Model Tax Convention on Income and on Capital 2025 (Full Version)

Volume I

Foreword

This full version of the OECD Model Tax Convention contains the full text of the Model Tax Convention on Income and on Capital as it read on 18 November 2025, including the Articles, the Commentaries, the non-OECD economies’ positions, the Recommendation of the OECD Council, the historical notes and the full text of a number of background reports adopted after 1977. New editions of this publication will be produced regularly to reflect updates.

The full version of the OECD Model Tax Convention is available in print and PDF (electronic) formats. The PDF format includes features such as extensive internal linking, making it easy to link from an Article to its Commentary; fast searching capabilities; the ability for the user to attach notes to specific areas of text; and cut and paste capabilities.

The Model Tax Convention of November 2025 is also available in a condensed version. The eleventh edition of the condensed version includes only the Articles, the Commentaries, the non-OECD economies’ positions and the Recommendation of the OECD Council. Like the full version, the condensed version is available in print and a PDF (electronic) format that includes the same features as the PDF format of the full version.

Introduction

1. International juridical double taxation can be generally defined as the imposition of comparable taxes in two (or more) States on the same taxpayer in respect of the same subject matter and for identical periods. Its harmful effects on the exchange of goods and services and movements of capital, technology and persons are so well known that it is scarcely necessary to stress the importance of removing the obstacles that double taxation presents to the development of economic relations between countries.

2. It has long been recognised among the Member countries of the Organisation for Economic Co-operation and Development that it is desirable to clarify, standardise, and confirm the fiscal situation of taxpayers who are engaged in commercial, industrial, financial, or any other activities in other countries through the application by all countries of common solutions to identical cases of double taxation. These countries have also long recognised the need to improve administrative co-operation in tax matters, notably through exchange of information and assistance in collection of taxes, for the purpose of preventing tax evasion and avoidance.

3. These are the main purposes of the OECD Model Tax Convention on Income and on Capital, which provides a means of settling on a uniform basis the most common problems that arise in the field of international juridical double taxation. As recommended by the Council of the OECD,^[1] Member countries, when concluding or revising bilateral conventions, should conform to this Model Convention as interpreted by the Commentaries thereon and having regard to the reservations contained therein and their tax authorities should follow these Commentaries, as modified from time to time and subject to their observations thereon, when applying and interpreting the provisions of their bilateral tax conventions that are based on the Model Convention.

A. Historical background

4. Progress had already been made towards the elimination of double taxation through bilateral conventions or unilateral measures when the Council of the Organisation for European Economic Co-operation (OEEC) adopted its first Recommendation concerning double taxation on 25 February 1955. At that time, 70 bilateral general conventions had been signed between countries that are now Members of the OECD. This was to a large extent due to the work commenced in 1921 by the League of Nations. This work led to the drawing up in 1928 of the first model bilateral convention and, finally, to the Model Conventions of Mexico (1943) and London (1946), the principles of which were followed with certain variants in many of the bilateral conventions concluded or revised during the following decade. Neither of these Model Conventions, however, was fully and unanimously accepted. Moreover, in respect of several essential questions, they presented considerable dissimilarities and certain gaps.

5. The increasing economic interdependence and co-operation of the member countries of the OEEC in the post-war period showed increasingly clearly the importance of measures for preventing international double taxation. The need was recognised for extending the network of bilateral tax conventions to all member countries of the OEEC, and subsequently of the OECD, several of which had so far concluded only very few conventions and some none at all. At the same time, harmonization of these conventions in accordance with uniform principles, definitions, rules, and methods, and agreement on a common interpretation, became increasingly desirable.

6. It was against this new background that the Fiscal Committee set to work in 1956 to establish a draft convention that would effectively resolve the double taxation problems existing between OECD Member countries and that would be acceptable to all Member countries. From 1958 to 1961, the Fiscal Committee prepared four interim Reports, before submitting in 1963 its final Report entitled Draft Double Taxation Convention on Income and Capital.^[2] The Council of the OECD adopted, on 30 July 1963, a Recommendation concerning the avoidance of double taxation and called upon the Governments of Member countries, when concluding or revising bilateral conventions between them, to conform to that Draft Convention.

7. The Fiscal Committee of the OECD had envisaged, when presenting its Report in 1963, that the Draft Convention might be revised at a later stage following further study. Such a revision was also needed to take account of the experience gained by Member countries in the negotiation and practical application of bilateral conventions, of changes in the tax systems of Member countries, of the increase in international fiscal relations, and of the development of new sectors of business activity and the emergence of new complex business organisations at the international level. For all these reasons, the Fiscal Committee and, after 1971, its successor the Committee on Fiscal Affairs, undertook the revision of the 1963 Draft Convention and of the commentaries thereon. This resulted in the publication in 1977 of a new Model Convention and Commentaries.^[3]

8. The factors that had led to the revision of the 1963 Draft Convention continued to exert their influence and, in many ways, the pressure to update and adapt the Model Convention to changing economic conditions progressively increased. New technologies were developed and, at the same time, there were fundamental changes taking place in the ways in which cross-border transactions were undertaken. Methods of tax avoidance and evasion became more sophisticated. The globalisation and liberalisation of OECD economies also accelerated rapidly in the 1980s. Consequently, in the course of its regular work programme, the Committee on Fiscal Affairs and, in particular, its Working Party No. 1, continued after 1977 to examine various issues directly or indirectly related to the 1977 Model Convention. This work resulted in a number of reports, some of which recommended amendments to the Model Convention and its Commentaries.^[4]

9. In 1991, recognizing that the revision of the Model Convention and the Commentaries had become an ongoing process, the Committee on Fiscal Affairs adopted the concept of an ambulatory Model Convention providing periodic and more timely updates and amendments without waiting for a complete revision. It was therefore decided to publish a revised updated version of the Model Convention which would take into account the work done since 1977 by integrating many of the recommendations made in the above-mentioned reports.

10. Because the influence of the Model Convention had extended far beyond the OECD Member countries, the Committee also decided that the revision process should be opened up to benefit from the input of non-Member countries, other international organisations and other interested parties. It was felt that such outside contributions would assist the Committee on Fiscal Affairs in its continuing task of updating the Model Convention to conform with the evolution of international tax rules and principles.

11. This led to the publication in 1992 of the Model Convention in a loose-leaf format. Unlike the 1963 Draft Convention and the 1977 Model Convention, the revised Model was not the culmination of a comprehensive revision, but rather the first step of an ongoing revision process intended to produce periodic updates and thereby ensure that the Model Convention continues to reflect accurately the views of Member countries at any point in time.

11.1 Through one of these updates, produced in 1997, the positions of a number of non-Member countries on the Model Convention were added in a second volume in recognition of the growing influence of the Model Convention outside the OECD countries (see below). At the same time, reprints of a number of previous reports of the Committee which had resulted in changes to the Model Convention were also added.

11.2 Since the publication of the first ambulatory version in 1992, the Model Convention was updated 11 times (in 1994, 1995, 1997, 2000, 2002, 2005, 2008, 2010, 2014, 2017 and 2025). The update adopted in 2017 included a large number of changes resulting from the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project and, in particular, from the final reports on Actions 2, 6, 7 and 14^[5] produced as part of that project.

B. Influence of the OECD Model Convention

12. Since 1963, the OECD Model Convention has had wide repercussions on the negotiation, application, and interpretation of tax conventions.

13. First, OECD Member countries have largely conformed to the Model Convention when concluding or revising bilateral conventions. The progress made towards eliminating double taxation between Member countries can be measured by the increasing number of conventions concluded or revised since 1957 in accordance with the Recommendations of the Council of the OECD. But the importance of the Model Convention should be measured not only by the number of conventions concluded between Member countries but also by the fact that, in accordance with the Recommendations of the Council of the OECD, these conventions follow the pattern and, in most cases, the main provisions of the Model Convention. The existence of the Model Convention has facilitated bilateral negotiations between OECD Member countries and made possible a desirable harmonization between their bilateral conventions for the benefit of both taxpayers and national administrations.

14. Second, the impact of the Model Convention has extended far beyond the OECD area. It has been used as a basic document of reference in negotiations between Member and non-Member countries and even between non-Member countries, as well as in the work of other worldwide or regional international organisations in the field of double taxation and related problems. Most notably, it has been used as the basis for the original drafting and the subsequent revision of the United Nations Model Double Taxation Convention between Developed and Developing Countries,^[6] which reproduces a significant part of the provisions and Commentaries of the OECD Model Convention. It is in recognition of this growing influence of the Model Convention in non-Member countries that it was agreed, in 1997, to add to the Model Convention the positions of a number of these countries on its provisions and Commentaries.

15. Third, the worldwide recognition of the provisions of the Model Convention and their incorporation into a majority of bilateral conventions have helped make the Commentaries on the provisions of the Model Convention a widely-accepted guide to the interpretation and application of the provisions of existing bilateral conventions. This has facilitated the interpretation and the enforcement of these bilateral conventions along common lines. As the network of tax conventions continues to expand, the importance of such a generally accepted guide becomes all the greater.

C. Tax policy considerations that are relevant to the decision of whether to enter into a tax treaty or amend an existing treaty

15.1 In 1997, the OECD Council adopted a recommendation that the Governments of Member countries pursue their efforts to conclude bilateral tax treaties with those Member countries, and where appropriate with non-Member countries, with which they had not yet entered into such conventions. Whilst the question of whether or not to enter into a tax treaty with another country is for each State to decide on the basis of different factors, which include both tax and non-tax considerations, tax policy considerations will generally play a key role in that decision. The following paragraphs describe some of these tax policy considerations, which are relevant not only to the question of whether a treaty should be concluded with a State but also to the question of whether a State should seek to modify or replace an existing treaty or even, as a last resort, terminate a treaty (taking into account the fact that termination of a treaty often has a negative impact on large number of taxpayers who are not concerned by the situations that result in the termination of the treaty).

15.2 Since a main objective of tax treaties is the avoidance of double taxation in order to reduce tax obstacles to cross-border services, trade and investment, the existence of risks of double taxation resulting from the interaction of the tax systems of the two States involved will be the primary tax policy concern. Such risks of double taxation will generally be more important where there is a significant level of existing or projected cross-border trade and investment between two States. Most of the provisions of tax treaties seek to alleviate double taxation by allocating taxing rights between the two States and it is assumed that where a State accepts treaty provisions that restrict its right to tax elements of income, it generally does so on the understanding that these elements of income are taxable in the other State. Where a State levies no or low income taxes, other States should consider whether there are risks of double taxation that would justify, by themselves, a tax treaty. States should also consider whether there are elements of another State’s tax system that could increase the risk of non-taxation, which may include tax advantages that are ring-fenced from the domestic economy.

15.3 Accordingly, two States that consider entering into a tax treaty should evaluate the extent to which the risk of double taxation actually exists in cross-border situations involving their residents. A large number of cases of residence-source juridical double taxation can be eliminated through domestic provisions for the relief of double taxation (ordinarily in the form of either the exemption or credit method) which operate without the need for tax treaties. Whilst these domestic provisions will likely address most forms of residence-source juridical double taxation, they will not cover all cases of double taxation, especially if there are significant differences in the source rules of the two States or if the domestic law of these States does not allow for unilateral relief of economic double taxation (e.g. in the case of a transfer pricing adjustment made in another State).

15.4 Another tax policy consideration that is relevant to the conclusion of a tax treaty is the risk of excessive taxation that may result from high withholding taxes in the source State. Whilst mechanisms for the relief of double taxation will normally ensure that such high withholding taxes do not result in double taxation, to the extent that such taxes levied in the State of source exceed the amount of tax normally levied on profits in the State of residence, they may have a detrimental effect on cross-border trade and investment.

15.5 Further tax considerations that should be taken into account when considering entering into a tax treaty include the various features of tax treaties that encourage and foster economic ties between countries, such as the protection from discriminatory tax treatment of foreign investment that is offered by the non-discrimination rules of Article 24, the greater certainty of tax treatment for taxpayers who are entitled to benefit from the treaty and the fact that tax treaties provide, through the mutual agreement procedure, together with the possibility for Contracting States of moving to arbitration, a mechanism for the resolution of cross-border tax disputes.

15.6 An important objective of tax treaties being the prevention of tax avoidance and evasion, States should also consider whether their prospective treaty partners are willing and able to implement effectively the provisions of tax treaties concerning administrative assistance, such as the ability to exchange tax information, this being a key aspect that should be taken into account when deciding whether or not to enter into a tax treaty. The ability and willingness of a State to provide assistance in the collection of taxes would also be a relevant factor to take into account. It should be noted, however, that in the absence of any actual risk of double taxation, these administrative provisions would not, by themselves, provide a sufficient tax policy basis for the existence of a tax treaty because such administrative assistance could be secured through more targeted alternative agreements, such as the conclusion of a tax information exchange agreement or the participation in the Multilateral Convention on Mutual Administrative Assistance in Tax Matters.^[7]

D. Presentation of the Model Convention

Title of the Model Convention

16. In both the 1963 Draft Convention and the 1977 Model Convention, the title of the Model Convention included a reference to the elimination of double taxation. In recognition of the fact that the Model Convention does not deal exclusively with the elimination of double taxation but also addresses other issues, such as the prevention of tax evasion and avoidance as well as non-discrimination, it was decided, in 1992, to use a shorter title which did not include this reference. This change was made both on the cover page of this publication and in the Model Convention itself. However, it was understood that the practice of many Member countries was still to include in the title a reference to either the elimination of double taxation or to both the elimination of double taxation and the prevention of fiscal evasion since both approaches emphasised these important purposes of the Convention.

16.1 As a result of work undertaken as part of the OECD/G20 Base Erosion and Profit Shifting Project, in 2014 the Committee decided to amend the title of the Convention and to include a preamble. The changes made expressly recognise that the purposes of the Convention are not limited to the elimination of double taxation and that the Contracting States do not intend the provisions of the Convention to create opportunities for non-taxation or reduced taxation through tax evasion and avoidance. Given the particular base erosion and profit shifting concerns arising from treaty-shopping arrangements, it was also decided to refer expressly to such arrangements as one example of tax avoidance that should not result from tax treaties, it being understood that this was only one example of tax avoidance that the Contracting States intend to prevent.

16.2 Since the title and preamble form part of the context of the Convention^[8] and constitute a general statement of the object and purpose of the Convention, they should play an important role in the interpretation of the provisions of the Convention. According to the general rule of treaty interpretation contained in Article 31(1) of the Vienna Convention on the Law of Treaties, “[a] treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.”

Broad lines of the Model Convention

17. The Model Convention first describes its scope (Chapter I) and defines some terms (Chapter II). The main part is made up of Chapters III to V, which settle to what extent each of the two Contracting States may tax income and capital and how international juridical double taxation is to be eliminated. Then follow the Special Provisions (Chapter VI) and the Final Provisions (entry into force and termination, Chapter VII).

Scope and definitions

18. The Convention applies to all persons who are residents of one or both of the Contracting States (Article 1). It deals with taxes on income and on capital, which are described in a general way in Article 2. In Chapter II, some terms used in more than one Article of the Convention are defined. Other terms such as “dividends”, “interest”, “royalties” and “immovable property” are defined in the Articles that deal with these matters.

Taxation of income and capital

19. For the purpose of eliminating double taxation, the Convention establishes two categories of rules. First, Articles 6 to 21 determine, with regard to different classes of income, the respective rights to tax of the State of source or situs and of the State of residence, and Article 22 does the same with regard to capital. In the case of a number of items of income and capital, an exclusive right to tax is conferred on one of the Contracting States. The other Contracting State is thereby prevented from taxing those items and double taxation is avoided. As a rule, this exclusive right to tax is conferred on the State of residence. In the case of other items of income and capital, the right to tax is not an exclusive one. As regards two classes of income (dividends and interest), although both States are given the right to tax, the amount of tax that may be imposed in the State of source is limited. Second, insofar as these provisions confer on the State of source or situs a full or limited right to tax, the State of residence must allow relief so as to avoid double taxation; this is the purpose of Articles 23 A and 23 B. The Convention leaves it to the Contracting States to choose between two methods of relief, i.e. the exemption method and the credit method.

20. Income and capital may be classified into three classes, depending on the treatment applicable to each class in the State of source or situs:

• income and capital that may be taxed without any limitation in the State of source or situs,

• income that may be subjected to limited taxation in the State of source, and

• income and capital that may not be taxed in the State of source or situs.

21. The following are the classes of income and capital that may be taxed without any limitation in the State of source or situs:

• income from immovable property situated in that State (including income from agriculture or forestry), gains from the alienation of such property, and capital representing it (Article 6 and paragraph 1 of Articles 13 and 22) as well as gains from the alienation of shares deriving more than 50 per cent of their value from such property (paragraph 4 of Article 13);

• profits of a permanent establishment situated in that State, gains from the alienation of such a permanent establishment, and capital representing movable property forming part of the business property of such a permanent establishment (Article 7 and paragraph 2 of Articles 13 and 22); an exception is made, however, if the permanent establishment is maintained for the purposes of international shipping and international air transport (see paragraph 23 below);

• income from the activities of entertainers and sportspersons exercised in that State, irrespective of whether such income accrues to the artiste or sportsman himself or to another person (Article 17);

• directors’ fees paid by a company that is a resident of that State (Article 16);

• remuneration in respect of an employment in the private sector, exercised in that State, unless the employee is present therein for a period not exceeding 183 days in any twelve month period commencing or ending in the fiscal year concerned and certain conditions are met (Article 15);

• subject to certain conditions, remuneration and pensions paid in respect of government service (Article 19).

22. The following are the classes of income that may be subjected to limited taxation in the State of source:

• dividends: provided the holding in respect of which the dividends are paid is not effectively connected with a permanent establishment in the State of source, that State must limit its tax to 5 per cent of the gross amount of the dividends, where the beneficial owner is a company that holds directly, during a 365-day period, at least 25 per cent of the capital of the company paying the dividends, and to 15 per cent of their gross amount in other cases (Article 10);

• interest: subject to the same proviso as in the case of dividends, the State of source must limit its tax to 10 per cent of the gross amount of the interest, except for any interest in excess of a normal amount (Article 11).

23. Other items of income or capital may not be taxed in the State of source or situs; as a rule they are taxable only in the State of residence of the taxpayer. This applies, for example, to royalties (Article 12), gains from the alienation of shares or securities (paragraph 5 of Article 13, subject to the exception of paragraph 4 of Article 13), remuneration in respect of an employment exercised aboard a ship or aircraft operated in international traffic (paragraph 3 of Article 15), private sector pensions (Article 18), payments received by a student for the purposes of his education or training (Article 20), and capital represented by shares or securities (paragraph 4 of Article 22). Similarly, profits from the operation of ships or aircraft in international traffic, gains from the alienation of such ships or aircraft, and capital represented by them, are taxable only in the State of residence (Article 8) and paragraph 3 of Articles 13 and 22). Business profits that are not attributable to a permanent establishment in the State of source are also taxable only in the State of residence (paragraph 1 of Article 7).

24. Where a resident of a Contracting State receives income from sources in the other Contracting State, or owns capital situated therein, that in accordance with the Convention is taxable only in the State of residence, no problem of double taxation arises, since the State of source or situs must refrain from taxing that income or capital.

25. Where, on the contrary, income or capital may, in accordance with the Convention, be taxed with or without limitation in the State of source or situs, the State of residence has the obligation to eliminate double taxation. This can be accomplished by one of the following two methods:

• exemption method: income or capital that is taxable in the State of source or situs is exempted in the State of residence, but it may be taken into account in determining the rate of tax applicable to the taxpayer’s remaining income or capital;

• credit method: income or capital that is taxable in the State of source or situs is subject to tax in the State of residence, but the tax levied in the State of source or situs is credited against the tax levied by the State of residence on such income or capital.

25.1 It follows from the preceding explanations that, throughout the Convention, the words “may be taxed in” a Contracting State mean that that State is granted the right to tax the income to which the relevant provision applies and that these words do not affect the right to tax of the other Contracting State, except through the application of Article 23 A or 23 B when that other State is the State of residence.

Special provisions

26. There are a number of special provisions in the Convention. These provisions concern:

• the elimination of tax discrimination in various circumstances (Article 24);

• the establishment of a mutual agreement procedure for eliminating double taxation and resolving conflicts of interpretation of the Convention (Article 25);

• the exchange of information between the tax authorities of the Contracting States (Article 26);

• the assistance by Contracting States in the collection of each other’s taxes (Article 27);

• the tax treatment of members of diplomatic missions and consular posts in accordance with international law (Article 28);

• the entitlement to the benefits of the Convention (Article 29);

• the territorial extension of the Convention (Article 30).

General remarks on the Model Convention

27. The Model Convention seeks, wherever possible, to specify for each situation a single rule. On certain points, however, it was thought necessary to leave in the Convention a certain degree of flexibility, compatible with the efficient implementation of the Model Convention. Member countries therefore enjoy a certain latitude, for example, with regard to fixing the rate of tax at source on dividends and interest and the choice of method for eliminating double taxation. Moreover, for some cases, alternative or additional provisions are mentioned in the Commentaries.

Commentaries on the Articles

28. For each Article in the Convention, there is a detailed Commentary that is intended to illustrate or interpret its provisions.

29. As the Commentaries have been drafted and agreed upon by the experts appointed to the Committee on Fiscal Affairs by the Governments of Member countries, they are of special importance in the development of international fiscal law. Although the Commentaries are not designed to be annexed in any manner to the conventions signed by Member countries, which unlike the Model are legally binding international instruments, they can nevertheless be of great assistance in the application and interpretation of the conventions and, in particular, in the settlement of any disputes.

29.1 The tax administrations of Member countries routinely consult the Commentaries in their interpretation of bilateral tax treaties. The Commentaries are useful both in deciding day-to-day questions of detail and in resolving larger issues involving the policies and purposes behind various provisions. Tax officials give great weight to the guidance contained in the Commentaries.

29.2 Similarly, taxpayers make extensive use of the Commentaries in conducting their businesses and planning their business transactions and investments. The Commentaries are of particular importance in countries that do not have a procedure for obtaining an advance ruling on tax matters from the tax administration as the Commentaries may be the only available source of interpretation in that case.

29.3 Bilateral tax treaties are receiving more and more judicial attention as well. The courts are increasingly using the Commentaries in reaching their decisions. Information collected by the Committee on Fiscal Affairs shows that the Commentaries have been cited in the published decisions of the courts of the great majority of Member countries. In many decisions, the Commentaries have been extensively quoted and analysed, and have frequently played a key role in the judge’s deliberations. The Committee expects this trend to continue as the worldwide network of tax treaties continues to grow and as the Commentaries gain even more widespread acceptance as an important interpretative reference.

30. Observations on the Commentaries have sometimes been inserted at the request of Member countries that are unable to concur in the interpretation given in the Commentary on the Article concerned. These observations thus do not express any disagreement with the text of the Convention, but usefully indicate the way in which those countries will apply the provisions of the Article in question. Since the observations are related to the interpretations of the Articles given in the Commentaries, no observation is needed to indicate a country’s wish to modify the wording of an alternative or additional provision that the Commentaries allow countries to include in their bilateral conventions.

Reservations of certain Member countries on some provisions of the Convention

31. Although all Member countries are in agreement with the aims and the main provisions of the Model Convention, nearly all have entered reservations on some provisions, which are recorded in the Commentaries on the Articles concerned. There has been no need for countries to make reservations indicating their intent to use the alternative or additional provisions that the Commentaries allow countries to include in their bilateral conventions or to modify the wording of a provision of the Model to confirm or incorporate an interpretation of that provision put forward in the Commentary. It is understood that insofar as a Member country has entered reservations, the other Member countries, in negotiating bilateral conventions with the former, will retain their freedom of action in accordance with the principle of reciprocity.

32. The Committee on Fiscal Affairs considers that these reservations should be viewed against the background of the very wide areas of agreement that has been achieved in drafting this Convention.

Relation with previous versions

33. When drafting the 1977 Model Convention, the Committee on Fiscal Affairs examined the problems of conflicts of interpretation that might arise as a result of changes in the Articles and Commentaries of the 1963 Draft Convention. At that time, the Committee considered that existing conventions should, as far as possible, be interpreted in the spirit of the revised Commentaries, even though the provisions of these conventions did not yet include the more precise wording of the 1977 Model Convention. It was also indicated that Member countries wishing to clarify their positions in this respect could do so by means of an exchange of letters between competent authorities in accordance with the mutual agreement procedure and that, even in the absence of such an exchange of letters, these authorities could use mutual agreement procedures to confirm this interpretation in particular cases.

34. The Committee believes that the changes to the Articles of the Model Convention and the Commentaries that have been made since 1977 should be similarly interpreted.

35. Needless to say, amendments to the Articles of the Model Convention and changes to the Commentaries that are a direct result of these amendments are not relevant to the interpretation or application of previously concluded conventions where the provisions of those conventions are different in substance from the amended Articles (see, for instance, paragraph 4 of the Commentary on Article 5). However, other changes or additions to the Commentaries are normally applicable to the interpretation and application of conventions concluded before their adoption, because they reflect the consensus of the OECD Member countries as to the proper interpretation of existing provisions and their application to specific situations.

36. Whilst the Committee considers that changes to the Commentaries should be relevant in interpreting and applying conventions concluded before the adoption of these changes, it disagrees with any form of a contrario interpretation that would necessarily infer from a change to an Article of the Model Convention or to the Commentaries that the previous wording resulted in consequences different from those of the modified wording. Many amendments are intended to simply clarify, not change, the meaning of the Articles or the Commentaries, and such a contrario interpretations would clearly be wrong in those cases.

36.1 Tax authorities in Member countries follow the general principles enunciated in the preceding four paragraphs. Accordingly, the Committee on Fiscal Affairs considers that taxpayers may also find it useful to consult later versions of the Commentaries in interpreting earlier treaties.

Multilateral convention

37. When preparing the 1963 Draft Convention and the 1977 Model Convention, the Committee on Fiscal Affairs considered whether the conclusion of a multilateral tax convention would be feasible and came to the conclusion that this would meet with great difficulties. It recognised, however, that it might be possible for certain groups of Member countries to study the possibility of concluding such a convention among themselves on the basis of the Model Convention, subject to certain adaptations they might consider necessary to suit their particular purposes.

38. The Nordic Convention on Income and Capital entered into by Denmark, Finland, Iceland, Norway and Sweden, which was concluded in 1983 and replaced in 1987, 1989 and 1996,^[9] provides a practical example of such a multilateral convention between a group of Member countries and follows closely the provisions of the Model Convention.

39. Also relevant is the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, which was drawn up within the Council of Europe on the basis of a first draft prepared by the Committee on Fiscal Affairs. This Convention entered into force on 1 April 1995. Another relevant multilateral convention is the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS, which was drafted in order to facilitate the implementation of the treaty-related measures resulting from the OECD/G20 Base Erosion and Profit Shifting Project and which was opened for signature on 31 December 2016.

40. Despite these multilateral conventions, there are no reasons to believe that the conclusion of a multilateral tax convention involving a large number of countries that could replace the network of current bilateral tax conventions could now be considered practicable. The Committee therefore considers that bilateral conventions are still a more appropriate way to ensure the elimination of double taxation at the international level.

Tax avoidance and evasion; improper use of conventions

41. Issues related to the improper use of tax conventions and international tax avoidance and evasion have been a constant preoccupation of the Committee on Fiscal Affairs since the publication of the 1963 Draft Convention. Over the years, a number of provisions (such as Article 29, which was added in 2017) have been added to the Model Convention, or have been modified, in order to address various forms of tax avoidance and evasion. The Committee on Fiscal Affairs will continue to monitor the application of tax treaties in order to ensure that, as stated in the preamble of the Convention, the provisions of the Convention are not used for the purposes of tax avoidance or evasion.

Model Convention with Respect to Taxes on Income and on Capital

Summary of the Convention

Title and Preamble

Chapter I. Scope of the Convention

Chapter II. Definitions

Chapter III. Taxation of income

Chapter IV. Taxation of capital

Chapter V. Methods for elimination of double taxation

Chapter VI. Special provisions

Chapter VII. Final provisions

Title of the Convention

Convention between (State A) and (State B)

for the elimination of double taxation with respect to taxes on income and on capital and the prevention of tax evasion and avoidance

Preamble to the Convention

(State A) and (State B),

Desiring to further develop their economic relationship and to enhance their co-operation in tax matters,

Intending to conclude a Convention for the elimination of double taxation with respect to taxes on income and on capital without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including through treaty-shopping arrangements aimed at obtaining reliefs provided in this Convention for the indirect benefit of residents of third States),

Have agreed as follows:

History

The title of the Convention: Changed on 21 November 2017, by amending the title of the Convention and removing the footnote, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017 on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until 21 November 2017, the title of the Convention read as follows:

“Convention between (State A) and (State B) with respect to taxes on income and on capital”

After 23 July 1992 and until 21 November 2017, the footnote to the title of the Convention read as follows:

“1 States wishing to do so may follow the widespread practice of including in the title a reference to either the avoidance of double taxation or to both the avoidance of double taxation and the prevention of fiscal evasion.”

The footnote to the title of the Convention was added by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Preamble to the Convention: Changed on 21 November 2017, by amending the preamble to the Convention and removing the footnote, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. After 23 July 1992 and until 21 November 2017, the preamble to the Convention and the footnote read as follows:

“Preamble to the Convention^[10]”

The footnote to the preamble to the Convention was redesignated as footnote 2 (from a “Note”) when footnote 1 was added to the title of the Convention by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Chapter I
Scope of the Convention

Article 1 – Persons covered

1. This Convention shall apply to persons who are residents of one or both of the Contracting States.

2. For the purposes of this Convention, income derived by or through an entity or arrangement that is treated as wholly or partly fiscally transparent under the tax law of either Contracting State shall be considered to be income of a resident of a Contracting State but only to the extent that the income is treated, for purposes of taxation by that State, as the income of a resident of that State.

3. This Convention shall not affect the taxation, by a Contracting State, of its residents except with respect to the benefits granted under paragraph 3 of Article 7, paragraph 2 of Article 9 and Articles 19, 20, 23 [A] [B], 24, 25 and 28.

History

The title of Article 1: Changed on 21 September 1995, by replacing the title “Personal Scope” with “Persons Covered”, by the report entitled “The 1995 Update to the Model Tax Convention”, adopted by the OECD Council on 21 September 1995. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until 21 September 1995, the title of Article 1 read as follows:

“PERSONAL SCOPE”

Paragraph 1: Unchanged since the adoption of the 1963 Draft Convention by the OECD Council on 30 July 1963.

Paragraph 2: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Neutralising the Effects of Hybrid Mismatch Arrangements, Action 2 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 3: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Article 2 – Taxes covered

1. This Convention shall apply to taxes on income and on capital imposed on behalf of a Contracting State or of its political subdivisions or local authorities, irrespective of the manner in which they are levied.

2. There shall be regarded as taxes on income and on capital all taxes imposed on total income, on total capital, or on elements of income or of capital, including taxes on gains from the alienation of movable or immovable property, taxes on the total amounts of wages or salaries paid by enterprises, as well as taxes on capital appreciation.

3. The existing taxes to which the Convention shall apply are in particular:

1. (in State A): ..........................................

2. (in State B): ..........................................

4. The Convention shall apply also to any identical or substantially similar taxes that are imposed after the date of signature of the Convention in addition to, or in place of, the existing taxes. The competent authorities of the Contracting States shall notify each other of any significant changes that have been made in their taxation laws.

History

Paragraph 1: Amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977 by substituting the words “a Contracting State” for “each Contracting State”. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 1 read as follows:

“1. This Convention shall apply to taxes on income and on capital imposed on behalf of each Contracting State or of its political subdivisions or local authorities, irrespective of the manner in which they are levied.”

Paragraph 2: Unchanged since the adoption of the 1963 Draft Convention by the OECD Council on 30 July 1963.

Paragraph 3: Amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977 by deleting the comma before “in particular” and replacing the words “In the case of (” with “(in” at the beginning of subparagraphs a) and b). In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 3 read as follows:

“3. The existing taxes to which the Convention shall apply are, in particular:

1. In the case of (State A): ..........................................

2. In the case of (State B): ..........................................”

Paragraph 4: Amended on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000. In the 1977 Convention and until 29 April 2000, paragraph 4 read as follows:

“4. The Convention shall apply also to any identical or substantially similar taxes which are imposed after the date of signature of the Convention in addition to, or in place of, the existing taxes. At the end of each year, the competent authorities of the Contracting States shall notify each other of changes which have been made in their respective taxation laws.”

Paragraph 4 was previously amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 4 read as follows:

“4. The Convention shall also apply to any identical or substantially similar taxes which are subsequently imposed in addition to, or in place of, the existing taxes. At the end of each year, the competent authorities of the Contracting States shall notify to each other any changes which have been made in their respective taxation laws.”

Chapter II
Definitions

Article 3 – General definitions

1. For the purposes of this Convention, unless the context otherwise requires:

1. the term “person” includes an individual, a company and any other body of persons;

2. the term “company” means any body corporate or any entity that is treated as a body corporate for tax purposes;

3. the term “enterprise” applies to the carrying on of any business;

4. the terms “enterprise of a Contracting State” and “enterprise of the other Contracting State” mean respectively an enterprise carried on by a resident of a Contracting State and an enterprise carried on by a resident of the other Contracting State;

5. the term “international traffic” means any transport by a ship or aircraft except when the ship or aircraft is operated solely between places in a Contracting State and the enterprise that operates the ship or aircraft is not an enterprise of that State;

6. the term “competent authority” means:

   1. (in State A): ................................

   2. (in State B): ................................

7. the term “national”, in relation to a Contracting State, means:

   1. any individual possessing the nationality or citizenship of that Contracting State; and

   2. any legal person, partnership or association deriving its status as such from the laws in force in that Contracting State;

8. the term “business” includes the performance of professional services and of other activities of an independent character;

9. the term “recognised pension fund” of a State means an entity or arrangement established in that State that is treated as a separate person under the taxation laws of that State and:

   1. that is established and operated exclusively or almost exclusively to administer or provide retirement benefits and ancillary or incidental benefits to individuals and that is regulated as such by that State or one of its political subdivisions or local authorities; or

   2. that is established and operated exclusively or almost exclusively to invest funds for the benefit of entities or arrangements referred to in subdivision (i).

2. As regards the application of the Convention at any time by a Contracting State, any term not defined therein shall, unless the context otherwise requires or the competent authorities agree to a different meaning pursuant to the provisions of Article 25, have the meaning that it has at that time under the law of that State for the purposes of the taxes to which the Convention applies, any meaning under the applicable tax laws of that State prevailing over a meaning given to the term under other laws of that State.

History

Paragraph 1: The preamble of paragraph 1 was amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977 by replacing the words “In this Convention” with “For the purposes of this Convention”. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, the preamble of paragraph 1 read as follows:

“1. In this Convention, unless the context otherwise requires:”

Subparagraph a): Corresponds to subparagraph b) of the 1963 Draft Convention. On 11 April 1977, subparagraph a) of the 1963 Draft Convention was deleted and subparagraph b) was redesignated as subparagraph a) and amended, by replacing the word “comprises” with “includes”, when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, subparagraphs a) and b) of paragraph 1 read as follows:

“a) the terms “a Contracting State” and “the other Contracting State” mean (State A) or (State B), as the context requires;

b) the term “person” comprises an individual, a company and any other body of persons;”

Subparagraph b): Amended on 21 September 1995, by replacing the words “entity which” with “entity that”, by the report entitled “The 1995 Update to the Model Tax Convention”, adopted by the OECD Council on 21 September 1995. In the 1977 Model Convention and until 21 September 1995, subparagraph b) of paragraph 1 read as follows:

“b) the term “company” means any body corporate or any entity which is treated as a body corporate for tax purposes;”

Subparagraph b) of the 1977 Model Convention corresponded to subparagraph c) of the 1963 Draft Convention. Subparagraph b) of the 1963 Draft Convention was amended and redesignated as subparagraph a) (see history of subparagraph a) above) and subparagraph c) of the 1963 Draft Convention was redesignated as subparagraph b) when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Subparagraph c): Replaced on 29 April 2000, when it was redesignated as subparagraph d) (see history of subparagraph d) below) and a new subparagraph c) was added by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000, on the basis of the Annex of another report entitled “Issues related to Article 14 of the OECD Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 27 January 2000).

Subparagraph d): Corresponds to subparagraph c) as it read before 29 April 2000. On that date, subparagraph d) of the 1977 Model Convention was redesignated as subparagraph e) (see history of subparagraph e) below) and subparagraph c) of the 1977 Model Convention was redesignated as subparagraph d) by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000.

Subparagraph c) of the 1977 Model Convention corresponded to subparagraph d) of the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963), which was redesignated as subparagraph c) when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Subparagraph e): Amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 29 April 2000 and until 21 November 2017, subparagraph e) read as follows:

“e) the term “international traffic” means any transport by a ship or aircraft operated by an enterprise that has its place of effective management in a Contracting State, except when the ship or aircraft is operated solely between places in the other Contracting State;”

Subparagraph e) corresponds to subparagraph d) as it read before 29 April 2000. On that date, subparagraph e) was redesignated as subparagraph f) (see history of subparagraph f) below) and subparagraph d) was redesignated as subparagraph e), by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000.

Subparagraph d) of the 1977 Model Convention was amended on 21 September 1995, by replacing the words “enterprise which” with the words “enterprise that”, by the report entitled “The 1995 Update to the Model Tax Convention”, adopted by the OECD Council on 21 September 1995. In the 1977 Model Convention and until 21 September 1995, subparagraph d) read as follows:

“d) the term “international traffic” means any transport by a ship or aircraft operated by an enterprise which has its place of effective management in a Contracting State, except when the ship or aircraft is operated solely between places in the other Contracting State;”

Subparagraph d) of the 1963 Draft Convention was replaced when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, subparagraph d) of the 1963 Draft Convention was redesignated subparagraph c) and a new subparagraph d) was added.

Subparagraph f): Corresponds to subparagraph e) as it read before 29 April 2000. On that date, subparagraph f) was redesignated as subparagraph g) (see history of subparagraph g) below) and subparagraph e) was redesignated as subparagraph f) by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000.

Subparagraph e) of the 1963 Draft Convention was amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, subparagraph e) read as follows:

“e) the term “competent authority” means:

1. (in State A):

2. (in State B):”

Subparagraph g): Amended on 28 January 2003 by adding the words “, in relation to a Contracting State” immediately before the word “means”, by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003. After 29 April 2000 and until 28 January 2003 subparagraph g) read as follows:

“g) the term “national” means:

1. any individual possessing the nationality of a Contracting State;

2. any legal person, partnership or association deriving its status as such from the laws in force in a Contracting State;”

Subparagraph g) as it read after 29 April 2000 corresponded to subparagraph f) as it read before that date. On 29 April 2000, subparagraph f) was redesignated as subparagraph g) by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000.

Subparagraph f) as it read after 23 July 1992 corresponded to paragraph 2 of Article 24 of the 1977 Model Convention. On 23 July 1992, paragraph 2 of Article 24 was amended and redesignated as subparagraph f) of paragraph 1 of Article 3 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992. In the 1977 Model Convention and until 23 July 1992, paragraph 2 of Article 24 read as follows:

“2. The term “nationals” means:

1. all individuals possessing the nationality of a Contracting State;

2. all legal persons, partnerships and associations deriving their status as such from the laws in force in a Contracting State.”

Paragraph 2 of Article 24 of the 1977 Model Convention was amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977, by substituting the word “laws” for “law” in subparagraph b). In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 2 of Article 24 read as follows:

“2. The term “nationals” means:

1. all individuals possessing the nationality of a Contracting State;

2. all legal persons, partnerships and associations deriving their status as such from the law in force in a Contracting State.”

Subparagraph h): Added on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000, on the basis of the Annex of another report entitled “Issues related to Article 14 of the OECD Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 27 January 2000).

Subparagraph i): Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 2: Amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 21 September 1995 and until 21 November 2017, paragraph 2 read as follows:

“2. As regards the application of the Convention at any time by a Contracting State, any term not defined therein shall, unless the context otherwise requires, have the meaning that it has at that time under the law of that State for the purposes of the taxes to which the Convention applies, any meaning under the applicable tax laws of that State prevailing over a meaning given to the term under other laws of that State.”

Paragraph 2 was previously amended on 21 September 1995 by the report entitled “The 1995 Update to the Model Tax Convention”, adopted by the OECD Council on 21 September 1995. In the 1977 Model Convention and until 21 September 1995, paragraph 2 read as follows:

“2. As regards the application of the Convention by a Contracting State any term not defined therein shall, unless the context otherwise requires, have the meaning which it has under the law of that State concerning the taxes to which the Convention applies.”

Paragraph 2 was previously amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 2 read as follows:

“2. As regards the application of the Convention by a Contracting State any term not otherwise defined shall, unless the context otherwise requires, have the meaning which it has under the laws of that Contracting State relating to the taxes which are the subject of the Convention.”

Article 4 – Resident

1. For the purposes of this Convention, the term “resident of a Contracting State” means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature, and also includes that State and any political subdivision or local authority thereof as well as a recognised pension fund of that State. This term, however, does not include any person who is liable to tax in that State in respect only of income from sources in that State or capital situated therein.

2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined as follows:

1. he shall be deemed to be a resident only of the State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident only of the State with which his personal and economic relations are closer (centre of vital interests);

2. if the State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either State, he shall be deemed to be a resident only of the State in which he has an habitual abode;

3. if he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident only of the State of which he is a national;

4. if he is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

3. Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, the competent authorities of the Contracting States shall endeavour to determine by mutual agreement the Contracting State of which such person shall be deemed to be a resident for the purposes of the Convention, having regard to its place of effective management, the place where it is incorporated or otherwise constituted and any other relevant factors. In the absence of such agreement, such person shall not be entitled to any relief or exemption from tax provided by this Convention except to the extent and in such manner as may be agreed upon by the competent authorities of the Contracting States.

History

The title of Article 4: Changed when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, the title of Article 4 read as follows:

“FISCAL DOMICILE”

Paragraph 1: Amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. After 21 September 1995 and until 21 November 2017, paragraph 1 read as follows:

“1. For the purposes of this Convention, the term “resident of a Contracting State” means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature, and also includes that State and any political subdivision or local authority thereof. This term, however, does not include any person who is liable to tax in that State in respect only of income from sources in that State or capital situated therein.”

Paragraph 1 was previously amended on 21 September 1995, by adding to the first sentence the words “and also includes that State and any political subdivision or local authority thereof” and by replacing in the second sentence the words “But this term” with “This term, however,”, by the report entitled “The 1995 Update to the Model Tax Convention”, adopted by the OECD Council on 21 September 1995. In the 1977 Model Convention and until 21 September 1995, paragraph 1 read as follows:

“1. For the purposes of this Convention, the term “resident of a Contracting State” means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature. But this term does not include any person who is liable to tax in that State in respect only of income from sources in that State or capital situated therein.”

Paragraph 1 was previously amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977, by the addition of the second sentence. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 1 read as follows:

“1. For the purposes of this Convention, the term “resident of a Contracting State” means any person who, under the law of that State, is liable to taxation therein by reason of his domicile, residence, place of management or any other criterion of a similar nature.”

