associated enterprises.

To date, only a small number of treaties (mainly recent treaties negotiated by Norway, New Zealand, two recent Australian treaties and, notably, the Canada- USA treaty) include this provision. Since this alternative provision was included in the Commentary only in 2008 this is hardly surprising. Time will tell whether it is adopted more broadly in place of paragraph 3(b) of Article 5 of the UN Model. Russia, for example, has recently included the OECD alternative services PE provision in its published model.

 

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