Here the branch reports show that there are three broad approaches found in tax treaties:
- the OECD Model Tax Convention approach, where there are no special rules for services, so that income is dealt with under the business profits article and the normal PE threshold applies;
- the UN Model Tax Convention approach, where services income is dealt with under the business profits article (provision is made for a deemed services PE in certain circumstances), and an independent personal services article; or
- royalty treatment, where income from services, especially technical services, is included in the definition of royalties or is in a separate article that provides similar treatment to that of royalties (which may generally be taxed at source at a limited rate under these treaties).
Many combinations of, and variations to, these three approaches are found in treaties. For example, many treaties follow the OECD Model approach with respect to business profits, but also include an independent personal services article (which was included in the OECD Model until 2000). A few treaties include the alternative services PE provision that was added to the OECD Commentary in 2008, and some treaties include offshore activities articles or other provisions to deal specifically with income from natural resources.
This report deals with income derived by an enterprise from activities that consist of assisting or doing work for another person for a fee. The main focus of this topic is on taxation of income from the provision of services involving the performance of active functions by the enterprise, and in particular, services that give rise to income that would fall within the scope of Article 7, Business Profits, of the OECD Model Tax Convention.
The functions may be performed by the enterprise through the activities of a single individual, or those of employees or agents. Activities may also be performed by the enterprise through the operation of equipment, such as computers or telecommunication facilities, or may be performed electronically, e.g. through the operation of a website.