Paragraph 2: Amended on 23 October 1997, by adding the word “only” after the word “resident” in the third line of subparagraph a) to correct an omission that was made when similar changes were made to subparagraphs a), b) and c) as part of the 1995 update (see below), by the report entitled “The 1997 Update to the Model Tax Convention”, adopted by the OECD Council on 23 October 1997. After 21 September 1995 and until 23 October 1997 subparagraph a) of paragraph 2 read as follows:

“a) he shall be deemed to be a resident only of the State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident of the State with which his personal and economic relations are closer (centre of vital interests);”

Subparagraphs a), b), and c) were previously amended on 21 September 1995, by adding the word “only” after the word “resident” (except in the third line of subparagraph a)), by the report entitled “The 1995 Update to the Model Tax Convention”, adopted by the OECD Council on 21 September 1995. In the 1977 Model Convention and until 21 September 1995, paragraph 2 read as follows:

“2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined as follows:

1. he shall be deemed to be a resident of the State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident of the State with which his personal and economic relations are closer (centre of vital interests);

2. if the State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either State, he shall be deemed to be a resident of the State in which he has an habitual abode;

3. if he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident of the State of which he is a national;

4. if he is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.”

Paragraph 2 was previously amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 2 read as follows:

“2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then this case shall be determined in accordance with the following rules:

1. He shall be deemed to be a resident of the Contracting State in which he has a permanent home available to him. If he has a permanent home available to him in both Contracting States, he shall be deemed to be a resident of the Contracting State with which his personal and economic relations are closest (centre of vital interests);

2. If the Contracting State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either Contracting State, he shall be deemed to be a resident of the Contracting State in which he has an habitual abode;

3. If he has an habitual abode in both Contracting States or in neither of them, he shall be deemed to be a resident of the Contracting State of which he is a national;

4. If he is a national of both Contracting States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.”

Paragraph 3: Amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. After 21 September 1995 and until 21 November 2017, paragraph 3 read as follows:

“3. Where by reason of the provisions of paragraphs 1 a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident only of the State in which its place of effective management is situated.”

Paragraph 3 was previously amended on 21 September 1995, by adding the word “only” after the words “shall be deemed to be a resident”, by the report entitled “The 1995 Update to the Model Tax Convention”, adopted by the OECD Council on 21 September 1995. In the 1977 Model Convention and until 21 September 1995, paragraph 3 read as follows:

“3. Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident of the State in which its place of effective management is situated.”

Paragraph 3 was previously amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977, by replacing the words “the Contracting State in which” with “the State in which”. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 3 read as follows:

“3. Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident of the Contraction State in which its place of effective management is situated.”

Article 5 – Permanent establishment

1. For the purposes of this Convention, the term “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on.

2. The term “permanent establishment” includes especially:

1. a place of management;

2. a branch;

3. an office;

4. a factory;

5. a workshop; and

6. a mine, an oil or gas well, a quarry or any other place of extraction of natural resources.

3. A building site or construction or installation project constitutes a permanent establishment only if it lasts more than twelve months.

4. Notwithstanding the preceding provisions of this Article, the term “permanent establishment” shall be deemed not to include:

1. the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise;

2. the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery;

3. the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;

4. the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information, for the enterprise;

5. the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity;

6. the maintenance of a fixed place of business solely for any combination of activities mentioned in subparagraphs a) to e),

provided that such activity or, in the case of subparagraph f), the overall activity of the fixed place of business, is of a preparatory or auxiliary character.

4.1 Paragraph 4 shall not apply to a fixed place of business that is used or maintained by an enterprise if the same enterprise or a closely related enterprise carries on business activities at the same place or at another place in the same Contracting State and

1. that place or other place constitutes a permanent establishment for the enterprise or the closely related enterprise under the provisions of this Article, or

2. the overall activity resulting from the combination of the activities carried on by the two enterprises at the same place, or by the same enterprise or closely related enterprises at the two places, is not of a preparatory or auxiliary character,

provided that the business activities carried on by the two enterprises at the same place, or by the same enterprise or closely related enterprises at the two places, constitute complementary functions that are part of a cohesive business operation.

5. Notwithstanding the provisions of paragraphs 1 and 2 but subject to the provisions of paragraph 6, where a person is acting in a Contracting State on behalf of an enterprise and, in doing so, habitually concludes contracts, or habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the enterprise, and these contracts are

1. in the name of the enterprise, or

2. for the transfer of the ownership of, or for the granting of the right to use, property owned by that enterprise or that the enterprise has the right to use, or

3. for the provision of services by that enterprise,

that enterprise shall be deemed to have a permanent establishment in that State in respect of any activities which that person undertakes for the enterprise, unless the activities of such person are limited to those mentioned in paragraph 4 which, if exercised through a fixed place of business (other than a fixed place of business to which paragraph 4.1 would apply), would not make this fixed place of business a permanent establishment under the provisions of that paragraph.

6. Paragraph 5 shall not apply where the person acting in a Contracting State on behalf of an enterprise of the other Contracting State carries on business in the first-mentioned State as an independent agent and acts for the enterprise in the ordinary course of that business. Where, however, a person acts exclusively or almost exclusively on behalf of one or more enterprises to which it is closely related, that person shall not be considered to be an independent agent within the meaning of this paragraph with respect to any such enterprise.

7. The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.

8. For the purposes of this Article, a person or enterprise is closely related to an enterprise if, based on all the relevant facts and circumstances, one has control of the other or both are under the control of the same persons or enterprises. In any case, a person or enterprise shall be considered to be closely related to an enterprise if one possesses directly or indirectly more than 50 per cent of the beneficial interest in the other (or, in the case of a company, more than 50 per cent of the aggregate vote and value of the company’s shares or of the beneficial equity interest in the company) or if another person or enterprise possesses directly or indirectly more than 50 per cent of the beneficial interest (or, in the case of a company, more than 50 per cent of the aggregate vote and value of the company’s shares or of the beneficial equity interest in the company) in the person and the enterprise or in the two enterprises.

History

Paragraph 1: Amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977, by replacing the words “in which the business of the enterprise” with “through which the business of an enterprise”. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 1 read as follows:

“1. For the purposes of this Convention, the term “permanent establishment” means a fixed place of business in which the business of the enterprise is wholly or partly carried on.”

Paragraph 2: Amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977, by substituting the words “includes” in the first line for “shall include”. At the same time, the word “and” was added at the end of subparagraph e), subparagraph f) was modified and subparagraph g) was deleted. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 2 read as follows:

“2. The term “permanent establishment” shall include especially:

1. a place of management;

2. a branch;

3. an office;

4. a factory;

5. a workshop, and

6. a mine, quarry or other place of extraction of natural resources;

7. a building site or construction or assembly project which exists for more than twelve months.”

Paragraph 3: Replaced when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 3 of the 1963 Draft Convention was amended and renumbered as paragraph 4 (see history of paragraph 4) and a new paragraph 3 was added.

Paragraph 4: Amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. In the 1977 Model Convention and until 21 November 2017, paragraph 4 read as follows:

“4. Notwithstanding the preceding provisions of this Article, the term “permanent establishment” shall be deemed not to include:

1. the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise;

2. the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery;

3. the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;

4. the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information, for the enterprise;

5. the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character;

6. the maintenance of a fixed place of business solely for any combination of activities mentioned in subparagraphs a) to e), provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character.”

Paragraph 4 of the 1977 Model Convention corresponded to paragraph 3 of the 1963 Draft Convention. Paragraph 4 of the 1963 Draft Convention was amended and renumbered as paragraph 5 (see history of paragraph 5) when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At the same time, paragraph 3 was renumbered as paragraph 4 and amended, by modifying its preamble and subparagraph e) and adding subparagraph f). In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 3 read as follows:

“3. The term “permanent establishment” shall not be deemed to include:

1. the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise;

2. the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery;

3. the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;

4. the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or for collecting information, for the enterprise;

5. the maintenance of a fixed place of business solely for the purpose of advertising, for the supply of information, for scientific research or for similar activities which have a preparatory or auxiliary character, for the enterprise.”

Paragraph 4.1: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 5: Amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. In the 1977 Model Convention and until 21 November 2017, paragraph 5 read as follows:

“5. Notwithstanding the provisions of paragraphs 1 and 2, where a person – other than an agent of an independent status to whom paragraph 6 applies – is acting on behalf of an enterprise and has, and habitually exercises, in a Contracting State an authority to conclude contracts in the name of the enterprise, that enterprise shall be deemed to have a permanent establishment in that State in respect of any activities which that person undertakes for the enterprise, unless the activities of such person are limited to those mentioned in paragraph 4 which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph.”

Paragraph 5 of the 1977 Model Convention corresponded to paragraph 4 of the 1963 Draft Convention. Paragraph 5 of the 1963 Draft Convention was amended and renumbered as paragraph 6 (see history of paragraph 6) when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At the same time, paragraph 4 of the 1963 Draft Convention was renumbered as paragraph 5 and amended. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 4 read as follows:

“4. A person acting in a Contracting State on behalf of an enterprise of the other Contracting State – other than an agent of an independent status to whom paragraph 5 applies – shall be deemed to be a permanent establishment in the first-mentioned State if he has, and habitually exercises in that State, an authority to conclude contracts in the name of the enterprise, unless his activities are limited to the purchase of goods or merchandise for the enterprise.”

Paragraph 6: Amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. In the 1977 Model Convention and until 21 November 2017, paragraph 6 read as follows:

“6. An enterprise shall not be deemed to have a permanent establishment in a Contracting State merely because it carries on business in that State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business.”

Paragraph 6 of the 1977 Model Convention corresponded to paragraph 5 of the 1963 Draft Convention. Paragraph 6 of the 1963 Draft Convention was renumbered as paragraph 7 (see history of paragraph 7) and paragraph 5 of the 1963 Draft Convention was amended and renumbered as paragraph 6 when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 5 read as follows:

“5. An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status, where such persons are acting in the ordinary course of their business.”

Paragraph 7: Corresponds to paragraph 6 of the 1963 Draft Convention as it read before 11 April 1977. On that date, paragraph 6 of the 1963 Draft Convention was renumbered as paragraph 7 when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 8: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Chapter III
Taxation of income

Article 6 – Income from immovable property

1. Income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.

2. The term “immovable property” shall have the meaning which it has under the law of the Contracting State in which the property in question is situated. The term shall in any case include property accessory to immovable property, livestock and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property apply, usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources; ships and aircraft shall not be regarded as immovable property.

3. The provisions of paragraph 1 shall apply to income derived from the direct use, letting, or use in any other form of immovable property.

4. The provisions of paragraphs 1 and 3 shall also apply to the income from immovable property of an enterprise.

History

Paragraph 1: Amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 1 read as follows:

“1. Income from immovable property may be taxed in the Contracting State in which such property is situated.”

Paragraph 2: Amended on 21 November 2017, by removing the reference to “boats”, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. In the 1977 Model Convention and until 21 November 2017, paragraph 2 read as follows:

“2. The term “immovable property” shall have the meaning which it has under the law of the Contracting State in which the property in question is situated. The term shall in any case include property accessory to immovable property, livestock and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property apply, usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources; ships, boats and aircraft shall not be regarded as immovable property.”

Paragraph 2 was previously amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977, by changing the first sentence. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 2 read as follows:

“2. The term “immovable property” shall be defined in accordance with the law of the Contracting State in which the property in question is situated. The term shall in any case include property accessory to immovable property, livestock and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property apply, usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources; ships, boats and aircraft shall not be regarded as immovable property.”

Paragraph 3: Unchanged since the adoption of the 1963 Draft Convention by the OECD Council on 30 July 1963.

Paragraph 4: Amended on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000, on the basis of the Annex of another report entitled “Issues related to Article 14 of the OECD Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 27 January 2000). In the 1977 Convention and until 29 April 2000, paragraph 4 read as follows:

“4. The provisions of paragraphs 1 and 3 shall also apply to the income from immovable property of an enterprise and to income from immovable property used for the performance of independent personal services.”

Paragraph 4 was previously amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977, by substituting the words “independent personal services” for “professional services”. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 4 read as follows:

“4. The provisions of paragraphs 1 and 3 shall also apply to the income from immovable property of an enterprise and to income from immovable property used for the performance of professional services.”

Article 7 – Business profits

1. Profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits that are attributable to the permanent establishment in accordance with the provisions of paragraph 2 may be taxed in that other State.

2. For the purposes of this Article and Article [23 A] [23 B], the profits that are attributable in each Contracting State to the permanent establishment referred to in paragraph 1 are the profits it might be expected to make, in particular in its dealings with other parts of the enterprise, if it were a separate and independent enterprise engaged in the same or similar activities under the same or similar conditions, taking into account the functions performed, assets used and risks assumed by the enterprise through the permanent establishment and through the other parts of the enterprise.

3. Where, in accordance with paragraph 2, a Contracting State adjusts the profits that are attributable to a permanent establishment of an enterprise of one of the Contracting States and taxes accordingly profits of the enterprise that have been charged to tax in the other State, the other State shall, to the extent necessary to eliminate double taxation on these profits, make an appropriate adjustment to the amount of the tax charged on those profits. In determining such adjustment, the competent authorities of the Contracting States shall if necessary consult each other.

4. Where profits include items of income which are dealt with separately in other Articles of this Convention, then the provisions of those Articles shall not be affected by the provisions of this Article.

History

Paragraph 1: Amended on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until 22 July 2010, paragraph 1 read as follows:

“1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment.”

Paragraph 2: Replaced on 22 July 2010 when paragraph 2 was deleted and a new paragraph 2 was added by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010. In the 1977 Model Convention and until it was deleted on 22 July 2010, paragraph 2 read as follows:

“2. Subject to the provisions of paragraph 3, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment.”

Paragraph 2 was amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977, by adding the words “Subject to the provisions of paragraph 3” at the beginning of the paragraph. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 2 read as follows:

“2. Where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment.”

Paragraph 3: Replaced on 22 July 2010 when paragraph 2 was deleted and a new paragraph 2 was added by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010. In the 1977 Model Convention and until 22 July 2010, paragraph 3 read as follows:

“3. In determining the profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the permanent establishment, including executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere.”

Paragraph 3 was amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977, by substituting the words “In determining” for “In the determination of” at the beginning of the paragraph. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 3 read as follows:

“3. In the determination of the profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the permanent establishment, including executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere.”

Paragraph 4: Corresponds to paragraph 7 as it read before 22 July 2010. On that date, paragraph 4, was deleted and paragraph 7 was renumbered as paragraph 4 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010.

Paragraph 7, as it read before 22 July 2010, was included in the 1963 Draft Convention, adopted by the OECD Council on 30 July 1963.

Paragraph 4 of the 1977 Model Convention was deleted on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010. In the 1977 Model Tax Convention and until 22 July 2010, paragraph 4 read as follows:

“4. Insofar as it has been customary in a Contracting State to determine the profits to be attributed to a permanent establishment on the basis of an apportionment of the total profits of the enterprise to its various parts, nothing in paragraph 2 shall preclude that Contracting State from determining the profits to be taxed by such an apportionment as may be customary; the method of apportionment adopted shall, however, be such that the result shall be in accordance with the principles contained in this Article.”

Paragraph 4 was amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977, by substituting the word “contained” in the last line for “laid down”. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 4 read as follows:

“4. Insofar as it has been customary in a Contracting State to determine the profits to be attributed to a permanent establishment on the basis of an apportionment of the total profits of the enterprise to its various parts, nothing in paragraph 2 shall preclude that Contracting State from determining the profits to be taxed by such an apportionment as may be customary; the method of apportionment adopted shall, however, be such that the result shall be in accordance with the principles laid down in this Article.”

Paragraph 5: Deleted on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until 22 July 2010, paragraph 5 read as follows:

“5. No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the enterprise.”

Paragraph 6: Deleted on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until 22 July 2010, paragraph 6 read as follows:

“6. For the purposes of the preceding paragraphs, the profits to be attributed to the permanent establishment shall be determined by the same method year by year unless there is good and sufficient reason to the contrary.”

Paragraph 7: Renumbered on 22 July 2010 as paragraph 4 (see history of paragraph 4) by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010.

Article 8 – International shipping and air transport

1. Profits of an enterprise of a Contracting State from the operation of ships or aircraft in international traffic shall be taxable only in that State.

2. The provisions of paragraph 1 shall also apply to profits from the participation in a pool, a joint business or an international operating agency.

History

The title of Article 8: Changed on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until 21 November 2017, the title of Article 8 read as follows:

“SHIPPING, INLAND WATERWAYS TRANSPORT AND AIR TRANSPORT”

Paragraph 1: Amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. In the 1963 Draft Convention and until 21 November 2017, paragraph 1 read as follows:

“1. Profits from the operation of ships or aircraft in international traffic shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated.”

Paragraph 1 was included in the 1963 Draft Convention, adopted by the OECD Council on 30 July 1963.

Paragraph 2: Corresponds to paragraph 4 as it read before 21 November 2017. On that date, paragraph 2 was deleted and paragraph 4 was renumbered as paragraph 2, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 4 was included in the 1963 Draft Convention, adopted by the OECD Council on 30 July 1963.

Paragraph 2, as it read before 21 November 2017, was deleted by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. In the 1963 Draft Convention and until 21 November 2017, paragraph 2 read as follows:

“2. Profits from the operation of boats engaged in inland waterways transport shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated.”

Paragraph 2 was included in the 1963 Draft Convention, adopted by the OECD Council on 30 July 1963.

Paragraph 3: Deleted on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. In the 1963 Draft Convention and until 21 November 2017, paragraph 3 read as follows:

“3. If the place of effective management of a shipping enterprise or of an inland waterways transport enterprise is aboard a ship or boat, then it shall be deemed to be situated in the Contracting State in which the home harbour of the ship or boat is situated, or, if there is no such home harbour, in the Contracting State of which the operator of the ship or boat is a resident.”

Paragraph 3 was included in the 1963 Draft Convention, adopted by the OECD Council on 30 July 1963.

Paragraph 4: Renumbered as paragraph 2 (see history of paragraph 2) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Article 9 – Associated enterprises

1. Where

1. an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State, or

2. the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State,

and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly.

2. Where a Contracting State includes in the profits of an enterprise of that State – and taxes accordingly – profits on which an enterprise of the other Contracting State has been charged to tax in that other State and the profits so included are profits which would have accrued to the enterprise of the first-mentioned State if the conditions made between the two enterprises had been those which would have been made between independent enterprises, then that other State shall make an appropriate adjustment to the amount of the tax charged therein on those profits. In determining such adjustment, due regard shall be had to the other provisions of this Convention and the competent authorities of the Contracting States shall if necessary consult each other.

History

Paragraph 1: Corresponds to Article 9 of the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963). Article 9 was designated as paragraph 1 in the 1977 Model Convention, adopted by the OECD Council on 11 April 1977.

Paragraph 2: Added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Article 10 – Dividends

1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.

2. However, dividends paid by a company which is a resident of a Contracting State may also be taxed in that State according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed:

1. 5 per cent of the gross amount of the dividends if the beneficial owner is a company which holds directly at least 25 per cent of the capital of the company paying the dividends throughout a 365 day period that includes the day of the payment of the dividend (for the purpose of computing that period, no account shall be taken of changes of ownership that would directly result from a corporate reorganisation, such as a merger or divisive reorganisation, of the company that holds the shares or that pays the dividend);

2. 15 per cent of the gross amount of the dividends in all other cases.

The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of these limitations. This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.

3. The term “dividends” as used in this Article means income from shares, “jouissance” shares or “jouissance” rights, mining shares, founders’ shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights which is subjected to the same taxation treatment as income from shares by the laws of the State of which the company making the distribution is a resident.

4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State of which the company paying the dividends is a resident through a permanent establishment situated therein and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment. In such case the provisions of Article 7 shall apply.

5. Where a company which is a resident of a Contracting State derives profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company, except insofar as such dividends are paid to a resident of that other State or insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment situated in that other State, nor subject the company’s undistributed profits to a tax on the company’s undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other State.

History

Paragraph 1: Unchanged since the adoption of the 1963 Draft Convention by the OECD Council on 30 July 1963.

Paragraph 2: Amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. After 15 July 2014 and until 21 November 2017, paragraph 2 read as follows:

“2. However, dividends paid by a company which is a resident of a Contracting State may also be taxed in that State according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed:

1. 5 per cent of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) which holds directly at least 25 per cent of the capital of the company paying the dividends;

2. 15 per cent of the gross amount of the dividends in all other cases.

The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of these limitations. This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.”

Paragraph 2 was previously amended on 15 July 2014 by the report entitled “The 2014 Update to the Model Tax Convention”, adopted by the OECD Council on 15 July 2014. After 21 September 1995 and until 15 July 2014, paragraph 2 read as follows:

“2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed:

1. 5 per cent of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) which holds directly at least 25 per cent of the capital of the company paying the dividends;

2. 15 per cent of the gross amount of the dividends in all other cases.

The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of these limitations. This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.”

Paragraph 2 was previously amended on 21 September 1995, by replacing the words “if the recipient is the beneficial owner of the dividends” with “if the beneficial owner of the dividends is a resident of the other Contracting State,”, by the report entitled “The 1995 Update to the Model Tax Convention”, adopted by the OECD Council on 21 September 1995. In the 1977 Model Convention and until 21 September 1995, paragraph 2 read as follows:

“2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the recipient is the beneficial owner of the dividends the tax so charged shall not exceed:

1. 5 per cent of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) which holds directly at least 25 per cent of the capital of the company paying the dividends;

2. 15 per cent of the gross amount of the dividends in all other cases.

The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of these limitations. This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.”

Paragraph 2 was previously amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 2 read as follows:

“2. However, such dividends may be taxed in the Contracting State of which the company paying the dividends is a resident, and according to the law of that State, but the tax so charged shall not exceed:

1. 5 per cent of the gross amount of the dividends if the recipient is a company (excluding partnership) which holds directly at least 25 per cent of the capital of the company paying the dividends;

2. in all other cases, 15 per cent of the gross amount of the dividends.

The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this limitation. This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.”

Paragraph 3: Amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977, by substituting the words “which is subjected to the same taxation treatment as income from shares by the laws of the State” for “assimilated to income from shares by the taxation law of the State”. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 3 read as follows:

“3. The term “dividends” as used in this Article means income from shares, “jouissance” shares or “jouissance” rights, mining shares, founders’ shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights assimilated to income from shares by the taxation law of the State of which the company making the distribution is a resident.”

Paragraph 4: Amended on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000, on the basis of the Annex of another report entitled “Issues related to Article 14 of the OECD Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 27 January 2000). In the 1977 Convention and until 29 April 2000, paragraph 4 read as follows:

“4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State of which the company paying the dividends is a resident, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply.”

Paragraph 4 was previously amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 4 read as follows:

“4. The provisions of paragraphs 1 and 2 shall not apply if the recipient of the dividends, being a resident of a Contracting State, has in the other Contracting State, of which the company paying the dividends is a resident, a permanent establishment with which the holding by virtue of which the dividends are paid is effectively connected. In such a case, the provisions of Article 7 shall apply.”

Paragraph 5: Amended on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000, on the basis of the Annex of another report entitled “Issues related to Article 14 of the OECD Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 27 January 2000). In the 1977 Convention and until 29 April 2000, paragraph 5 read as follows:

“5. Where a company which is a resident of a Contracting State derives profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company, except insofar as such dividends are paid to a resident of that other State or insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment or a fixed base situated in that other State, nor subject the company’s undistributed profits to a tax on the company’s undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other State.”

Paragraph 5 was previously amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 5 read as follows:

“5. Where a company which is a resident of a Contracting State derives profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company to persons who are not residents of that other State, or subject the company’s undistributed profits to a tax on undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other State.”

Article 11 – Interest

1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

2. However, interest arising in a Contracting State may also be taxed in that State according to the laws of that State, but if the beneficial owner of the interest is a resident of the other Contracting State, the tax so charged shall not exceed 10 per cent of the gross amount of the interest. The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this limitation.

3. The term “interest” as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtor’s profits, and in particular, income from government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures. Penalty charges for late payment shall not be regarded as interest for the purpose of this Article.

4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises through a permanent establishment situated therein and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment. In such case the provisions of Article 7 shall apply.

5. Interest shall be deemed to arise in a Contracting State when the payer is a resident of that State. Where, however, the person paying the interest, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment, then such interest shall be deemed to arise in the State in which the permanent establishment is situated.

6. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the interest, having regard to the debt-claim for which it is paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention.

History

Paragraph 1: Unchanged since the adoption of the 1963 Draft Convention by the OECD Council on 30 July 1963.

Paragraph 2: Amended on 15 July 2014 by the report entitled “The 2014 Update to the Model Tax Convention”, adopted by the OECD Council on 15 July 2014. After 21 September 1995 and until 15 July 2014, paragraph 2 read as follows:

“2. However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that State, but if the beneficial owner of the interest is a resident of the other Contracting State, the tax so charged shall not exceed 10 per cent of the gross amount of the interest. The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this limitation.”

Paragraph 2 was previously amended on 21 September 1995, by replacing the words “if the recipient is the beneficial owner of the interest” with “if the beneficial owner of the interest is a resident of the other Contracting State,”, by the report entitled “The 1995 Update to the Model Tax Convention”, adopted by the OECD Council on 21 September 1995. In the 1977 Model Convention and until 21 September 1995, paragraph 2 read as follows:

“2. However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that State, but if the recipient is the beneficial owner of the interest the tax so charged shall not exceed 10 per cent of the gross amount of the interest. The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this limitation.”

Paragraph 2 was previously amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 2 read as follows:

“2. However, such interest may be taxed in the Contracting State in which it arises, and according to the law of that State, but the tax so charged shall not exceed 10 per cent of the amount of the interest. The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this limitation.”

Paragraph 3: Amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 3 read as follows:

“3. The term “interest” as used in this Article means income from Government securities, bonds or debentures, whether or not secured by mortgage and whether or not carrying a right to participate in profits, and debt-claims of every kind as well as all other income assimilated to income from money lent by the taxation law of the State in which the income arises.”

Paragraph 4: Amended on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000, on the basis of the Annex of another report entitled “Issues related to Article 14 of the OECD Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 27 January 2000). In the 1977 Convention and until 29 April 2000, paragraph 4 read as follows:

“4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply.”

Paragraph 4 was previously amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 4 read as follows:

“4. The provisions of paragraphs 1 and 2 shall not apply if the recipient of the interest, being a resident of a Contracting State, has in the other Contracting State in which the interest arises a permanent establishment with which the debt-claim from which the interest arises is effectively connected. In such a case, the provisions of Article 7 shall apply.”

Paragraph 5: Amended on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000, on the basis of the Annex of another report entitled “Issues related to Article 14 of the OECD Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 27 January 2000). After 21 September 1995 and until 29 April 2000, paragraph 5 read as follows:

“5. Interest shall be deemed to arise in a Contracting State when the payer is a resident of that State. Where, however, the person paying the interest, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment or fixed base, then such interest shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.”

Paragraph 5 was previously amended on 21 September 1995, by deleting the words “that State itself, a political subdivision, a local authority or”, by the report entitled “The 1995 Update to the Model Tax Convention”, adopted by the OECD Council on 21 September 1995. In the 1977 Model Convention and until 21 September 1995, paragraph 5 read as follows:

“5. Interest shall be deemed to arise in a Contracting State when the payer is that State itself, a political subdivision, a local authority or a resident of that State. Where, however, the person paying the interest, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment or fixed base, then such interest shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.”

Paragraph 5 was previously amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977, by substituting “permanent establishment or fixed base” for “permanent establishment” in the three different places where these words appeared. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 5 read as follows:

“5. Interest shall be deemed to arise in a Contracting State when the payer is that State itself, a political subdivision, a local authority or a resident of that State. Where, however, the person paying the interest, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment, then such interest shall be deemed to arise in the State in which the permanent establishment is situated.”

Paragraph 6: Amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 6 read as follows:

“6. Where, owing to a special relationship between the payer and the recipient or between both of them and some other person, the amount of the interest paid, having regard to the debt claim for which it is paid, exceeds the amount which would have been agreed upon by the payer and the recipient in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In that case, the excess part of the payments shall remain taxable according to the law of each Contracting State, due regard being had to the other provisions of this Convention.”

Article 12 – Royalties

1. Royalties arising in a Contracting State and beneficially owned by a resident of the other Contracting State shall be taxable only in that other State.

2. The term “royalties” as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience.

3. The provisions of paragraph 1 shall not apply if the beneficial owner of the royalties, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties arise through a permanent establishment situated therein and the right or property in respect of which the royalties are paid is effectively connected with such permanent establishment. In such case the provisions of Article 7 shall apply.

4. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties, having regard to the use, right or information for which they are paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention.

History

Paragraph 1: Amended on 23 October 1997 by the report entitled “The 1997 Update to the Model Tax Convention”, adopted by the OECD Council on 23 October 1997. In the 1977 Model Convention and until 23 October 1997, paragraph 1 read as follows:

“1. Royalties arising in a Contracting State and paid to a resident of the other Contracting State shall be taxable only in that other State if such resident is the beneficial owner of the royalties.”

Paragraph 1 was previously amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 1 read as follows:

“1. Royalties arising in a Contracting State and paid to a resident of the other Contracting State shall be taxable only in that other State.”

Paragraph 2: Amended on 23 July 1992, by deleting the words “or for the use of, or the right to use, industrial, commercial or scientific equipment”, by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992, on the basis of paragraph 23 of the report entitled “The Taxation of Income Derived from the Leasing of Industrial, Commercial or Scientific Equipment” (adopted by the OECD Council on 13 September 1983). In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until 23 July 1992, paragraph 2 read as follows:

“2. The term “royalties” as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial, or scientific equipment, or for information concerning industrial, commercial or scientific experience.”

Paragraph 3: Amended on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000, on the basis of the Annex of another report entitled “Issues related to Article 14 of the OECD Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 27 January 2000). In the 1977 Convention and until 29 April 2000, paragraph 3 read as follows:

“3. The provisions of paragraph 1 shall not apply if the beneficial owner of the royalties, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property in respect of which the royalties are paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply.”

Paragraph 3 was previously amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 3 read as follows:

“3. The provisions of paragraph 1 shall not apply if the recipient of the royalties, being a resident of a Contracting State, has in the other Contracting State in which the royalties arise a permanent establishment with which the right or property giving rise to the royalties is effectively connected. In such a case, the provisions of Article 7 shall apply.”

Paragraph 4: Amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 4 read as follows:

“4. Where, owing to a special relationship between the payer and the recipient or between both of them and some other person, the amount of the royalties paid, having regard to the use, right or information for which they are paid, exceeds the amount which would have been agreed upon by the payer and the recipient in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In that case, the excess part of the payments shall remain taxable according to the law of each Contracting State, due regard being had to the other provisions of this Convention.”

Article 13 – Capital gains

1. Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State.

2. Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise), may be taxed in that other State.

3. Gains that an enterprise of a Contracting State that operates ships or aircraft in international traffic derives from the alienation of such ships or aircraft, or of movable property pertaining to the operation of such ships or aircraft, shall be taxable only in that State.

4. Gains derived by a resident of a Contracting State from the alienation of shares or comparable interests, such as interests in a partnership or trust, may be taxed in the other Contracting State if, at any time during the 365 days preceding the alienation, these shares or comparable interests derived more than 50 per cent of their value directly or indirectly from immovable property, as defined in Article 6, situated in that other State.

5. Gains from the alienation of any property, other than that referred to in paragraphs 1, 2, 3 and 4, shall be taxable only in the Contracting State of which the alienator is a resident.

History

Paragraph 1: Amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 1 read as follows:

“1. Gains from the alienation of immovable property, as defined in paragraph 2 of Article 6, may be taxed in the Contracting State in which such property is situated.”

Paragraph 2: Amended on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000, on the basis of the Annex of another report entitled “Issues related to Article 14 of the OECD Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 27 January 2000). In the 1977 Convention and until 29 April 2000, paragraph 2 read as follows:

“2. Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of such fixed base, may be taxed in that other State.”

Paragraph 2 was previously amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977 by replacing the word “professional” with “independent personal” and by deleting the last sentence (the principle of which was been taken up in paragraph 3). In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 2 read as follows:

“2. Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing professional services, including such gains from the alienation of such a permanent establishment (alone or together with the whole enterprise) or of such a fixed base, may be taxed in the other State. However, gains from the alienation of movable property of the kind referred to in paragraph 3 of Article 22 shall be taxable only in the Contracting State in which such movable property is taxable according to the said Article.”

Paragraph 3: Amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. In the 1977 Model Convention and until 21 November 2017, paragraph 3 read as follows:

“3. Gains from the alienation of ships or aircraft operated in international traffic, boats engaged in inland waterways transport or movable property pertaining to the operation of such ships, aircraft or boats, shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated.”

Paragraph 3 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977; it corresponds generally to the last sentence of paragraph 2 of the 1963 Draft Convention.

Paragraph 4: Amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. After 28 January 2003 and until 21 November 2017, paragraph 4 read as follows:

“4. Gains derived by a resident of a Contracting State from the alienation of shares deriving more than 50 per cent of their value directly or indirectly from immovable property situated in the other Contracting State may be taxed in that other State.”

Paragraph 4 was replaced on 28 January 2003 when paragraph 4 was amended and renumbered as paragraph 5 (see history of paragraph 5) and a new paragraph 4 was added by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003.

Paragraph 5: Corresponds to paragraph 4 of the 1977 Model Convention as it read before 28 January 2003. On that date, paragraph 4 was amended and renumbered as paragraph 5 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003. In the 1977 Model Convention and until 28 January 2003, paragraph 4 read as follows:

“4. Gains from the alienation of any property other than that referred to in paragraphs 1, 2 and 3, shall be taxable only in the Contracting State of which the alienator is a resident.”

Paragraph 4 corresponded to paragraph 3 of the 1963 Draft Convention. Paragraph 3 was amended and renumbered as paragraph 4 when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 3 read as follows:

“3. Gains from the alienation of any property other than those mentioned in paragraphs 1 and 2, shall be taxable only in the Contracting State of which the alienator is a resident.”

Article 14 – Independent personal services

[DELETED]

History

Article 14 was deleted by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000, on the basis of another report entitled “Issues related to Article 14 of the OECD Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 27 January 2000). In the 1977 Model Convention and until 29 April 2000, Article 14 read as follows:

“INDEPENDENT PERSONAL SERVICES

“1. Income derived by a resident of a Contracting State in respect of professional services or other activities of an independent character shall be taxable only in that State unless he has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities. If he has such a fixed base, the income may be taxed in the other State but only so much of it as is attributable to that fixed base.

2. The term “professional services” includes especially independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, lawyers, engineers, architects, dentists and accountants.”

Paragraph 1

Before it was deleted on 29 April 2000, paragraph 1 was amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 1 read as follows:

“1. Income derived by a resident of a Contracting State in respect of professional services or other independent activities of a similar character shall be taxable only in that State unless he has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities. If he has such a fixed base, the income may be taxed in the other Contracting State but only so much of it as is attributable to that fixed base.”

Paragraph 2

Before it was deleted on 29 April 2000, paragraph 2 was unchanged since the adoption of the 1963 Draft Convention by the OECD Council on 30 July 1963.

Article 15 – Income from employment

1. Subject to the provisions of Articles 16, 18 and 19, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.

2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:

1. the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve month period commencing or ending in the fiscal year concerned, and

2. the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State, and

3. the remuneration is not borne by a permanent establishment which the employer has in the other State.

3. Notwithstanding the preceding provisions of this Article, remuneration derived by a resident of a Contracting State in respect of an employment, as a member of the regular complement of a ship or aircraft, that is exercised aboard a ship or aircraft operated in international traffic, other than aboard a ship or aircraft operated solely within the other Contracting State, shall be taxable only in the first-mentioned State.

History

The title of Article 15: Amended by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000, on the basis of the Annex of another report entitled “Issues related to Article 14 of the OECD Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 27 January 2000). In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until 29 April 2000, the title of Article 15 read as follows:

“DEPENDENT PERSONAL SERVICES”

Paragraph 1: Unchanged since the adoption of the 1963 Draft Convention by the OECD Council on 30 July 1963.

Paragraph 2: Amended on 29 April 2000, by deleting the words “or a fixed base” in subparagraph c), by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000, on the basis of the Annex of another report entitled “Issues related to Article 14 of the OECD Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 27 January 2000). After 23 July 1992 and until 29 April 2000, paragraph 2 read as follows:

“2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:

1. the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve month period commencing or ending in the fiscal year concerned, and

2. the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State, and

3. the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other State.”

Paragraph 2 was previously amended on 23 July 1992, by adding the words “in any twelve month period commencing or ending” to subparagraph a), by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992, on the basis of paragraph 80 of the report entitled “Taxation Issues Relating to the International Hiring-out of Labour” (adopted by the OECD Council on 24 August 1984). In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until 23 July 1992, paragraph 2 read as follows:

“2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:

1. the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in the fiscal year concerned, and

2. the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State, and

3. the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other State.”

Paragraph 3: Amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. In the 1977 Model Convention and until 21 November 2017, paragraph 3 read as follows:

“3. Notwithstanding the preceding provisions of this Article, remuneration derived in respect of an employment exercised aboard a ship or aircraft operated in international traffic, or aboard a boat engaged in inland waterways transport, may be taxed in the Contracting State in which the place of effective management of the enterprise is situated.”

Paragraph 3 was previously amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 3 read as follows:

“3. Notwithstanding the preceding provisions of this Article, remuneration in respect of an employment exercised aboard a ship or aircraft in international traffic, or aboard a boat engaged in inland waterways transport, may be taxed in the Contracting State in which the place of effective management of the enterprise is situated.”

Article 16 – Directors’ fees

Directors’ fees and other similar payments derived by a resident of a Contracting State in his capacity as a member of the board of directors of a company which is a resident of the other Contracting State may be taxed in that other State.

History

Article 16 was amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977 by adding the word “other” immediately before “similar payments”. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, Article 16 read as follows:

“Directors’ fees and similar payments derived by a resident of a Contracting State in his capacity as a member of the board of directors of a company which is a resident of the other Contracting State may be taxed in that other State.”

Article 17 – Entertainers and sportspersons

1. Notwithstanding the provisions of Article 15, income derived by a resident of a Contracting State as an entertainer, such as a theatre, motion picture, radio or television artiste, or a musician, or as a sportsperson, from that resident’s personal activities as such exercised in the other Contracting State, may be taxed in that other State.

2. Where income in respect of personal activities exercised by an entertainer or a sportsperson acting as such accrues not to the entertainer or sportsperson but to another person, that income may, notwithstanding the provisions of Article 15, be taxed in the Contracting State in which the activities of the entertainer or sportsperson are exercised.

History

The title of Article 17: Amended on 15 July 2014 by the report entitled “The 2014 Update to the Model Tax Convention”, adopted by the OECD Council on 15 July 2014. After 23 July 1992 and until 15 July 2014, the title of Article 17 read as follows:

“ARTISTES AND SPORTSMEN”

The title of Article 17 was previously amended on 23 July 1992 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992, on the basis of paragraph 5 of the report entitled “The Taxation of Income Derived from Entertainment, Artistic and Sporting Activities” (adopted by the OECD Council on 27 March 1987). In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until 23 July 1992, the title of Article 17 read as follows:

“ARTISTES AND ATHLETES”

Paragraph 1: Amended on 15 July 2014 by the report entitled “The 2014 Update to the Model Tax Convention”, adopted by the OECD Council on 15 July 2014. After 29 April 2000 and until 15 July 2014, paragraph 1 read as follows:

“1. Notwithstanding the provisions of Articles 7 and 15, income derived by a resident of a Contracting State as an entertainer, such as a theatre, motion picture, radio or television artiste, or a musician, or as a sportsman, from his personal activities as such exercised in the other Contracting State, may be taxed in that other State.”

Paragraph 1 was previously amended on 29 April 2000, by replacing the cross-reference to “Article 14” with a cross-reference to “Article 7”, by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000, on the basis of the Annex of another report entitled “Issues related to Article 14 of the OECD Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 27 January 2000). After 23 July 1992 and until 29 April 2000, paragraph 1 read as follows:

“1. Notwithstanding the provisions of Articles 14 and 15, income derived by a resident of a Contracting State as an entertainer, such as a theatre, motion picture, radio or television artiste, or a musician, or as a sportsman, from his personal activities as such exercised in the other Contracting State, may be taxed in that other State.”

Paragraph 1 was previously amended on 23 July 1992, by replacing the words “an athlete” with “a sportsman”, by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992, on the basis of paragraph 5 of the report entitled “The Taxation of Income Derived from Entertainment, Artistic and Sporting Activities” (adopted by the OECD Council on 27 March 1987). In the 1977 Model Convention and until 23 July 1992, paragraph 1 read as follows:

“1. Notwithstanding the provisions of Articles 14 and 15, income derived by a resident of a Contracting State as an entertainer, such as a theatre, motion picture, radio or television artiste, or a musician, or as an athlete, from his personal activities as such exercised in the other Contracting State, may be taxed in that other State.”

Paragraph 1 was included in the 1963 Draft Convention as Article 17. In the 1977 Model Convention, adopted by the OECD Council on 11 April 1977, Article 17 was designated as paragraph 1 and amended. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, Article 17 read as follows:

“Notwithstanding the provisions of Articles 14 and 15, income derived by public entertainers, such as theatre, motion picture, radio or television artistes, and musicians, and by athletes, from their personal activities as such may be taxed in the Contracting State in which these activities are exercised.”

Paragraph 2: Amended on 15 July 2014 by the report entitled “The 2014 Update to the Model Tax Convention”, adopted by the OECD Council on 15 July 2014. After 29 April 2000 and until 15 July 2014, paragraph 2 read as follows:

“2. Where income in respect of personal activities exercised by an entertainer or a sportsman in his capacity as such accrues not to the entertainer or sportsman himself but to another person, that income may, notwithstanding the provisions of Articles 7 and 15, be taxed in the Contracting State in which the activities of the entertainer or sportsman are exercised.”

Paragraph 2 was previously amended on 29 April 2000, by deleting the reference to Article 14, by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000, on the basis of the Annex of another report entitled “Issues related to Article 14 of the OECD Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 27 January 2000). After 23 July 1992 and until 29 April 2000, paragraph 2 read as follows:

“2. Where income in respect of personal activities exercised by an entertainer or a sportsman in his capacity as such accrues not to the entertainer or sportsman himself but to another person, that income may, notwithstanding the provisions of Articles 7, 14 and 15, be taxed in the Contracting State in which the activities of the entertainer or sportsman are exercised.”

Paragraph 2 was previously amended on 23 July 1992, by replacing the two references to “athlete” with “sportsman”, by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992, on the basis of paragraph 5 of the report entitled “The Taxation of Income Derived from Entertainment, Artistic and Sporting Activities” (adopted by the OECD Council on 27 March 1987). In the 1977 Model Convention and until 23 July 1992, paragraph 2 read as follows:

“2. Where income in respect of personal activities exercised by an entertainer or an athlete in his capacity as such accrues not to the entertainer or athlete himself but to another person, that income may, notwithstanding the provisions of Articles 7, 14 and 15, be taxed in the Contracting State in which the activities of the entertainer or sportsman are exercised.”

