The extent to which any of these treaty approaches provides an appropriate outcome in the context of taxation of income from cross-border services has been the subject of studies in a number of fora, including the OECD and the UN. The most commonly adopted approach to taxation of income from services in the reporting jurisdictions is that of the OECD Model, pursuant to which services income is taxable in a jurisdiction only if it is attributable to a fixed place of business PE (or fixed base under former OECD Model Article 14).
The traditional PE threshold found in the OECD Model Article 5 has long been recognised as facilitating cross-border trade and investment by precluding source taxation until an enterprise has established a significant economic presence in the host jurisdiction. However, it has been questioned whether these traditional PE rules, which require the existence of a fixed place of business or dependent agent, are appropriate for mobile service activities.
In 1999. the OECD established a Technical Advisor)' Group on Monitoring the Application of Existing Tax Treaty Norms for Taxing Business Profits to “examine how the current treaty rules for the taxation of business profits apply in the context of electronic commerce and examine proposals for alternative rules”. The group comprised representatives from government, business and academia of OECD member countries and non-member countries. The issue of whether supplementary nexus rules, similar to those in the UN Model, should be adopted for the purposes of taxing profits arising from the provision of services was assessed against a number of evaluation criteria (neutrality, efficiency, certainty and simplicity, effectiveness and fairness, flexibility, compatibility with international trade rules and the need to have universally agreed rules) in a discussion draft produced by the group in 2003. In its final report the following year, the group reached no conclusion as to whether or not this proposal should be pursued, but noted that “this option would be examined in the context of the work that the OECD will undertake on the application of tax treaties to services. The conclusions from that work could lead to further study of the option or variants thereof.”