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Some treaties include a separate article that provides for fees derived by a non-resident SP from the provision of technical services or technical assistance to be taxed at limited rates in the jurisdiction of the payer of such fees. In effect, this provides for royalty-type treatment for income from such services. Where the fees are effectively connected with a PE or fixed base (i.e. where the enterprise provides the services through a PE or fixed base), provision is usually made for the application of the business profits or independent personal services article rather than the specific provisions dealing with technical fees.

The rate of source tax permitted under royalty-type provision varies from treaty to treaty. In some treaties the rate is the same as, or even lower than, the rate limit applicable to other royalties; in others it may be higher, e.g. 22.5 per cent of the gross amount of the fees in some Indian treaties.

Fees to which these provisions apply are not always defined in the treaty, but often include, explicitly or by interpretation, payments in consideration for any service of a technical, managerial or consultancy nature. India interprets this term broadly, in accordance with its domestic law definition of technical services. However, in some Indian treaties, the term “fees for technical services” is defined more narrowly as fees for services that “make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or design”. Other jurisdictions, such as Argentina, Brazil and Uruguay, also seem to consider that only services which are connected with a transfer of technology should be regarded as technical sendees or assistance.

Whether technical services are dealt with under Article 12. Royalties, or under a separate article, treaties that allow for taxation of fees for technical services at source commonly deem the fees to arise in the jurisdiction where the payer resides or where a PE that bears the expense is situated. As a result, the treaty would permit a jurisdiction to tax a payment for the relevant services if the payer was a resident (or a PE situated in that jurisdiction), even if the services were performed outside the jurisdiction.


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