Paragraph 2 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Article 18 – Pensions

Subject to the provisions of paragraph 2 of Article 19, pensions and other similar remuneration paid to a resident of a Contracting State in consideration of past employment shall be taxable only in that State.

History

Article 18 was amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977 by replacing the words “paragraph 1 of Article 19” with “paragraph 2 of Article 19”. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, Article 18 read as follows:

“Subject to the provisions of paragraph 1 of Article 19, pensions and other similar remuneration paid to a resident of a Contracting State in consideration of past employment shall be taxable only in that State.”

Article 19 – Government service

1. a) Salaries, wages and other similar remuneration paid by a Contracting State or a political subdivision or a local authority thereof to an individual in respect of services rendered to that State or subdivision or authority shall be taxable only in that State.

1. However, such salaries, wages and other similar remuneration shall be taxable only in the other Contracting State if the services are rendered in that State and the individual is a resident of that State who:

   1. is a national of that State; or

   2. did not become a resident of that State solely for the purpose of rendering the services.

2. a) Notwithstanding the provisions of paragraph 1, pensions and other similar remuneration paid by, or out of funds created by, a Contracting State or a political subdivision or a local authority thereof to an individual in respect of services rendered to that State or subdivision or authority shall be taxable only in that State.

1. However, such pensions and other similar remuneration shall be taxable only in the other Contracting State if the individual is a resident of, and a national of, that State.

3. The provisions of Articles 15, 16, 17, and 18 shall apply to salaries, wages, pensions, and other similar remuneration in respect of services rendered in connection with a business carried on by a Contracting State or a political subdivision or a local authority thereof.

History

The title of Article 19: Amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, the title of Article 19 read as follows:

“GOVERNMENTAL FUNCTIONS”

Paragraph 1: Amended on 15 July 2005, by deleting the words “other than a pension” in subparagraph a), by the report entitled “The 2005 Update to the Model Tax Convention”, adopted by the OECD Council on 15 July 2005. After 31 March 1994 and until 15 July 2005, paragraph 1 read as follows:

“1. a) Salaries, wages and other similar remuneration, other than a pension, paid by a Contracting State or a political subdivision or a local authority thereof to an individual in respect of services rendered to that State or subdivision or authority shall be taxable only in that State.

1. However, such salaries, wages and other similar remuneration shall be taxable only in the other Contracting State if the services are rendered in that State and the individual is a resident of that State who:

   1. is a national of that State; or

   2. did not become a resident of that State solely for the purpose of rendering the services.”

Paragraph 1 was previously amended on 31 March 1994 by the report entitled “1994 Update to the Model Tax Convention”, adopted by the OECD Council on 31 March 1994. In the 1977 Model Convention and until 31 March 1994, paragraph 1 read as follows:

“1. a) Remuneration, other than a pension, paid by a Contracting State or a political subdivision or a local authority thereof to an individual in respect of services rendered to that State or subdivision or authority shall be taxable only in that State.

1. However, such remuneration shall be taxable only in the other Contracting State if the services are rendered in that State and the individual is a resident of that State who:

   1. is a national of that State; or

   2. did not become a resident of that State solely for the purpose of rendering the services.”

Paragraph 1 was previously amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 1 read as follows:

“1. Remuneration, including pensions, paid by, or out of funds created by, a Contracting State or a political subdivision or a local authority thereof to any individual in respect of services rendered to that State or subdivision or local authority thereof in the discharge of functions of a governmental nature may be taxed in that State.”

Paragraph 2: Amended on 15 July 2005 by the report entitled “The 2005 Update to the Model Tax Convention”, adopted by the OECD Council on 15 July 2005. In the 1977 Model Convention and until 15 July 2005, paragraph 2 read as follows:

“2. a) Any pension paid by, or out of funds created by, a Contracting State or a political subdivision or a local authority thereof to an individual in respect of services rendered to that State or subdivision or authority shall be taxable only in that State.

1. However, such pension shall be taxable only in the other Contracting State if the individual is a resident of, and a national of, that State.”

Paragraph 2 of the 1963 Draft Convention was replaced when the 1977 Model Convention, was adopted by the OECD Council on 11 April 1977. At that time, paragraph 2 of the 1963 Draft Convention was amended and renumbered as paragraph 3 (see history of paragraph 3) and new paragraph 2 was added when the 1977 Model Convention was adopted.

Paragraph 3: Amended on 15 July 2005 by the report entitled “The 2005 Update to the Model Tax Convention”, adopted by the OECD Council on 15 July 2005. After 21 September 1995 and until 15 July 2005, paragraph 3 read as follows:

“3. The provisions of Articles 15, 16, 17, and 18 shall apply to salaries, wages and other similar remuneration, and to pensions, in respect of services rendered in connection with a business carried on by a Contracting State or a political subdivision or a local authority thereof.”

Paragraph 3 was previously amended on 21 September 1995, by adding a reference to Article 17, by the report entitled “The 1995 Update to the Model Tax Convention”, adopted by the OECD Council on 21 September 1995. After 31 March 1994 and until 21 September 1995, paragraph 3 read as follows:

“3. The provisions of Articles 15, 16, and 18 shall apply to salaries, wages and other similar remuneration, and to pensions, in respect of services rendered in connection with a business carried on by a Contracting State or a political subdivision or a local authority thereof.”

Paragraph 3 was previously amended on 31 March 1994 by the report entitled “1994 Update to the Model Tax Convention”, adopted by the OECD Council on 31 March 1994. In the 1977 Model Convention and until 31 March 1994, paragraph 3 read as follows:

“3. The provisions of Articles 15, 16 and 18 shall apply to remuneration and pensions in respect of services rendered in connection with a business carried on by a Contracting State or a political subdivision or a local authority thereof.”

Paragraph 3 of the 1977 Model Convention corresponded to paragraph 2 of the 1963 Draft Convention. Paragraph 2 of the 1963 Draft Convention was renumbered as paragraph 3 and amended, by substituting “remuneration and pensions” for “remuneration or pensions” and by substituting “a business” for “any trade or business”, when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 2 read as follows:

“2. The provisions of Articles 15, 16 and 18 shall apply to remuneration or pensions in respect of services rendered in connection with a trade or business carried on by one of the Contracting States or a political subdivision or a local authority thereof.”

Article 20 – Students

Payments which a student or business apprentice who is or was immediately before visiting a Contracting State a resident of the other Contracting State and who is present in the first-mentioned State solely for the purpose of his education or training receives for the purpose of his maintenance, education or training shall not be taxed in that State, provided that such payments arise from sources outside that State.

History

Article 20 was amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, Article 20 read as follows:

“Payments which a student or business apprentice who is or was formerly a resident of a Contracting State and who is present in the other Contracting State solely for the purpose of his education or training receives for the purpose of his maintenance, education or training shall not be taxed in that other State, provided that such payments are made to him from sources outside that other State.”

Article 21 – Other income

1. Items of income of a resident of a Contracting State, wherever arising, not dealt with in the foregoing Articles of this Convention shall be taxable only in that State.

2. The provisions of paragraph 1 shall not apply to income, other than income from immovable property as defined in paragraph 2 of Article 6, if the recipient of such income, being a resident of a Contracting State, carries on business in the other Contracting State through a permanent establishment situated therein and the right or property in respect of which the income is paid is effectively connected with such permanent establishment. In such case the provisions of Article 7 shall apply.

History

The title of Article 21: Amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, the title of Article 21 read as follows:

“INCOME NOT EXPRESSLY MENTIONED”

Paragraph 1: Corresponds to Article 21 of the 1963 Draft Convention. Article 21 of the 1963 Draft Convention was designated as paragraph 1 and amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, Article 21 read as follows:

“Items of income of a resident of a Contracting State which are not expressly mentioned in the foregoing Articles of this Convention shall be taxable only in that State.”

Paragraph 2: Amended on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000, on the basis of the Annex of another report entitled “Issues related to Article 14 of the OECD Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 27 January 2000). In the 1977 Convention and until 29 April 2000, paragraph 2 read as follows:

“2. The provisions of paragraph 1 shall not apply to income, other than income from immovable property as defined in paragraph 2 of Article 6, if the recipient of such income, being a resident of a Contracting State, carries on business in the other Contracting State through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property in respect of which the income is paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply.”

Paragraph 2 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Chapter IV
Taxation of capital

Article 22 – Capital

1. Capital represented by immovable property referred to in Article 6, owned by a resident of a Contracting State and situated in the other Contracting State, may be taxed in that other State.

2. Capital represented by movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State may be taxed in that other State.

3. Capital of an enterprise of a Contracting State that operates ships or aircraft in international traffic represented by such ships or aircraft, and by movable property pertaining to the operation of such ships or aircraft, shall be taxable only in that State.

4. All other elements of capital of a resident of a Contracting State shall be taxable only in that State.

History

Paragraph 1: Amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 1 read as follows:

“1. Capital represented by immovable property, as defined in paragraph 2 of Article 6, may be taxed in the Contracting State in which such property is situated.”

Paragraph 2: Amended on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000, on the basis of the Annex of another report entitled “Issues related to Article 14 of the OECD Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 27 January 2000). In the 1977 Convention and until 29 April 2000, paragraph 2 read as follows:

“2. Capital represented by movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or by movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, may be taxed in that other State.”

Paragraph 2 was previously amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 2 read as follows:

“2. Capital represented by movable property forming part of the business property of a permanent establishment of an enterprise, or by movable property pertaining to a fixed base used for the performance of professional services, may be taxed in the Contracting State in which the permanent establishment or fixed base is situated.”

Paragraph 3: Amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. In the 1977 Model Convention and until 21 November 2017, paragraph 3 read as follows:

“3. Capital represented by ships and aircraft operated in international traffic and by boats engaged in inland waterways transport, and by movable property pertaining to the operation of such ships, aircraft and boats, shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated.”

Paragraph 3 was previously amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 3 read as follows:

“3. Ships and aircraft operated in international traffic and boats engaged in inland waterways transport, and movable property pertaining to the operation of such ships, aircraft and boats, shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated.”

Paragraph 4: Unchanged since the adoption of the 1963 Draft Convention by the OECD Council on 30 July 1963.

Chapter V
Methods for elimination of double taxation

Article 23 A – Exemption method

1. Where a resident of a Contracting State derives income or owns capital which may be taxed in the other Contracting State in accordance with the provisions of this Convention (except to the extent that these provisions allow taxation by that other State solely because the income is also income derived by a resident of that State or because the capital is also capital owned by a resident of that State), the first-mentioned State shall, subject to the provisions of paragraphs 2 and 3, exempt such income or capital from tax.

2. Where a resident of a Contracting State derives items of income which may be taxed in the other Contracting State in accordance with the provisions of Articles 10 and 11 (except to the extent that these provisions allow taxation by that other State solely because the income is also income derived by a resident of that State), the first-mentioned State shall allow as a deduction from the tax on the income of that resident an amount equal to the tax paid in that other State. Such deduction shall not, however, exceed that part of the tax, as computed before the deduction is given, which is attributable to such items of income derived from that other State.

3. Where in accordance with any provision of the Convention income derived or capital owned by a resident of a Contracting State is exempt from tax in that State, such State may nevertheless, in calculating the amount of tax on the remaining income or capital of such resident, take into account the exempted income or capital.

4. The provisions of paragraph 1 shall not apply to income derived or capital owned by a resident of a Contracting State where the other Contracting State applies the provisions of this Convention to exempt such income or capital from tax or applies the provisions of paragraph 2 of Article 10 or 11 to such income.

History

Paragraph 1: Amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. In the 1977 Model Convention and until 21 November 2017, paragraph 1 read as follows:

“1. Where a resident of a Contracting State derives income or owns capital which, in accordance with the provisions of this Convention, may be taxed in the other Contracting State, the first-mentioned State shall, subject to the provisions of paragraphs 2 and 3, exempt such income or capital from tax.”

Paragraph 1 was previously amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 1 read as follows:

“1. Where a resident of a Contracting State derives income or owns capital which, in accordance with the provisions of this Convention, may be taxed in the other Contracting State, the first-mentioned State shall, subject to the provisions of paragraph 2, exempt such income or capital from tax but may, in calculating tax on the remaining income or capital of that person, apply the rate of tax which would have been applicable if the exempted income or capital had not been so exempted.”

Paragraph 2: Amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. In the 1977 Model Convention and until 21 November 2017, paragraph 2 read as follows:

“2. Where a resident of a Contracting State derives items of income which, in accordance with the provisions of Articles 10 and 11, may be taxed in the other Contracting State, the first-mentioned State shall allow as a deduction from the tax on the income of that resident an amount equal to the tax paid in that other State. Such deduction shall not, however, exceed that part of the tax, as computed before the deduction is given, which is attributable to such items of income derived from that other State.”

Paragraph 2 was previously amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 2 read as follows:

“2. Where a resident of a Contracting State derives income which, in accordance with the provisions of Articles 10 and 11, may be taxed in the other Contracting State, the first-mentioned State shall allow as a deduction from the tax on the income of that person an amount equal to the tax paid in that other Contracting State. Such deduction shall not, however, exceed that part of the tax, as computed before the deduction is given, which is appropriate to the income derived from that other Contracting State.”

Paragraph 3: Added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 4: Added on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000, on the basis of paragraph 113 of another report entitled “The Application of the OECD Model Tax Convention to Partnerships” (adopted by the OECD Committee on Fiscal Affairs on 20 January 1999).

Article 23 B – Credit method

1. Where a resident of a Contracting State derives income or owns capital which may be taxed in the other Contracting State in accordance with the provisions of this Convention (except to the extent that these provisions allow taxation by that other State solely because the income is also income derived by a resident of that State or because the capital is also capital owned by a resident of that State), the first-mentioned State shall allow:

1. as a deduction from the tax on the income of that resident, an amount equal to the income tax paid in that other State;

2. as a deduction from the tax on the capital of that resident, an amount equal to the capital tax paid in that other State.

Such deduction in either case shall not, however, exceed that part of the income tax or capital tax, as computed before the deduction is given, which is attributable, as the case may be, to the income or the capital which may be taxed in that other State.

2. Where in accordance with any provision of the Convention income derived or capital owned by a resident of a Contracting State is exempt from tax in that State, such State may nevertheless, in calculating the amount of tax on the remaining income or capital of such resident, take into account the exempted income or capital.

History

Paragraph 1: Amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. In the 1977 Model Convention and until 21 November 2017, paragraph 1 read as follows:

“1. Where a resident of a Contracting State derives income or owns capital which, in accordance with the provisions of this Convention, may be taxed in the other Contracting State, the first-mentioned State shall allow:

1. as a deduction from the tax on the income of that resident, an amount equal to the income tax paid in that other State;

2. as a deduction from the tax on the capital of that resident, an amount equal to the capital tax paid in that other State.

Such deduction in either case shall not, however, exceed that part of the income tax or capital tax, as computed before the deduction is given, which is attributable, as the case may be, to the income or the capital which may be taxed in that other State.”

Paragraph 1 as it read after 11 April 1977 corresponded to paragraphs 1 and 2 of the 1963 Draft Convention. These paragraphs were merged and amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraphs 1 and 2 read as follows:

“1. Where a resident of a Contracting State derives income or owns capital which, in accordance with the provisions of this Convention, may be taxed in the other Contracting State, the first-mentioned State shall allow:

1. as a deduction from the tax on the income of that person, an amount equal to the income tax paid in that other Contracting State;

2. as a deduction from the tax on the capital of that person, an amount equal to the capital tax paid in that other Contracting State.

2. The deduction in either case shall not, however, exceed that part of the income tax or capital tax, respectively, as computed before the deduction is given, which is appropriate, as the case may be, to the income or the capital which may be taxed in the other Contracting State.”

Paragraph 2: Replaced paragraph 2 of the 1963 Draft Convention when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 2 of the 1963 Draft Convention was merged with paragraph 1 (see history of paragraph 1) and a new paragraph 2 was added.

Chapter VI
Special provisions

Article 24 – Non-discrimination

1. Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith, which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances, in particular with respect to residence, are or may be subjected. This provision shall, notwithstanding the provisions of Article 1, also apply to persons who are not residents of one or both of the Contracting States.

2. Stateless persons who are residents of a Contracting State shall not be subjected in either Contracting State to any taxation or any requirement connected therewith, which is other or more burdensome than the taxation and connected requirements to which nationals of the State concerned in the same circumstances, in particular with respect to residence, are or may be subjected.

3. The taxation on a permanent establishment which an enterprise of a Contracting State has in the other Contracting State shall not be less favourably levied in that other State than the taxation levied on enterprises of that other State carrying on the same activities. This provision shall not be construed as obliging a Contracting State to grant to residents of the other Contracting State any personal allowances, reliefs and reductions for taxation purposes on account of civil status or family responsibilities which it grants to its own residents.

4. Except where the provisions of paragraph 1 of Article 9, paragraph 6 of Article 11, or paragraph 4 of Article 12, apply, interest, royalties and other disbursements paid by an enterprise of a Contracting State to a resident of the other Contracting State shall, for the purpose of determining the taxable profits of such enterprise, be deductible under the same conditions as if they had been paid to a resident of the first-mentioned State. Similarly, any debts of an enterprise of a Contracting State to a resident of the other Contracting State shall, for the purpose of determining the taxable capital of such enterprise, be deductible under the same conditions as if they had been contracted to a resident of the first-mentioned State.

5. Enterprises of a Contracting State, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State, shall not be subjected in the first-mentioned State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which other similar enterprises of the first-mentioned State are or may be subjected.

6. The provisions of this Article shall, notwithstanding the provisions of Article 2, apply to taxes of every kind and description.

History

Paragraph 1: Amended on 23 July 1992, by adding the words “in particular with respect to residence” in the first sentence, by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992. In the 1977 Model Convention and until 23 July 1992, paragraph 1 read as follows:

“1. Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith, which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances are or may be subjected. This provision shall, notwithstanding the provisions of Article 1, also apply to persons who are not residents of one or both of the Contracting States.”

Paragraph 1 was previously amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977, notably by adding the second sentence. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 1 read as follows:

“1. The nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances are or may be subjected.”

Paragraph 2: Amended on 23 October 1997, by adding the words “in particular with respect to residence” after the words “in the same circumstances”, by the report entitled “The 1997 Update to the Model Tax Convention”, adopted by the OECD Council on 23 October 1997. After 23 July 1992 and until 23 October 1997, paragraph 2 read as follows:

“2. Stateless persons who are residents of a Contracting State shall not be subjected in either Contracting State to any taxation or any requirement connected therewith, which is other or more burdensome than the taxation and connected requirements to which nationals of the State concerned in the same circumstances, in particular with respect to residence, are or may be subjected.”

Paragraph 2 as it read after 23 July 1992 corresponded to paragraph 3 of the 1977 Model Convention. On 23 July 1992, paragraph 2 of the 1977 Model Convention was amended and redesignated as subparagraph 1 f) of Article 3 (see history of paragraph 1 of Article 3) and paragraph 3 was renumbered as paragraph 2, by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992. In the 1977 Model Convention and until 23 July 1992, paragraph 3 read as follows:

“3. The term “nationals” means:

1. all individuals possessing the nationality of a Contracting State;

2. all legal persons, partnerships and associations deriving their status as such from the laws in force in a Contracting State.”

Paragraph 3 of the 1963 Draft Convention was amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 3 read as follows:

“3. Stateless persons shall not be subjected in a Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which nationals of that State in the same circumstances are or may be subjected.”

Paragraph 3: Corresponds to paragraph 4 of the 1977 Model Convention as it read before 23 July 1992. On that date, paragraph 3 was renumbered as paragraph 2 (see history of paragraph 2) and paragraph 4 of the 1977 Model Convention was renumbered as paragraph 3, by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 4 was amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention, the second sentence was presented as a second paragraph within paragraph 4 of the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963). This was corrected when the 1977 Model Convention was adopted.

Paragraph 4: Corresponds to paragraph 5 of the 1977 Model Convention as it read before 23 July 1992. On that date, paragraph 4 was renumbered as paragraph 3 (see history of paragraph 3) and paragraph 5 of the 1977 Model Convention was renumbered as paragraph 4, by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 5 of the 1977 Model Convention was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 5: Corresponds to paragraph 6 of the 1977 Model Convention as it read before 23 July 1992. On that date, paragraph 5 was renumbered as paragraph 4 (see history of paragraph 4) and paragraph 6 of the 1977 Model Convention was renumbered as paragraph 5 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 6 of the 1977 Model Convention corresponded to paragraph 5 of the 1963 Draft Convention. Paragraph 5 of the 1963 Draft Convention was renumbered as paragraph 6 and amended when the 1977 Model Convention, was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 5 read as follows:

“5. Enterprises of a Contracting State, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State, shall not be subjected in the first-mentioned Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which other similar enterprises of that first-mentioned State are or may be subjected.”

Paragraph 6: Corresponds to paragraph 7 of the 1977 Model Convention as it read before 23 July 1992. On that date, paragraph 6 was renumbered as paragraph 5 (see history of paragraph 5) and paragraph 7 of the 1977 Model Convention was renumbered as paragraph 6 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 7 of the 1977 Model Convention corresponded to paragraph 6 of the 1963 Draft Convention. Paragraph 6 of the 1963 Draft Convention was amended and renumbered as paragraph 7 when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 6 read as follows:

“6. In this Article the term “taxation” means taxes of every kind and description.”

Article 25 – Mutual agreement procedure

1. Where a person considers that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with the provisions of this Convention, he may, irrespective of the remedies provided by the domestic law of those States, present his case to the competent authority of either Contracting State. The case must be presented within three years from the first notification of the action resulting in taxation not in accordance with the provisions of the Convention.

2. The competent authority shall endeavour, if the objection appears to it to be justified and if it is not itself able to arrive at a satisfactory solution, to resolve the case by mutual agreement with the competent authority of the other Contracting State, with a view to the avoidance of taxation which is not in accordance with the Convention. Any agreement reached shall be implemented notwithstanding any time limits in the domestic law of the Contracting States.

3. The competent authorities of the Contracting States shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Convention. They may also consult together for the elimination of double taxation in cases not provided for in the Convention.

4. The competent authorities of the Contracting States may communicate with each other directly, including through a joint commission consisting of themselves or their representatives, for the purpose of reaching an agreement in the sense of the preceding paragraphs.

5. Where,

1. under paragraph 1, a person has presented a case to the competent authority of a Contracting State on the basis that the actions of one or both of the Contracting States have resulted for that person in taxation not in accordance with the provisions of this Convention, and

2. the competent authorities are unable to reach an agreement to resolve that case pursuant to paragraph 2 within two years from the date when all the information required by the competent authorities in order to address the case has been provided to both competent authorities,

any unresolved issues arising from the case shall be submitted to arbitration if the person so requests in writing. These unresolved issues shall not, however, be submitted to arbitration if a decision on these issues has already been rendered by a court or administrative tribunal of either State. Unless a person directly affected by the case does not accept the mutual agreement that implements the arbitration decision, that decision shall be binding on both Contracting States and shall be implemented notwithstanding any time limits in the domestic laws of these States. The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this paragraph.

6. For purposes of paragraph 3 of Article XXII (Consultation) of the General Agreement on Trade in Services, the Contracting States agree that –

1. a measure “falls within the scope of this Convention” only if it is a measure to which the provisions of Article 24 apply; and

2. notwithstanding paragraph 3 of Article XXII of the General Agreement on Trade in Services, any dispute between them as to whether a measure falls within the scope of this Convention shall be resolved under paragraph 3 of Article 25 or, failing agreement under that procedure, any other procedure agreed to by both Contracting States.

History

Paragraph 1: Amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Making Dispute Resolution Mechanisms More Effective, Action 14 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. In the 1977 Model Convention and until 21 November 2017, paragraph 1 read as follows:

“1. Where a person considers that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with the provisions of this Convention, he may, irrespective of the remedies provided by the domestic law of those States, present his case to the competent authority of the Contracting State of which he is a resident or, if his case comes under paragraph 1 of Article 24, to that of the Contracting State of which he is a national. The case must be presented within three years from the first notification of the action resulting in taxation not in accordance with the provisions of the Convention.”

Paragraph 1 was previously amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977, notably by adding the second sentence. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 1 read as follows:

“1. Where a resident of a Contracting State considers that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with this Convention, he may, notwithstanding the remedies provided by the national laws of those States, present his case to the competent authority of the Contracting State of which he is a resident.”

Paragraph 2: Amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977, notably by adding the second sentence. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 2 read as follows:

“2. The competent authority shall endeavour, if the objection appears to it to be justified and if it is not itself able to arrive at an appropriate solution, to resolve the case by mutual agreement with the competent authority of the other Contracting State, with a view to the avoidance of taxation not in accordance with the Convention.”

Paragraph 3: Unchanged since the adoption of the 1963 Draft Convention by the OECD Council on 30 July 1963.

Paragraph 4: Amended on 21 September 1995 by the report entitled “The 1995 Update to the Model Tax Convention”, adopted by the OECD Council on 21 September 1995. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until 21 September 1995, paragraph 4 read as follows:

“4. The competent authorities of the Contracting States may communicate with each other directly for the purpose of reaching an agreement in the sense of the preceding paragraphs. When it seems advisable in order to reach agreement to have an oral exchange of opinions, such exchange may take place through a Commission consisting of representatives of the competent authorities of the Contracting States.”

Paragraph 5: Amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 17 July 2008 and until 21 November 2017, paragraph 5 read as follows:

“5. Where,

1. under paragraph 1, a person has presented a case to the competent authority of a Contracting State on the basis that the actions of one or both of the Contracting States have resulted for that person in taxation not in accordance with the provisions of this Convention, and

2. the competent authorities are unable to reach an agreement to resolve that case pursuant to paragraph 2 within two years from the presentation of the case to the competent authority of the other Contracting State,

any unresolved issues arising from the case shall be submitted to arbitration if the person so requests. These unresolved issues shall not, however, be submitted to arbitration if a decision on these issues has already been rendered by a court or administrative tribunal of either State. Unless a person directly affected by the case does not accept the mutual agreement that implements the arbitration decision, that decision shall be binding on both Contracting States and shall be implemented notwithstanding any time limits in the domestic laws of these States. The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this paragraph.^[11]

Paragraph 5 was added on 17 July 2008 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008.

Paragraph 6: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Article 26 – Exchange of information

1. The competent authorities of the Contracting States shall exchange such information as is foreseeably relevant for carrying out the provisions of this Convention or to the administration or enforcement of the domestic laws concerning taxes of every kind and description imposed on behalf of the Contracting States, or of their political subdivisions or local authorities, insofar as the taxation thereunder is not contrary to the Convention. The exchange of information is not restricted by Articles 1 and 2.

2. Any information received under paragraph 1 by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) concerned with the assessment or collection of, the enforcement or prosecution in respect of, the determination of appeals in relation to the taxes referred to in paragraph 1, or the oversight of the above. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions. Notwithstanding the foregoing, information received by a Contracting State may be used for other purposes when such information may be used for such other purposes under the laws of both States and the competent authority of the supplying State authorises such use.

3. In no case shall the provisions of paragraphs 1 and 2 be construed so as to impose on a Contracting State the obligation:

1. to carry out administrative measures at variance with the laws and administrative practice of that or of the other Contracting State;

2. to supply information which is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State;

3. to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information the disclosure of which would be contrary to public policy (ordre public).

4. If information is requested by a Contracting State in accordance with this Article, the other Contracting State shall use its information gathering measures to obtain the requested information, even though that other State may not need such information for its own tax purposes. The obligation contained in the preceding sentence is subject to the limitations of paragraph 3 but in no case shall such limitations be construed to permit a Contracting State to decline to supply information solely because it has no domestic interest in such information.

5. In no case shall the provisions of paragraph 3 be construed to permit a Contracting State to decline to supply information solely because the information is held by a bank, other financial institution, nominee or person acting in an agency or a fiduciary capacity or because it relates to ownership interests in a person.

History

Paragraph 1: Corresponds to the first two sentences of paragraph 1 as they read before 15 July 2005. The first two sentences of Paragraph 1 were amended and the third and subsequent sentences were incorporated into paragraph 2 (see history of paragraph 2) by the report entitled “The 2005 Update to the Model Tax Convention”, adopted by the OECD Council on 15 July 2005, on the basis of another report entitled “Changes to Articles 25 and 26 of the Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 1 June 2004). After 29 April 2000 and until 15 July 2005, paragraph 1 read as follows:

“1. The competent authorities of the Contracting States shall exchange such information as is necessary for carrying out the provisions of this Convention or of the domestic laws concerning taxes of every kind and description imposed on behalf of the Contracting States, or of their political subdivisions or local authorities, insofar as the taxation thereunder is not contrary to the Convention. The exchange of information is not restricted by Articles 1 and 2. Any information received by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) concerned with the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to the taxes referred to in the first sentence. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions.”

Paragraph 1 was previously amended on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000. After 21 September 1995 and until 29 April 2000, paragraph 1 read as follows:

“1. The competent authorities of the Contracting States shall exchange such information as is necessary for carrying out the provisions of this Convention or of the domestic laws of the Contracting States concerning taxes covered by the Convention insofar as the taxation thereunder is not contrary to the Convention. The exchange of information is not restricted by Article 1. Any information received by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) concerned with the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxes covered by the Convention. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions.”

Paragraph 1 was previously amended on 21 September 1995, by replacing the words “involved in” with “concerned with”, by the report entitled “The 1995 Update to the Model Tax Convention”, adopted by the OECD Council on 21 September 1995. In the 1977 Model Convention and until 21 September 1995, paragraph 1 read as follows:

“1. The competent authorities of the Contracting States shall exchange such information as is necessary for carrying out the provisions of this Convention or of the domestic laws of the Contracting States concerning taxes covered by the Convention insofar as the taxation thereunder is not contrary to the Convention. The exchange of information is not restricted by Article 1. Any information received by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) involved in the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxes covered by the Convention. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions.”

Paragraph 1 was previously amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 1 read as follows:

“1. The competent authorities of the Contracting States shall exchange such information as is necessary for the carrying out of this Convention and of the domestic laws of the Contracting States concerning taxes covered by this Convention insofar as the taxation thereunder is in accordance with this Convention. Any information so exchanged shall be treated as secret and shall not be disclosed to any persons or authorities other than those concerned with the assessment or collection of the taxes which are the subject of the Convention.”

Paragraph 2: Amended on 15 July 2014, by adding the last sentence, by the report entitled “The 2014 Update to the Model Tax Convention”, adopted by the OECD Council on 15 July 2014, on the basis of the report “Draft Amendments to Article 26 of the OECD Model Tax Convention and its Commentary”, adopted by the OECD Council on 17 July 2012 and applicable from that date. After 15 July 2005 and until 15 July 2014, paragraph 2 read as follows:

“2. Any information received under paragraph 1 by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) concerned with the assessment or collection of, the enforcement or prosecution in respect of, the determination of appeals in relation to the taxes referred to in paragraph 1, or the oversight of the above. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions.”

Paragraph 2 as it read after 15 July 2005 corresponded to the third and subsequent sentences of paragraph 1 as they read before 15 July 2005. Those sentences were amended and incorporated into a new paragraph 2 by the report entitled “The 2005 Update to the Model Tax Convention”, adopted by the OECD Council on 15 July 2005, on the basis of another report entitled “Changes to Articles 25 and 26 of the Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 1 June 2004) (see history of paragraph 1). At the same time, paragraph 2 was renumbered as paragraph 3 (see history of paragraph 3) and amended to include a cross-reference to paragraph 2.

Paragraph 3: Corresponds to paragraph 2 as it read before 15 July 2005. On that date, paragraph 2 was renumbered as paragraph 3 and amended, by adding a cross-reference to paragraph 2, by the report entitled “The 2005 Update to the Model Tax Convention”, adopted by the OECD Council on 15 July 2005, on the basis of another report entitled “Changes to Articles 25 and 26 of the Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 1 June 2004). In the 1977 Model Convention and until 15 July 2005, paragraph 2 read as follows:

“2. In no case shall the provisions of paragraphs 1 and be construed so as to impose on a Contracting State the obligation:

1. to carry out administrative measures at variance with the laws and administrative practice of that or of the other Contracting State;

2. to supply information which is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State;

3. to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information, the disclosure of which would be contrary to public policy (ordre public).”

Paragraph 2 was amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 2 read as follows:

“2. In no case shall the provisions of paragraph 1 be construed so as to impose on one of the Contracting States the obligation:

1. to carry out administrative measures at variance with the laws or the administrative practice of that or of the other Contracting State;

2. to supply particulars which are not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State;

3. to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information, the disclosure of which would be contrary to public policy (ordre public).”

Paragraph 4: Added on 15 July 2005 by the report entitled “The 2005 Update to the Model Tax Convention”, adopted by the OECD Council on 15 July 2005, on the basis of another report entitled “Changes to Articles 25 and 26 of the Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 1 June 2004).

Paragraph 5: Added on 15 July 2005 by the report entitled “The 2005 Update to the Model Tax Convention”, adopted by the OECD Council on 15 July 2005, on the basis of another report entitled “Changes to Articles 25 and 26 of the Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 1 June 2004).

Article 27 – Assistance in the collection of taxes^[12]

1. The Contracting States shall lend assistance to each other in the collection of revenue claims. This assistance is not restricted by Articles 1 and 2. The competent authorities of the Contracting States may by mutual agreement settle the mode of application of this Article.

2. The term “revenue claim” as used in this Article means an amount owed in respect of taxes of every kind and description imposed on behalf of the Contracting States, or of their political subdivisions or local authorities, insofar as the taxation thereunder is not contrary to this Convention or any other instrument to which the Contracting States are parties, as well as interest, administrative penalties and costs of collection or conservancy related to such amount.

3. When a revenue claim of a Contracting State is enforceable under the laws of that State and is owed by a person who, at that time, cannot, under the laws of that State, prevent its collection, that revenue claim shall, at the request of the competent authority of that State, be accepted for purposes of collection by the competent authority of the other Contracting State. That revenue claim shall be collected by that other State in accordance with the provisions of its laws applicable to the enforcement and collection of its own taxes as if the revenue claim were a revenue claim of that other State.

4. When a revenue claim of a Contracting State is a claim in respect of which that State may, under its law, take measures of conservancy with a view to ensure its collection, that revenue claim shall, at the request of the competent authority of that State, be accepted for purposes of taking measures of conservancy by the competent authority of the other Contracting State. That other State shall take measures of conservancy in respect of that revenue claim in accordance with the provisions of its laws as if the revenue claim were a revenue claim of that other State even if, at the time when such measures are applied, the revenue claim is not enforceable in the first-mentioned State or is owed by a person who has a right to prevent its collection.

5. Notwithstanding the provisions of paragraphs 3 and 4, a revenue claim accepted by a Contracting State for purposes of paragraph 3 or 4 shall not, in that State, be subject to the time limits or accorded any priority applicable to a revenue claim under the laws of that State by reason of its nature as such. In addition, a revenue claim accepted by a Contracting State for the purposes of paragraph 3 or 4 shall not, in that State, have any priority applicable to that revenue claim under the laws of the other Contracting State.

6. Proceedings with respect to the existence, validity or the amount of a revenue claim of a Contracting State shall not be brought before the courts or administrative bodies of the other Contracting State.

7. Where, at any time after a request has been made by a Contracting State under paragraph 3 or 4 and before the other Contracting State has collected and remitted the relevant revenue claim to the first-mentioned State, the relevant revenue claim ceases to be

1. in the case of a request under paragraph 3, a revenue claim of the first-mentioned State that is enforceable under the laws of that State and is owed by a person who, at that time, cannot, under the laws of that State, prevent its collection, or

2. in the case of a request under paragraph 4, a revenue claim of the first-mentioned State in respect of which that State may, under its laws, take measures of conservancy with a view to ensure its collection

the competent authority of the first-mentioned State shall promptly notify the competent authority of the other State of that fact and, at the option of the other State, the first-mentioned State shall either suspend or withdraw its request.

8. In no case shall the provisions of this Article be construed so as to impose on a Contracting State the obligation:

1. to carry out administrative measures at variance with the laws and administrative practice of that or of the other Contracting State;

2. to carry out measures which would be contrary to public policy (ordre public);

3. to provide assistance if the other Contracting State has not pursued all reasonable measures of collection or conservancy, as the case may be, available under its laws or administrative practice;

4. to provide assistance in those cases where the administrative burden for that State is clearly disproportionate to the benefit to be derived by the other Contracting State.

History

The title of Article 27: Replaced on 28 January 2003 when the previous Article 27 (Members of Diplomatic Missions and Consular Posts) was renumbered as Article 28 (see history of Article 28) and a new Article 27 (Assistance in the Collection of Taxes) was added by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003.

Paragraph 1: Replaced on 28 January 2003 when paragraph 1 was renumbered as paragraph 1 of Article 28 (see history of paragraph 1 of Article 28) and a new paragraph 1 was added by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003 (see history of Article 28).

Paragraph 2: Added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2002.

Paragraph 3: Added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2002.

Paragraph 4: Added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2002.

Paragraph 5: Added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2002.

Paragraph 6: Added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2002.

Paragraph 7: Added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2002.

Paragraph 8: Added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2002.

Article 28 – Members of diplomatic missions and consular posts

Nothing in this Convention shall affect the fiscal privileges of members of diplomatic missions or consular posts under the general rules of international law or under the provisions of special agreements.

History

Article 28 corresponds to Article 27 as it read before 28 January 2003. The previous Article 28 (Territorial Extension) was renumbered as Article 29 (see history of Article 30) and Article 27 was renumbered as Article 28 as a consequence of the addition of a new Article 27 (Assistance in the Collection of Taxes) by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003.

Article 27 and its title were amended on 31 March 1994 by the report entitled “1994 Update to the Model Tax Convention”, adopted by the OECD Council on 31 March 1994. In the 1977 Model Convention and until 31 March 1994, Article 27 and its title read as follows:

“DIPLOMATIC AGENTS AND CONSULAR OFFICERS

Nothing in this Convention shall affect the fiscal privileges of diplomatic agents or consular officers under the general rules of international law or under the provisions of special agreements.”

Article 27 and its title were previously amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, Article 27 and its title read as follows:

“DIPLOMATIC AND CONSULAR OFFICIALS

Nothing in this Convention shall affect the fiscal privileges of diplomatic or consular officials under the general rules of international law or under the provisions of special agreements.”

Article 29 – Entitlement to benefits^[13]

1. [Provision that, subject to paragraphs 3 to 5, restricts treaty benefits to a resident of a Contracting State who is a “qualified person” as defined in paragraph 2].

2. [Definition of situations where a resident is a qualified person, which covers

• an individual;

• a Contracting State, its political subdivisions and their agencies and instrumentalities;

• certain publicly-traded companies and entities;

• certain affiliates of publicly-listed companies and entities;

• certain non-profit organisations and recognised pension funds;

• other entities that meet certain ownership and base erosion requirements;

• certain collective investment vehicles].

3. [Provision that provides treaty benefits to certain income derived by a person that is not a qualified person if the person is engaged in the active conduct of a business in its State of residence and the income emanates from, or is incidental to, that business].

4. [Provision that provides treaty benefits to a person that is not a qualified person if at least more than an agreed proportion of that entity is owned by certain persons entitled to equivalent benefits].

5. [Provision that provides treaty benefits to a person that qualifies as a “headquarters company”].

6. [Provision that allows the competent authority of a Contracting State to grant certain treaty benefits to a person where benefits would otherwise be denied under paragraph 1].

7. [Definitions applicable for the purposes of paragraphs 1 to 7].

8.

1. Where

   1. an enterprise of a Contracting State derives income from the other Contracting State and the first-mentioned State treats such income as attributable to a permanent establishment of the enterprise situated in a third jurisdiction, and

   2. the profits attributable to that permanent establishment are exempt from tax in the first-mentioned State,

   the benefits of this Convention shall not apply to any item of income on which the tax in the third jurisdiction is less than the lower of [rate to be determined bilaterally] of the amount of that item of income and 60 per cent of the tax that would be imposed in the first-mentioned State on that item of income if that permanent establishment were situated in the first-mentioned State. In such a case any income to which the provisions of this paragraph apply shall remain taxable according to the domestic law of the other State, notwithstanding any other provisions of the Convention.

2. The preceding provisions of this paragraph shall not apply if the income derived from the other State emanates from, or is incidental to, the active conduct of a business carried on through the permanent establishment (other than the business of making, managing or simply holding investments for the enterprise’s own account, unless these activities are banking, insurance or securities activities carried on by a bank, insurance enterprise or registered securities dealer, respectively).

3. If benefits under this Convention are denied pursuant to the preceding provisions of this paragraph with respect to an item of income derived by a resident of a Contracting State, the competent authority of the other Contracting State may, nevertheless, grant these benefits with respect to that item of income if, in response to a request by such resident, such competent authority determines that granting such benefits is justified in light of the reasons such resident did not satisfy the requirements of this paragraph (such as the existence of losses). The competent authority of the Contracting State to which a request has been made under the preceding sentence shall consult with the competent authority of the other Contracting State before either granting or denying the request.

9. Notwithstanding the other provisions of this Convention, a benefit under this Convention shall not be granted in respect of an item of income or capital if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of this Convention.

History

The title of Article 29: Replaced on 21 November 2017 when the previous Article 29 (Territorial Extension) was renumbered as Article 30 (see history of Article 30) and a new Article 29 (Entitlement to Benefits) was added, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 1: Replaced on 21 November 2017 when paragraph 1 was renumbered as paragraph 1 of Article 30 (see history of paragraph 1 of Article 30) and a new paragraph 1 was added, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 2: Replaced on 21 November 2017 when paragraph 2 was renumbered as paragraph 2 of Article 30 (see history of paragraph 2 of Article 30) and a new paragraph 2 was added, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 3: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 4: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 5: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November , as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 6: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 7: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 8: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 9: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Article 30 – Territorial extension^[14]

1. This Convention may be extended, either in its entirety or with any necessary modifications [to any part of the territory of (State A) or of (State B) which is specifically excluded from the application of the Convention or], to any State or territory for whose international relations (State A) or (State B) is responsible, which imposes taxes substantially similar in character to those to which the Convention applies. Any such extension shall take effect from such date and subject to such modifications and conditions, including conditions as to termination, as may be specified and agreed between the Contracting States in notes to be exchanged through diplomatic channels or in any other manner in accordance with their constitutional procedures.

2. Unless otherwise agreed by both Contracting States, the termination of the Convention by one of them under Article 32 shall also terminate, in the manner provided for in that Article, the application of the Convention [to any part of the territory of (State A) or of (State B) or] to any State or territory to which it has been extended under this Article.

History

Article 30 corresponds to Article 29 as it read before 21 November 2017. On that date, Article 29 was renumbered as Article 30 as a consequence of the addition of a new Article 29 (Entitlement to Benefits) and the renumbering of the following Articles by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Article 29 as it read after 28 January 2003 corresponded to Article 28 as it read before that date. On 28 January 2003, the Article 29 (Entry into Force) was renumbered as Article 30 (see history of Article 31) and Article 28 was renumbered as Article 29 as a consequence of the addition of a new Article 27 (Assistance in the Collection of Taxes) and the renumbering of the following Articles, by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003.

