In 2004. Working Party No. 1 on Tax Conventions and Related Questions of the OECD Committee on Fiscal Affairs set up a working group to analyse the treatment of services under the current provisions of the OECD Model Tax Convention and. in particular, to examine the policy considerations for the allocation of taxing rights between the State of residence and the State of source with respect to income from services. The conclusion, published in a discussion draft in 2006, was that no changes should be made to the OECD Model, but that the alternative services PE provision discussed in section 2.1.2 above should be added to the Commentary on Article 5. The OECD Commentary was amended in accordance with this recommendation in 2008.
In 2009 the UN Committee of Experts on International Co-operation on Tax Matters established a subcommittee with a mandate to “address the issue of the taxation treatment of services in general in a broad way including related aspects and issues. The issue of taxation of fees for technical services should also be addressed.” A note produced by Professor Brian Arnold for the subcommittee analysed the various articles in the UN Model that deal with taxation of income from services, and described a number of general principles that apply to taxation of income from services which could be used to guide any revisions of the UN Model. The note also suggested a number of amendments that could be made to the UN Model that reflect these general principles.
Research was also carried out at the request of the UN Committee of Experts on the treatment of services income in more than 1,500 tax treaties concluded between 1 April 1997 and 1 January 2011. The outcome of this research was presented to the Committee of Experts in October 2011 and was published in the Bulletin for International Taxation in January 2012.
The Committee’s work has not been finalised as of the time of this report, but it will be interesting to see, in particular, how the UN decides to deal with technical services.
What we have at the moment is a mishmash of different approaches in treaties to the taxation of income from services. The branch reports demonstrate that there is no one consistent approach to taxation of services adopted in treaties. Treaty provisions vary with respect to where the income is sourced, what constitutes a sufficient nexus for source taxation, and even as to whether the income should be taxed on a net basis or a gross basis.
Table 1 provides a snapshot of how the different approaches compare on these issues.