Paragraph 1: Corresponds to paragraph 1 of Article 29 as it read before 21 November 2017. On that date, Article 30 was renumbered as Article 31 (see history of paragraph 1 of Article 31) and paragraph 1 of Article 29 was renumbered as paragraph 1 of Article 30, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 1 of Article 29 as it read after 28 January 2003 corresponded to paragraph 1 of Article 28 of the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963). On 28 January 2003, paragraph 1 of Article 29 was renumbered as paragraph 1 of Article 30 (see history of paragraph 2 of Article 31) and paragraph 1 of Article 28 was renumbered as paragraph 1 of Article 29, by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003.

Paragraph 2: Corresponds to paragraph 2 of Article 29 as it read before 21 November 2017. On that date, paragraph 2 of Article 29 was renumbered as paragraph 2 of Article 30 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 28 January 2003 and until 21 November 2017, paragraph 2 read as follows:

“2. Unless otherwise agreed by both Contracting States, the termination of the Convention by one of them under Article 31 shall also terminate, in the manner provided for in that Article, the application of the Convention [to any part of the territory of (State A) or of (State B) or] to any State or territory to which it has been extended under this Article.”

Paragraph 2 as it read after 28 January 2003 corresponded to paragraph 2 of Article 28 as it read before that date. On 28 January 2003, paragraph 2 of Article 29 was renumbered as paragraph 2 of Article 30 (see history of paragraph 2 of Article 31) and paragraph 2 of Article 28 was renumbered as paragraph 2 of Article 29, by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003.

Paragraph 2 of Article 28 was amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 2 of Article 28 read as follows:

“2. Unless otherwise agreed by both Contracting States, the denunciation of the Convention by one of them under Article 30 shall terminate, in the manner provided for in that Article, the application of the Convention [to any part of the territory of (State A) or of (State B) or] to any State or territory to which it has been extended under this Article.”

Chapter VII
Final provisions

Article 31 – Entry into force

1. This Convention shall be ratified and the instruments of ratification shall be exchanged at .......... as soon as possible.

2. The Convention shall enter into force upon the exchange of instruments of ratification and its provisions shall have effect:

1. (in State A): .......................................

2. (in State B): .......................................

History

Article 31 corresponds to Article 30 as it read before 21 November 2017. On that date, Article 30 was renumbered as Article 31 as a consequence of the addition of a new Article 29 (Entitlement to Benefits) and the renumbering of the following Articles by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Article 30 as it read after 28 January 2003 corresponded to Article 29 as it read before that date. On 28 January 2003, Article 29 was renumbered as Article 30 and Article 30 (Termination) was renumbered as Article 31 (see history of Article 32) as a consequence of the addition of a new Article 27 (Assistance in the Collection of Taxes) and the renumbering of the following Articles, by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003.

Paragraph 1: Corresponds to paragraph 1 of Article 30 as it read before 21 November 2017. On that date, paragraph 1 of Article 31 was renumbered as paragraph 1 of Article 32 (see history of paragraph 1 of Article 32) and paragraph 1 of Article 30 was renumbered as paragraph 1 of Article 31, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 1 of Article 30 as it read after 28 January 2003 corresponded to paragraph 1 of Article 29 of the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963). On 28 January 2003, paragraph 1 of Article 30 was renumbered as paragraph 1 of Article 31 (see history of paragraph 1 of Article 32) and paragraph 1 of Article 29 was renumbered as paragraph 1 of Article 30, by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003.

Paragraph 2: Corresponds to paragraph 2 of Article 30 as it read before 21 November 2017. On that date, paragraph 2 of Article 31 was renumbered as paragraph 2 of Article 32 (see history of paragraph 2 of Article 32) and paragraph 2 of Article 30 was renumbered as paragraph 2 of Article 31, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 2 of Article 30 as it read after 28 January 2003 corresponded to paragraph 2 of Article 29 of the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963). On 28 January 2003, paragraph 2 of Article 30 was renumbered as paragraph 2 of Article 31 (see history of paragraph 2 of Article 32) and paragraph 2 of Article 29 was renumbered as paragraph 2 of Article 30, by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003.

Article 32 – Termination

This Convention shall remain in force until terminated by a Contracting State. Either Contracting State may terminate the Convention, through diplomatic channels, by giving notice of termination at least six months before the end of any calendar year after the year .......... In such event, the Convention shall cease to have effect:

1. (in State A): .........................................

2. (in State B): .........................................

Terminal clause^[15]

History

Article 32 corresponds to Article 31 as it read before 21 November 2017. On that date, Article 31 was renumbered as Article 32 as a consequence of the addition of a new Article 29 (Entitlement to Benefits) and the renumbering of the following Articles, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Article 31 as it read after 28 January 2003 corresponded to Article 30 as it read before that date. On 28 January 2003, Article 30 was renumbered as Article 31 as a consequence of the addition of a new Article 27 (Assistance in the Collection of Taxes) and the renumbering of the following Articles, by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003.

Article 30 was amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, Article 30 read as follows:

“This Convention shall remain in force until denounced by one of the Contracting States. Either Contracting State may denounce the Convention, through diplomatic channels, by giving notice of termination at least six months before the end of any calendar year after the year .......... In such event, the Convention shall cease to have effect:

1. in (State A): .......................

2. in (State B): .......................”

Commentary on Article 1
Concerning the persons covered by the Convention

Paragraph 1

1. Whereas many conventions concluded in the first part of the 20th century were applicable to “citizens” of the Contracting States, conventions concluded afterwards almost always apply to “residents” of one or both of the Contracting States irrespective of nationality. That approach is reflected in paragraph 1. The term “resident” is defined in Article 4. The fact that a person is a resident of a Contracting State does not mean, however, that the person is automatically entitled to the benefits of the Convention since some or all of these benefits may be denied under various provisions of the Convention, including those of Article 29.

(Amended on 21 November 2017; see HISTORY)

Paragraph 2

2. This paragraph addresses the situation of the income of entities or arrangements that one or both Contracting States treat as wholly or partly fiscally transparent for tax purposes. The provisions of the paragraph ensure that income of such entities or arrangements is treated, for the purposes of the Convention, in accordance with the principles reflected in the 1999 report of the Committee on Fiscal Affairs entitled “The Application of the OECD Model Tax Convention to Partnerships”^[16] (the Partnership Report). That report therefore provides guidance and examples on how the provision should be interpreted and applied in various situations.

(Amended on 18 November 2025; see HISTORY)

3. The report, however, dealt exclusively with partnerships and whilst the Committee recognised that many of the principles included in the report could also apply with respect to other non-corporate entities, it expressed the intention to examine the application of the Model Tax Convention to these other entities at a later stage. As indicated in paragraph 37 of the report, the Committee was particularly concerned with “cases where domestic tax laws create intermediary situations where a partnership is partly treated as a taxable unit and partly disregarded for tax purposes.” According to the report

Whilst this may create practical difficulties with respect to a very limited number of partnerships, it is a more important problem in the case of other entities such as trusts. For this reason, the Committee decided to deal with this issue in the context of follow-up work to this report.

(Replaced on 21 November 2017; see HISTORY)

4. Paragraph 2 addresses this particular situation by referring to entities that are “wholly or partly” treated as fiscally transparent. Thus, the paragraph not only serves to confirm the conclusions of the Partnership Report but also extends the application of these conclusions to situations that were not directly covered by the report (subject to the application of specific provisions dealing with collective investment vehicles, see paragraphs 22 to 48 below).

(Replaced on 21 November 2017; see HISTORY)

5. The paragraph not only ensures that the benefits of the Convention are granted in appropriate cases but also ensures that these benefits are not granted where neither Contracting State treats, under its domestic law, the income of an entity or arrangement as the income of one of its residents. The paragraph therefore confirms the conclusions of the report in such a case (see, for example, example 3 of the report). Also, as recognised in the report, States should not be expected to grant the benefits of a bilateral tax convention in cases where they cannot verify whether a person is truly entitled to these benefits. Thus, if an entity is established in a jurisdiction from which a Contracting State cannot obtain tax information, that State would need to be provided with all the necessary information in order to be able to grant the benefits of the Convention. In such a case, the Contracting State might well decide to use the refund mechanism for the purposes of applying the benefits of the Convention even though it normally applies these benefits at the time of the payment of the relevant income. In most cases, however, it will be possible to obtain the relevant information and to apply the benefits of the Convention at the time the income is taxed (see for example paragraphs 43 to 45 below which discuss a similar issue in the context of collective investment vehicles).

(Replaced on 21 November 2017; see HISTORY)

6. The following example illustrates the application of the paragraph:

Example: State A and State B have concluded a treaty identical to the Model Tax Convention. State A considers that an entity established in State B is a company and taxes that entity on interest that it receives from a debtor resident in State A. Under the domestic law of State B, however, the entity is treated as a partnership and the two members in that entity, who share equally all its income, are each taxed on half of the interest. One of the members is a resident of State B and the other one is a resident of a country with which States A and B do not have a treaty. The paragraph provides that in such case, half of the interest shall be considered, for the purposes of Article 11, to be income of a resident of State B.

(Replaced on 21 November 2017; see HISTORY)

6.1 (Deleted on 21 November 2017; see HISTORY)

6.2 (Deleted on 21 November 2017; see HISTORY)

6.3 (Deleted on 21 November 2017; see HISTORY)

6.4 (Deleted on 21 November 2017; see HISTORY)

6.5 (Deleted on 21 November 2017; see HISTORY)

6.6 (Deleted on 21 November 2017; see HISTORY)

6.7 (Deleted on 21 November 2017; see HISTORY)

6.8 (Renumbered on 21 November 2017; see HISTORY)

6.9 (Renumbered on 21 November 2017; see HISTORY)

6.10 (Renumbered on 21 November 2017; see HISTORY)

6.11 (Renumbered on 21 November 2017; see HISTORY)

6.12 (Renumbered on 21 November 2017; see HISTORY)

6.13 (Renumbered on 21 November 2017; see HISTORY)

6.14 (Renumbered on 21 November 2017; see HISTORY)

6.15 (Renumbered on 21 November 2017; see HISTORY)

6.16 (Renumbered on 21 November 2017; see HISTORY)

6.17 (Renumbered on 21 November 2017; see HISTORY)

6.18 (Renumbered on 21 November 2017; see HISTORY)

6.19 (Renumbered on 21 November 2017; see HISTORY)

6.20 (Renumbered on 21 November 2017; see HISTORY)

6.21 (Renumbered and amended on 21 November 2017; see HISTORY)

6.22 (Renumbered on 21 November 2017; see HISTORY)

6.23 (Renumbered on 21 November 2017; see HISTORY)

6.24 (Renumbered on 21 November 2017; see HISTORY)

6.25 (Renumbered on 21 November 2017; see HISTORY)

6.26 (Renumbered on 21 November 2017; see HISTORY)

6.27 (Renumbered and amended on 21 November 2017; see HISTORY)

6.28 (Renumbered and amended on 21 November 2017; see HISTORY)

6.29 (Renumbered and amended on 21 November 2017; see HISTORY)

6.30 (Renumbered on 21 November 2017; see HISTORY)

6.31 (Renumbered on 21 November 2017; see HISTORY)

6.32 (Renumbered on 21 November 2017; see HISTORY)

6.33 (Renumbered and amended on 21 November 2017; see HISTORY)

6.34 (Renumbered on 21 November 2017; see HISTORY)

6.35 (Renumbered on 21 November 2017; see HISTORY)

6.36 (Renumbered on 21 November 2017; see HISTORY)

6.37 (Renumbered on 21 November 2017; see HISTORY)

6.38 (Renumbered on 21 November 2017; see HISTORY)

6.39 (Renumbered on 21 November 2017; see HISTORY)

7. The reference to “income derived by or through an entity or arrangement” has a broad meaning and covers any income that is earned by or through an entity or arrangement, regardless of the view taken by each Contracting State as to who derives that income for domestic tax purposes and regardless of whether or not that entity or arrangement has legal personality or constitutes a person as defined in subparagraph a) of paragraph 1 of Article 3. It would cover, for example, income of any partnership or trust that one or both of the Contracting States treats as wholly or partly fiscally transparent. Also, as illustrated in example 2 of the report, it does not matter where the entity or arrangement is established: the paragraph applies to an entity established in a third State to the extent that, under the domestic tax law of one of the Contracting States, the entity is treated as wholly or partly fiscally transparent and income of that entity is attributed to a resident of that State.

(Replaced on 21 November 2017; see HISTORY)

7.1 (Deleted on 21 November 2017; see HISTORY)

8. The word “income” must be given the wide meaning that it has for the purposes of the Convention and therefore applies to the various items of income that are covered by Chapter III of the Convention (Taxation of Income), including, for example, profits of an enterprise and capital gains.

(Replaced on 21 November 2017; see HISTORY)

9. The concept of “fiscally transparent” used in the paragraph refers to situations where, under the domestic law of a Contracting State, the income (or part thereof) of the entity or arrangement is not taxed at the level of the entity or the arrangement but at the level of the persons who have an interest in that entity or arrangement. This will normally be the case where the amount of tax payable on a share of the income of an entity or arrangement is determined separately in relation to the personal characteristics of the person who is entitled to that share so that the tax will depend on whether that person is taxable or not, on the other income that the person has, on the personal allowances to which the person is entitled and on the tax rate applicable to that person; also, the character and source, as well as the timing of the realisation, of the income for tax purposes will not be affected by the fact that it has been earned through the entity or arrangement. The fact that the income is computed at the level of the entity or arrangement before the share is allocated to the person will not affect that result.^[17] States wishing to clarify the definition of “fiscally transparent” in their bilateral conventions are free to include a definition of that term based on the above explanations.

(Replaced on 21 November 2017; see HISTORY)

9.1 (Deleted on 21 November 2017; see HISTORY)

9.2 (Renumbered and amended on 21 November 2017; see HISTORY)

9.3 (Renumbered on 21 November 2017; see HISTORY)

9.4 (Renumbered on 21 November 2017; see HISTORY)

9.5 (Renumbered on 21 November 2017; see HISTORY)

9.6 (Renumbered on 21 November 2017; see HISTORY)

10. In the case of an entity or arrangement which is treated as partly fiscally transparent under the domestic law of one of the Contracting States, only part of the income of the entity or arrangement might be taxed at the level of the persons who have an interest in that entity or arrangement as described in the preceding paragraph whilst the rest would remain taxable at the level of the entity or arrangement. This, for example, is how some trusts and limited liability partnerships are treated in some countries (i.e. in some countries, the part of the income derived through a trust that is distributed to beneficiaries is taxed in the hands of these beneficiaries whilst the part of that income that is accumulated is taxed in the hands of the trust or trustees; similarly, in some countries, income derived through a limited partnership is taxed in the hands of the general partner as regards that partner’s share of that income but is considered to be the income of the limited partnership as regards the limited partners’ share of the income). To the extent that the entity or arrangement qualifies as a resident of a Contracting State, the paragraph will ensure that the benefits of the treaty also apply to the share of the income that is attributed to the entity or arrangement under the domestic law of that State (subject to any anti-abuse provision such as a limitation-on-benefits rule).

(Replaced on 21 November 2017; see HISTORY)

10.1 (Renumbered on 21 November 2017; see HISTORY)

10.2 (Renumbered on 21 November 2017; see HISTORY)

11. As with other provisions of the Convention, the provision applies separately to each item of income of the entity or arrangement. Assume, for example, that the document that establishes a trust provides that all dividends received by the trust must be distributed to a beneficiary during the lifetime of that beneficiary but must be accumulated afterwards. If one of the Contracting States considers that, in such a case, the beneficiary is taxable on the dividends distributed to that beneficiary but that the trustees are taxable on the dividends that will be accumulated, the paragraph will apply differently to these two categories of dividends even if both types of dividends are received within the same month.

(Replaced on 21 November 2017; see HISTORY)

12. By providing that the income to which it applies will be considered to be income of a resident of a Contracting State for the purposes of the Convention, the paragraph ensures that the relevant income is attributed to that resident for the purposes of the application of the various allocative rules of the Convention. Depending on the nature of the income, this will therefore allow the income to be considered, for example, as “income derived by” for the purposes of Articles 6, 13 and 17, “profits of an enterprise” for the purposes of Articles 7, 8 and 9 (see also paragraph 4 of the Commentary on Article 3) or dividends or interest “paid to” for the purposes of Articles 10 and 11. The fact that the income is considered to be derived by a resident of a Contracting State for the purposes of the Convention also means that where the income constitutes a share of the income of an enterprise in which that resident holds a participation, such income shall be considered to be the income of an enterprise carried on by that resident (e.g. for the purposes of the definition of enterprise of a Contracting State in Article 3 and paragraph 2 of Article 21).

(Replaced on 21 November 2017; see HISTORY)

13. Whilst the paragraph ensures that the various allocative rules of the Convention are applied to the extent that income of fiscally transparent entities is treated, under domestic law, as income of a resident of a Contracting State, the paragraph does not prejudge the issue of whether the recipient is the beneficial owner of the relevant income. Where, for example, a fiscally transparent partnership receives dividends as an agent or nominee for a person who is not a partner, the fact that the dividend may be considered as income of a resident of a Contracting State under the domestic law of that State will not preclude the State of source from considering that neither the partnership nor the partners are the beneficial owners of the dividend.

(Replaced on 21 November 2017; see HISTORY)

14. The paragraph only applies for the purposes of the Convention and does not, therefore, require a Contracting State to change the way in which it attributes income or characterises entities for the purposes of its domestic law. In the example in paragraph 6 above, whilst paragraph 2 provides that half of the interest shall be considered, for the purposes of Article 11, to be income of a resident of State B, this will only affect the maximum amount of tax that State A will be able to collect on the interest and will not change the fact that State A’s tax will be payable by the entity. Thus, assuming that the domestic law of State A provides for a 30 per cent withholding tax on the interest, the effect of paragraph 2 will simply be to reduce the amount of tax that State A will collect on the interest (so that half of the interest would be taxed at 30 per cent and half at 10 per cent under the treaty between States A and B) and will not change the fact that the entity is the relevant taxpayer for the purposes of State A’s domestic law. Also, the provision does not deal exhaustively with all treaty issues that may arise from the legal nature of certain entities and arrangements and may therefore need to be supplemented by other provisions to address such issues (such as a provision confirming that a trust may qualify as a resident of a Contracting State despite the fact that, under the trust law of many countries, a trust does not constitute a “person”).

(Replaced on 21 November 2017; see HISTORY)

15. As confirmed by paragraph 3, paragraph 2 does not restrict in any way a State’s right to tax its own residents. This conclusion is consistent with the way in which tax treaties have been interpreted with respect to partnerships (see paragraph 6.1 of this Commentary as it read after 2000 and before the inclusion of paragraph 3 in 2017).

(Replaced on 21 November 2017; see HISTORY)

16. Paragraphs 2 and 3 do not, however, restrict the Contracting States’ obligation to provide relief of double taxation under Articles 23 A and 23 B where income of a resident of that State may be taxed by the other State in accordance with the Convention. There may be cases, however, where the same income is taxed by each Contracting State as income of one of its residents and where relief of double taxation will be necessary with respect to tax paid by a different person. Where, for example, one of the Contracting States taxes the worldwide income of an entity that is a resident of that State whereas the other State views that entity as fiscally transparent and taxes the members of that entity who are residents of that other State on their respective share of the income, relief of double taxation will need to take into account the tax that is paid by different taxpayers in the two States. In such a case, however, it will be important to determine, under Articles 23 A and 23 B, to what extent the income of a resident of one Contracting State “may be taxed in the other Contracting State in accordance with the provisions of this Convention (except to the extent that these provisions allow taxation by that other State solely because the income is also income derived by a resident of that State […])”. In general, this requirement will result in one State having to provide relief of double taxation only to the extent that the provisions of the Convention authorise the other State to tax the relevant income as the State of source or as a State where there is a permanent establishment to which that income is attributable (see paragraphs 11.1 and 11.2 of the Commentary on Articles 23 A and 23 B).

(Replaced on 21 November 2017; see HISTORY)

Paragraph 3

17. Whilst some provisions of the Convention (e.g. Articles 23 A and 23 B) are clearly intended to affect how a Contracting State taxes its own residents, the object of the majority of the provisions of the Convention is to restrict the right of a Contracting State to tax the residents of the other Contracting State. In some limited cases, however, it has been argued that some provisions could be interpreted as limiting a Contracting State’s right to tax its own residents in cases where this was not intended (see, for example, paragraph 81 below, which addresses the case of controlled foreign company provisions).

(Replaced on 21 November 2017; see HISTORY)

18. Paragraph 3 confirms the general principle that the Convention does not restrict a Contracting State’s right to tax its own residents except where this is intended and lists the provisions with respect to which that principle is not applicable.

(Replaced on 21 November 2017; see HISTORY)

19. The exceptions so listed are intended to cover all cases where it is envisaged in the Convention that a Contracting State may have to provide treaty benefits to its own residents (whether or not these or similar benefits are provided under the domestic law of that State). These provisions are:

• Paragraph 3 of Article 7, which requires a Contracting State to grant to an enterprise of that State a correlative adjustment following an initial adjustment made by the other Contracting State, in accordance with paragraph 2 of Article 7, to the amount of tax charged on the profits of a permanent establishment of the enterprise.

• Paragraph 2 of Article 9, which requires a Contracting State to grant to an enterprise of that State a corresponding adjustment following an initial adjustment made by the other Contracting State, in accordance with paragraph 1 of Article 9, to the amount of tax charged on the profits of an associated enterprise.

• Article 19, which may affect how a Contracting State taxes an individual who is resident of that State if that individual derives income in respect of services rendered to the other Contracting State or a political subdivision or local authority thereof.

• Article 20, which may affect how a Contracting State taxes an individual who is resident of that State if that individual is also a student who meets the conditions of that Article.

• Articles 23 A and 23 B, which require a Contracting State to provide relief of double taxation to its residents with respect to the income that the other State may tax in accordance with the Convention (including profits that are attributable to a permanent establishment situated in the other Contracting State in accordance with paragraph 2 of Article 7).

• Article 24, which protects residents of a Contracting State against certain discriminatory taxation practices by that State (such as rules that discriminate between two persons based on their nationality).

• Article 25, which allows residents of a Contracting State to request that the competent authority of that State consider cases of taxation not in accordance with the Convention.

• Article 28, which may affect how a Contracting State taxes an individual who is resident of that State when that individual is a member of the diplomatic mission or consular post of the other Contracting State.

(Replaced on 21 November 2017; see HISTORY)

20. The list of exceptions included in paragraph 3 should include any other provision that the Contracting States may agree to include in their bilateral convention where it is intended that this provision should affect the taxation, by a Contracting State, of its own residents. For instance, if the Contracting States agree, in accordance with paragraph 27 of the Commentary on Article 18, to include in their bilateral convention a provision according to which pensions and other payments made under the social security legislation of a Contracting State shall be taxable only in that State, they should include a reference to that provision in the list of exceptions included in paragraph 3. Other examples include the alternative provisions in paragraphs 23, 30, 37, 38 and 68 of the Commentary on Article 18 because these provisions provide benefits that are typically intended to be granted to an individual who participated in a foreign pension scheme before becoming a resident of a Contracting State.

(Replaced on 21 November 2017; see HISTORY)

21. The term “resident”, as used in paragraph 3 and throughout the Convention, is defined in Article 4. Where, under paragraph 1 of Article 4, a person is considered to be a resident of both Contracting States based on the domestic laws of these States, paragraphs 2 and 3 of that Article make it generally possible to determine a single State of residence for the purposes of the Convention. Thus, paragraph 3 does not apply to an individual or legal person who is a resident of one of the Contracting States under the laws of that State but who, for the purposes of the Convention, is deemed to be a resident only of the other Contracting State.

(Replaced on 21 November 2017; see HISTORY)

21.1 (Deleted on 21 November 2017; see HISTORY)

21.2 (Deleted on 21 November 2017; see HISTORY)

21.3 (Deleted on 21 November 2017; see HISTORY)

21.4 (Deleted on 21 November 2017; see HISTORY)

21.5 (Deleted on 21 November 2017; see HISTORY)

Cross-border issues relating to collective investment vehicles

22. Most countries have dealt with the domestic tax issues arising from groups of small investors who pool their funds in collective investment vehicles (CIVs). In general, the goal of such systems is to provide for neutrality between direct investments and investments through a CIV. Whilst those systems generally succeed when the investors, the CIV and the investment are all located in the same country, complications frequently arise when one or more of those parties or the investments are located in different countries. These complications are discussed in the report by the Committee on Fiscal Affairs entitled “The Granting of Treaty Benefits with Respect to the Income of Collective Investment Vehicles”,^[18] the main conclusions of which have been incorporated below. For purposes of the Report and for this discussion, the term “CIV” is limited to funds that are widely-held, hold a diversified portfolio of securities and are subject to investor-protection regulation in the country in which they are established.

(Renumbered on 21 November 2017; see HISTORY)

22.1 (Deleted on 21 November 2017; see HISTORY)

22.2 (Deleted on 21 November 2017; see HISTORY)

Application of the Convention to CIVs

23. The primary question that arises in the cross-border context is whether a CIV should qualify for the benefits of the Convention in its own right. In order to do so under treaties that, like the Convention, do not include a specific provision dealing with CIVs, a CIV would have to qualify as a “person” that is a “resident” of a Contracting State and, as regards the application of Articles 10 and 11, that is the “beneficial owner” of the income that it receives.

(Renumbered on 21 November 2017; see HISTORY)

24. The determination of whether a CIV should be treated as a “person” begins with the legal form of the CIV, which differs substantially from country to country and between the various types of vehicles. In many countries, most CIVs take the form of a company. In others, the CIV typically would be a trust. In still others, many CIVs are simple contractual arrangements or a form of joint ownership. In most cases, the CIV would be treated as a taxpayer or a “person” for purposes of the tax law of the State in which it is established; for example, in some countries where the CIV is commonly established in the form of a trust, either the trust itself, or the trustees acting collectively in their capacity as such, is treated as a taxpayer or a person for domestic tax law purposes. In view of the wide meaning to be given to the term “person”, the fact that the tax law of the country where such a CIV is established would treat it as a taxpayer would be indicative that the CIV is a “person” for treaty purposes. Contracting States wishing to expressly clarify that, in these circumstances, such CIVs are persons for the purposes of their conventions may agree bilaterally to modify the definition of “person” to include them.

(Renumbered on 21 November 2017; see HISTORY)

25. Whether a CIV is a “resident” of a Contracting State depends not on its legal form (as long as it qualifies as a person) but on its tax treatment in the State in which it is established. Although a consistent goal of domestic CIV regimes is to ensure that there is only one level of tax, at either the CIV or the investor level, there are a number of different ways in which States achieve that goal. In some States, the holders of interests in the CIV are liable to tax on the income received by the CIV, rather than the CIV itself being liable to tax on such income. Such a fiscally transparent CIV would not be treated as a resident of the Contracting State in which it is established because it is not liable to tax therein.

(Renumbered on 21 November 2017; see HISTORY)

26. By contrast, in other States, a CIV is in principle liable to tax but its income may be fully exempt, for instance, if the CIV fulfils certain criteria with regard to its purpose, activities or operation, which may include requirements as to minimum distributions, its sources of income and sometimes its sectors of operation. More frequently, CIVs are subject to tax but the base for taxation is reduced, in a variety of different ways, by reference to distributions paid to investors. Deductions for distributions will usually mean that no tax is in fact paid. Other States tax CIVs but at a special low tax rate. Finally, some States tax CIVs fully but with integration at the investor level to avoid double taxation of the income of the CIV. For those countries that adopt the view, reflected in paragraph 8.11 of the Commentary on Article 4, that a person may be liable to tax even if the State in which it is established does not impose tax, the CIV would be treated as a resident of the State in which it is established in all of these cases because the CIV is subject to comprehensive taxation in that State. Even in the case where the income of the CIV is taxed at a zero rate, or is exempt from tax, the requirements to be treated as a resident may be met if the requirements to qualify for such lower rate or exemption are sufficiently stringent.

(Renumbered and amended on 21 November 2017; see HISTORY)

26.1 (Renumbered on 21 November 2017; see HISTORY)

26.2 (Renumbered on 21 November 2017; see HISTORY)

27. Those countries that adopt the alternative view, reflected in paragraph 8.12 of the Commentary on Article 4, that an entity that is exempt from tax therefore is not liable to tax may not view some or all of the CIVs described in the preceding paragraph as residents of the States in which they are established. States taking the latter view, and those States negotiating with such States, are encouraged to address the issue in their bilateral negotiations.

(Renumbered and amended on 21 November 2017; see HISTORY)

27.1 (Deleted on 21 November 2017; see HISTORY)

27.2 (Deleted on 21 November 2017; see HISTORY)

27.3 (Deleted on 21 November 2017; see HISTORY)

27.4 (Deleted on 21 November 2017; see HISTORY)

27.5 (Deleted on 21 November 2017; see HISTORY)

27.6 (Deleted on 21 November 2017; see HISTORY)

27.7 (Deleted on 21 November 2017; see HISTORY)

27.8 (Deleted on 22 July 2010; see HISTORY)

27.9 (Renumbered and amended on 21 November 2017; see HISTORY)

27.10 (Deleted on 21 November 2017; see HISTORY)

28. Some countries have questioned whether a CIV, even if it is a “person” and a “resident”, can qualify as the beneficial owner of the income it receives. Because a “CIV” as defined in paragraph 22 above must be widely-held, hold a diversified portfolio of securities and be subject to investor-protection regulation in the country in which it is established, such a CIV, or its managers, often perform significant functions with respect to the investment and management of the assets of the CIV. Moreover, the position of an investor in a CIV differs substantially, as a legal and economic matter, from the position of an investor who owns the underlying assets, so that it would not be appropriate to treat the investor in such a CIV as the beneficial owner of the income received by the CIV. Accordingly, a vehicle that meets the definition of a widely-held CIV will also be treated as the beneficial owner of the dividends and interest that it receives, so long as the managers of the CIV have discretionary powers to manage the assets generating such income (unless an individual who is a resident of that State who would have received the income in the same circumstances would not have been considered to be the beneficial owner thereof).

(Renumbered and amended on 21 November 2017; see HISTORY)

29. Because these principles are necessarily general, their application to a particular type of CIV might not be clear to the CIV, investors and intermediaries. Any uncertainty regarding treaty eligibility is especially problematic for a CIV, which must take into account amounts expected to be received, including any withholding tax benefits provided by treaty, when it calculates its net asset value (“NAV”). The NAV, which typically is calculated daily, is the basis for the prices used for subscriptions and redemptions. If the withholding tax benefits ultimately obtained by the CIV do not correspond to its original assumptions about the amount and timing of such withholding tax benefits, there will be a discrepancy between the real asset value and the NAV used by investors who have purchased, sold or redeemed their interests in the CIV in the interim.

(Renumbered on 21 November 2017; see HISTORY)

30. In order to provide more certainty under existing treaties, tax authorities may want to reach a mutual agreement clarifying the treatment of some types of CIVs in their respective States. With respect to some types of CIVs, such a mutual agreement might simply confirm that the CIV satisfies the technical requirements discussed above and therefore is entitled to benefits in its own right. In other cases, the mutual agreement could provide a CIV an administratively feasible way to make claims with respect to treaty-eligible investors (see paragraphs 36 to 40 of the report “The Granting of Treaty Benefits with Respect to the Income of Collective Investment Vehicles” for a discussion of this issue). Of course, a mutual agreement could not cut back on benefits that otherwise would be available to the CIV under the terms of a treaty.

(Renumbered on 21 November 2017; see HISTORY)

Policy issues raised by the current treatment of collective investment vehicles

31. The same considerations would suggest that treaty negotiators address expressly the treatment of CIVs. Thus, even if it appears that CIVs in each of the Contracting States would be entitled to benefits, it may be appropriate to confirm that position publicly (for example, through an exchange of notes) in order to provide certainty. It may also be appropriate to expressly provide for the treaty entitlement of CIVs by including, for example, a provision along the following lines:

Notwithstanding the other provisions of this Convention, a collective investment vehicle which is established in a Contracting State and which receives income arising in the other Contracting State shall be treated, for purposes of applying the Convention to such income, as an individual who is a resident of the Contracting State in which it is established and as the beneficial owner of the income it receives (provided that, if an individual who is a resident of the first-mentioned State had received the income in the same circumstances, such individual would have been considered to be the beneficial owner thereof). For purposes of this paragraph, the term “collective investment vehicle” means, in the case of [State A], a [ ] and, in the case of [State B], a [ ], as well as any other investment fund, arrangement or entity established in either Contracting State which the competent authorities of the Contracting States agree to regard as a collective investment vehicle for purposes of this paragraph.

(Renumbered on 21 November 2017; see HISTORY)

32. However, in negotiating new treaties or amendments to existing treaties, the Contracting States would not be restricted to clarifying the results of the application of other treaty provisions to CIVs, but could vary those results to the extent necessary to achieve policy objectives. For example, in the context of a particular bilateral treaty, the technical analysis may result in CIVs located in one of the Contracting States qualifying for benefits, whilst CIVs in the other Contracting State may not. This may make the treaty appear unbalanced, although whether it is so in fact will depend on the specific circumstances. If it is, then the Contracting States should attempt to reach an equitable solution. If the practical result in each of the Contracting States is that most CIVs do not in fact pay tax, then the Contracting States should attempt to overcome differences in legal form that might otherwise cause those in one State to qualify for benefits and those in the other to be denied benefits. On the other hand, the differences in legal form and tax treatment in the two Contracting States may mean that it is appropriate to treat CIVs in the two States differently. In comparing the taxation of CIVs in the two States, taxation in the source State and at the investor level should be considered, not just the taxation of the CIV itself. The goal is to achieve neutrality between a direct investment and an investment through a CIV in the international context, just as the goal of most domestic provisions addressing the treatment of CIVs is to achieve such neutrality in the wholly domestic context.

(Renumbered on 21 November 2017; see HISTORY)

33. A Contracting State may also want to consider whether existing treaty provisions are sufficient to prevent CIVs from being used in a potentially abusive manner. It is possible that a CIV could satisfy all of the requirements to claim treaty benefits in its own right, even though its income is not subject to much, if any, tax in practice. In that case, the CIV could present the opportunity for residents of third countries to receive treaty benefits that would not have been available had they invested directly. Accordingly, it may be appropriate to restrict benefits that might otherwise be available to such a CIV, either through generally applicable anti-abuse or anti-treaty-shopping rules (as discussed under “Improper use of the Convention” below) or through a specific provision dealing with CIVs.

(Renumbered on 21 November 2017; see HISTORY)

34. In deciding whether such a provision is necessary, Contracting States will want to consider the economic characteristics, including the potential for treaty-shopping, presented by the various types of CIVs that are prevalent in each of the Contracting States. For example, a CIV that is not subject to any taxation in the State in which it is established may present more of a danger of treaty-shopping than one in which the CIV itself is subject to an entity-level tax or where distributions to non-resident investors are subject to withholding tax.

(Renumbered on 21 November 2017; see HISTORY)

Possible provisions modifying the treatment of CIVs

35. Where the Contracting States have agreed that a specific provision dealing with CIVs is necessary to address the concerns described in paragraphs 32 through 34, they could include in the bilateral treaty the following provision:

1. Notwithstanding the other provisions of this Convention, a collective investment vehicle which is established in a Contracting State and which receives income arising in the other Contracting State shall be treated for purposes of applying the Convention to such income as an individual who is a resident of the Contracting State in which it is established and as the beneficial owner of the income it receives (provided that, if an individual who is a resident of the first-mentioned State had received the income in the same circumstances, such individual would have been considered to be the beneficial owner thereof), but only to the extent that the beneficial interests in the collective investment vehicle are owned by equivalent beneficiaries.

2. For purposes of this paragraph:

   1. the term “collective investment vehicle” means, in the case of [State A], a [ ] and, in the case of [State B], a [ ], as well as any other investment fund, arrangement or entity established in either Contracting State which the competent authorities of the Contracting States agree to regard as a collective investment vehicle for purposes of this paragraph; and

   2. the term “equivalent beneficiary” means a resident of the Contracting State in which the CIV is established, and a resident of any other State with which the Contracting State in which the income arises has an income tax convention that provides for effective and comprehensive information exchange who would, if he received the particular item of income for which benefits are being claimed under this Convention, be entitled under that convention, or under the domestic law of the Contracting State in which the income arises, to a rate of tax with respect to that item of income that is at least as low as the rate claimed under this Convention by the CIV with respect to that item of income.

(Renumbered and amended on 21 November 2017; see HISTORY)

36. It is intended that the Contracting States would provide in subdivision b)(i) specific cross-references to relevant tax or securities law provisions relating to CIVs. In deciding which treatment should apply with respect to particular CIVs, Contracting States should take into account the policy considerations discussed above. Negotiators may agree that economic differences in the treatment of CIVs in the two Contracting States, or even within the same Contracting State, justify differential treatment in the tax treaty. In that case, some combination of the provisions in this section might be included in the treaty.

(Renumbered on 21 November 2017; see HISTORY)

37. The effect of allowing benefits to the CIV to the extent that it is owned by “equivalent beneficiaries” as defined in subdivision b)(ii) is to ensure that investors who would have been entitled to benefits with respect to income derived from the source State had they received the income directly are not put in a worse position by investing through a CIV located in a third country. The approach thus serves the goals of neutrality as between direct investments and investments through a CIV. It also decreases the risk of double taxation as between the source State and the State of residence of the investor, to the extent that there is a tax treaty between them. It is beneficial for investors, particularly those from small countries, who will consequently enjoy a greater choice of investment vehicles. It also increases economies of scale, which are a primary economic benefit of investing through CIVs. Finally, adopting this approach substantially simplifies compliance procedures. In many cases, nearly all of a CIV’s investors will be “equivalent beneficiaries”, given the extent of bilateral treaty coverage and the fact that rates in those treaties are nearly always 10-15 per cent on portfolio dividends.

(Renumbered on 21 November 2017; see HISTORY)

38. At the same time, the provision prevents a CIV from being used by investors to achieve a better tax treaty position than they would have achieved by investing directly. This is achieved through the rate comparison in the definition of “equivalent beneficiary”. Accordingly, the appropriate comparison is between the rate claimed by the CIV and the rate that the investor could have claimed had it received the income directly. For example, assume that a CIV established in State B receives dividends from a company resident in State A. Sixty-five per cent of the investors in the CIV are individual residents of State B; ten per cent are pension funds established in State C; and 25 per cent are individual residents of State C. Under the A-B tax treaty, portfolio dividends are subject to a maximum tax rate at source of ten per cent. Under the A-C tax treaty, pension funds are exempt from taxation in the source State and other portfolio dividends are subject to tax at a maximum tax rate of 15 per cent. Both the A-B and A-C treaties include effective and comprehensive information exchange provisions. On these facts, 75 per cent of the investors in the CIV – the individual residents of State B and the pension funds established in State C – are equivalent beneficiaries.

(Renumbered on 21 November 2017; see HISTORY)

39. A source State may also be concerned about the potential deferral of taxation that could arise with respect to a CIV that is subject to no or low taxation and that may accumulate its income rather than distributing it on a current basis. Such States may be tempted to limit benefits to the CIV to the proportion of the CIV’s investors who are currently taxable on their share of the income of the CIV. However, such an approach has proven difficult to apply to widely-held CIVs in practice. Those States that are concerned about the possibility of such deferral may wish to negotiate provisions that extend benefits only to those CIVs that are required to distribute earnings currently. Other States may be less concerned about the potential for deferral, however. They may take the view that, even if the investor is not taxed currently on the income received by the CIV, it will be taxed eventually, either on the distribution, or on any capital gains if it sells its interest in the CIV before the CIV distributes the income. Those States may wish to negotiate provisions that grant benefits to CIVs even if they are not obliged to distribute their income on a current basis. Moreover, in many States, the tax rate with respect to investment income is not significantly higher than the treaty withholding rate on dividends, so there would be little, if any, residence State tax deferral to be achieved by earning such income through an investment fund rather than directly. In addition, many States have taken steps to ensure the current taxation of investment income earned by their residents through investment funds, regardless of whether the funds accumulate that income, further reducing the potential for such deferral. When considering the treatment of CIVs that are not required to distribute income currently, States may want to consider whether these or other factors address the concerns described above so that the type of limits described herein might not in fact be necessary.

(Renumbered on 21 November 2017; see HISTORY)

40. Some States believe that taking all treaty-eligible investors, including those in third States, into account would change the bilateral nature of tax treaties. These States may prefer to allow treaty benefits to a CIV only to the extent that the investors in the CIV are residents of the Contracting State in which the CIV is established. In that case, the provision would be drafted as follows:

1. Notwithstanding the other provisions of this Convention, a collective investment vehicle which is established in a Contracting State and which receives income arising in the other Contracting State shall be treated for purposes of applying the Convention to such income as an individual who is a resident of the Contracting State in which it is established and as the beneficial owner of the income it receives (provided that, if an individual who is a resident of the first-mentioned State had received the income in the same circumstances, such individual would have been considered to be the beneficial owner thereof), but only to the extent that the beneficial interests in the collective investment vehicle are owned by residents of the Contracting State in which the collective investment vehicle is established.

2. For purposes of this paragraph, the term “collective investment vehicle” means, in the case of [State A], a [ ] and, in the case of [State B], a [ ], as well as any other investment fund, arrangement or entity established in either Contracting State which the competent authorities of the Contracting States agree to regard as a collective investment vehicle for purposes of this paragraph.

(Renumbered on 21 November 2017; see HISTORY)

41. Although the purely proportionate approach set out in paragraphs 35 and 40 protects against treaty-shopping, it may also impose substantial administrative burdens as a CIV attempts to determine the treaty entitlement of every single investor. A Contracting State may decide that the fact that a substantial proportion of the CIV’s investors are treaty-eligible is adequate protection against treaty-shopping, and thus that it is appropriate to provide an ownership threshold above which benefits would be provided with respect to all income received by the CIV. Including such a threshold would also mitigate some of the procedural burdens that otherwise might arise. If desired, therefore, the following sentence could be added at the end of subparagraph a):

However, if at least [ ] per cent of the beneficial interests in the collective investment vehicle are owned by [equivalent beneficiaries][residents of the Contracting State in which the collective investment vehicle is established], the collective investment vehicle shall be treated as an individual who is a resident of the Contracting State in which it is established and as the beneficial owner of all of the income it receives (provided that, if an individual who is a resident of the first-mentioned State had received the income in the same circumstances, such individual would have been considered to be the beneficial owner thereof).

(Renumbered and amended on 21 November 2017; see HISTORY)

42. In some cases, the Contracting States might wish to take a different approach from that put forward in paragraphs 31, 35 and 40 with respect to certain types of CIVs and to treat the CIV as making claims on behalf of the investors rather than in its own name. This might be true, for example, if a large percentage of the owners of interests in the CIV as a whole, or of a class of interests in the CIV, are pension funds that are exempt from tax in the source country under terms of the relevant treaty similar to those described in paragraph 69 of the Commentary on Article 18. To ensure that the investors would not lose the benefit of the preferential rates to which they would have been entitled had they invested directly, the Contracting States might agree to a provision along the following lines with respect to such CIVs (although likely adopting one of the approaches of paragraphs 31, 35 or 40 with respect to other types of CIVs):

1. A collective investment vehicle described in subparagraph c) which is established in a Contracting State and which receives income arising in the other Contracting State shall not be treated as a resident of the Contracting State in which it is established, but may claim, on behalf of the owners of the beneficial interests in the collective investment vehicle, the tax reductions, exemptions or other benefits that would have been available under this Convention to such owners had they received such income directly.

2. A collective investment vehicle may not make a claim under subparagraph a) for benefits on behalf of any owner of the beneficial interests in such collective investment vehicle if the owner has itself made an individual claim for benefits with respect to income received by the collective investment vehicle.

3. This paragraph shall apply with respect to, in the case of [State A], a [ ] and, in the case of [State B], a [ ], as well as any other investment fund, arrangement or entity established in either Contracting State to which the competent authorities of the Contracting States agree to apply this paragraph.

This provision would, however, limit the CIV to making claims on behalf of residents of the same Contracting State in which the CIV is established. If, for the reasons described in paragraph 37, the Contracting States deemed it desirable to allow the CIV to make claims on behalf of treaty-eligible residents of third States, that could be accomplished by replacing the words “this Convention” with “any Convention to which the other Contracting State is a party” in subparagraph a). If, as anticipated, the Contracting States would agree that the treatment provided in this paragraph would apply only to specific types of CIVs, it would be necessary to ensure that the types of CIVs listed in subparagraph c) did not include any of the types of CIVs listed in a more general provision such as that in paragraphs 31, 35 or 40 so that the treatment of a specific type of CIV would be fixed, rather than elective. Countries wishing to allow individual CIVs to elect their treatment, either with respect to the CIV as a whole or with respect to one or more classes of interests in the CIV, are free to modify the paragraph to do so.

(Renumbered and amended on 21 November 2017; see HISTORY)

43. Under either the approach in paragraphs 35 and 40 or in paragraph 42, it will be necessary for the CIV to make a determination regarding the proportion of holders of interests who would have been entitled to benefits had they invested directly. Because ownership of interests in CIVs changes regularly, and such interests frequently are held through intermediaries, the CIV and its managers often do not themselves know the names and treaty status of the beneficial owners of interests. It would be impractical for the CIV to collect such information from the relevant intermediaries on a daily basis. Accordingly, Contracting States should be willing to accept practical and reliable approaches that do not require such daily tracing.

(Renumbered and amended on 21 November 2017; see HISTORY)

44. For example, in many countries the CIV industry is largely domestic, with an overwhelming percentage of investors resident in the country in which the CIV is established. In some cases, tax rules discourage foreign investment by imposing a withholding tax on distributions, or securities laws may severely restrict offerings to non-residents. Governments should consider whether these or other circumstances provide adequate protection against investment by non-treaty-eligible residents of third countries. It may be appropriate, for example, to assume that a CIV is owned by residents of the State in which it is established if the CIV has limited distribution of its shares or units to the State in which the CIV is established or to other States that provide for similar benefits in their treaties with the source State.

(Renumbered on 21 November 2017; see HISTORY)

45. In other cases, interests in the CIV are offered to investors in many countries. Although the identity of individual investors will change daily, the proportion of investors in the CIV that are treaty-entitled is likely to change relatively slowly. Accordingly, it would be a reasonable approach to require the CIV to collect from other intermediaries, on specified dates, information enabling the CIV to determine the proportion of investors that are treaty-entitled. This information could be required at the end of a calendar or fiscal year or, if market conditions suggest that turnover in ownership is high, it could be required more frequently, although no more often than the end of each calendar quarter. The CIV could then make a claim on the basis of an average of those amounts over an agreed-upon time period. In adopting such procedures, care would have to be taken in choosing the measurement dates to ensure that the CIV would have enough time to update the information that it provides to other payers so that the correct amount is withheld at the beginning of each relevant period.

(Renumbered on 21 November 2017; see HISTORY)

46. An alternative approach would provide that a CIV that is publicly traded in the Contracting State in which it is established will be entitled to treaty benefits without regard to the residence of its investors. This provision has been justified on the basis that a publicly-traded CIV cannot be used effectively for treaty-shopping because the shareholders or unitholders of such a CIV cannot individually exercise control over it. Such a provision could read:

1. Notwithstanding the other provisions of this Convention, a collective investment vehicle which is established in a Contracting State and which receives income arising in the other Contracting State shall be treated for purposes of applying the Convention to such income as an individual who is a resident of the Contracting State in which it is established and as the beneficial owner of the income it receives (provided that, if an individual who is a resident of the first-mentioned State had received the income in the same circumstances, such individual would have been considered to be the beneficial owner thereof), if the principal class of shares or units in the collective investment vehicle is listed and regularly traded on a regulated stock exchange in that State.

2. For purposes of this paragraph, the term “collective investment vehicle” means, in the case of [State A], a [ ] and, in the case of [State B], a [ ], as well as any other investment fund, arrangement or entity established in either Contracting State which the competent authorities of the Contracting States agree to regard as a collective investment vehicle for purposes of this paragraph.

(Renumbered on 21 November 2017; see HISTORY)

47. Each of the provisions in paragraphs 31, 35, 40 and 46 treats the CIV as the resident and the beneficial owner of the income it receives for the purposes of the application of the Convention to such income, which has the simplicity of providing for one reduced rate of withholding with respect to each type of income. As confirmed by paragraph 3 of the Article, these provisions, however, do not restrict in any way the right of the State of source from taxing its own residents who are investors in the CIV. Clearly, these provisions are intended to deal with the source taxation of the CIV’s income and not the residence taxation of its investors.

(Renumbered and amended on 21 November 2017; see HISTORY)

48. Also, each of these provisions is intended only to provide that the specific characteristics of the CIV will not cause it to be treated as other than the beneficial owner of the income it receives. Therefore, a CIV will be treated as the beneficial owner of all of the income it receives. The provision is not intended, however, to put a CIV in a different or better position than other investors with respect to aspects of the beneficial ownership requirement that are unrelated to the CIV’s status as such. Accordingly, where an individual receiving an item of income in certain circumstances would not be considered as the beneficial owner of that income, a CIV receiving that income in the same circumstances could not be deemed to be the beneficial owner of the income. This result is confirmed by the parenthetical limiting the application of the provision to situations in which an individual in the same circumstances would have been treated as the beneficial owner of the income.

(Renumbered on 21 November 2017; see HISTORY)

Application of the Convention to States, their subdivisions and their wholly-owned entities

49. Paragraph 1 of Article 4 provides that the Contracting States themselves, their political subdivisions and their local authorities are included in the definition of a “resident of a Contracting State” and are therefore entitled to the benefits of the Convention (paragraph 8.4 of the Commentary on Article 4 explains that the inclusion of these words in 1995 confirmed the prior general understanding of most Member States).

(Renumbered on 21 November 2017; see HISTORY)

50. Issues may arise, however, in the case of entities set up and wholly-owned by a State or one of its political subdivisions or local authorities. Some of these entities may derive substantial income from other countries and it may therefore be important to determine whether tax treaties apply to them (this would be the case, for instance, of sovereign wealth funds: see paragraph 8.5 of the Commentary on Article 4). In many cases, these entities are totally exempt from tax and the question may arise as to whether they are entitled to the benefits of the tax treaties concluded by the State in which they are set up. In order to clarify the issue, some States modify the definition of “resident of a Contracting State” in paragraph 1 of Article 4 and include in that definition a “statutory body”, an “agency or instrumentality” or a “legal person of public law” [personne morale de droit public] of a State, a political subdivision or local authority, which would therefore cover wholly-owned entities that are not considered to be a part of the State or its political subdivisions or local authorities.

(Renumbered on 21 November 2017; see HISTORY)

51. In addition, many States include specific provisions in their bilateral conventions that grant an exemption to other States, and to some State-owned entities such as central banks, with respect to certain items of income such as interest (see paragraph 13.2 of the Commentary on Article 10 and paragraph 7.4 of the Commentary on Article 11). Treaty provisions that grant a tax exemption with respect to the income of pension funds (see paragraph 69 of the Commentary on Article 18) may similarly apply to pension funds that are wholly-owned by a State, depending on the wording of these provisions and the nature of the fund.

(Renumbered on 21 November 2017; see HISTORY)

52. The application of the Convention to each Contracting State, its political subdivisions, and local authorities (and their statutory bodies, agencies or instrumentalities in the case of bilateral treaties that apply to such entities) should not be interpreted, however, as affecting in any way the possible application by each State of the customary international law principle of sovereign immunity. According to this principle, a sovereign State (including its agents, its property and activities) is, as a general rule, immune from the jurisdiction of the courts of another sovereign State. There is no international consensus, however, on the precise limits of the sovereign immunity principle. Most States, for example, would not recognise that the principle applies to business activities and many States do not recognise any application of this principle in tax matters. There are therefore considerable differences between States as regards the extent, if any, to which that principle applies to taxation. Even among States that would recognise its possible application in tax matters, some apply it only to the extent that it has been incorporated into domestic law and others apply it as customary international law but subject to important limitations. The Convention does not prejudge the issues of whether and to what extent the principle of sovereign immunity applies with respect to the persons covered under Article 1 and the taxes covered under Article 2 and each Contracting State is therefore free to apply its own interpretation of that principle as long as the resulting taxation, if any, is in conformity with the provisions of its bilateral tax conventions.

(Renumbered on 21 November 2017; see HISTORY)

53. States often take account of various factors when considering whether and to what extent tax exemptions should be granted, through specific treaty or domestic law provisions or through the application of the sovereign immunity doctrine, with respect to the income derived by other States, their political subdivisions, local authorities, or their statutory bodies, agencies or instrumentalities. These factors would include, for example, whether that type of income would be exempt on a reciprocal basis, whether the income is derived from activities of a governmental nature as opposed to activities of a commercial nature, whether the assets and income of the recipient entity are used for public purposes, whether there is any possibility that these could inure to the benefit of a non-governmental person and whether the income is derived from a portfolio or direct investment.

(Renumbered on 21 November 2017; see HISTORY)

Improper use of the Convention

54. The principal purpose of double taxation conventions is to promote, by eliminating international double taxation, exchanges of goods and services, and the movement of capital and persons. As confirmed in the preamble of the Convention, it is also a part of the purposes of tax conventions to prevent tax avoidance and evasion.

(Renumbered and amended on 21 November 2017; see HISTORY)

55. The extension of the network of tax conventions increases the risk of abuse by facilitating the use of arrangements aimed at securing the benefits of both the tax advantages available under certain domestic laws and the reliefs from tax provided for in these conventions.

(Added on 21 November 2017; see HISTORY)

56. This would be the case, for example, if a person (whether or not a resident of a Contracting State), acts through a legal entity created in a State essentially to obtain treaty benefits that would not be available directly. Another case would be an individual who has in a Contracting State both his permanent home and all his economic interests, including a substantial shareholding in a company of that State, and who, essentially in order to sell the shares and escape taxation in that State on the capital gains from the alienation (by virtue of paragraph 5 of Article 13), transfers his permanent home to the other Contracting State, where such gains are subject to little or no tax.

(Renumbered on 21 November 2017; see HISTORY)

Addressing tax avoidance through tax conventions

57. Paragraph 9 of Article 29 and the specific treaty anti-abuse rules included in tax conventions are aimed at these and other transactions and arrangements entered into for the purpose of obtaining treaty benefits in inappropriate circumstances. Where, however, a tax convention does not include such rules, the question may arise whether the benefits of the tax convention should be granted when transactions that constitute an abuse of the provisions of that convention are entered into.

(Added on 21 November 2017; see HISTORY)

58. Many States address that question by taking account of the fact that taxes are ultimately imposed through the provisions of domestic law, as restricted (and in some rare cases, broadened) by the provisions of tax conventions. Thus, any abuse of the provisions of a tax convention could also be characterised as an abuse of the provisions of domestic law under which tax will be levied. For these States, the issue then becomes whether the provisions of tax conventions may prevent the application of the anti-abuse provisions of domestic law, which is the question addressed in paragraphs 66 to 80 below. As explained in these paragraphs, as a general rule, there will be no conflict between such rules and the provisions of tax conventions.

(Renumbered and amended on 21 November 2017; see HISTORY)

59. Other States prefer to view some abuses as being abuses of the convention itself, as opposed to abuses of domestic law. These States, however, then consider that a proper construction of tax conventions allows them to disregard abusive transactions, such as those entered into with the view to obtaining unintended benefits under the provisions of these conventions. This interpretation results from the object and purpose of tax conventions as well as the obligation to interpret them in good faith (see Article 31 of the Vienna Convention on the Law of Treaties).

(Renumbered on 21 November 2017; see HISTORY)

60. Under both approaches, therefore, it is agreed that States do not have to grant the benefits of a double taxation convention where arrangements that constitute an abuse of the provisions of the convention have been entered into.

(Renumbered on 21 November 2017; see HISTORY)

61. It is important to note, however, that it should not be lightly assumed that a taxpayer is entering into the type of abusive transactions referred to above. A guiding principle is that the benefits of a double taxation convention should not be available where a main purpose for entering into certain transactions or arrangements was to secure a more favourable tax position and obtaining that more favourable treatment in these circumstances would be contrary to the object and purpose of the relevant provisions. That principle applies independently from the provisions of paragraph 9 of Article 29, which merely confirm it.

(Renumbered and amended on 21 November 2017; see HISTORY)

62. The potential application of these principles or of paragraph 9 of Article 29 does not mean that there is no need for the inclusion, in tax conventions, of specific provisions aimed at preventing particular forms of tax avoidance. Where specific avoidance techniques have been identified or where the use of such techniques is especially problematic, it will often be useful to add to the Convention provisions that focus directly on the relevant avoidance strategy. Also, this will be necessary where a State which adopts the view described in paragraph 58 above believes that its domestic law lacks the anti-avoidance rules or principles necessary to properly address such strategy.

(Renumbered and amended on 21 November 2017; see HISTORY)

63. For instance, some forms of tax avoidance have already been expressly dealt with in the Convention, e.g. by the introduction of the concept of “beneficial owner” (in Articles 10, 11, and 12) and of special provisions such as paragraph 2 of Article 17 dealing with so-called artiste-companies. Such problems are also mentioned in the Commentaries on Article 10 (paragraphs 17 and 22), Article 11 (paragraph 12) and Article 12 (paragraph 7).

(Renumbered on 21 November 2017; see HISTORY)

64. Also, in some cases, claims to treaty benefits by subsidiary companies, in particular companies established in tax havens or benefiting from harmful preferential regimes, may be refused where careful consideration of the facts and circumstances of a case shows that the place of effective management of a subsidiary does not lie in its alleged State of residence but, rather, lies in the State of residence of the parent company so as to make it a resident of that latter State for domestic law and treaty purposes (this will be relevant where the domestic law of a State uses the place of management of a legal person, or a similar criterion, to determine its residence).

(Renumbered on 21 November 2017; see HISTORY)

65. Careful consideration of the facts and circumstances of a case may also show that a subsidiary was managed in the State of residence of its parent in such a way that the subsidiary had a permanent establishment (e.g. by having a place of management) in that State to which all or a substantial part of its profits were properly attributable.

(Renumbered on 21 November 2017; see HISTORY)

Addressing tax avoidance through domestic anti-abuse rules and judicial doctrines

66. Domestic anti-abuse rules and judicial doctrines may also be used to address transactions and arrangements entered into for the purpose of obtaining treaty benefits in inappropriate circumstances. These rules and doctrines may also address situations where transactions or arrangements are entered into for the purpose of abusing both domestic laws and tax conventions.

(Added on 21 November 2017; see HISTORY)

67. For these reasons, domestic anti-abuse rules and judicial doctrines play an important role in preventing treaty benefits from being granted in inappropriate circumstances. The application of such domestic anti-abuse rules and doctrines, however, raises the issue of possible conflicts with treaty provisions, in particular where treaty provisions are relied upon in order to facilitate the abuse of domestic law provisions (e.g. where it is claimed that treaty provisions protect the taxpayer from the application of certain domestic anti-abuse rules). This issue is discussed below in relation to specific legislative anti-abuse rules, general legislative anti-abuse rules and judicial doctrines.

(Added on 21 November 2017; see HISTORY)

Specific legislative anti-abuse rules

68. Tax authorities seeking to address the improper use of a tax treaty may first consider the application of specific anti-abuse rules included in their domestic tax law.

(Added on 21 November 2017; see HISTORY)

69. Many specific anti-abuse rules found in domestic law apply primarily in cross-border situations and may be relevant for the application of tax treaties. For instance, thin capitalisation rules may apply to restrict the deduction of base-eroding interest payments to residents of treaty countries; transfer pricing rules (even if not designed primarily as anti-abuse rules) may prevent the artificial shifting of income from a resident enterprise to an enterprise that is resident of a treaty country; exit or departure tax rules may prevent the avoidance of capital gains tax through a change of residence before the realisation of a treaty-exempt capital gain; dividend stripping rules may prevent the avoidance of domestic dividend withholding taxes through transactions designed to transform dividends into treaty-exempt capital gains; and anti-conduit rules may prevent certain avoidance transactions involving the use of conduit arrangements.

(Added on 21 November 2017; see HISTORY)

70. Generally, where the application of provisions of domestic law and of those of tax treaties produces conflicting results, the provisions of tax treaties are intended to prevail. This is a logical consequence of the principle of “pacta sunt servanda” which is incorporated in Article 26 of the Vienna Convention on the Law of Treaties. Thus, if the application of specific anti-abuse rules found in domestic law were to result in a tax treatment that is not in accordance with the provisions of a tax treaty, this would conflict with the provisions of that treaty and the provisions of the treaty should prevail under public international law.^[19]

(Added on 21 November 2017; see HISTORY)

71. As explained below, however, such conflicts will often be avoided and each case must be analysed based on its own circumstances.

(Added on 21 November 2017; see HISTORY)

72. First, a treaty may specifically allow the application of certain types of specific domestic anti-abuse rules. For example, Article 9 specifically authorises the application of domestic rules in the circumstances defined by that Article. Also, many treaties include specific provisions clarifying that there is no conflict or, even if there is a conflict, allowing the application of the domestic rules. This would be the case, for example, for a treaty rule that expressly allows the application of a thin capitalisation rule found in the domestic law of one or both Contracting States.

(Added on 21 November 2017; see HISTORY)

73. Second, many provisions of the Convention depend on the application of domestic law. This is the case, for instance, for the determination of the residence of a person (see paragraph 1 of Article 4), the determination of what is immovable property (see paragraph 2 of Article 6) and the determination of when income from corporate rights might be treated as a dividend (see paragraph 3 of Article 10). More generally, paragraph 2 of Article 3 makes domestic rules relevant for the purposes of determining the meaning of terms that are not defined in the Convention. In many cases, therefore, the application of specific anti-abuse rules found in domestic law will have an impact on how the treaty provisions are applied rather than produce conflicting results. This would be the case, for example, if a domestic law provision treats the profits realised by a shareholder when a company redeems some of its shares as dividends: although such a redemption could be considered to constitute an alienation for the purposes of paragraph 5 of Article 13, paragraph 28 of the Commentary on Article 10 recognises that such profits will constitute dividends for the purposes of Article 10 if the profits are treated as dividends under domestic law.

(Added on 21 November 2017; see HISTORY)

74. Third, the application of tax treaty provisions in a case that involves an abuse of these provisions may be denied under paragraph 9 of Article 29 or, in the case of a treaty that does not include that paragraph, under the principles put forward in paragraphs 60 and 61 above. In such a case, there will be no conflict with the treaty provisions if the benefits of the treaty are denied under both paragraph 9 of Article 29 (or the principles in paragraphs 60 and 61 above) and the relevant domestic specific anti-abuse rules. Domestic specific anti-abuse rules, however, are often drafted with reference to objective facts, such as the existence of a certain level of shareholding or a certain debt-equity ratio. Whilst this facilitates their application and provides greater certainty, it may sometimes result in the application of such a rule in a case where the rule conflicts with a provision of the Convention and where paragraph 9 of Article 29 does not apply to deny the benefits of that provision (and where the principles of paragraphs 60 and 61 above also do not apply). In such a case, the Convention will not allow the application of the domestic rule to the extent of the conflict. An example of such a case would be where a domestic law rule that State A adopted to prevent temporary changes of residence for tax purposes would provide for the taxation of an individual who is a resident of State B on gains from the alienation of property situated in a third State if that individual was a resident of State A when the property was acquired and was a resident of State A for at least seven of the 10 years preceding the alienation. In such a case, to the extent that paragraph 5 of Article 13 would prevent the taxation of that individual by State A upon the alienation of the property, the Convention would prevent the application of that domestic rule unless the benefits of paragraph 5 of Article 13 could be denied, in that specific case, under paragraph 9 of Article 29 or the principles in paragraphs 60 and 61 above.

(Added on 21 November 2017; see HISTORY)

75. Fourth, the application of tax treaty provisions may be denied under judicial doctrines or principles applicable to the interpretation of the treaty (see paragraph 78 below). In such a case, there will be no conflict with the treaty provisions if the benefits of the treaty are denied under both a proper interpretation of the treaty and as result of the application of domestic specific anti-abuse rules. Assume, for example, that the domestic law of State A provides for the taxation of gains derived from the alienation of shares of a domestic company in which the alienator holds more than 25 per cent of the capital if that alienator was a resident of State A for at least seven of the 10 years preceding the alienation. In year 2, an individual who was a resident of State A for the previous 10 years becomes a resident of State B. Shortly after becoming a resident of State B, the individual sells the totality of the shares of a small company that he previously established in State A. The facts reveal, however, that all the elements of the sale were finalised in year 1, that an interest-free “loan” corresponding to the sale price was made by the purchaser to the seller at that time, that the purchaser cancelled the loan when the shares were sold to the purchaser in year 2 and that the purchaser exercised de facto control of the company from year 1. Although the gain from the sale of the shares might otherwise fall under paragraph 5 of Article 13 of the State A-State B treaty, the circumstances of the transfer of the shares are such that the alienation in year 2 constitutes a sham within the meaning given to that term by the courts of State A. In that case, to the extent that the sham transaction doctrine developed by the courts of State A does not conflict with the rules of interpretation of treaties, it will be possible to apply that doctrine when interpreting paragraph 5 of Article 13 of the State A-State B treaty, which will allow State A to tax the relevant gain under its domestic law rule.

(Added on 21 November 2017; see HISTORY)

General legislative anti-abuse rule

76. Many countries have included in their domestic law a legislative anti-abuse rule of general application intended to prevent abusive arrangements that are not adequately dealt with through specific anti-abuse rules or judicial doctrines.

(Added on 21 November 2017; see HISTORY)

77. The application of such general anti-abuse rules also raises the question of a possible conflict with the provisions of a tax treaty. In the vast majority of cases, however, no such conflict will arise. Conflicts will first be avoided for reasons similar to those presented in paragraphs 72 and 73 above. In addition, where the main aspects of these domestic general anti-abuse rules are in conformity with the principle of paragraph 61 above and are therefore similar to the main aspects of paragraph 9 of Article 29, which incorporates this guiding principle, it is clear that no conflict will be possible since the relevant domestic general anti-abuse rule will apply in the same circumstances in which the benefits of the Convention would be denied under paragraph 9 of Article 29, or, in the case of a treaty that does not include that paragraph, under the guiding principle in paragraph 61 above.

(Added on 21 November 2017; see HISTORY)

Judicial doctrines that are part of domestic law

78. In the process of interpreting tax legislation in cases dealing with tax avoidance, the courts of many countries have developed a number of judicial doctrines or principles of interpretation. These include doctrines such as substance over form, economic substance, sham, business purpose, step-transaction, abuse of law and fraus legis. These doctrines and principles of interpretation, which vary from country to country and evolve over time based on refinements or changes resulting from subsequent court decisions, are essentially views expressed by courts as to how tax legislation should be interpreted. Whilst the interpretation of tax treaties is governed by general rules that have been codified in Articles 31 to 33 of the Vienna Convention on the Law of Treaties, these general rules do not prevent the application of similar judicial doctrines and principles to the interpretation of the provisions of tax treaties. If, for example, the courts of one country have determined that, as a matter of legal interpretation, domestic tax provisions should apply on the basis of the economic substance of certain transactions, there is nothing that prevents a similar approach from being adopted with respect to the application of the provisions of a tax treaty to similar transactions. This is illustrated by the example in paragraph 75 above.

(Added on 21 November 2017; see HISTORY)

79. As a general rule and having regard to paragraph 61, therefore, the preceding analysis leads to the conclusion that there will be no conflict between tax conventions and judicial anti-abuse doctrines or general domestic anti-abuse rules. For example, to the extent that the application of a general domestic anti-abuse rule or a judicial doctrine such as “substance over form” or “economic substance” results in a recharacterisation of income or in a redetermination of the taxpayer who is considered to derive such income, the provisions of the Convention will be applied taking into account these changes.

(Added on 21 November 2017; see HISTORY)

80. Whilst these rules do not conflict with tax conventions, there is agreement that Member countries should carefully observe the specific obligations enshrined in tax treaties to relieve double taxation as long as there is no clear evidence that the treaties are being abused.

(Added on 21 November 2017; see HISTORY)

Controlled foreign company provisions

81. A significant number of countries have adopted controlled foreign company provisions to address issues related to the use of foreign base companies. Whilst the design of this type of legislation varies considerably among countries, a common feature of these rules, which are now internationally recognised as a legitimate instrument to protect the domestic tax base, is that they result in a Contracting State taxing its residents on income attributable to their participation in certain foreign entities. It has sometimes been argued, based on a certain interpretation of provisions of the Convention such as paragraph 1 of Article 7 and paragraph 5 of Article 10, that this common feature of controlled foreign company legislation conflicted with these provisions. Since such legislation results in a State taxing its own residents, paragraph 3 of Article 1 confirms that it does not conflict with tax conventions. The same conclusion must be reached in the case of conventions that do not include a provision similar to paragraph 3 of Article 1; for the reasons explained in paragraphs 14 of the Commentary on Article 7 and 37 of the Commentary on Article 10, the interpretation according to which these Articles would prevent the application of controlled foreign company provisions does not accord with the text of paragraph 1 of Article 7 and paragraph 5 of Article 10. It also does not hold when these provisions are read in their context. Thus, whilst some countries have felt it useful to expressly clarify, in their conventions, that controlled foreign company legislation did not conflict with the Convention, such clarification is not necessary. It is recognised that controlled foreign company legislation structured in this way is not contrary to the provisions of the Convention.

(Renumbered and amended on 21 November 2017; see HISTORY)

Restricting treaty benefits with respect to income that is subject to certain features of another State’s tax system

82. As indicated in paragraph 15.2 of the Introduction

… it is assumed that where a State accepts treaty provisions that restrict its right to tax elements of income, it generally does so on the understanding that these elements of income are taxable in the other State. Where a State levies no or low income taxes, other States should consider whether there are risks of double taxation that would justify, by themselves, a tax treaty. States should also consider whether there are elements of another State’s tax system that could increase the risk of non-taxation, which may include tax advantages that are ring-fenced from the domestic economy.

(Added on 21 November 2017; see HISTORY)

83. A State may conclude that certain features of the tax system of another State are not sufficient to prevent the conclusion of a tax treaty but may want to prevent the application of that treaty to income that is subject to no or low tax because of these features. Where the relevant features of the tax system of the other State are known at the time the treaty is being negotiated, it is possible to draft provisions that specifically deny treaty benefits with respect to income that benefits from these features (see, for example, paragraph 108 below).

(Added on 21 November 2017; see HISTORY)

84. Such features might, however, be introduced in the tax system of a treaty partner only after the conclusion of a tax treaty or might be discovered only after the treaty has entered into force. When concluding a tax treaty, a Contracting State may therefore be concerned about features of the tax system of a treaty partner of which it is not aware at that time or that may subsequently become part of the tax system of that treaty partner. Controlled foreign company provisions (see paragraph 81 above) and other approaches discussed in the above section on “Improper use of the Convention” may assist in dealing with some of these features but since the difficulties created by these features arise from the design of the tax laws of treaty partners rather than from tax avoidance strategies designed by taxpayers or their advisers, Contracting States may wish to address these difficulties though specific treaty provisions. The following include examples of provisions that might be adopted for that purpose.

(Added on 21 November 2017; see HISTORY)

Provision on special tax regimes

85. Provisions could be included in a tax treaty in order to deny the application of specific treaty provisions with respect to income benefiting from regimes that satisfy the criteria of a general definition of “special tax regimes”. For instance, the benefits of the provisions of Articles 11 and 12 could be denied with respect to interest and royalties that would be derived from a connected person if such interest and royalties benefited, in the State of residence of their beneficial owner, from such a special tax regime; this would be done by adding to Articles 11 and 12 a provision drafted along the following lines (which could be amended to fit the circumstances of the Contracting States or for inclusion in other Articles of the Convention):

Notwithstanding the provisions of [(in the case of Article 11): paragraphs 1 and 2 but subject to the provisions of paragraph 4] [(in the case of Article 12): paragraph 1 but subject to the provisions of paragraph 3] of this Article, [interest] [royalties] arising in a Contracting State and beneficially owned by a resident of the other Contracting State that is connected to the payer may be taxed in the first-mentioned Contracting State in accordance with domestic law if such resident benefits from a special tax regime with respect to the [interest] [royalties] in the State of which it is resident.

For the purposes of the above provision, the reference to a resident that is “connected” to the payer should be interpreted in accordance with the definition of “connected person” which is found in the Commentary on paragraph 7 of Article 29. As indicated in paragraph 127 of that Commentary, if the above provision is included in the Convention, it would seem appropriate to include that definition in paragraph 1 of Article 3, which includes the definitions that apply throughout the Convention. Some States, however, may prefer to replace the reference to a resident that is “connected” to the payer by a reference to a resident that is “closely related” to the payer, the main difference being that, unlike the definition of “connected” person, the definition of “closely related” person found in paragraph 8 of Article 5 does not apply where a person possesses directly or indirectly exactly 50 per cent of the aggregate vote and value of another person (if the definition of “closely related” person is used for the purposes of the above provision, that definition would be more appropriately included in paragraph 1 of Article 3).

(Added on 21 November 2017; see HISTORY)

86. Also, the above provision would require a definition of “special tax regime”, which could be drafted as follows and added to the list of general definitions included in paragraph 1 of Article 3:

the term “special tax regime” means any statute, regulation or administrative practice in a Contracting State with respect to a tax described in Article 2 that meets all of the following conditions:

1. results in one or more of the following:

   1. a preferential rate of taxation for interest, royalties or any combination thereof as compared to income from sales of goods or services;

   2. a permanent reduction in the tax base with respect to interest, royalties or any combination thereof without a comparable reduction for income from sales of goods or services, by allowing:

      1. an exclusion from gross receipts;

      2. a deduction without regard to any corresponding payment or obligation to make a payment;

      3. a deduction for dividends paid or accrued; or

      4. taxation that is inconsistent with the principles of Article 7 or 9; or

   3. a preferential rate of taxation or a permanent reduction in the tax base of the type described in subclauses 1), 2), 3) or 4) of clause B) of this subdivision with respect to substantially all of a company’s income or substantially all of a company’s foreign source income, for companies that do not engage in the active conduct of a business in that Contracting State;

2. in the case of any preferential rate of taxation or permanent reduction in the tax base for royalties, does not condition such benefits on

   1. the extent of research and development activities that take place in the Contracting State; or

   2. expenditures (excluding any expenditures which relate to subcontracting to a related party or any acquisition costs), which the person enjoying the benefits incurs for the purpose of actual research and development activities;

3. is generally expected to result in a rate of taxation that is less than the lesser of either:

   1. [rate to be determined bilaterally]; or

   2. 60 per cent of the general statutory rate of company tax applicable in the other Contracting State;

4. does not apply principally to:

   1. recognised pension funds;

   2. organisations that are established and maintained exclusively for religious, charitable, scientific, artistic, cultural or educational purposes;

   3. persons the taxation of which achieves a single level of taxation either in the hands of the person or the person’s shareholders (with at most one year of deferral), that hold a diversified portfolio of securities, that are subject to investor-protection regulation in the Contracting State and the interests in which are marketed primarily to retail investors; or

   4. persons the taxation of which achieves a single level of taxation either in the hands of the person or the person’s shareholders (with at most one year of deferral) and that hold predominantly immovable property; and

5. after consultation with the first-mentioned Contracting State, has been identified by the other Contracting State through diplomatic channels to the first-mentioned Contracting State as satisfying subdivisions (i) through (iv) of this subparagraph.

No statute, regulation or administrative practice shall be treated as a special tax regime until 30 days after the date when the other Contracting State issues a written public notification identifying the regime as satisfying subdivisions (i) through (iv) of this subparagraph.

(Added on 21 November 2017; see HISTORY)

87. The above definition of the term “special tax regime” applies to any legislation, regulation or administrative practice (including a ruling practice) that exists before or comes into effect after the treaty is signed and that meets all of the following five conditions.

(Added on 21 November 2017; see HISTORY)

88. Under the first condition, described in subdivision (i) of the definition, the regime must result in one or more of the following:

1. a preferential rate of taxation for interest, royalties or any combination thereof as compared to income from sales of goods or services;

2. certain permanent reductions in the tax base with respect to interest, royalties or any combination thereof without a comparable reduction for sales or services income; or

3. a preferential rate of taxation or certain permanent reductions in the tax base with respect to substantially all income or substantially all foreign source income for companies that do not engage in the active conduct of a business in that Contracting State. This part of the definition is intended to identify regimes that, in general, tax mobile income more favourably than non-mobile income.

(Added on 21 November 2017; see HISTORY)

89. As provided in clause A), subdivision (i) shall be met if a regime provides a preferential rate of taxation for interest, royalties or a combination of the two as compared to sales or services income. For example, a regime that provides a preferential rate of taxation on royalty income earned by resident companies, but does not provide such preferential rate to income from sales or services, would meet this condition. Furthermore, a regime that provides a preferential rate of taxation for all classes of income, but such preferential rate is in effect available primarily for interest, royalties or a combination of the two, would satisfy subdivision (i) despite the fact that the beneficial treatment is not explicitly limited to those classes of income. For example, a tax authority’s administrative practice of issuing routine rulings that provide a preferential rate of taxation for companies that represent that they earn primarily interest income (such as group financing companies) would satisfy subdivision (i) even if such rulings as a technical matter provide that preferential rate to all forms of income.

(Added on 21 November 2017; see HISTORY)

90. Similarly, as provided in clause B), subdivision (i) shall be met if a regime provides for a permanent reduction in the tax base with respect to interest, royalties or a combination thereof as compared to income from sales of goods or services, in one or more of the following ways: an exclusion from gross receipts (such as an automatic fixed reduction in the amount of royalties included in income, whereas such reduction is not also available for income from the sale of goods or services); a deduction without any corresponding payment or obligation to make a payment; a deduction for dividends paid or accrued; or taxation that is inconsistent with the principles of Articles 7 or 9 of the Convention. An example of a tax regime that results in taxation that is inconsistent with the principles of Article 9 is that of a regime under which no interest income would be imputed on an interest-free note that is held by a company resident of a Contracting State and is issued by an associated enterprise that is a resident of the other Contracting State.

(Added on 21 November 2017; see HISTORY)

91. A permanent reduction in a State’s tax base does not arise merely from timing differences. For example, the fact that a particular country does not tax interest until it is actually paid, rather than when it economically accrues, is not regarded as a regime that provides a permanent reduction in the tax base, because such a rule represents an ordinary timing difference. However, a regime that results in excessive deferral over a period of many years shall be regarded as providing for a permanent reduction in the tax base, because such a rule in substance constitutes a permanent difference in the base of the taxing country.

(Added on 21 November 2017; see HISTORY)

92. Alternatively, as provided in clause C), subdivision (i) shall be satisfied if a regime provides a preferential rate of taxation or a permanent reduction in the tax base (of the type described above), with respect to substantially all income or substantially all foreign source income, for companies that do not engage in the active conduct of a business in the Contracting State. For example, regimes that provide preferential rates of taxation only to income of group financing companies or holding companies would generally satisfy subdivision (i).

(Added on 21 November 2017; see HISTORY)

93. A regime that provides for beneficial tax treatment that is generally applicable to all income (in particular to income from sales and services) and across all industries should not meet subdivision (i). Examples of generally applicable provisions that would not meet subdivision (i) include regimes permitting standard deductions, accelerated depreciation, corporate tax consolidation, dividends received deductions, loss carryovers and foreign tax credits.

(Added on 21 November 2017; see HISTORY)

94. The second condition, described in subdivision (ii) of the definition, applies only with respect to royalties and is met if a regime does not condition benefits either on the extent of research and development activities that take place in the Contracting State or on expenditures (excluding any expenditures which relate to subcontracting to a related party or any acquisition costs), which the person enjoying the benefits incurs for the purpose of actual research and development activities. Subdivision (ii) is intended to ensure that royalties benefiting from patent box or innovation box regimes are eligible for treaty benefits only if such regimes satisfy one of these two requirements. Some States, however, would prefer that the requirements of subdivision (ii) be restricted so as to only be met if a regime conditions benefits on the extent of research and development activities that take place in the Contracting State. States that share that view may prefer to use the following alternative version of subdivision (ii):

(ii) in the case of any preferential rate of taxation or permanent reduction in the tax base for royalties, does not condition such benefits on the extent of research and development activities that take place in the Contracting State;

Under either version of subdivision (ii), royalty regimes that have been considered by the OECD’s Forum on Harmful Tax Practices and were not determined to be “actually harmful” generally would not meet subdivision (ii) and, if so, would not be treated as special tax regimes.

(Added on 21 November 2017; see HISTORY)

95. The third condition, described in subdivision (iii) of the definition, requires that a regime be generally expected to result in a rate of taxation that is less than the lesser of a rate that would be agreed bilaterally between the Contracting States and 60 per cent of the general statutory rate of company tax applicable in the Contracting State that considers the regime of the other State as a potential “special tax regime”.

(Added on 21 November 2017; see HISTORY)

96. States may consider it useful to clarify the reference to “rate of taxation” for the purposes of subdivision (iii) by including the following in an instrument reflecting the agreed interpretation of the treaty:

Except as provided below, the rate of taxation shall be determined based on the income tax principles of the Contracting State that has implemented the regime in question. Therefore, in the case of a regime that provides only for a preferential rate of taxation, the generally expected rate of taxation under the regime shall equal such preferential rate. In the case of a regime that provides only for a permanent reduction in the tax base, the rate of taxation shall equal the statutory rate of company tax generally applicable in the Contracting State to companies subject to the regime in question less the product of such rate and the percentage reduction in the tax base (with the baseline tax base determined under the principles of the Contracting State, but without regard to any permanent reductions in the tax base described in clause B) of subdivision (i)) that the regime is generally expected to provide. For example, a regime that generally provides for a 20 per cent permanent reduction in a company’s tax base would have a rate of taxation equal to the applicable statutory rate of company tax reduced by 20 per cent of such statutory rate. In the case of a regime that provides for both a preferential rate of taxation and a permanent reduction in the tax base, the rate of taxation would be based on the preferential rate of taxation reduced by the product of such rate and the percentage reduction in the tax base.

(Added on 21 November 2017; see HISTORY)

97. The preceding would clarify that the rate of taxation should be determined based on the income tax principles of the Contracting State that has implemented the regime in question. Therefore, in the case of a regime that provides only for a preferential rate of taxation, the generally expected rate of taxation under the regime will equal such preferential rate. In the case of a regime that provides only for a permanent reduction in the tax base, the rate of taxation will equal the statutory rate of company tax in the Contracting State that is generally applicable to companies subject to the regime in question less the product of such rate and the percentage reduction in the tax base (with the baseline tax base determined under the principles of the Contracting State, but without regard to any permanent reductions in the tax base described in clause B) of subdivision (i) of the definition) that the regime is generally expected to provide. For example, a regime that generally provides for a 20 per cent permanent reduction in a company’s tax base would have a rate of taxation equal to the applicable statutory rate of company tax reduced by 20 per cent of such statutory rate. Therefore, if the applicable statutory rate of company tax in force in a Contracting State were 25 per cent, the rate of taxation resulting from such a regime would be 20 per cent (25 – (25 x 0.20)). In the case of a regime that provides for both a preferential rate of taxation and a permanent reduction in the tax base, the rate of taxation would be based on the preferential rate of taxation reduced by the product of such rate and the percentage reduction in the tax base.

(Added on 21 November 2017; see HISTORY)

98. The fourth condition, described in subdivision (iv) of the definition, provides that a regime shall not be regarded as a special tax regime if it applies principally to pension funds or organisations that are established and maintained exclusively for religious, charitable, scientific, artistic, cultural or educational purposes. Under subdivision (iv), a regime shall also not be regarded as a special tax regime if it applies principally to persons the taxation of which achieves a single level of taxation, either in the hands of the person or its shareholders (with at most one year of deferral), that hold a diversified portfolio of securities, that are subject to investor-protection regulation in the residence State, and interests in which are marketed primarily to retail investors. This would generally correspond to the collective investment vehicles referred to in paragraph 22 above. Another exception provided in subdivision (iv) applies to regimes that apply principally to persons the taxation of which achieves a single level of taxation, either in the hands of the person or its shareholders (with at most one year of deferral), and such persons hold predominantly immovable property.

(Added on 21 November 2017; see HISTORY)

99. The fifth condition, described in subdivision (v) of the definition, provides that the Contracting State that wishes to treat a regime of the other State as a “special tax regime” must first consult the other Contracting State and notify that State through diplomatic channels that it has determined that the regime meets the other conditions of the definition.

(Added on 21 November 2017; see HISTORY)

100. The final part of the definition requires that the Contracting State that wishes to treat a regime of the other State as a “special tax regime” must issue a written public notification stating that the regime satisfies the definition. For the purposes of the Convention, a special tax regime shall be treated as such 30 days after the date of such written public notification.

(Added on 21 November 2017; see HISTORY)

Provision on subsequent changes to domestic law

101. Whilst the above suggested provision on special tax regimes would address the issue of targeted tax regimes, it would not deal with changes of a more general nature which could be introduced into the domestic law of a treaty partner after the conclusion of a tax treaty and which might have prevented the conclusion of the treaty if they had existed at that time. For instance, some Contracting States might be concerned if the overall tax rate that another State levies on corporate income falls below what they consider to be acceptable for the purposes of the conclusion of a tax treaty. Some States might also be concerned if a State that taxed most types of foreign income at the time of the conclusion of a tax treaty decided subsequently to exempt such income from tax when it is derived by a resident company. The following is an example of a provision that would address these concerns, it being understood that the features of that provision would need to be restricted or extended in order to deal adequately with the specific areas of concern of each State:

1. If at any time after the signing of this Convention, a Contracting State:

1. reduces the general statutory rate of company tax that applies with respect to substantially all of the income of resident companies with the result that such rate falls below the lesser of either

   1. [rate to be determined bilaterally] or

   2. 60 per cent of the general statutory rate of company tax applicable in the other Contracting State; or

2. provides an exemption from taxation to resident companies for substantially all foreign source income (including interest and royalties),

the Contracting States shall consult with a view to amending this Convention to restore an appropriate allocation of taxing rights between the Contracting States. If such consultations do not progress, the other State may notify the first-mentioned State through diplomatic channels that it shall cease to apply the provisions of Articles 10, 11, 12 and 21. In such case, the provisions of such Articles shall cease to have effect in both Contracting States with respect to payments to resident companies six months after the date that the other Contracting State issues a written public notification stating that it shall cease to apply the provisions of these Articles.

2. For the purposes of determining the general statutory rate of company tax:

1. the allowance of generally available deductions based on a percentage of what otherwise would be taxable income, and other similar mechanisms to achieve a reduction in the overall rate of tax, shall be taken into account; and

2. the following shall not be taken into account:

   1. a tax that applies to a company only upon a distribution by such company, or that applies to shareholders; and

   2. the amount of a tax that is refundable upon the distribution by a company of a dividend.

(Amended on 18 November 2025; see HISTORY)

102. This suggested provision provides that if, at any time after the signing of the Convention, either Contracting State enacts certain changes to domestic law, the provisions of Articles 10, 11, 12 and 21 may cease to have effect with respect to payments to companies if, after consultation, the Contracting States fail to agree on amendments to the Convention to restore an appropriate allocation of taxing rights between the Contracting States.

(Added on 21 November 2017; see HISTORY)

103. Paragraph 1 of the suggested provision addresses two types of subsequent changes that could be made by a State, after the signature of a tax treaty, to the tax rules applicable to companies resident of that State. The first type is when that State reduces the general statutory rate of company tax that applies with respect to substantially all of the income of its resident companies, with the result that such rate falls below the lesser of a minimum rate that would need to be determined bilaterally or 60 per cent of the general rate of company tax applicable in the other State.

(Added on 21 November 2017; see HISTORY)

104. For the purposes of paragraph 1, the “general statutory rate of company tax” refers to the general rate of company tax provided by legislation; if rates of company taxes are graduated, it refers to the highest marginal rate, provided that such rate applies to a significantly large portion of corporate taxpayers and was not established merely to circumvent the application of this Article. A general statutory rate of company tax that is applicable to business profits generally or to so-called “trading income” (broadly defined to include income from manufacturing, services or dealing in goods or commodities) shall be treated as applying to substantially all of the income of resident companies, even if narrow categories of income (including income from portfolio investments or other passive activities) are excluded. A reduced rate of tax that applies only with respect to capital gains would not fall within the scope of this Article; the distinction between business profits and capital gains shall be made according to the domestic laws of the residence State. Paragraph 2 addresses specific issues that may arise in determining what is a State’s general statutory rate of company tax. Subparagraph a) of paragraph 2 provides that paragraph 1 applies equally to reductions to the general statutory company tax rate, as well as to other changes in domestic law that would have the same effect using a different mechanism. For example, if the statutory company tax rate in a Contracting State was 20 per cent, but, after the signing of the Convention, companies resident in the Contracting State are permitted to claim deductions representing 50 per cent of what otherwise would be their taxable income, the general statutory rate of company tax would be 10 per cent (20 - (20 x 0.50)). Similarly, if the statutory company tax rate in a Contracting State was 20 per cent, but after the signing of the Convention, companies resident in the Contracting State are allowed to deduct an amount equal to a percentage of their equity up to 50 per cent of what otherwise would be their taxable income, and in general, most companies are able to utilize the maximum available deduction, the general rate of company tax would be 10 per cent. Subparagraph b) of paragraph 2 sets forth taxes that shall not be taken into account for purposes of determining the general statutory rate of company tax. First, as provided in subdivision (i) of subparagraph b), taxes imposed at either the company or shareholder level when the company distributes earnings shall not be taken into account when determining the general rate of company tax (e.g. if resident companies are not subject to any taxation at the company level until a distribution is made, the tax levied upon distribution would not be considered part of the general rate of company tax). Second, as provided in subdivision (ii) of subparagraph b), any amounts of corporate tax that under a country’s domestic law would be refundable upon a company’s distribution of earnings shall not be taken into account for purposes of determining the general statutory rate of company tax.

(Added on 21 November 2017; see HISTORY)

105. The second type of subsequent change in domestic tax law covered by paragraph 1 is when a State provides an exemption from taxation to companies resident of that State with respect to substantially all foreign source income (including interest and royalties) derived by these companies. The reference to an exemption for substantially all foreign source income earned by a resident company is intended to describe a taxation system under which income (including income from interest and royalties) from sources outside a State is exempt from tax solely by reason of its source being outside that State (so-called “territorial” systems). The reference does not include taxation systems under which only foreign source dividends or business profits from foreign permanent establishments are exempt from tax by the residence State (so-called “dividend exemption” systems).

(Added on 21 November 2017; see HISTORY)

106. When either type of subsequent domestic law change occurs, the Contracting States shall first consult with a view to concluding amendments to the Convention to restore an appropriate allocation of taxing rights between the two Contracting States. In the event that such amendments are agreed, or that the Contracting States agree, after such consultation, that the allocation of taxing rights in the Convention is not disrupted by the relevant change made to the domestic law of one of the States, paragraph 1 has no further application. If, however, after a reasonable period of time, such consultations do not progress, the other State may notify the State whose domestic law has changed, through diplomatic channels, that it shall cease to apply the provisions of Articles 10, 11, 12 and 21. Once such diplomatic notification has been made, in order for paragraph 1 to apply, the source State must announce by written public notice that it shall cease to apply the provisions of these Articles. Six months after the date of such written public notification, the provisions of these Articles shall cease to have effect in both Contracting States with respect to payments to companies that are residents of either State.

(Added on 21 November 2017; see HISTORY)

Provision on notional deductions for equity

107. One example of a tax regime with respect to which treaty benefits might be specifically restricted relates to domestic law provisions that provide for a notional deduction with respect to equity. Contracting States which agree to prevent the application of the provisions of Article 11 to interest that is paid to connected persons who benefit from such notional deductions may do so by adding the following provision to Article 11:

2. Notwithstanding the provisions of paragraph 1 of this Article, interest arising in a Contracting State and beneficially owned by a resident of the other Contracting State that is connected to the payer may be taxed in the first-mentioned Contracting State in accordance with domestic law if such resident benefits, at any time during the taxable year in which the interest is paid, from notional deductions with respect to amounts that the Contracting State of which the beneficial owner is a resident treats as equity.

The explanations in paragraph 85 above concerning the reference to a resident that is “connected” to the payer apply equally to the above provision

(Amended on 18 November 2025; see HISTORY)

Provision on remittance based taxation

108. Another example of a tax regime with respect to which treaty benefits might be specifically restricted is that of remittance based taxation. Under the domestic law of some States, persons who qualify as residents but who do not have what is considered to be a permanent link with the State (sometimes referred to as domicile) are only taxed on income derived from sources outside the State to the extent that this income is effectively repatriated, or remitted, thereto. Such persons are not, therefore, subject to potential double taxation to the extent that foreign income is not remitted to their State of residence and it may be considered inappropriate to give them the benefit of the provisions of the Convention on such income. Contracting States which agree to restrict the application of the provisions of the Convention to income that is effectively taxed in the hands of these persons may do so by adding the following provision to the Convention:

Where under any provision of this Convention income arising in a Contracting State is relieved in whole or in part from tax in that State and under the law in force in the other Contracting State a person, in respect of the said income, is subject to tax by reference to the amount thereof which is remitted to or received in that other State and not by reference to the full amount thereof, then any relief provided by the provisions of this Convention shall apply only to so much of the income as is taxed in the other Contracting State.

In some States, the application of that provision could create administrative difficulties if a substantial amount of time elapsed between the time the income arose in a Contracting State and the time it were taxed by the other Contracting State in the hands of a resident of that other State. States concerned by these difficulties could subject the rule in the last part of the above provision, i.e. that the income in question will be entitled to benefits in the first-mentioned State only when taxed in the other State, to the condition that the income must be so taxed in that other State within a specified period of time from the time the income arises in the first-mentioned State.

(Renumbered and amended on 21 November 2017; see HISTORY)

Limitations of source taxation: procedural aspects

109. A number of Articles of the Convention limit the right of a State to tax income derived from its territory. As noted in paragraph 19 of the Commentary on Article 10 as concerns the taxation of dividends, the Convention does not settle procedural questions and each State is free to use the procedure provided in its domestic law in order to apply the limits provided by the Convention. A State can therefore automatically limit the tax that it levies in accordance with the relevant provisions of the Convention, subject to possible prior verification of treaty entitlement, or it can impose the tax provided for under its domestic law and subsequently refund the part of that tax that exceeds the amount that it can levy under the provisions of the Convention. As a general rule, in order to ensure expeditious implementation of taxpayers’ benefits under a treaty, the first approach is the highly preferable method. If a refund system is needed, it should be based on observable difficulties in identifying entitlement to treaty benefits. Also, where the second approach is adopted, it is extremely important that the refund be made expeditiously, especially if no interest is paid on the amount of the refund, as any undue delay in making that refund is a direct cost to the taxpayer.

(Renumbered on 21 November 2017; see HISTORY)

110. (Deleted on 18 November 2025; see HISTORY)

Reservations on the Article

111. The United States reserves the right to expand the scope of paragraph 3 to include citizens, former citizens and former long-term residents, and to include additional Articles as exceptions.

(Amended on 18 November 2025; see HISTORY)

112. Canada and Chile reserve the right to limit the entities or arrangements covered under paragraph 2 to those that are established in one of the Contracting States.

(Amended on 18 November 2025; see HISTORY)

113. France and Mexico reserve the right, in their conventions, not to include or to amend paragraph 2 in order to specify in which situations they will recognise the fiscal transparency of entities located in the other Contracting State or in a third State.

(Amended on 18 November 2025; see HISTORY)

114. Costa Rica and Germany reserve the right not to include paragraph 2 in their conventions.

(Amended on 18 November 2025; see HISTORY)

115. Portugal reserves the right not to include paragraph 2 in its conventions in view of the administrative difficulties resulting from some of the solutions put forward in the report “The Application of the OECD Model Tax Convention to Partnerships” (as indicated in the report itself in certain cases).

(Added on 21 November 2017; see HISTORY)

116. Ireland reserves the right not to include paragraph 3 in its conventions and to amend paragraph 2 to provide that the paragraph will not be construed to affect a Contracting State’s right to tax its own residents.

(Added on 21 November 2017; see HISTORY)

117. Costa Rica, France, Germany, Hungary, Ireland, Latvia, Luxembourg, Spain and Switzerland reserve the right not to include paragraph 3 in their conventions.

(Amended on 18 November 2025; see HISTORY)

118. Germany reserves the right to settle the mode of application of limitations on withholding tax rates in its conventions.

(Added on 18 November 2025; see HISTORY)

119. The Netherlands reserves the right to include an additional exception with respect to paragraph 1 of Article 9 in paragraph 3 of Article 1.

(Added on 18 November 2025; see HISTORY)

120. Spain reserves the right to amend paragraph 2 in order to specify in which situations Spain will recognise the fiscal transparency of entities located in a third State.

(Amended on 18 November 2025; see HISTORY)

History

Paragraph 1: Amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 21 September 1995 and until 21 November 2017, paragraph 1 read as follows:

“1. Whereas the earliest conventions in general were applicable to “citizens” of the Contracting States, more recent conventions usually apply to “residents” of one or both of the Contracting States irrespective of nationality. Some conventions are of even wider scope because they apply more generally to “taxpayers” of the Contracting States; they are, therefore, also applicable to persons, who, although not residing in either State, are nevertheless liable to tax on part of their income or capital in each of them. It has been deemed preferable for practical reasons to provide that the Convention is to apply to persons who are residents of one or both of the Contracting States. The term “resident” is defined in Article 4.”

Paragraph 1 was previously amended on 21 September 1995 when a number of minor drafting changes that did not affect the meaning of the text were made to the Commentary on Article 1. In the 1977 Model Convention and until 21 September 1995, paragraph 1 read as follows:

“1. Whereas the earliest conventions in general were applicable to “citizens” of the Contracting States, more recent conventions usually apply to “residents” of one or both of the Contracting States irrespective of nationality. Some conventions are of even wider scope inasmuch they apply more generally to “taxpayers” of the Contracting States; they are, therefore, also applicable to persons, who, although not residing in either State, are nevertheless liable to tax on part of their income or capital in each of them. The Convention is intended to be applied between OECD Member countries and it has been deemed preferable for practical reasons to provide that the Convention is to apply to persons who are residents of one or both of the Contracting States. The term “resident” is defined in Article 4.”

Paragraph 1 was previously amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 1 read as follows:

“1. Whereas older Conventions in general were applicable to “citizens” of the Contracting States, recent Conventions usually apply to “residents” of one or both of the Contracting States, without distinction of nationality. Some Conventions are of even wider scope inasmuch as they apply more generally to “taxpayers” of the Contracting States; they are, therefore, also applicable to persons, who, although not residing in either State, are nevertheless liable to tax on part of their income or capital in each of them. The Convention is intended to be applied between Member countries of the O.E.C.D. and it has been deemed preferable for practical reasons to provide that the Convention is to apply to persons who are residents of one or both of the Contracting States. It is recalled that the meaning of the term “resident” is defined in Article 4 concerning fiscal domicile.”

Paragraph 2: Amended on 18 November 2025 by adding the parenthetical reference “(the Partnership Report)”, by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025. After 21 November 2017 and until 18 November 2025, paragraph 2 read as follows:

“2. This paragraph addresses the situation of the income of entities or arrangements that one or both Contracting States treat as wholly or partly fiscally transparent for tax purposes. The provisions of the paragraph ensure that income of such entities or arrangements is treated, for the purposes of the Convention, in accordance with the principles reflected in the 1999 report of the Committee on Fiscal Affairs entitled “The Application of the OECD Model Tax Convention to Partnerships”. That report therefore provides guidance and examples on how the provision should be interpreted and applied in various situations.”

Paragraph 2 was previously replaced on 21 November 2017, when paragraph 2 and the preceding heading were deleted and a new paragraph 2 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 29 April 2000 and until 21 November 2017, paragraph 2 and the heading that preceded it read as follows:

“Application of the Convention to partnerships

2. Domestic laws differ in the treatment of partnerships. These differences create various difficulties when applying tax Conventions in relation to partnerships. These difficulties are analysed in the report by the Committee on Fiscal Affairs entitled “The Application of the OECD Model Tax Convention to Partnerships”,^[20] the conclusions of which have been incorporated below and in the Commentary on various other provisions of the Model Tax Convention.

Paragraph 2 was previously replaced on 29 April 2000 when the second sentence of paragraph 2 of the 1977 Model was incorporated into an amended paragraph 3 and a new paragraph 2 was added by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000, on the basis of Annex I of another report entitled “The Application of the OECD Model Convention to Partnerships” (adopted by the OECD Committee on Fiscal Affairs on 20 January 1999). In the 1977 Model Convention and until 29 April 2000, paragraph 2 read as follows:

“2. The domestic laws of the various OECD Member countries differ in the treatment of partnerships. The main issue of such differences is founded on the fact that some countries treat partnerships as taxable units (sometimes even as companies) whereas other countries disregard the partnership and tax only the individual partners on their shares of the partnership income.”

Paragraph 2 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 3: Replaced on 21 November 2017 when paragraph 3 was deleted and a new paragraph 3 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 29 April 2000 and until 21 November 2017, paragraph 3 read as follows:

“3. As discussed in that report, a main source of difficulties is the fact that some countries treat partnerships as taxable units (sometimes even as companies) whereas other countries adopt what may be referred to as the fiscally transparent approach, under which the partnership is ignored for tax purposes and the individual partners are taxed on their respective share of the partnership’s income.”

Paragraph 3 was previously replaced on 29 April 2000 when part of the previous paragraph 3 was incorporated in paragraph 5 and a new paragraph 3 was added by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000, on the basis of Annex I of another report entitled “The Application of the OECD Model Convention to Partnerships” (adopted by the OECD Committee on Fiscal Affairs on 20 January 1999). After 21 September 1995 and until 29 April 2000, paragraph 3 read as follows:

“3. These differences in views have many effects on the application of the Convention in the case of partnerships, especially where one or more partners are not residents of the State in which the partnership was created or organised. First, the question arises whether a partnership as such may invoke the provisions of the Convention. Where a partnership is treated as a company or taxed in the same way, it may reasonably be argued that the partnership is a resident of the Contracting State taxing the partnership on the grounds mentioned in paragraph 1 of Article 4 and therefore, falling under the scope of the Convention, is entitled to the benefits of the Convention. In the other instances mentioned in paragraph 2 above, the application of the Convention to the partnership as such might be refused, at least if no special rule covering partnerships is provided for in the Convention.”

Paragraph 3 was amended on 21 September 1995 when a number of minor drafting changes that did not affect the meaning of the text were made to the Commentary on Article 1. In the 1977 Model Convention and until 21 September 1995, paragraph 3 read as follows:

“3. These differences in views have many effects on the application of the Convention in the case of partnerships, especially where one or more partners are not residents of the State in which the partnership was created or organised. First the question arises whether a partnership as such may invoke the provisions of the Convention. Where a partnership is treated as a company or taxed in the same way, it may reasonably be argued that the partnership is a resident of the Contracting State taxing the partnership on the grounds mentioned in paragraph 1 of Article 4 and therefore, falling under the scope of the Convention, is entitled to the benefits of the Convention. In the other instances mentioned in paragraph 2 above, the application of the Convention to the partnership as such might be refused, at least if no special rule is provided for in the Convention covering partnerships.”

Paragraph 3 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 4: Replaced on 21 November 2017 when paragraph 4 was deleted and a new paragraph 4 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 29 April 2000 and until 21 November 2017, paragraph 4 read as follows:

“4. A first difficulty is the extent to which a partnership is entitled as such to the benefits of the provisions of the Convention. Under Article 1, only persons who are residents of the Contracting States are entitled to the benefits of the tax Convention entered into by these States. While paragraph 2 of the Commentary on Article 3 explains why a partnership constitutes a person, a partnership does not necessarily qualify as a resident of a Contracting State under Article 4.”

Paragraph 4 was previously replaced on 29 April 2000 when paragraph 4 was deleted and a new paragraph 4 was added by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000, on the basis of Annex I of another report entitled “The Application of the OECD Model Convention to Partnerships” (adopted by the OECD Committee on Fiscal Affairs on 20 January 1999). In the 1977 Model Convention and until 29 April 2000, paragraph 4 read as follows:

“4. Moreover, different rules of the Convention may be applied in the Contracting States to income derived by a partner from the partnership, depending on the approach of such States. In States where partnerships are treated as companies, distributions of profits to the partners may be considered to be dividends (paragraph 3 of Article 10), whilst for other States all profits of a partnership, whether distributed or not, are considered as business profits of the partners (Article 7). In many States, business profits of partnerships include, for tax purposes, all or some special remuneration paid by a partnership to its partners (such as rents, interest, royalties, remuneration for services), whilst in other States such payments are not dealt with as business profits (Article 7) but under other headings (in the above-mentioned examples: Articles 6, 11, 12, 14 and 15, respectively).”

Paragraph 4 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 5: Replaced on 21 November 2017 when paragraph 5 was deleted and a new paragraph 5 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 17 July 2008 and until 21 November 2017, paragraph 5 read as follows:

“5. Where a partnership is treated as a company or taxed in the same way, it is a resident of the Contracting State that taxes the partnership on the grounds mentioned in paragraph 1 of Article 4 and, therefore, it is entitled to the benefits of the Convention. Where, however, a partnership is treated as fiscally transparent in a State, the partnership is not “liable to tax” in that State within the meaning of paragraph 1 of Article 4, and so cannot be a resident thereof for purposes of the Convention. In such a case, the application of the Convention to the partnership as such would be refused, unless a special rule covering partnerships were provided for in the Convention. Where the application of the Convention is so refused, the partners should be entitled, with respect to their share of the income of the partnership, to the benefits provided by the Conventions entered into by the States of which they are residents to the extent that the partnership’s income is allocated to them for the purposes of taxation in their State of residence (see paragraph 8.8 of the Commentary on Article 4).”

Paragraph 5 as it read before 21 November 2017 was amended on 17 July 2008, by replacing the cross-reference to “paragraph 8.4 of the Commentary on Article 4” by “paragraph 8.7 of the Commentary on Article 4”, by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008. After 29 April 2000 and until 17 July 2008, paragraph 5 read as follows:

“5. Where a partnership is treated as a company or taxed in the same way, it is a resident of the Contracting State that taxes the partnership on the grounds mentioned in paragraph 1 of Article 4 and, therefore, it is entitled to the benefits of the Convention. Where, however, a partnership is treated as fiscally transparent in a State, the partnership is not “liable to tax” in that State within the meaning of paragraph 1 of Article 4, and so cannot be a resident thereof for purposes of the Convention. In such a case, the application of the Convention to the partnership as such would be refused, unless a special rule covering partnerships were provided for in the Convention. Where the application of the Convention is so refused, the partners should be entitled, with respect to their share of the income of the partnership, to the benefits provided by the Conventions entered into by the States of which they are residents to the extent that the partnership’s income is allocated to them for the purposes of taxation in their State of residence (see paragraph 8.4 of the Commentary on Article 4).”

Paragraph 5 was replaced on 29 April 2000 when it was deleted and a new paragraph 5 was added by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000, on the basis of Annex I of another report entitled “The Application of the OECD Model Convention to Partnerships” (adopted by the OECD Committee on Fiscal Affairs on 20 January 1999). The new paragraph 5 incorporated, with amendments, the second sentence of paragraph 3 of the 1977 Model Convention (see history of paragraph 3). In the 1977 Model Convention and until 29 April 2000, paragraph 5 read as follows:

“5. Finally the capital invested in a partnership or the alienation of a participation in a partnership may be treated, depending on the approach, under paragraph 2 of Articles 22 and 13 (permanent establishment) or paragraph 4 of Articles 22 and 13 (other movable property).”

Paragraph 5 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 6: Replaced on 21 November 2017 when paragraph 6 was deleted and a new paragraph 6 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 29 April 2000 and until 21 November 2017, paragraph 6 read as follows:

“6. The relationship between the partnership’s entitlement to the benefits of a tax Convention and that of the partners raises other questions.”

Paragraph 6 was previously replaced on 29 April 2000 when paragraph 6 was deleted and a new paragraph 6 was added by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000, on the basis of Annex I of another report entitled “The Application of the OECD Model Convention to Partnerships” (adopted by the OECD Committee on Fiscal Affairs on 20 January 1999). After 23 July 1992 and until 29 April 2000, paragraph 6 read as follows:

“6. The concurrent application of different Articles of the Convention in the two Contracting States (or even the non-application of the Convention in one of them) may result not only in double taxation, but also in non-taxation. However the practical application of double taxation conventions, whether or not based on the Model Convention, and discussions in the Committee on Fiscal Affairs when the 1977 Model Convention was being drafted have shown that the opinions of the OECD Member countries differ too much and that it is extremely difficult to find a uniform solution that would be acceptable to all or even to the great majority of Member countries. The Convention does not, therefore, contain any special provisions relating to partnerships. Contracting States are however left free to examine the problems of partnerships in their bilateral negotiations and to agree upon such special provisions as they may find necessary and appropriate.”

Paragraph 6 was amended on 23 July 1992 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992. In the 1977 Model Convention and until 23 July 1992, paragraph 6 read as follows:

“6. The concurrent application of different Articles of the Convention in the two Contracting States (or even the non-application of the Convention in one of them) may not only result in double taxation, but also in non-taxation. However the practical application of double taxation conventions, whether or not based on the 1963 Draft Convention, and the discussions on the revision of the 1963 Draft Convention have shown that the opinions of the OECD Member countries differ too much and that it is extremely difficult to find a uniform solution which would be acceptable to all or even to the great majority of Member countries. The Convention does not, therefore, contain any special provisions relating to partnerships. Contracting States are however left free to examine the problems of partnerships in their bilateral negotiations and to agree upon such special provisions as they may find necessary and appropriate.”

Paragraph 6 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 6.1: Deleted on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 29 April 2000 and until 21 November 2017, paragraph 6.1 read as follows:

“6.1 One issue is the effect that the application of the provisions of the Convention to a partnership can have on the taxation of the partners. Where a partnership is treated as a resident of a Contracting State, the provisions of the Convention that restrict the other Contracting State’s right to tax the partnership on its income do not apply to restrict that other State’s right to tax the partners who are its own residents on their share of the income of the partnership. Some states may wish to include in their conventions a provision that expressly confirms a Contracting State’s right to tax resident partners on their share of the income of a partnership that is treated as a resident of the other State.”

Paragraph 6.1 was added on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000, on the basis of Annex I of another report entitled “The Application of the OECD Model Convention to Partnerships” (adopted by the OECD Committee on Fiscal Affairs on 20 January 1999).

Paragraph 6.2: Deleted on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 29 April 2000 and until 21 November 2017, paragraph 6.2 read as follows:

“6.2 Another issue is that of the effect of the provisions of the Convention on a Contracting State’s right to tax income arising on its territory where the entitlement to the benefits of one, or more than one, Conventions is different for the partners and the partnership. Where, for instance, the State of source treats a domestic partnership as fiscally transparent and therefore taxes the partners on their share of the income of the partnership, a partner that is resident of a State that taxes partnerships as companies would not be able to claim the benefits of the Convention between the two States with respect to the share of the partnership’s income that the State of source taxes in his hands since that income, though allocated to the person claiming the benefits of the Convention under the laws of the State of source, is not similarly allocated for purposes of determining the liability to tax on that item of income in the State of residence of that person.”

Paragraph 6.2 was added on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000, on the basis of Annex I of another report entitled “The Application of the OECD Model Convention to Partnerships” (adopted by the OECD Committee on Fiscal Affairs on 20 January 1999).

Paragraph 6.3: Deleted on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 29 April 2000 and until 21 November 2017, paragraph 6.3 read as follows:

“6.3 The results described in the preceding paragraph should obtain even if, as a matter of the domestic law of the State of source, the partnership would not be regarded as transparent for tax purposes but as a separate taxable entity to which the income would be attributed, provided that the partnership is not actually considered as a resident of the State of source. This conclusion is founded upon the principle that the State of source should take into account, as part of the factual context in which the Convention is to be applied, the way in which an item of income, arising in its jurisdiction, is treated in the jurisdiction of the person claiming the benefits of the Convention as a resident. For States which could not agree with this interpretation of the Article, it would be possible to provide for this result in a special provision which would avoid the resulting potential double taxation where the income of the partnership is differently allocated by the two States.”

Paragraph 6.3 was added on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000, on the basis of Annex I of another report entitled “The Application of the OECD Model Convention to Partnerships” (adopted by the OECD Committee on Fiscal Affairs on 20 January 1999).

Paragraph 6.4: Deleted on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 29 April 2000 and until 21 November 2017, paragraph 6.4 read as follows:

“6.4 Where, as described in paragraph 6.2, income has “flowed through” a transparent partnership to the partners who are liable to tax on that income in the State of their residence then the income is appropriately viewed as “paid” to the partners since it is to them and not to the partnership that the income is allocated for purposes of determining their tax liability in their State of residence. Hence the partners, in these circumstances, satisfy the condition, imposed in several Articles, that the income concerned is “paid to a resident of the other Contracting State”. Similarly the requirement, imposed by some other Articles, that income or gains are “derived by a resident of the other Contracting State” is met in the circumstances described above. This interpretation avoids denying the benefits of tax Conventions to a partnership’s income on the basis that neither the partnership, because it is not a resident, nor the partners, because the income is not directly paid to them or derived by them, can claim the benefits of the Convention with respect to that income. Following from the principle discussed in paragraph 6.3, the conditions that the income be paid to, or derived by, a resident should be considered to be satisfied even where, as a matter of the domestic law of the State of source, the partnership would not be regarded as transparent for tax purposes, provided that the partnership is not actually considered as a resident of the State of source.”

Paragraph 6.4 was added on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000, on the basis of Annex I of another report entitled “The Application of the OECD Model Convention to Partnerships” (adopted by the OECD Committee on Fiscal Affairs on 20 January 1999).

Paragraph 6.5: Deleted on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 29 April 2000 and until 21 November 2017, paragraph 6.5 read as follows:

“6.5 Partnership cases involving three States pose difficult problems with respect to the determination of entitlement to benefits under Conventions. However, many problems may be solved through the application of the principles described in paragraphs 6.2 to 6.4. Where a partner is a resident of one State, the partnership is established in another State and the partner shares in partnership income arising in a third State then the partner may claim the benefits of the Convention between his State of residence and the State of source of the income to the extent that the partnership’s income is allocated to him for the purposes of taxation in his State of residence. If, in addition, the partnership is taxed as a resident of the State in which it is established then the partnership may itself claim the benefits of the Convention between the State in which it is established and the State of source. In such a case of “double benefits”, the State of source may not impose taxation which is inconsistent with the terms of either applicable Convention; therefore, where different rates are provided for in the two Conventions, the lower will be applied. However, Contracting States may wish to consider special provisions to deal with the administration of benefits under Conventions in situations such as these, so that the partnership may claim benefits but partners could not present concurrent claims. Such provisions could ensure appropriate and simplified administration of the giving of benefits. No benefits will be available under the Convention between the State in which the partnership is established and the State of source if the partnership is regarded as transparent for tax purposes by the State in which it is established. Similarly no benefits will be available under the Convention between the State of residence of the partner and the State of source if the income of the partnership is not allocated to the partner under the taxation law of the State of residence. If the partnership is regarded as transparent for tax purposes by the State in which it is established and the income of the partnership is not allocated to the partner under the taxation law of the State of residence of the partner, the State of source may tax partnership income allocable to the partner without restriction.”

Paragraph 6.5 was added on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000, on the basis of Annex I of another report entitled “The Application of the OECD Model Convention to Partnerships” (adopted by the OECD Committee on Fiscal Affairs on 20 January 1999).

Paragraph 6.6: Deleted on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 29 April 2000 and until 21 November 2017, paragraph 6.6 read as follows:

“6.6 Differences in how countries apply the fiscally transparent approach may create other difficulties for the application of tax Conventions. Where a State considers that a partnership does not qualify as a resident of a Contracting State because it is not liable to tax and the partners are liable to tax in their State of residence on their share of the partnership’s income, it is expected that that State will apply the provisions of the Convention as if the partners had earned the income directly so that the classification of the income for purposes of the allocative rules of Articles 6 to 21 will not be modified by the fact that the income flows through the partnership. Difficulties may arise, however, in the application of provisions which refer to the activities of the taxpayer, the nature of the taxpayer, the relationship between the taxpayer and another party to a transaction. Some of these difficulties are discussed in paragraph 19.1 of the Commentary on Article 5 and paragraphs 6.1 and 6.2 of the Commentary on Article 15.”

Paragraph 6.6 was added on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000, on the basis of Annex I of another report entitled “The Application of the OECD Model Convention to Partnerships” (adopted by the OECD Committee on Fiscal Affairs on 20 January 1999).

Paragraph 6.7: Deleted on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 29 April 2000 and until 21 November 2017, paragraph 6.7 read as follows:

“6.7 Finally, a number of other difficulties arise where different rules of the Convention are applied by the Contracting States to income derived by a partnership or its partners, depending on the domestic laws of these States or their interpretation of the provisions of the Convention or of the relevant facts. These difficulties relate to the broader issue of conflicts of qualification, which is dealt with in paragraphs 32.1 ff. and 56.1 ff. of the Commentary on Article 23.”

Paragraph 6.7 was added on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000, on the basis of Annex I of another report entitled “The Application of the OECD Model Convention to Partnerships” (adopted by the OECD Committee on Fiscal Affairs on 20 January 1999).

Paragraph 6.8: Renumbered as paragraph 22 (see history of paragraph 22) and the preceding heading was moved with it on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.9: Renumbered as paragraph 23 (see history of paragraph 23) and the preceding heading was moved with it on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.10: Renumbered as paragraph 24 (see history of paragraph 24) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.11: Renumbered as paragraph 25 (see history of paragraph 25) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.12: Renumbered as paragraph 26 (see history of paragraph 26) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.13: Renumbered as paragraph 27 (see history of paragraph 27) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.14: Renumbered as paragraph 28 (see history of paragraph 28) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.15: Renumbered as paragraph 29 (see history of paragraph 29) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.16: Renumbered as paragraph 30 (see history of paragraph 30) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.17: Renumbered as paragraph 31 (see history of paragraph 31) and the preceding heading was moved with it on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.18: Renumbered as paragraph 32 (see history of paragraph 32) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.19: Renumbered as paragraph 33 (see history of paragraph 33) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.20: Renumbered as paragraph 34 (see history of paragraph 34) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.21: Renumbered as paragraph 35 (see history of paragraph 35) and amended by updating cross-references on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. At that time the preceding heading was moved with paragraph 6.21.

Paragraph 6.22: Renumbered as paragraph 36 (see history of paragraph 36) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.23: Renumbered as paragraph 37 (see history of paragraph 37) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.24: Renumbered as paragraph 38 (see history of paragraph 38) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.25: Renumbered as paragraph 39 (see history of paragraph 39) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.26: Renumbered as paragraph 40 (see history of paragraph 40) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.27: Renumbered as paragraph 41 (see history of paragraph 41) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.28: Renumbered as paragraph 42 (see history of paragraph 42) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.29: Renumbered as paragraph 43 (see history of paragraph 43) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.30: Renumbered as paragraph 44 (see history of paragraph 44) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.31: Renumbered as paragraph 45 (see history of paragraph 45) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.32: Renumbered as paragraph 46 (see history of paragraph 46) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.33: Renumbered as paragraph 47 (see history of paragraph 47) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.34: Renumbered as paragraph 48 (see history of paragraph 48) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.35: Renumbered as paragraph 49 (see history of paragraph 49) and the preceding heading was moved with it on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.36: Renumbered as paragraph 50 (see history of paragraph 50) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.37: Renumbered as paragraph 51 (see history of paragraph 51) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.38: Renumbered as paragraph 52 (see history of paragraph 52) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.39: Renumbered as paragraph 53 (see history of paragraph 53) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 7: Replaced on 21 November 2017 when paragraph 7 was amended and renumbered as paragraph 54 (see history of paragraph 54) and a new paragraph 7 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. At that time the heading preceding paragraph 7 was moved with it.

Paragraph 7.1: Deleted on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 28 January 2003 and until 21 November 2017, paragraph 7.1 read as follows:

“7.1 Taxpayers may be tempted to abuse the tax laws of a State by exploiting the differences between various countries’ laws. Such attempts may be countered by provisions or jurisprudential rules that are part of the domestic law of the State concerned. Such a State is then unlikely to agree to provisions of bilateral double taxation conventions that would have the effect of allowing abusive transactions that would otherwise be prevented by the provisions and rules of this kind contained in its domestic law. Also, it will not wish to apply its bilateral conventions in a way that would have that effect.”

Paragraph 7.1 was added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003.

Paragraph 8: Replaced on 21 November 2017 when paragraph 8 was deleted and a new paragraph 8 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 28 January 2003 and until 21 November 2017, paragraph 8 read as follows:

“8. It is also important to note that the extension of double taxation conventions increases the risk of abuse by facilitating the use of artificial legal constructions aimed at securing the benefits of both the tax advantages available under certain domestic laws and the reliefs from tax provided for in double taxation conventions.”

Paragraph 8 was previously replaced on 28 January 2003 when paragraph 8 was deleted and a new paragraph 8 was added by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003. After 21 September 1995 and until January 2003, paragraph 8 read as follows:

“8. Moreover, the extension of the network of double taxation conventions still reinforces the impact of such manoeuvres by making it possible, using artificial legal constructions, to benefit both from the tax advantages available under domestic laws and the tax relief provided for in double taxation conventions.”

Paragraph 8 was amended on 21 September 1995 when a number of minor drafting changes that did not affect the meaning of the text were made to the Commentary on Article 1. In the 1977 Model Convention and until 21 September 1995, paragraph 8 read as follows:

“8. Moreover, the extension of the network of double taxation conventions still reinforces the impact of such manoeuvres by making it possible, through the creation of usually artificial legal constructions, to benefit both from the tax advantages available under domestic laws and the tax relief provided for in double taxation conventions.”

Paragraph 8 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 9: Replaced on 21 November 2017 when paragraph 9 was renumbered as paragraph 56 (see history of paragraph 56) and a new paragraph 9 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 9.1: Deleted on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 28 January 2003 and until 21 November 2017, paragraph 9.1 read as follows:

“9.1 This raises two fundamental questions that are discussed in the following paragraphs:

• whether the benefits of tax conventions must be granted when transactions that constitute an abuse of the provisions of these conventions are entered into (see paragraphs 9.2 and following below); and

• whether specific provisions and jurisprudential rules of the domestic law of a Contracting State that are intended to prevent tax abuse conflict with tax conventions (see paragraphs 22 and following below).”

Paragraph 9.1 was added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003.

Paragraph 9.2: Renumbered as paragraph 58 (see history of paragraph 58) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 9.3: Renumbered as paragraph 59 (see history of paragraph 59) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 9.4: Renumbered as paragraph 60 (see history of paragraph 60) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 9.5: Renumbered as paragraph 61 (see history of paragraph 61) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 9.6: Renumbered as paragraph 62 (see history of paragraph 62) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 10: Replaced on 21 November 2017 when paragraph 10 was renumbered as paragraph 63 (see history of paragraph 63) and a new paragraph 10 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 10.1: Renumbered as paragraph 64 (see history of paragraph 64) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 10.2: Renumbered as paragraph 65 (see history of paragraph 65) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 11: Replaced on 21 November 2017 when paragraph 11 was deleted and a new paragraph 11 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 28 January 2003 and until 21 November 2017, paragraph 11 read as follows:

“11. A further example is provided by two particularly prevalent forms of improper use of the Convention which are discussed in two reports from the Committee on Fiscal Affairs entitled “Double Taxation Conventions and the Use of Base Companies” and “Double Taxation Conventions and the Use of Conduit Companies”.^[21] As indicated in these reports, the concern expressed in paragraph 9 above has proved to be valid as there has been a growing tendency toward the use of conduit companies to obtain treaty benefits not intended by the Contracting States in their bilateral negotiations. This has led an increasing number of member countries to implement treaty provisions (both general and specific) to counter abuse and to preserve anti-avoidance legislation in their domestic laws.”

Paragraph 11 was amended on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Restricting the Entitlement to Treaty Benefits” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002). After 21 September 1995 and until 28 January 2003, paragraph 11 read as follows:

“11. Improper uses of the Convention are discussed in two reports from the Committee on Fiscal Affairs entitled “Double Taxation Conventions and the Use of Base Companies” and “Double Taxation Conventions and the Use of Conduit Companies”. As indicated in these reports, the concern expressed in paragraph 9 above has proved to be valid as there has been a growing tendency toward the use of conduit companies to obtain treaty benefits not intended by the Contracting States in their bilateral negotiations. This has led an increasing number of Member countries to implement treaty provisions (both general and specific) to counter abuse and to preserve anti-avoidance legislation in their domestic laws.”

Paragraph 11 was previously amended on 23 October 1997, by replacing the footnote to the paragraph, by the report entitled “The 1997 Update to the Model Tax Convention”, adopted by the OECD Council on 23 October 1997. After 23 July 1992 and until 23 October 1997, the footnote read as follows:

“1 These and two other reports were published in 1987 under the joint title International Tax Avoidance and Evasion – Four Related Studies, in “Issues of International Taxation” No. 1, OECD, Paris, 1987.”

Paragraph 11 was previously amended on 21 September 1995 when a number of minor drafting changes that did not affect the meaning of the text were made to the Commentary on Article 1. After 23 July 1992 and until 21 September 1995, paragraph 11 read as follows:

“11. Such improper uses of the Convention are discussed in two reports from the Committee on Fiscal Affairs entitled “Double Taxation Conventions and the Use of Base Companies” and “Double Taxation Conventions and the Use of Conduit Companies”. As indicated in these reports, the concern expressed in paragraph 9 above has proved to be valid as there has been a growing tendency for the use of conduit companies to obtain treaty benefits not intended by the Contracting States in their bilateral negotiations. This has led an increasing number of Member countries to implement treaty provisions (both general and specific) to counter abuse and to preserve anti-avoidance legislation in their domestic laws.”

Paragraph 11 as it read after 23 July 1992 replaced paragraph 11 of the 1977 Model Convention, which was renumbered as paragraph 28 (see history of paragraph 28) by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 12: Replaced on 21 November 2017 when paragraph 12 was deleted and a new paragraph 12 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 28 January 2003 and until 21 November 2017, paragraph 12 read as follows:

“12. The treaty provisions that have been designed to cover these and other forms of abuse take different forms. The following are examples derived from provisions that have been incorporated in bilateral conventions concluded by member countries. These provide models that treaty negotiators might consider when searching for a solution to specific cases. In referring to them there should be taken into account:

• the fact that these provisions are not mutually exclusive and that various provisions may be needed in order to address different concerns;

• the degree to which tax advantages may actually be obtained by a particular avoidance strategy;

• the legal context in both Contracting States and, in particular, the extent to which domestic law already provides an appropriate response to this avoidance strategy, and

• the extent to which bona fide economic activities might be unintentionally disqualified by such provisions.”

Paragraph 12 was amended on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Restricting the Entitlement to Treaty Benefits” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002). After 21 September 1995 and until 28 January 2003, paragraph 12 read as follows:

“12. Several solutions have been considered but, for the reasons set out in the above-mentioned reports, no definitive texts have been drafted, no strict recommendations as to the circumstances in which they should be applied made, and no exhaustive list of such possible counter-measures given. The texts quoted below are merely intended as suggested benchmarks that treaty negotiators might consider when searching for a solution to specific cases. In referring to them there should be taken into account:

• the degree to which tax advantages may actually be obtained by conduit companies;

• the legal context in both Contracting States, and

• the extent to which bona fide economic activities might be unintentionally disqualified by such provisions.”

Paragraph 12 was previously amended on 21 September 1995, by replacing the words “the extent to which” with “the scope of” in the third subparagraph, when a number of minor drafting changes that did not affect the meaning of the text were made. After 23 July 1992 and until 21 September 1995, the third subparagraph of paragraph 12 read as follows:

“— the scope of bona fide economic activities might be unintentionally disqualified by such provisions.”

Paragraph 12 was added on 23 July 1992 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992, on the basis of paragraph 22 of a previous report entitled “Double Taxation Conventions and the Use of Conduit Companies” (adopted by the OECD Council on 27 November 1986).

Paragraph 13: Replaced on 21 November 2017 when paragraph 13 and the heading that preceded it were deleted and a new paragraph 13 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 28 January 2003 and until 21 November 2017, paragraph 13 and the heading that preceded it read as follows:

“Conduit company cases

13. Many countries have attempted to deal with the issue of conduit companies and various approaches have been designed for that purpose. One solution would be to disallow treaty benefits to a company not owned, directly or indirectly, by residents of the State of which the company is a resident. For example, such a “look-through” provision might have the following wording:

A company that is a resident of a Contracting State shall not be entitled to relief from taxation under this Convention with respect to any item of income, gains or profits if it is owned or controlled directly or through one or more companies, wherever resident, by persons who are not residents of a Contracting State.

Contracting States wishing to adopt such a provision may also want, in their bilateral negotiations, to determine the criteria according to which a company would be considered as owned or controlled by non-residents.”

Paragraph 13 was amended and the heading preceding it was added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Restricting the Entitlement to Treaty Benefits” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002). After 21 September 1995 and until 28 January 2003, paragraph 13 read as follows:

“13. A solution to the problem of conduit companies would be to disallow treaty benefits to a company not owned, directly or indirectly, by residents of the State of which the company is a resident. For example, such a “look-through” provision might have the following wording:

“A company that is a resident of a Contracting State shall not be entitled to relief from taxation under this Convention with respect to any item of income, gains or profits if it is owned or controlled directly or through one or more companies, wherever resident, by persons who are not residents of a Contracting State.”

Contracting States wishing to adopt such a provision may also want, in their bilateral negotiations, to determine the criteria according to which a company would be considered as owned or controlled by non-residents.”

Paragraph 13 was previously amended on 21 September 1995, by deleting the words “insofar as the company” from the first sentence, when a number of minor drafting changes that did not affect the meaning of the text were made. After 31 March 1994 and until 21 September 1995, the first sentence of paragraph 13 read as follows:

“13. A solution to the problem of conduit companies would be to disallow treaty benefits to a company insofar as the company is not owned, directly or indirectly, by residents of the State of which the company is a resident.”

Paragraph 13 was previously amended on 31 March 1994, by replacing the words “the first-mentioned State” with “a Contracting State” at the end of the suggested provision, by the report entitled “1994 Update to the Model Tax Convention”, adopted by the OECD Council on 31 March 1994. After 23 July 1992 and until 31 March 1994, paragraph 13 read as follows:

“13. A solution to the problem of conduit companies would be to disallow treaty benefits to a company insofar as the company is not owned, directly or indirectly, by residents of the State of which the company is a resident. For example, such a “look-through” provision might have the following wording:

“A company which is a resident of a Contracting State shall not be entitled to relief from taxation under this Convention with respect to any item of income, gains or profits unless it is neither owned nor controlled directly or through one or more companies, wherever resident, by persons who are not residents of the first mentioned State.”

Contracting States wishing to adopt such a provision may also want, in their bilateral negotiations, to determine the criteria according to which a company would be considered as owned or controlled by non-residents.”

Paragraph 13 was added on 23 July 1992 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992, on the basis of paragraph 23 of a previous report entitled “Double Taxation Conventions and the Use of Conduit Companies” (adopted by the OECD Council on 27 November 1986).

Paragraph 14: Replaced on 21 November 2017 when paragraph 14 was deleted and a new paragraph 14 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 28 January 2003 and until 21 November 2017, paragraph 14 read as follows:

“14. The “look-through approach” underlying the above provision seems an adequate basis for treaties with countries that have no or very low taxation and where little substantive business activities would normally be carried on. Even in these cases it might be necessary to alter the provision or to substitute for it another one to safeguard bona fide business activities.”

Paragraph 14 was amended on 28 January 2003, by adding the “words underlying the above provision”, by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Restricting the Entitlement to Treaty Benefits” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002). After 21 September 1995 and until 28 January 2003, paragraph 14 read as follows:

“14. The “look-through approach” seems an adequate basis for treaties with countries that have no or very low taxation and where little substantive business activities would normally be carried on. Even in these cases it might be necessary to alter the provision or to substitute for it another one to safeguard bona fide business activities.”

Paragraph 14 was previously amended on 21 September 1995 when a number of minor drafting changes that did not affect the meaning of the text were made to the Commentary on Article 1. After 23 July 1992 and until 21 September 1995, paragraph 14 read as follows:

“14. The “look-through approach” seems an adequate basis for treaties with countries which have no or very low taxation and where little substantive business activities would normally be carried on. Even in these cases it would be necessary to alter the provision or to substitute for it another one to safeguard bona fide business activities.”

Paragraph 14 was added on 23 July 1992 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992, on the basis of paragraph 25 of a previous report entitled “Double Taxation Conventions and the Use of Conduit Companies” (adopted by the OECD Council on 27 November 1986).

Paragraph 15: Replaced on 21 November 2017 when paragraph 15 was deleted and a new paragraph 15 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 28 January 2003 and until 21 November 2017, paragraph 15 read as follows:

“15. General subject-to-tax provisions provide that treaty benefits in the State of source are granted only if the income in question is subject to tax in the State of residence. This corresponds basically to the aim of tax treaties, namely to avoid double taxation. For a number of reasons, however, the Model Convention does not recommend such a general provision. Whilst this seems adequate with respect to a normal international relationship, a subject-to-tax approach might well be adopted in a typical conduit situation. A safeguarding provision of this kind could have the following wording:

Where income arising in a Contracting State is received by a company resident of the other Contracting State and one or more persons not resident in that other Contracting State

1. have directly or indirectly or through one or more companies, wherever resident, a substantial interest in such company, in the form of a participation or otherwise, or

2. exercise directly or indirectly, alone or together, the management or control of such company,

any provision of this Convention conferring an exemption from, or a reduction of, tax shall apply only to income that is subject to tax in the last-mentioned State under the ordinary rules of its tax law.

The concept of “substantial interest” may be further specified when drafting a bilateral convention. Contracting States may express it, for instance, as a percentage of the capital or of the voting rights of the company.”

Paragraph 15 as it read after 28 January 2003 corresponded to paragraph 17 as it read before that date. On 28 January 2003, paragraph 15 was amended and renumbered as paragraph 21 (see history of paragraph 21) and paragraph 17 was renumbered as paragraph 15 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Restricting the Entitlement to Treaty Benefits” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002).

Paragraph 17 was amended on 23 October 1997, by replacing the word “and” by “or” at the end of subparagraph a) of the suggested provision included in the paragraph, by the report entitled “The 1997 Update to the Model Tax Convention”, adopted by the OECD Council on 23 October 1997. After 23 July 1992 and until 23 October 1997, subparagraph a) of the suggested provision included in paragraph 17 read as follows:

“a) have directly or indirectly or through one or more companies, wherever resident, a substantial interest in such company, in the form of a participation or otherwise, and.”

Paragraph 17 was previously amended on 21 September 1995 when a number of minor drafting changes that did not affect the meaning of the text were made to the Commentary on Article 1. The amendment replaced the words “only if the respective income” with “only if the income” in the first sentence and replaced the words “in terms of a certain percentage” with “as a percentage” in the first sentence.

Paragraph 17 was added on 23 July 1992 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992, on the basis of paragraph 29 of a previous report entitled “Double Taxation Conventions and the Use of Conduit Companies” (adopted by the OECD Council on 27 November 1986).

Paragraph 16: Replaced on 21 November 2017 when paragraph 16 was deleted and a new paragraph 16 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 28 January 2003 and until 21 November 2017, paragraph 16 read as follows:

“16. The subject-to-tax approach seems to have certain merits. It may be used in the case of States with a well-developed economic structure and a complex tax law. It will, however, be necessary to supplement this provision by inserting bona fide provisions in the treaty to provide for the necessary flexibility (see paragraph 19 below); moreover, such an approach does not offer adequate protection against advanced tax avoidance schemes such as “stepping-stone strategies”.”

Paragraph 16 as it read after 28 January 2003 corresponded to paragraph 18 as it read before that date. On 28 January 2003, paragraph 16 was renumbered as paragraph 21.1 (see history of paragraph 21.1) and paragraph 18 was renumbered as paragraph 16 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Restricting the Entitlement to Treaty Benefits” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002).

Paragraph 18 was added on 23 July 1992 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992, on the basis of paragraph 36 of a previous report entitled “Double Taxation Conventions and the Use of Conduit Companies” (adopted by the OECD Council on 27 November 1986).

Paragraph 17: Replaced on 21 November 2017 when paragraph 17 was deleted and a new paragraph 17 was added together with the heading preceding it by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. After 28 January 2003 and until 21 November 2017, paragraph 17 read as follows:

“17. The approaches referred to above are in many ways unsatisfactory. They refer to the changing and complex tax laws of the Contracting States and not to the arrangements giving rise to the improper use of conventions. It has been suggested that the conduit problem be dealt with in a more straightforward way by inserting a provision that would single out cases of improper use with reference to the conduit arrangements themselves (the channel approach). Such a provision might have the following wording:

Where income arising in a Contracting State is received by a company that is a resident of the other Contracting State and one or more persons who are not residents of that other Contracting State

1. have directly or indirectly or through one or more companies, wherever resident, a substantial interest in such company, in the form of a participation or otherwise, or

2. exercise directly or indirectly, alone or together, the management or control of such company

any provision of this Convention conferring an exemption from, or a reduction of, tax shall not apply if more than 50 per cent of such income is used to satisfy claims by such persons (including interest, royalties, development, advertising, initial and travel expenses, and depreciation of any kind of business assets including those on immaterial goods and processes).”

Paragraph 17 as it read after 28 January 2003 corresponded to paragraph 19 as it read before that date. On 28 January 2003, paragraph 17 was renumbered as paragraph 15 (see history of paragraph 15) and paragraph 19 was renumbered as paragraph 17 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Restricting the Entitlement to Treaty Benefits” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002).

Paragraph 19 was amended on 23 October 1997, by replacing the word “and” by “or” at the end of subparagraph a) of the suggested provision included in the paragraph, by the report entitled “The 1997 Update to the Model Tax Convention”, adopted by the OECD Council on 23 October 1997. After 23 July 1992 and until 23 October 1997, subparagraph a) of the suggested provision included in paragraph 19 read as follows:

“a) have directly or indirectly or through one or more companies, wherever resident, a substantial interest in such company, in the form of a participation or otherwise, and.”

Paragraph 19 was previously amended on 21 September 1995 when a number of minor drafting changes that did not affect the meaning of the text were made to the Commentary on Article 1. This included replacing the word “which” with “that” in the third sentence and by deleting “, etc” at the end of the paragraph.

Paragraph 19 was added on 23 July 1992 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992, on the basis of paragraph 37 of a previous report entitled “Double Taxation Conventions and the Use of Conduit Companies” (adopted by the OECD Council on 27 November 1986).

Paragraph 18: Replaced on 21 November 2017 when paragraph 18 was deleted and a new paragraph 18 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. After 28 January 2003 and until 21 November 2017, paragraph 18 read as follows:

“18. A provision of this kind appears to be the only effective way of combatting “stepping-stone” devices. It is found in bilateral treaties entered into by Switzerland and the United States and its principle also seems to underly the Swiss provisions against the improper use of tax treaties by certain types of Swiss companies. States that consider including a clause of this kind in their convention should bear in mind that it may cover normal business transactions and would therefore have to be supplemented by a bona fide clause.”

Paragraph 18 as it read after 28 January 2003 corresponded to paragraph 20 as it read before that date. On 28 January 2003, paragraph 18 was renumbered as paragraph 16 (see history of paragraph 16) and paragraph 20 was renumbered as paragraph 18 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Restricting the Entitlement to Treaty Benefits” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002).

Paragraph 20 was amended on 21 September 1995, by replacing the word “which” with “that” in the first sentence, on 21 September 1995 when a number of minor drafting changes that did not affect the meaning of the text were made to the Commentary on Article 1.

Paragraph 20 was added on 23 July 1992 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992, on the basis of paragraph 41 of a previous report entitled “Double Taxation Conventions and the Use of Conduit Companies” (adopted by the OECD Council on 27 November 1986).

Paragraph 19: Replaced on 21 November 2017 when paragraph 19 was deleted and a new paragraph 19 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. After 28 January 2003 and until 21 November 2017, paragraph 19 read as follows:

“19. The solutions described above are of a general nature and they need to be accompanied by specific provisions to ensure that treaty benefits will be granted in bona fide cases. Such provisions could have the following wording:

1. General bona fide provision

   “The foregoing provisions shall not apply where the company establishes that the principal purpose of the company, the conduct of its business and the acquisition or maintenance by it of the shareholding or other property from which the income in question is derived, are motivated by sound business reasons and do not have as primary purpose the obtaining of any benefits under this Convention.”

2. Activity provision

   “The foregoing provisions shall not apply where the company is engaged in substantive business operations in the Contracting State of which it is a resident and the relief from taxation claimed from the other Contracting State is with respect to income that is connected with such operations.”

3. Amount of tax provision

   “The foregoing provisions shall not apply where the reduction of tax claimed is not greater than the tax actually imposed by the Contracting State of which the company is a resident.”

4. Stock exchange provision

   “The foregoing provisions shall not apply to a company that is a resident of a Contracting State if the principal class of its shares is registered on an approved stock exchange in a Contracting State or if such company is wholly owned – directly or through one or more companies each of which is a resident of the first-mentioned State – by a company which is a resident of the first-mentioned State and the principal class of whose shares is so registered.”

5. Alternative relief provision

   “In cases where an anti-abuse clause refers to non-residents of a Contracting State, it could be provided that the term “shall not be deemed to include residents of third States that have income tax conventions in force with the Contracting State from which relief from taxation is claimed and such conventions provide relief from taxation not less than the relief from taxation claimed under this Convention.”

These provisions illustrate possible approaches. The specific wording of the provisions to be included in a particular treaty depends on the general approach taken in that treaty and should be determined on a bilateral basis. Also, where the competent authorities of the Contracting States have the power to apply discretionary provisions, it may be considered appropriate to include an additional rule that would give the competent authority of the source country the discretion to allow the benefits of the Convention to a resident of the other State even if the resident fails to pass any of the tests described above.”

Paragraph 19 as it read after 28 January 2003 corresponded to paragraph 21 as it read before that date. On 28 January 2003, paragraph 19 was renumbered as paragraph 17 (see history of paragraph 17) and paragraph 21 was renumbered as paragraph 19 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Restricting the Entitlement to Treaty Benefits” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002).

Paragraph 21 was amended on 21 September 1995 when a number of minor drafting changes that did not affect the meaning of the text were made to the Commentary on Article 1. After 23 July 1992 and until 21 September 1995, paragraph 21 read as follows:

“21. The solutions described above are of a general nature and they need to be accompanied by specific provisions to ensure that treaty benefits will be granted in bona fide cases. Such provisions could have the following wording:

1. General bona fide provision

   “The foregoing provisions shall not apply where the company establishes that the principal purpose of the company, the conduct of its business and the acquisition or maintenance by it of the shareholding or other property from which the income in question is derived, are motivated by sound business reasons and do not have as primary purpose the obtaining of any benefits under this Convention.”

2. Activity provision

   “The foregoing provisions shall not apply where the company is engaged in substantive business operations in the Contracting State of which it is a resident and the relief from taxation claimed from the other Contracting State is with respect to income that is connected with such operations.”

3. Amount of tax provision

   “The foregoing provisions shall not apply where the reduction of tax claimed is not greater than the tax actually imposed by the Contracting State of which the company is a resident.”

4. Stock exchange provision

   “The foregoing provisions shall not apply to a company that is a resident of a Contracting State if the principal class of its shares is registered on an approved stock exchange in a Contracting State or if such company is wholly owned – directly or through one or more companies each of which is a resident of the first-mentioned State – by a company which is a resident of the first-mentioned State and the principal class of whose shares is so registered.”

5. Alternative relief provision

   “In cases where an anti-abuse clause refers to non-residents of a Contracting State, it could be provided that the term “shall not be deemed to include residents of third States that have income tax conventions in force with the Contracting State from which relief from taxation is claimed and such conventions provide relief from taxation not less than the relief from taxation claimed under this Convention”.”

These provisions illustrate possible approaches. The specific wording of the provisions to be included in a particular treaty depends on the general approach taken in that treaty and should be determined on a bilateral basis. Also, where the competent authorities of the Contracting States have the power to apply discretionary provisions, it may be considered appropriate to include an additional rule that would give the competent authority of the source country the discretion to allow the benefits of the Convention to a resident of the other State even if the resident fails to pass any of the tests described above.”

Paragraph 21 was added on 23 July 1992 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992, on the basis of paragraph 42 of a previous report entitled “Double Taxation Conventions and the Use of Conduit Companies” (adopted by the OECD Council on 27 November 1986).

Paragraph 20: Replaced on 21 November 2017 when paragraph 20 was deleted and a new paragraph 20 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. After 28 January 2003 and until 21 November 2017, paragraph 20 read as follows:

“20. Whilst the preceding paragraphs identify different approaches to deal with conduit situations, each of them deals with a particular aspect of the problem commonly referred to as “treaty shopping”. States wishing to address the issue in a comprehensive way may want to consider the following example of detailed limitation-of-benefits provisions aimed at preventing persons who are not resident of either Contracting States from accessing the benefits of a Convention through the use of an entity that would otherwise qualify as a resident of one of these States, keeping in mind that adaptations may be necessary and that many States prefer other approaches to deal with treaty shopping:

1. Except as otherwise provided in this Article, a resident of a Contracting State who derives income from the other Contracting State shall be entitled to all the benefits of this Convention otherwise accorded to residents of a Contracting State only if such resident is a “qualified person” as defined in paragraph 2 and meets the other conditions of this Convention for the obtaining of such benefits.

2. A resident of a Contracting State is a qualified person for a fiscal year only if such resident is either:

1. an individual;

2. a qualified governmental entity;

3. a company, if

   1. the principal class of its shares is listed on a recognised stock exchange specified in subparagraph a) or b) of paragraph 6 and is regularly traded on one or more recognised stock exchanges, or

   2. at least 50 per cent of the aggregate vote and value of the shares in the company is owned directly or indirectly by five or fewer companies entitled to benefits under subdivision (i) of this subparagraph, provided that, in the case of indirect ownership, each intermediate owner is a resident of either Contracting State;

4. a charity or other tax-exempt entity, provided that, in the case of a pension trust or any other organization that is established exclusively to provide pension or other similar benefits, more than 50 per cent of the person’s beneficiaries, members or participants are individuals resident in either Contracting State; or

5. a person other than an individual, if:

   1. on at least half the days of the fiscal year persons that are qualified persons by reason of subparagraph a), b) or d) or subdivision c) (i) of this paragraph own, directly or indirectly, at least 50 per cent of the aggregate vote and value of the shares or other beneficial interests in the person, and

   2. less than 50 per cent of the person’s gross income for the taxable year is paid or accrued, directly or indirectly, to persons who are not residents of either Contracting State in the form of payments that are deductible for purposes of the taxes covered by this Convention in the person’s State of residence (but not including arm’s length payments in the ordinary course of business for services or tangible property and payments in respect of financial obligations to a bank, provided that where such a bank is not a resident of a Contracting State such payment is attributable to a permanent establishment of that bank located in one of the Contracting States).

6. a) A resident of a Contracting State will be entitled to benefits of the Convention with respect to an item of income, derived from the other State, regardless of whether the resident is a qualified person, if the resident is actively carrying on business in the first-mentioned State (other than the business of making or managing investments for the resident’s own account, unless these activities are banking, insurance or securities activities carried on by a bank, insurance company or registered securities dealer), the income derived from the other Contracting State is derived in connection with, or is incidental to, that business and that resident satisfies the other conditions of this Convention for the obtaining of such benefits.

1. If the resident or any of its associated enterprises carries on a business activity in the other Contracting State which gives rise to an item of income, subparagraph a) shall apply to such item only if the business activity in the first-mentioned State is substantial in relation to business carried on in the other State. Whether a business activity is substantial for purposes of this paragraph will be determined based on all the facts and circumstances.

2. In determining whether a person is actively carrying on business in a Contracting State under subparagraph a), activities conducted by a partnership in which that person is a partner and activities conducted by persons connected to such person shall be deemed to be conducted by such person. A person shall be connected to another if one possesses at least 50 per cent of the beneficial interest in the other (or, in the case of a company, at least 50 per cent of the aggregate vote and value of the company’s shares) or another person possesses, directly or indirectly, at least 50 per cent of the beneficial interest (or, in the case of a company, at least 50 per cent of the aggregate vote and value of the company’s shares) in each person. In any case, a person shall be considered to be connected to another if, based on all the facts and circumstances, one has control of the other or both are under the control of the same person or persons.

4. Notwithstanding the preceding provisions of this Article, if a company that is a resident of a Contracting State, or a company that controls such a company, has outstanding a class of shares

1. which is subject to terms or other arrangements which entitle its holders to a portion of the income of the company derived from the other Contracting State that is larger than the portion such holders would receive absent such terms or arrangements (“the disproportionate part of the income”); and

2. 50 per cent or more of the voting power and value of which is owned by persons who are not qualified persons the benefits of this Convention shall not apply to the disproportionate part of the income.

5. A resident of a Contracting State that is neither a qualified person pursuant to the provisions of paragraph 2 or entitled to benefits under paragraph 3 or 4 shall, nevertheless, be granted benefits of the Convention if the competent authority of that other Contracting State determines that the establishment, acquisition or maintenance of such person and the conduct of its operations did not have as one of its principal purposes the obtaining of benefits under the Convention.

6. For the purposes of this Article the term “recognised stock exchange” means:

1. in State A ………;

2. in State B ………; and

3. any other stock exchange which the competent authorities agree to recognise for the purposes of this Article.”

Paragraph 20 was replaced on 28 January 2003 when paragraph 20 was renumbered as paragraph 18 (see history of paragraph 18) and a new paragraph 20 was added by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Restricting the Entitlement to Treaty Benefits” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002).

Paragraph 21: Replaced on 21 November 2017 when paragraph 21 and the heading preceding it were deleted and a new paragraph 21 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. After 28 January 2003 and until 21 November 2017, paragraph 21 and the heading that preceded it read as follows:

“Provisions which are aimed at entities benefiting from preferential tax regimes

21. Specific types of companies enjoying tax privileges in their State of residence facilitate conduit arrangements and raise the issue of harmful tax practices. Where tax-exempt (or nearly tax-exempt) companies may be distinguished by special legal characteristics, the improper use of tax treaties may be avoided by denying the tax treaty benefits to these companies (the exclusion approach). As such privileges are granted mostly to specific types of companies as defined in the commercial law or in the tax law of a country, the most radical solution would be to exclude such companies from the scope of the treaty. Another solution would be to insert a safeguarding clause which would apply to the income received or paid by such companies and which could be drafted along the following lines:

No provision of the Convention conferring an exemption from, or reduction of, tax shall apply to income received or paid by a company as defined under section … of the … Act, or under any similar provision enacted by … after the signature of the Convention.

The scope of this provision could be limited by referring only to specific types of income, such as dividends, interest, capital gains, or directors’ fees. Under such provisions companies of the type concerned would remain entitled to the protection offered under Article 24 (Non-Discrimination) and to the benefits of Article 25 (Mutual Agreement Procedure) and they would be subject to the provisions of Article 26 (Exchange of Information).”

Paragraph 21 as it read after 28 January 2003 corresponded to paragraph 15 as it read before that date. On 28 January 2003, paragraph 21 was renumbered as paragraph 19 (see history of paragraph 19), paragraph 15 was amended and renumbered as paragraph 21 and the heading preceding paragraph 21 was added by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Restricting the Entitlement to Treaty Benefits” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002). After 23 October 1997 and until 28 January 2003, paragraph 15 read as follows:

“15. Conduit situations can be created by the use of tax-exempt (or nearly tax-exempt) companies that may be distinguished by special legal characteristics. The improper use of tax treaties may then be avoided by denying the tax treaty benefits to these companies (the exclusion approach). The main cases are specific types of companies enjoying tax privileges in their State of residence giving them in fact a status similar to that of a non-resident. As such privileges are granted mostly to specific types of companies as defined in the commercial law or in the tax law of a country, the most radical solution would be to exclude such companies from the scope of the treaty. Another solution would be to insert a safeguarding clause such as the following:

“No provision of the Convention conferring an exemption from, or reduction of, tax shall apply to income received or paid by a company as defined under Section … of the … Act, or under any similar provision enacted by … after the signature of the Convention.”

The scope of this provision could be limited by referring only to specific types of income, such as dividends, interest, capital gains, or directors’ fees. Under such provisions companies of the type concerned would remain entitled to the protection offered under Article 24 (non-discrimination) and to the benefits of Article 25 (mutual agreement procedure) and they would be subject to the provisions of Article 26 (exchange of information).”

Paragraph 15 was previously amended on 23 October 1997, by deleting the words “as far as the income paid by the company is concerned” in the first line of the last part of the paragraph, by the report entitled “The 1997 Update to the Model Tax Convention”, adopted by the OECD Council on 23 October 1997. After 21 September 1995 and until 23 October 1997, paragraph 15 read as follows:

“15. Conduit situations can be created by the use of tax-exempt (or nearly tax-exempt) companies that may be distinguished by special legal characteristics. The improper use of tax treaties may then be avoided by denying the tax treaty benefits to these companies (the exclusion approach). The main cases are specific types of companies enjoying tax privileges in their State of residence giving them in fact a status similar to that of a non-resident. As such privileges are granted mostly to specific types of companies as defined in the commercial law or in the tax law of a country, the most radical solution would be to exclude such companies from the scope of the treaty. Another solution would be to insert a safeguarding clause such as the following:

“No provision of the Convention conferring an exemption from, or reduction of, tax shall apply to income received or paid by a company as defined under Section … of the … Act, or under any similar provision enacted by … after the signature of the Convention.”

The scope of this provision, as far as the income paid by the company is concerned, could be limited by referring only to specific types of income, such as dividends, interest, capital gains, or directors’ fees. Under such provisions companies of the type concerned would remain entitled to the protection offered under Article 24 (non-discrimination) and to the benefits of Article 25 (mutual agreement procedure) and they would be subject to the provisions of Article 26 (exchange of information).”

Paragraph 15 was previously amended on 21 September 1995, by replacing the word “which” with “that” in the first sentence, on 21 September 1995 when a number of minor drafting changes that did not affect the meaning of the text were made to the Commentary on Article 1.

Paragraph 15 was added on 23 July 1992 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992, on the basis of paragraph 26 of a previous report entitled “Double Taxation Conventions and the Use of Conduit Companies” (adopted by the OECD Council on 27 November 1986).

Paragraph 21.1: Deleted on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 28 January 2003 and until 21 November 2017, paragraph 21.1 read as follows:

“21.1 Exclusion provisions are clear and their application is simple, even though they may require administrative assistance in some instances. They are an important instrument by which a State that has created special privileges in its tax law may prevent those privileges from being used in connection with the improper use of tax treaties concluded by that State.”

Paragraph 21.1 as it read after 28 January 2003 corresponded to paragraph 16 as it read before that date. On 28 January 2003, paragraph 16 was renumbered as paragraph 21.1 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Restricting the Entitlement to Treaty Benefits” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002).

Paragraph 16 was amended on 21 September 1995, by replacing the word “which” with “that” in the second sentence, when a number of minor drafting changes that did not affect the meaning of the text were made to the Commentary on Article 1. After 23 July 1992 and until 21 September 1995, paragraph 16 read as follows:

“16. Exclusion provisions are clear and their application is simple, even though they may require administrative assistance in some instances. They are an important instrument by which a State which has created special privileges in its tax law may prevent those privileges from being used in connection with the improper use of tax treaties concluded by that State.”

Paragraph 16 was added on 23 July 1992 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992, on the basis of paragraph 28 of a previous report entitled “Double Taxation Conventions and the Use of Conduit Companies” (adopted by the OECD Council on 27 November 1986).

Paragraph 21.2: Deleted on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 28 January 2003 and until 21 November 2017, paragraph 21.2 read as follows:

“21.2 Where it is not possible or appropriate to identify the companies enjoying tax privileges by reference to their special legal characteristics, a more general formulation will be necessary. The following provision aims at denying the benefits of the Convention to entities which would otherwise qualify as residents of a Contracting State but which enjoy, in that State, a preferential tax regime restricted to foreign-held entities (i.e. not available to entities that belong to residents of that State):

Any company, trust or partnership that is a resident of a Contracting State and is beneficially owned or controlled directly or indirectly by one or more persons who are not residents of that State shall not be entitled to the benefits of this Convention if the amount of the tax imposed on the income or capital of the company, trust or partnership by that State (after taking into account any reduction or offset of the amount of tax in any manner, including a refund, reimbursement, contribution, credit or allowance to the company, trust or partnership, or to any other person) is substantially lower than the amount that would be imposed by that State if all of the shares of the capital stock of the company or all of the interests in the trust or partnership, as the case may be, were beneficially owned by one or more residents of that State.”

Paragraph 21.2 was added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Restricting the Entitlement to Treaty Benefits” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002).

Paragraph 21.3: Deleted together with the preceding heading on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 28 January 2003 and until 21 November 2017, paragraph 21.3 and the heading that preceded it read as follows:

“Provisions which are aimed at particular types of income

21.3 The following provision aims at denying the benefits of the Convention with respect to income that is subject to low or no tax under a preferential tax regime:

1. The benefits of this Convention shall not apply to income which may, in accordance with the other provisions of the Convention, be taxed in a Contracting State and which is derived from activities the performance of which do not require substantial presence in that State, including:

1. such activities involving banking, shipping, financing, insurance or electronic commerce activities; or

2. activities involving headquarter or coordination centre or similar arrangements providing company or group administration, financing or other support; or

3. activities which give rise to passive income, such as dividends, interest and royalties

   where, under the laws or administrative practices of that State, such income is preferentially taxed and, in relation thereto, information is accorded confidential treatment that prevents the effective exchange of information.

2. For the purposes of paragraph 1, income is preferentially taxed in a Contracting State if, other than by reason of the preceding Articles of this Agreement, an item of income:

1. is exempt from tax; or

2. is taxable in the hands of a taxpayer but that is subject to a rate of tax that is lower than the rate applicable to an equivalent item that is taxable in the hands of similar taxpayers who are residents of that State; or

3. benefits from a credit, rebate or other concession or benefit that is provided directly or indirectly in relation to that item of income, other than a credit for foreign tax paid.”

Paragraph 21.3 was added together with the heading preceding it on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Restricting the Entitlement to Treaty Benefits” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002).

Paragraph 21.4: Deleted together with the preceding heading on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 28 January 2003 and until 21 November 2017, paragraph 21.4 and the heading that preceded it read as follows:

“Anti-abuse rules dealing with source taxation of specific types of income

21.4 The following provision has the effect of denying the benefits of specific Articles of the convention that restrict source taxation where transactions have been entered into for the main purpose of obtaining these benefits. The Articles concerned are 10, 11, 12 and 21; the provision should be slightly modified as indicated below to deal with the specific type of income covered by each of these Articles:

The provisions of this Article shall not apply if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the [Article 10: “shares or other rights”; Article 11: “debt-claim”; Articles 12 and 21: “rights”] in respect of which the [Article 10: “dividend”; Article 11: “interest”; Articles 12 “royalties” and Article 21: “income”] is paid to take advantage of this Article by means of that creation or assignment.”

Paragraph 21.4 was added with the heading preceding it on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Restricting the Entitlement to Treaty Benefits” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002).

Paragraph 21.5: Deleted together with the preceding heading on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 28 January 2003 and until 21 November 2017, paragraph 21.5 and the heading that preceded it read as follows:

“Provisions which are aimed at preferential regimes introduced after the signature of the convention

21.5 States may wish to prevent abuses of their conventions involving provisions introduced by a Contracting State after the signature of the Convention. The following provision aims to protect a Contracting State from having to give treaty benefits with respect to income benefiting from a special regime for certain offshore income introduced after the signature of the treaty:

The benefits of Articles 6 to 22 of this Convention shall not accrue to persons entitled to any special tax benefit under:

1. a law of either one of the States which has been identified in an exchange of notes between the States; or

2. any substantially similar law subsequently enacted.”

Paragraph 21.5 was added together with the heading preceding it on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Restricting the Entitlement to Treaty Benefits” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002).

Paragraph 22: Corresponds to paragraph 6.8 as it read before 21 November 2017. On that date, paragraph 22 was deleted and paragraph 6.8 was renumbered as paragraph 22, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. At the same time the heading preceding paragraph 6.8 was moved with it.

Paragraph 6.8 was added on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010, on the basis of another report entitled “The Granting of Treaty Benefits with Respect to the Income of Collective Investment Vehicles” (adopted by the OECD Committee on Fiscal Affairs on 23 April 2010).

Paragraph 22, as it read before 21 November 2017, was deleted by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 28 January 2003 and until 21 November 2017, paragraph 22 read as follows:

“22. Other forms of abuse of tax treaties (e.g. the use of a base company) and possible ways to deal with them, including “substance-over-form”, “economic substance” and general anti-abuse rules have also been analysed, particularly as concerns the question of whether these rules conflict with tax treaties, which is the second question mentioned in paragraph 9.1 above.”

Paragraph 22 was amended on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003. After 23 July 1992 and until 28 January 2003, paragraph 22 read as follows:

“22. Other forms of abuse of tax treaties (e.g. the use of a base company) and of possible ways to deal with them such as “substance-over-form” rules and “sub-part F type” provisions have also been analysed.”

Paragraph 22 was added on 23 July 1992 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 22.1: Deleted on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 28 January 2003 and until 21 November 2017, paragraph 22.1 read as follows:

“22.1 Such rules are part of the basic domestic rules set by domestic tax laws for determining which facts give rise to a tax liability; these rules are not addressed in tax treaties and are therefore not affected by them. Thus, as a general rule and having regard to paragraph 9.5, there will be no conflict. For example, to the extent that the application of the rules referred to in paragraph 22 results in a recharacterisation of income or in a redetermination of the taxpayer who is considered to derive such income, the provisions of the Convention will be applied taking into account these changes.”

Paragraph 22.1 was added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003.

Paragraph 22.2: Deleted on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 28 January 2003 and until 21 November 2017, paragraph 22.2 read as follows:

“22.2 Whilst these rules do not conflict with tax conventions, there is agreement that member countries should carefully observe the specific obligations enshrined in tax treaties to relieve double taxation as long as there is no clear evidence that the treaties are being abused.”

Paragraph 22.2 as it read after 28 January 2003 corresponded to paragraph 25 as it read before that date. On 28 January 2003, paragraph 25 was amended and renumbered as paragraph 22.2 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003. After 21 September 1995 and until 28 January 2003, paragraph 25 read as follows:

“25. While these and the other counteracting measures described in the reports mentioned in paragraph 11 above are not inconsistent with the spirit of tax treaties, there is agreement that member countries should carefully observe the specific obligations enshrined in tax treaties, as long as there is no clear evidence that the treaties are being improperly used. Furthermore, it seems desirable that counteracting measures comply with the spirit of tax treaties with a view to avoiding double taxation. Where the taxpayer complies with such counteracting measures, it might furthermore be appropriate to grant him the protection of the treaty network.”

Paragraph 25 was previously amended on 21 September 1995, by replacing the words “it might be adequate to grant him” with “it might be appropriate to grant him” in the last sentence, when a number of minor drafting changes that did not affect the meaning of the text were made to the Commentary on Article 1.

Paragraph 25 was added on 23 July 1992 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992, on the basis of paragraph 46 of a previous report entitled “Double Taxation Conventions and the Use of Base Companies” (adopted by the OECD Council on 27 November 1986).

Paragraph 23: Corresponds to paragraph 6.9 as it read before 21 November 2017. On that date, paragraph 23 was amended and renumbered as paragraph 81 (see history of paragraph 81) and paragraph 6.9 was renumbered as paragraph 23, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.9 was added on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010, on the basis of another report entitled “The Granting of Treaty Benefits with Respect to the Income of Collective Investment Vehicles” (adopted by the OECD Committee on Fiscal Affairs on 23 April 2010).

Paragraph 24: Corresponds to paragraph 6.10 as it read before 21 November 2017. On that date, paragraph 6.10 was renumbered as paragraph 24 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.10 was added on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010, on the basis of another report entitled “The Granting of Treaty Benefits with Respect to the Income of Collective Investment Vehicles” (adopted by the OECD Committee on Fiscal Affairs on 23 April 2010).

Paragraph 24 as it read before 28 January 2003 was deleted by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003. After 21 September 1995 and until 28 January 2003, paragraph 24 read as follows:

“24. It is not easy to reconcile these divergent opinions, either in theory or in mutual agreement procedures on specific cases. The main problem seems to be whether or not general principles such as “substance-over-form” are inherent in treaty provisions, i.e. whether they can be applied in any case, or only to the extent they are expressly mentioned in bilateral conventions. The dissenting view argues that to give domestic rules precedence over treaty rules as to who, for tax purposes, is regarded as the recipient of the income shifted to a base company, would erode the protection of taxpayers against double taxation (e.g. where by applying these rules, base company income is taxed in the country of the shareholders even though there is no permanent establishment of the base company there). However, it is the view of the wide majority that such rules, and the underlying principles, do not have to be confirmed in the text of the convention to be applicable.”

Paragraph 24 was amended on 21 September 1995 when a number of minor drafting changes that did not affect the meaning of the text were made to the Commentary on Article 1. After 23 July 1992 and until 21 September 1995, paragraph 24 read as follows:

“24. It is not easy to reconcile these divergent opinions in theory, or in mutual agreement procedures on specific cases. The main problem seems to be whether or not general principles such as “substance-over-form” are inherent in treaty provisions, i.e. whether they can be applied in any case, or only to the extent they are expressly mentioned in bilateral conventions. On the dissenting view, it is argued that to give domestic rules precedence over treaty rules as to who, for tax purposes, is regarded as the recipient of the income shifted to a base company, would erode the protection of taxpayers against double taxation (e.g. where by applying these rules, base company income is taxed in the country of the shareholders even though there is no permanent establishment of the base company there). However, it is the view of the wide majority that such rules, and the underlying principles, do not have to be confirmed in the text of the convention to be applicable.”

Paragraph 24 was added on 23 July 1992 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992, on the basis of paragraph 40 of a previous report entitled “Double Taxation Conventions and the Use of Base Companies” (adopted by the OECD Council on 27 November 1986).

Paragraph 25: Corresponds to paragraph 6.11 as it read before 21 November 2017. On that date, paragraph 6.11 was renumbered as paragraph 25 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.11 was added on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010, on the basis of another report entitled “The Granting of Treaty Benefits with Respect to the Income of Collective Investment Vehicles” (adopted by the OECD Committee on Fiscal Affairs on 23 April 2010).

Paragraph 25 as it read before 28 January 2003 was amended and renumbered as paragraph 22.2 (see history of paragraph 22.2) by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003.

Paragraph 26: Corresponds to paragraph 6.12 as it read before 21 November 2017. On that date, paragraph 26 was deleted and paragraph 6.12 was amended to change a cross-reference and renumbered as paragraph 26, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 22 July 2010 and until 21 November 2017, paragraph 26 read as follows:

“26. By contrast, in other States, a CIV is in principle liable to tax but its income may be fully exempt, for instance, if the CIV fulfils certain criteria with regard to its purpose, activities or operation, which may include requirements as to minimum distributions, its sources of income and sometimes its sectors of operation. More frequently, CIVs are subject to tax but the base for taxation is reduced, in a variety of different ways, by reference to distributions paid to investors. Deductions for distributions will usually mean that no tax is in fact paid. Other States tax CIVs but at a special low tax rate. Finally, some States tax CIVs fully but with integration at the investor level to avoid double taxation of the income of the CIV. For those countries that adopt the view, reflected in paragraph 8.6 of the Commentary on Article 4, that a person may be liable to tax even if the State in which it is established does not impose tax, the CIV would be treated as a resident of the State in which it is established in all of these cases because the CIV is subject to comprehensive taxation in that State. Even in the case where the income of the CIV is taxed at a zero rate, or is exempt from tax, the requirements to be treated as a resident may be met if the requirements to qualify for such lower rate or exemption are sufficiently stringent.”

Paragraph 6.12 was added on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010, on the basis of another report entitled “The Granting of Treaty Benefits with Respect to the Income of Collective Investment Vehicles” (adopted by the OECD Committee on Fiscal Affairs on 23 April 2010).

Paragraph 26, as it read before 21 November 2017, was deleted by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 28 January 2003 and until 21 November 2017, paragraph 26 read as follows:

“26. States that adopt controlled foreign companies provisions or the anti-abuse rules referred to above in their domestic tax laws seek to maintain the equity and neutrality of these laws in an international environment characterised by very different tax burdens, but such measures should be used only for this purpose. As a general rule, these measures should not be applied where the relevant income has been subjected to taxation that is comparable to that in the country of residence of the taxpayer.”

Paragraph 26 was replaced on 28 January 2003 when paragraph 26 was deleted and a new paragraph 26 was added by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003. After 21 September 1995 and until 28 January 2003, paragraph 26 read as follows:

“26. The majority of member countries accept counteracting measures as a necessary means of maintaining equity and neutrality of national tax laws in an international environment characterised by very different tax burdens, but believe that such measures should be used only for this purpose. It would be contrary to the general principles underlying the Model Convention and to the spirit of tax treaties in general if counteracting measures were to be extended to activities such as production, normal rendering of services or trading of companies engaged in real industrial or commercial activity, when they are clearly related to the economic environment of the country where they are resident in a situation where these activities are carried out in such a way that no tax avoidance could be suspected. Counteracting measures should not be applied to countries in which taxation is comparable to that of the country of residence of the taxpayer.”

Paragraph 26 was amended on 21 September 1995, by replacing the words “but such measures” with “but believe that such measures” in the first sentence, when a number of minor drafting changes that did not affect the meaning of the text were made to the Commentary on Article 1. After 23 July 1992 and until 21 September 1995, paragraph 26 read as follows:

“26. The majority of member countries accept counteracting measures as a necessary means of maintaining equity and neutrality of national tax laws in an international environment characterised by very different tax burdens, but such measures should be used only for this purpose. It would be contrary to the general principles underlying the Model Convention and to the spirit of tax treaties in general if counteracting measures were to be extended to activities such as production, normal rendering of services or trading of companies engaged in real industrial or commercial activity, when they are clearly related to the economic environment of the country where they are resident in a situation where these activities are carried out in such a way that no tax avoidance could be suspected. Counteracting measures should not be applied to countries in which taxation is comparable to that of the country of residence of the taxpayer.”

Paragraph 26 was added on 23 July 1992 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992, on the basis of paragraph 47 of a previous report entitled “Double Taxation Conventions and the Use of Base Companies” (adopted by the OECD Council on 27 November 1986).

Paragraph 26.1: Renumbered as paragraph 108 (see history of paragraph 108) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. At the same time the heading preceding paragraph 26.1 was deleted. After 28 January 2003 and until 21 September 1995, the heading read as follows:

“Remittance based taxation”

Paragraph 26.2: Renumbered as paragraph 109 (see history of paragraph 109) and the preceding heading was moved with it on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 27: Corresponds to paragraph 6.13 as it read before 21 November 2017. On that date, paragraph 27 was deleted and paragraph 6.13 was amended to change a cross-reference and renumbered as paragraph 27, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. At the same time the heading that preceded paragraph 27 was moved immediately before paragraph 110. After 22 July 2010 and until 21 November 2017, paragraph 27 read as follows:

“27. Those countries that adopt the alternative view, reflected in paragraph 8.7 of the Commentary on Article 4, that an entity that is exempt from tax therefore is not liable to tax may not view some or all of the CIVs described in the preceding paragraph as residents of the States in which they are established. States taking the latter view, and those States negotiating with such States, are encouraged to address the issue in their bilateral negotiations.”

Paragraph 6.13 was added on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010, on the basis of another report entitled “The Granting of Treaty Benefits with Respect to the Income of Collective Investment Vehicles” (adopted by the OECD Committee on Fiscal Affairs on 23 April 2010).

Paragraph 27, as it read before 21 November 2017, was deleted by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 22 July 2010 and until 21 November 2017, paragraph 27 read as follows:

“27. Chile considers that some of the solutions put forward in the report “The Application of the OECD Model Tax Convention to Partnerships” and incorporated in the Commentary can only be applied if expressly incorporated in a tax convention.”

Paragraph 27 as it read before 21 November 2017 was added on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010.

Paragraph 27 as it read before 28 January 2003 was deleted by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003. After 23 July 1992 and until 28 January 2003, paragraph 27 read as follows:

“27. The United States believes that the business activities referred to in subparagraph b) of paragraph 21 of the Commentary should exclude “the business of making or managing investments, unless these activities are banking or insurance activities carried on by a bank or insurance company.” Absent this language, a third-country resident could set up a classic treaty shopping conduit operation – a personal investment company – and argue that the company is engaged in a substantive business operation (the managing of the third-country owner’s personal portfolio) and the income in respect of which benefits are claimed (dividends and interest) is connected with those business operations.”

Paragraph 27 was added with the heading preceding it on 23 July 1992 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 27.1: Deleted on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 29 April 2000 and until 21 November 2017, paragraph 27.1 read as follows:

“27.1 The Netherlands will adhere to the conclusions on the application of the Convention to partnerships incorporated in the Commentary on Article 1 and in the Commentaries on the other relevant provisions of the Convention only, and to the extent to which, it is explicitly so confirmed in a specific tax treaty, as a result of mutual agreement between competent authorities as meant in Article 25 of the Convention or as unilateral policy.”

Paragraph 27.1 was added on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000.

Paragraph 27.2: Deleted on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 17 July 2008 and until 21 November 2017, paragraph 27.2 read as follows:

“27.2 France has expressed a number of reservations on the report on “The Application of the OECD Model Tax Convention to Partnerships”. In particular, France does not agree with the interpretation put forward in paragraphs 5 and 6 above according to which if a partnership is denied the benefits of a tax convention, its members are always entitled to the benefits of the tax conventions entered into by their State of residence. France believes that this result is only possible, when France is the State of source, if its internal law authorises that interpretation or if provisions to that effect are included in the convention entered into with the State of residence of the partners.”

Paragraph 27.2 was amended on 17 July 2008 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008. After 28 January 2003 and until 17 July 2008, paragraph 27.2 read as follows:

“27.2 France has expressed a number of reservations on the report on “The Application of the OECD Model Tax Convention to Partnerships”. In particular, France does not agree with the interpretation put forward in paragraphs 5 and 6 above according to which if a partnership is denied the benefits of a tax convention, its members are entitled to the benefits of the tax conventions entered into by their State of residence. France believes that this result is only possible, to a certain extent, if provisions to that effect are included in the convention entered into with the State where the partnership is situated. This view is also shared by Mexico.”

Paragraph 27.2 was previously amended on 28 January 2003, by adding Mexico as a country making the observation, by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003. After 29 April 2000 and until 28 January 2003, paragraph 27.2 read as follows:

“27.2 France has expressed a number of reservations on the report on “The Application of the OECD Model Tax Convention to Partnerships”. In particular, France does not agree with the interpretation put forward in paragraphs 5 and 6 above according to which if a partnership is denied the benefits of a tax convention, its members are entitled to the benefits of the tax conventions entered into by their State of residence. France believes that this result is only possible, to a certain extent, if provisions to that effect are included in the convention entered into with the State where the partnership is situated.”

Paragraph 27.2 was added on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000.

Paragraph 27.3: Deleted on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 29 April 2000 and until 21 November 2017, paragraph 27.3 read as follows:

“27.3 Portugal, where all partnerships are taxed as such, has expressed a number of reservations on the report on “The Application of the OECD Model Tax Convention to Partnerships” and considers that the solutions put forward in that report should be incorporated in special provisions only applicable when included in tax conventions. This is the case, for example, of the treatment of the situation of partners of partnerships – a concept which is considerably fluid given the differences between States – that are fiscally transparent, including the situation where a third State is inserted between the State of source and the State of residence of the partners. The administrative difficulties resulting from some of the solutions put forward should also be noted, as indicated in the report itself in certain cases.”

Paragraph 27.3 was added on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000.

Paragraph 27.4: Deleted on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 22 July 2010 and until 21 November 2017, paragraph 27.4 read as follows:

“27.4 Belgium cannot share the views expressed in paragraph 23 of the Commentary. Belgium considers that the application of controlled foreign companies legislation is contrary to the provisions of paragraph 7 of Article 5, paragraph 1 of Article 7 and paragraph 5 of Article 10 of the Convention. This is especially the case where a Contracting State taxes one of its residents on income derived by a foreign entity by using a fiction attributing to that resident, in proportion to his participation in the capital of the foreign entity, the income derived by that entity. By doing so, that State increases the tax base of its resident by including in it income which has not been derived by that resident but by a foreign entity which is not taxable in that State in accordance with the Convention. That Contracting State thus disregards the legal personality of the foreign entity and therefore acts contrary to the Convention (see also paragraph 79 of the Commentary on Article 7 and paragraph 68.1 of the Commentary on Article 10).”

Paragraph 27.4 was amended on 22 July 2010, by replacing the cross-reference to “paragraph 66 of the Commentary on Article 7” with “paragraph 74 of the Commentary on Article 7”, by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010. After 17 July 2008 and until 22 July 2010, paragraph 27.4 read as follows:

“27.4 Belgium cannot share the views expressed in paragraph 23 of the Commentary. Belgium considers that the application of controlled foreign companies legislation is contrary to the provisions of paragraph 7 of Article 5, paragraph 1 of Article 7 and paragraph 5 of Article 10 of the Convention. This is especially the case where a Contracting State taxes one of its residents on income derived by a foreign entity by using a fiction attributing to that resident, in proportion to his participation in the capital of the foreign entity, the income derived by that entity. By doing so, that State increases the tax base of its resident by including in it income which has not been derived by that resident but by a foreign entity which is not taxable in that State in accordance with the Convention. That Contracting State thus disregards the legal personality of the foreign entity and therefore acts contrary to the Convention (see also paragraph 66 of the Commentary on Article 7 and paragraph 68.1 of the Commentary on Article 10).”

Paragraph 27.4 was previously amended on 17 July 2008, by replacing the cross-reference to “paragraph 40.1 of the Commentary on Article 7” with “paragraph 66 of the Commentary on Article 7”, by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008. After 28 January 2003 and until 17 July 2008, paragraph 27.4 read as follows:

“27.4 Belgium cannot share the views expressed in paragraph 23 of the Commentary. Belgium considers that the application of controlled foreign companies legislation is contrary to the provisions of paragraph 7 of Article 5, paragraph 1 of Article 7 and paragraph 5 of Article 10 of the Convention. This is especially the case where a Contracting State taxes one of its residents on income derived by a foreign entity by using a fiction attributing to that resident, in proportion to his participation in the capital of the foreign entity, the income derived by that entity. By doing so, that State increases the tax base of its resident by including in it income which has not been derived by that resident but by a foreign entity which is not taxable in that State in accordance with the Convention. That Contracting State thus disregards the legal personality of the foreign entity and therefore acts contrary to the Convention (see also paragraph 40.1 of the Commentary on Article 7 and paragraph 68.1 of the Commentary on Article 10).”

Paragraph 27.4 was added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003.

Paragraph 27.5: Deleted on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 28 January 2003 and until 21 November 2017, paragraph 27.5 read as follows:

“27.5 Concerning potential conflicts between anti-abuse provisions (including controlled foreign company – CFC – provisions) in domestic law and the provisions of tax treaties, Ireland considers that it is not possible to have a simple general conclusion that no conflict will exist or that any conflict must be resolved in favour of the domestic law. This will depend on the nature of the domestic law provision and also on the legal and constitutional relationship in individual member countries between domestic law and international agreements and law. Also, Ireland does not agree with the deletion of the language in paragraph 26 (as it read until 2002), which stated: “It would be contrary to the general principles underlying the Model Convention and to the spirit of tax treaties in general if counteracting measures were to be extended to activities such as production, normal rendering of services or trading of companies engaged in real industrial or commercial activity, when they are clearly related to the economic environment of the country where they are resident in a situation where these activities are carried out in such a way that no tax avoidance could be suspected”.”

Paragraph 27.5 was added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003.

Paragraph 27.6: Deleted on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 28 January 2003 and until 21 November 2017, paragraph 27.6 read as follows:

“27.6 Luxembourg does not share the interpretation in paragraphs 9.2, 22.1 and 23 which provide that there is generally no conflict between anti-abuse provisions of the domestic law of a Contracting State and the provisions of its tax conventions. Absent an express provision in the Convention, Luxembourg therefore believes that a State can only apply its domestic anti-abuse provisions in specific cases after recourse to the mutual agreement procedure.”

Paragraph 27.6 was added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003.

Paragraph 27.7: Deleted on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 28 January 2003 and until 21 November 2017, paragraph 27.7 read as follows:

“27.7 The Netherlands does not adhere to the statements in the Commentaries that as a general rule domestic anti-avoidance rules and controlled foreign companies provisions do not conflict with the provisions of tax conventions. The compatibility of such rules and provisions with tax treaties is, among other things, dependent on the nature and wording of the specific provision, the wording and purpose of the relevant treaty provision and the relationship between domestic and international law in a country. Since tax conventions are not meant to facilitate the improper use thereof, the application of national rules and provisions may be justified in specific cases of abuse or clearly unintended use. In such situations the application of domestic measures has to respect the principle of proportionality and should not go beyond what is necessary to prevent the abuse or the clearly unintended use.”

Paragraph 27.7 was added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003.

Paragraph 27.8: Deleted on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010. After 28 January 2003 and until 22 July 2010, paragraph 27.8 read as follows:

“27.8 Whenever the prevailing hierarchy of tax conventions regarding internal law is not respected, Portugal will not adhere to the conclusions on the clarification of domestic anti-abuse rules incorporated in the Commentary on Article 1.”

Paragraph 27.8 was added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003.

Paragraph 27.9: Renumbered as paragraph 110 (see history of paragraph 110) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 27.10: Deleted on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 17 July 2008 and until 21 November 2017, paragraph 27.10 read as follows:

“27.10 Mexico does not agree with the interpretation put forward in paragraphs 5 and 6 above according to which if a partnership is denied the benefits of a tax convention, its members are entitled to the benefits of the tax conventions entered into by their State of residence. Mexico believes that this result is only possible, to a certain extent, if provisions to that effect are included in the convention entered into with the State where the partnership is situated.”

Paragraph 27.10 was added on 17 July 2008 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008.

Paragraph 28: Corresponds to paragraph 6.14 as it read before 21 November 2017. On that date, paragraph 28 was renumbered as paragraph 111 (see history of paragraph 111), the preceding heading was moved with it and paragraph 6.14 was renumbered as paragraph 28, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.14 was added on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010, on the basis of another report entitled “The Granting of Treaty Benefits with Respect to the Income of Collective Investment Vehicles” (adopted by the OECD Committee on Fiscal Affairs on 23 April 2010).

Paragraph 29: Corresponds to paragraph 6.15 as it read before 21 November 2017. On that date, paragraph 6.15 was renumbered as paragraph 29 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.15 was added on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010, on the basis of another report entitled “The Granting of Treaty Benefits with Respect to the Income of Collective Investment Vehicles” (adopted by the OECD Committee on Fiscal Affairs on 23 April 2010).

Paragraph 29 as it read before 31 March 1994 was deleted by the report entitled “1994 Update to the Model Tax Convention”, adopted by the OECD Council on 31 March 1994. After 23 July 1992 and until 31 March 1994, paragraph 29 read as follows:

“29. The United States reserves the right to limit the benefits of the Convention to certain persons.”

Paragraph 29 was added on 23 July 1992 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 30: Corresponds to paragraph 6.16 as it read before 21 November 2017. On that date, paragraph 6.16 was renumbered as paragraph 30 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.16 was added on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010, on the basis of another report entitled “The Granting of Treaty Benefits with Respect to the Income of Collective Investment Vehicles” (adopted by the OECD Committee on Fiscal Affairs on 23 April 2010).

Paragraph 31: Corresponds to paragraph 6.17 as it read before 21 November 2017. On that date, paragraph 6.17 was renumbered as paragraph 31 and the preceding heading was moved with it by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.17 was added on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010, on the basis of another report entitled “The Granting of Treaty Benefits with Respect to the Income of Collective Investment Vehicles” (adopted by the OECD Committee on Fiscal Affairs on 23 April 2010).

Paragraph 32: Corresponds to paragraph 6.18 as it read before 21 November 2017. On that date, paragraph 6.18 was renumbered as paragraph 32 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.18 was added on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010, on the basis of another report entitled “The Granting of Treaty Benefits with Respect to the Income of Collective Investment Vehicles” (adopted by the OECD Committee on Fiscal Affairs on 23 April 2010).

Paragraph 33: Corresponds to paragraph 6.19 as it read before 21 November 2017. On that date, paragraph 6.19 was renumbered as paragraph 33 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.19 was added on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010, on the basis of another report entitled “The Granting of Treaty Benefits with Respect to the Income of Collective Investment Vehicles” (adopted by the OECD Committee on Fiscal Affairs on 23 April 2010).

Paragraph 34: Corresponds to paragraph 6.20 as it read before 21 November 2017. On that date, paragraph 6.20 was renumbered as paragraph 34 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.20 was added on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010, on the basis of another report entitled “The Granting of Treaty Benefits with Respect to the Income of Collective Investment Vehicles” (adopted by the OECD Committee on Fiscal Affairs on 23 April 2010).

Paragraph 35: Corresponds to paragraph 6.21 as it read before 21 November 2017. On that date, paragraph 6.21 was amended, to update cross-references, and renumbered as paragraph 35 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. At that time, the heading preceding paragraph 6.21 was moved with it. After 22 July 2010 and until 21 November 2017, paragraph 6.21 read as follows:

“6.21 Where the Contracting States have agreed that a specific provision dealing with CIVs is necessary to address the concerns described in paragraphs 6.18 through 6.20, they could include in the bilateral treaty the following provision:

1. Notwithstanding the other provisions of this Convention, a collective investment vehicle which is established in a Contracting State and which receives income arising in the other Contracting State shall be treated for purposes of applying the Convention to such income as an individual who is a resident of the Contracting State in which it is established and as the beneficial owner of the income it receives (provided that, if an individual who is a resident of the first-mentioned State had received the income in the same circumstances, such individual would have been considered to be the beneficial owner thereof), but only to the extent that the beneficial interests in the collective investment vehicle are owned by equivalent beneficiaries.

2. For purposes of this paragraph:

   1. the term “collective investment vehicle” means, in the case of [State A], a [ ] and, in the case of [State B], a [ ], as well as any other investment fund, arrangement or entity established in either Contracting State which the competent authorities of the Contracting States agree to regard as a collective investment vehicle for purposes of this paragraph; and

   2. the term “equivalent beneficiary” means a resident of the Contracting State in which the CIV is established, and a resident of any other State with which the Contracting State in which the income arises has an income tax convention that provides for effective and comprehensive information exchange who would, if he received the particular item of income for which benefits are being claimed under this Convention, be entitled under that convention, or under the domestic law of the Contracting State in which the income arises, to a rate of tax with respect to that item of income that is at least as low as the rate claimed under this Convention by the CIV with respect to that item of income.”

Paragraph 6.21 was added on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010, on the basis of another report entitled “The Granting of Treaty Benefits with Respect to the Income of Collective Investment Vehicles” (adopted by the OECD Committee on Fiscal Affairs on 23 April 2010).

Paragraph 36: Corresponds to paragraph 6.22 as it read before 21 November 2017. On that date, paragraph 6.22 was renumbered as paragraph 36 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.22 was added on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010, on the basis of another report entitled “The Granting of Treaty Benefits with Respect to the Income of Collective Investment Vehicles” (adopted by the OECD Committee on Fiscal Affairs on 23 April 2010).

Paragraph 37: Corresponds to paragraph 6.23 as it read before 21 November 2017. On that date, paragraph 6.23 was renumbered as paragraph 37 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.23 was added on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010, on the basis of another report entitled “The Granting of Treaty Benefits with Respect to the Income of Collective Investment Vehicles” (adopted by the OECD Committee on Fiscal Affairs on 23 April 2010).

Paragraph 38: Corresponds to paragraph 6.24 as it read before 21 November 2017. On that date, paragraph 6.24 was renumbered as paragraph 38 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.24 was added on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010, on the basis of another report entitled “The Granting of Treaty Benefits with Respect to the Income of Collective Investment Vehicles” (adopted by the OECD Committee on Fiscal Affairs on 23 April 2010).

Paragraph 39: Corresponds to paragraph 6.25 as it read before 21 November 2017. On that date, paragraph 6.25 was renumbered as paragraph 39 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 39 was added on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010, on the basis of another report entitled “The Granting of Treaty Benefits with Respect to the Income of Collective Investment Vehicles” (adopted by the OECD Committee on Fiscal Affairs on 23 April 2010).

Paragraph 40: Corresponds to paragraph 6.26 as it read before 21 November 2017. On that date, paragraph 6.26 was renumbered as paragraph 40 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.26 was added on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010, on the basis of another report entitled “The Granting of Treaty Benefits with Respect to the Income of Collective Investment Vehicles” (adopted by the OECD Committee on Fiscal Affairs on 23 April 2010).

Paragraph 41: Corresponds to paragraph 6.27 as it read before 21 November 2017. On that date, paragraph 6.27 was amended, to update cross-references, and renumbered as paragraph 41 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 22 July 2010 and until 21 November 2017, paragraph 6.27 read as follows:

“6.27 Although the purely proportionate approach set out in paragraphs 6.21 and 6.26 protects against treaty shopping, it may also impose substantial administrative burdens as a CIV attempts to determine the treaty entitlement of every single investor. A Contracting State may decide that the fact that a substantial proportion of the CIV’s investors are treaty-eligible is adequate protection against treaty shopping, and thus that it is appropriate to provide an ownership threshold above which benefits would be provided with respect to all income received by the CIV. Including such a threshold would also mitigate some of the procedural burdens that otherwise might arise. If desired, therefore, the following sentence could be added at the end of subparagraph a):

However, if at least [ ] per cent of the beneficial interests in the collective investment vehicle are owned by [equivalent beneficiaries][residents of the Contracting State in which the collective investment vehicle is established], the collective investment vehicle shall be treated as an individual who is a resident of the Contracting State in which it is established and as the beneficial owner of all of the income it receives (provided that, if an individual who is a resident of the first-mentioned State had received the income in the same circumstances, such individual would have been considered to be the beneficial owner thereof).”

Paragraph 6.27 was added on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010, on the basis of another report entitled “The Granting of Treaty Benefits with Respect to the Income of Collective Investment Vehicles” (adopted by the OECD Committee on Fiscal Affairs on 23 April 2010).

Paragraph 42: Corresponds to paragraph 6.28 as it read before 21 November 2017. On that date, paragraph 6.28 was amended, to update cross-references, and renumbered as paragraph 42 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 22 July 2010 and until 21 November 2017, paragraph 6.28 read as follows:

“6.28 In some cases, the Contracting States might wish to take a different approach from that put forward in paragraphs 6.17, 6.21 and 6.26 with respect to certain types of CIVs and to treat the CIV as making claims on behalf of the investors rather than in its own name. This might be true, for example, if a large percentage of the owners of interests in the CIV as a whole, or of a class of interests in the CIV, are pension funds that are exempt from tax in the source country under terms of the relevant treaty similar to those described in paragraph 69 of the Commentary on Article 18. To ensure that the investors would not lose the benefit of the preferential rates to which they would have been entitled had they invested directly, the Contracting States might agree to a provision along the following lines with respect to such CIVs (although likely adopting one of the approaches of paragraph 6.17, 6.21 or 6.26 with respect to other types of CIVs):

1. A collective investment vehicle described in subparagraph c) which is established in a Contracting State and which receives income arising in the other Contracting State shall not be treated as a resident of the Contracting State in which it is established, but may claim, on behalf of the owners of the beneficial interests in the collective investment vehicle, the tax reductions, exemptions or other benefits that would have been available under this Convention to such owners had they received such income directly.

2. A collective investment vehicle may not make a claim under subparagraph a) for benefits on behalf of any owner of the beneficial interests in such collective investment vehicle if the owner has itself made an individual claim for benefits with respect to income received by the collective investment vehicle.

3. This paragraph shall apply with respect to, in the case of [State A], a [ ] and, in the case of [State B], a [ ], as well as any other investment fund, arrangement or entity established in either Contracting State to which the competent authorities of the Contracting States agree to apply this paragraph.

This provision would, however, limit the CIV to making claims on behalf of residents of the same Contracting State in which the CIV is established. If, for the reasons described in paragraph 6.23, the Contracting States deemed it desirable to allow the CIV to make claims on behalf of treaty-eligible residents of third States, that could be accomplished by replacing the words “this Convention” with “any Convention to which the other Contracting State is a party” in subparagraph a). If, as anticipated, the Contracting States would agree that the treatment provided in this paragraph would apply only to specific types of CIVs, it would be necessary to ensure that the types of CIVs listed in subparagraph c) did not include any of the types of CIVs listed in a more general provision such as that in paragraph 6.17, 6.21 or 6.26 so that the treatment of a specific type of CIV would be fixed, rather than elective. Countries wishing to allow individual CIVs to elect their treatment, either with respect to the CIV as a whole or with respect to one or more classes of interests in the CIV, are free to modify the paragraph to do so.”

Paragraph 6.28 was added on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010, on the basis of another report entitled “The Granting of Treaty Benefits with Respect to the Income of Collective Investment Vehicles” (adopted by the OECD Committee on Fiscal Affairs on 23 April 2010).

Paragraph 43: Corresponds to paragraph 6.29 as it read before 21 November 2017. On that date, paragraph 6.29 was amended, to update cross-references, and renumbered as paragraph 43 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 22 July 2010 and until 21 November 2017, paragraph 6.29 read as follows:

“6.29 Under either the approach in paragraphs 6.21 and 6.26 or in paragraph 6.28, it will be necessary for the CIV to make a determination regarding the proportion of holders of interests who would have been entitled to benefits had they invested directly. Because ownership of interests in CIVs changes regularly, and such interests frequently are held through intermediaries, the CIV and its managers often do not themselves know the names and treaty status of the beneficial owners of interests. It would be impractical for the CIV to collect such information from the relevant intermediaries on a daily basis. Accordingly, Contracting States should be willing to accept practical and reliable approaches that do not require such daily tracing.”

Paragraph 6.29 was added on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010, on the basis of another report entitled “The Granting of Treaty Benefits with Respect to the Income of Collective Investment Vehicles” (adopted by the OECD Committee on Fiscal Affairs on 23 April 2010).

Paragraph 44: Corresponds to paragraph 6.30 as it read before 21 November 2017. On that date, paragraph 6.30 was renumbered as paragraph 44 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.30 was added on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010, on the basis of another report entitled “The Granting of Treaty Benefits with Respect to the Income of Collective Investment Vehicles” (adopted by the OECD Committee on Fiscal Affairs on 23 April 2010).

Paragraph 45: Corresponds to paragraph 6.31 as it read before 21 November 2017. On that date, paragraph 6.31 was renumbered as paragraph 45 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.31 was added on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010, on the basis of another report entitled “The Granting of Treaty Benefits with Respect to the Income of Collective Investment Vehicles” (adopted by the OECD Committee on Fiscal Affairs on 23 April 2010).

Paragraph 46: Corresponds to paragraph 6.32 as it read before 21 November 2017. On that date, paragraph 6.32 was renumbered as paragraph 46 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.32 was added on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010, on the basis of another report entitled “The Granting of Treaty Benefits with Respect to the Income of Collective Investment Vehicles” (adopted by the OECD Committee on Fiscal Affairs on 23 April 2010).

Paragraph 47: Corresponds to paragraph 6.33 as it read before 21 November 2017. On that date, paragraph 6.33 was amended and renumbered as paragraph 47 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 22 July 2010 and until 21 November 2017, paragraph 6.33 read as follows:

“6.33 Each of the provisions in paragraphs 6.17, 6.21, 6.26 and 6.32 treats the CIV as the resident and the beneficial owner of the income it receives for the purposes of the application of the Convention to such income, which has the simplicity of providing for one reduced rate of withholding with respect to each type of income. These provisions should not be construed, however, as restricting in any way the right of the State of source from taxing its own residents who are investors in the CIV. Clearly, these provisions are intended to deal with the source taxation of the CIV’s income and not the residence taxation of its investors (this conclusion is analogous to the one put forward in paragraph 6.1 above as regards partnerships). States that wish to confirm this point in the text of the provisions are free to amend the provisions accordingly, which could be done by adding the following sentence: “This provision shall not be construed as restricting in any way a Contracting State’s right to tax the residents of that State”.”

Paragraph 6.33 was added on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010, on the basis of another report entitled “The Granting of Treaty Benefits with Respect to the Income of Collective Investment Vehicles” (adopted by the OECD Committee on Fiscal Affairs on 23 April 2010).

Paragraph 48: Corresponds to paragraph 6.34 as it read before 21 November 2017. On that date, paragraph 6.34 was renumbered as paragraph 48 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.34 was added on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010, on the basis of another report entitled “The Granting of Treaty Benefits with Respect to the Income of Collective Investment Vehicles” (adopted by the OECD Committee on Fiscal Affairs on 23 April 2010).

Paragraph 49: Corresponds to paragraph 6.35 as it read before 21 November 2017. On that date, paragraph 6.35 was renumbered as paragraph 49 and the preceding heading was moved with it by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.35 was added on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010.

Paragraph 50: Corresponds to paragraph 6.36 as it read before 21 November 2017. On that date, paragraph 6.36 was renumbered as paragraph 50 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.36 was added on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010.

Paragraph 51: Corresponds to paragraph 6.37 as it read before 21 November 2017. On that date, paragraph 6.37 was renumbered as paragraph 51 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.37 was added on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010.

Paragraph 52: Corresponds to paragraph 6.38 as it read before 21 November 2017. On that date, paragraph 6.38 was renumbered as paragraph 52 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.38 was added on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010.

Paragraph 53: Corresponds to paragraph 6.39 as it read before 21 November 2017. On that date, paragraph 6.39 was renumbered as paragraph 53 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.39 was added on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010.

Paragraph 54: Corresponds to paragraph 7 as it read before 21 November 2017. On that date, paragraph 7 was amended and renumbered as paragraph 54 and the preceding heading was moved with it by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. After 28 January 2003 and until 21 November 2017, paragraph 7 read as follows:

“7. The principal purpose of double taxation conventions is to promote, by eliminating international double taxation, exchanges of goods and services, and the movement of capital and persons. It is also a purpose of tax conventions to prevent tax avoidance and evasion.”

Paragraph 7 was previously amended on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003. After 21 September 1995 and until 28 January 2003, paragraph 7 read as follows:

“7. The purpose of double taxation conventions is to promote, by eliminating international double taxation, exchanges of goods and services, and the movement of capital and persons; they should not, however, help tax avoidance or evasion. True, taxpayers have the possibility, irrespective of double taxation conventions, to exploit differences in tax levels between States and the tax advantages provided by various countries’ taxation laws, but it is for the States concerned to adopt provisions in their domestic laws to counter such manoeuvres. Such States will then wish, in their bilateral double taxation conventions, to preserve the application of provisions of this kind contained in their domestic laws.”

Paragraph 7 was previously amended on 21 September 1995 when a number of minor drafting changes that did not affect the meaning of the text were made to the Commentary on Article 1. In the 1977 Model Convention and until 21 September 1995, paragraph 7 read as follows:

“7. The purpose of double taxation conventions is to promote, by eliminating international double taxation, exchanges of goods and services, and the movement of capital and persons; they should not, however, help tax avoidance or evasion. True, taxpayers have the possibility, double taxation conventions being left aside, to exploit differences in tax levels between States and the tax advantages provided by various countries’ taxation laws, but it is for the States concerned to adopt provisions in their domestic laws to counter such manoeuvres. Such States will then wish, in their bilateral double taxation conventions, to preserve the application of provisions of this kind contained in their domestic laws.”

Paragraph 7 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 55: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 56: Corresponds to paragraph 9 as it read before 21 November 2017. On that date, paragraph 9 was renumbered as paragraph 56 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 9 was amended on 28 January 2003, by changing the cross-reference to “paragraph 4 of Article 13”, in the last sentence, to “paragraph 5 of Article 13”, by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003. After 21 September 1995 and until January 2003, paragraph 9 read as follows:

“9. This would be the case, for example, if a person (whether or not a resident of a Contracting State), acts through a legal entity created in a State essentially to obtain treaty benefits that would not be available directly. Another case would be an individual who has in a Contracting State both his permanent home and all his economic interests, including a substantial shareholding in a company of that State, and who, essentially in order to sell the shares and escape taxation in that State on the capital gains from the alienation (by virtue of paragraph 4 of Article 13), transfers his permanent home to the other Contracting State, where such gains are subject to little or no tax.”

Paragraph 9 was previously amended on 21 September 1995 when a number of minor drafting changes that did not affect the meaning of the text were made to the Commentary on Article 1. In the 1977 Model Convention and until 21 September 1995, paragraph 9 read as follows:

“9. This would be the case, for example, if a person (whether or not a resident of a Contracting State), acts through a legal entity created in a State essentially to obtain treaty benefits that would not be available directly to such person. Another case would be one of an individual having in a Contracting State both his permanent home and all his economic interests, including a substantial participation in a company of that State, and who, essentially in order to sell the participation and escape taxation in that State on the capital gains from the alienation (by virtue of paragraph 4 of Article 13), transfers his permanent home to the other Contracting State, where such gains are subject to little or no tax.”

Paragraph 9 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 57: Added together with the preceding heading on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 58: Corresponds to paragraph 9.2 as it read before 21 November 2017. On that date, paragraph 9.2 was amended and renumbered as paragraph 58 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. After 28 January 2003 and until 21 November 2017, paragraph 9.2 read as follows:

“9.2 For many States, the answer to the first question is based on their answer to the second question. These States take account of the fact that taxes are ultimately imposed through the provisions of domestic law, as restricted (and in some rare cases, broadened) by the provisions of tax conventions. Thus, any abuse of the provisions of a tax convention could also be characterised as an abuse of the provisions of domestic law under which tax will be levied. For these States, the issue then becomes whether the provisions of tax conventions may prevent the application of the anti-abuse provisions of domestic law, which is the second question above. As indicated in paragraph 22.1 below, the answer to that second question is that to the extent these anti-avoidance rules are part of the basic domestic rules set by domestic tax laws for determining which facts give rise to a tax liability, they are not addressed in tax treaties and are therefore not affected by them. Thus, as a general rule, there will be no conflict between such rules and the provisions of tax conventions.”

Paragraph 9.2 was added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003.

Paragraph 59: Corresponds to paragraph 9.3 as it read before 21 November 2017. On that date, paragraph 9.3 was renumbered as paragraph 59 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 9.3 was added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003.

Paragraph 60: Corresponds to paragraph 9.4 as it read before 21 November 2017. On that date, paragraph 9.4 was renumbered as paragraph 60 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 9.4 was added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003.

Paragraph 61: Corresponds to paragraph 9.5 as it read before 21 November 2017. On that date, paragraph 9.5 was amended and renumbered as paragraph 61 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. After 28 January 2003 and until 21 November 2017, paragraph 9.5 read as follows:

“9.5 It is important to note, however, that it should not be lightly assumed that a taxpayer is entering into the type of abusive transactions referred to above. A guiding principle is that the benefits of a double taxation convention should not be available where a main purpose for entering into certain transactions or arrangements was to secure a more favourable tax position and obtaining that more favourable treatment in these circumstances would be contrary to the object and purpose of the relevant provisions.”

Paragraph 9.5 was added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003.

Paragraph 62: Corresponds to paragraph 9.6 as it read before 21 November 2017. On that date, paragraph 9.6 was amended and renumbered as paragraph 62 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. After 28 January 2003 and until 21 November 2017, paragraph 9.6 read as follows:

“9.6 The potential application of general anti-abuse provisions does not mean that there is no need for the inclusion, in tax conventions, of specific provisions aimed at preventing particular forms of tax avoidance. Where specific avoidance techniques have been identified or where the use of such techniques is especially problematic, it will often be useful to add to the Convention provisions that focus directly on the relevant avoidance strategy. Also, this will be necessary where a State which adopts the view described in paragraph 9.2 above believes that its domestic law lacks the anti-avoidance rules or principles necessary to properly address such strategy.”

Paragraph 9.6 was added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Restricting the Entitlement to Treaty Benefits” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002).

Paragraph 63: Corresponds to paragraph 10 as it read before 21 November 2017. On that date, paragraph 10 was renumbered as paragraph 63 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 10 was amended on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Restricting the Entitlement to Treaty Benefits” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002). In the 1977 Model Convention and until 28 January 2003, paragraph 10 read as follows:

“10. Some of these situations are dealt with in the Convention, e.g. by the introduction of the concept of “beneficial owner” (in Articles 10, 11 and 12) and of special provisions, for so-called artiste-companies (paragraph 2 of Article 17). Such problems are also mentioned in the Commentaries on Article 10 (paragraphs 17 and 22), Article 11 (paragraph 12), and Article 12 (paragraph 7). It may be appropriate for Contracting States to agree in bilateral negotiations that any relief from tax should not apply in certain cases, or to agree that the application of the provisions of domestic laws against tax avoidance should not be affected by the Convention.”

Paragraph 10 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 64: Corresponds to paragraph 10.1 as it read before 21 November 2017. On that date, paragraph 10.1 was renumbered as paragraph 64 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 10.1 was added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Restricting the Entitlement to Treaty Benefits” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002).

Paragraph 65: Corresponds to paragraph 10.2 as it read before 21 November 2017. On that date, paragraph 10.2 was renumbered as paragraph 65 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 10.2 was added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Restricting the Entitlement to Treaty Benefits” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002).

Paragraph 66: Added together with the preceding heading on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 67: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 68: Added together with the preceding heading on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 69: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 70: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 71: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 72: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 73: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 74: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 75: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 76: Added together with the preceding heading on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 77: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 78: Added together with the preceding heading on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 79: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 80: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 81: Corresponds to paragraph 23 as it read before 21 November 2017. On that date, paragraph 23 was amended and renumbered as paragraph 81 and the preceding heading was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. After 22 July 2010 and until 21 November 2017, paragraph 23 read as follows:

“23. The use of base companies may also be addressed through controlled foreign companies provisions. A significant number of member and non-member countries have now adopted such legislation. Whilst the design of this type of legislation varies considerably among countries, a common feature of these rules, which are now internationally recognised as a legitimate instrument to protect the domestic tax base, is that they result in a Contracting State taxing its residents on income attributable to their participation in certain foreign entities. It has sometimes been argued, based on a certain interpretation of provisions of the Convention such as paragraph 1 of Article 7 and paragraph 5 of Article 10, that this common feature of controlled foreign companies legislation conflicted with these provisions. For the reasons explained in paragraphs 14 of the Commentary on Article 7 and 37 of the Commentary on Article 10, that interpretation does not accord with the text of the provisions. It also does not hold when these provisions are read in their context. Thus, whilst some countries have felt it useful to expressly clarify, in their conventions, that controlled foreign companies legislation did not conflict with the Convention, such clarification is not necessary. It is recognised that controlled foreign companies legislation structured in this way is not contrary to the provisions of the Convention.”

Paragraph 23 was previously amended on 22 July 2010, by replacing the cross-reference to paragraph “13 of the Commentary on Article 7” with “14 of the Commentary on Article 7”, by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010. After 17 July 2008 and until 22 July 2010, paragraph 23 read as follows:

“23. The use of base companies may also be addressed through controlled foreign companies provisions. A significant number of Member and non-member countries have now adopted such legislation. Whilst the design of this type of legislation varies considerably among countries, a common feature of these rules, which are now internationally recognised as a legitimate instrument to protect the domestic tax base, is that they result in a Contracting State taxing its residents on income attributable to their participation in certain foreign entities. It has sometimes been argued, based on a certain interpretation of provisions of the Convention such as paragraph 1 of Article 7 and paragraph 5 of Article 10, that this common feature of controlled foreign companies legislation conflicted with these provisions. For the reasons explained in paragraphs 13 of the Commentary on Article 7 and 37 of the Commentary on Article 10, that interpretation does not accord with the text of the provisions. It also does not hold when these provisions are read in their context. Thus, whilst some countries have felt it useful to expressly clarify, in their conventions, that controlled foreign companies legislation did not conflict with the Convention, such clarification is not necessary. It is recognised that controlled foreign companies legislation structured in this way is not contrary to the provisions of the Convention.”

Paragraph 23 was previously amended on 17 July 2008, by replacing the cross-reference to paragraph “10.1 of the Commentary on Article 7” with “13 of the Commentary on Article 7”, by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008. After 28 January 2003 and until 17 July 2008, paragraph 23 read as follows:

“23. The use of base companies may also be addressed through controlled foreign companies provisions. A significant number of Member and non-member countries have now adopted such legislation. Whilst the design of this type of legislation varies considerably among countries, a common feature of these rules, which are now internationally recognised as a legitimate instrument to protect the domestic tax base, is that they result in a Contracting State taxing its residents on income attributable to their participation in certain foreign entities. It has sometimes been argued, based on a certain interpretation of provisions of the Convention such as paragraph 1 of Article 7 and paragraph 5 of Article 10, that this common feature of controlled foreign companies legislation conflicted with these provisions. For the reasons explained in paragraphs 13 of the Commentary on Article 7 and 37 of the Commentary on Article 10, that interpretation does not accord with the text of the provisions. It also does not hold when these provisions are read in their context. Thus, whilst some countries have felt it useful to expressly clarify, in their conventions, that controlled foreign companies legislation did not conflict with the Convention, such clarification is not necessary. It is recognised that controlled foreign companies legislation structured in this way is not contrary to the provisions of the Convention.”

Paragraph 23 was replaced on 28 January 2003 when it when it was deleted and a new paragraph 23 was added by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003. After 21 September 1995 and until 28 January 2003, paragraph 23 read as follows:

“23. The large majority of OECD member countries consider that such measures are part of the basic domestic rules set by national tax law for determining which facts give rise to a tax liability. These rules are not addressed in tax treaties and are therefore not affected by them. One could invoke the spirit of the Convention, which would be violated only if a company, which is a person within the meaning of the Convention, ended up with no or almost no activity or income being attributed to it, and the Contracting States took divergent views on the subject, with economic double taxation resulting therefrom, the same income being taxed twice in the hands of two different taxpayers (see paragraph 2 of Article 9). A dissenting view, on the other hand, holds that such rules are subject to the general provisions of tax treaties against double taxation, especially where the treaty itself contains provisions aimed at counteracting its improper use.”

Paragraph 23 was amended on 21 September 1995, by replacing the words “almost no activity and/or income” with “almost no activity or income” in the third sentence, on 21 September 1995 when a number of minor drafting changes that did not affect the meaning of the text were made to the Commentary on Article 1. After 23 July 1992 and until 21 September 1995, paragraph 23 read as follows:

“23. The large majority of OECD member countries consider that such measures are part of the basic domestic rules set by national tax law for determining which facts give rise to a tax liability. These rules are not addressed in tax treaties and are therefore not affected by them. One could invoke the spirit of the Convention, which would be violated only if a company, which is a person within the meaning of the Convention, ended up with no or almost no activity and/or income being attributed to it, and the Contracting States took divergent views on the subject, with economic double taxation resulting therefrom, the same income being taxed twice in the hands of two different taxpayers (see paragraph 2 of Article 9). A dissenting view, on the other hand, holds that such rules are subject to the general provisions of tax treaties against double taxation, especially where the treaty itself contains provisions aimed at counteracting its improper use.”

Paragraph 23 was added on 23 July 1992 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992, on the basis of paragraph 39 of a previous report entitled “Double Taxation Conventions and the Use of Base Companies” (adopted by the OECD Council on 27 November 1986).

Paragraph 82: Added together with the preceding heading on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 83: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 84: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 85: Added together with the preceding heading on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 86: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 87: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 88: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 89: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 90: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 91: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 92: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 93: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 94: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 95: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 96: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 97: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 98: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 99: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 100: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 101: Amended on 18 November 2025, by deleting “the first-mentioned Contracting State” at the beginning of subparagraph b) of paragraph 1 of the alternative provision, by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025. After 21 November 2017 and until 18 November 2025, subparagraph b) of paragraph 1 of the alternative provision read as follows:

“b) the first-mentioned Contracting State provides an exemption from taxation to resident companies for substantially all foreign source income (including interest and royalties),”

Paragraph 101 was added together with the preceding heading on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15- 16 November 2015.

Paragraph 102: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 103: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 104: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 105: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 106: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 107: Amended on 18 November 2025, by deleting the parenthetical “(as defined in paragraph 8 of Article 5)” in the alternative provision, by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary, adopted by the OECD Council on 18 November 2025. After 21 November 2017 and until 18 November 2025, paragraph 107 read as follows:

“2. Notwithstanding the provisions of paragraph 1 of this Article, interest arising in a Contracting State and beneficially owned by a resident of the other Contracting State that is connected to the payer (as defined in paragraph 8 of Article 5) may be taxed in the first-mentioned Contracting State in accordance with domestic law if such resident benefits, at any time during the taxable year in which the interest is paid, from notional deductions with respect to amounts that the Contracting State of which the beneficial owner is a resident treats as equity.”

Paragraph 107 was added together with the preceding heading on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 108: Corresponds to paragraph 26.1 as it read before 21 November 2017. On that date, paragraph 26.1 was amended and renumbered as paragraph 108 and the preceding heading was amended and moved with it by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 28 January 2003 and until 21 November 2017, paragraph 26.1 and the heading that preceded it read as follows:

“Remittance based taxation

26.1 Under the domestic law of some States, persons who qualify as residents but who do not have what is considered to be a permanent link with the State (sometimes referred to as domicile) are only taxed on income derived from sources outside the State to the extent that this income is effectively repatriated, or remitted, thereto. Such persons are not, therefore, subject to potential double taxation to the extent that foreign income is not remitted to their State of residence and it may be considered inappropriate to give them the benefit of the provisions of the Convention on such income. Contracting States which agree to restrict the application of the provisions of the Convention to income that is effectively taxed in the hands of these persons may do so by adding the following provision to the Convention:

Where under any provision of this Convention income arising in a Contracting State is relieved in whole or in part from tax in that State and under the law in force in the other Contracting State a person, in respect of the said income, is subject to tax by reference to the amount thereof which is remitted to or received in that other State and not by reference to the full amount thereof, then any relief provided by the provisions of this Convention shall apply only to so much of the income as is taxed in the other Contracting State.

In some States, the application of that provision could create administrative difficulties if a substantial amount of time elapsed between the time the income arose in a Contracting State and the time it were taxed by the other Contracting State in the hands of a resident of that other State. States concerned by these difficulties could subject the rule in the last part of the above provision, i.e. that the income in question will be entitled to benefits in the first-mentioned State only when taxed in the other State, to the condition that the income must be so taxed in that other State within a specified period of time from the time the income arises in the first-mentioned State.”

Paragraph 26.1 was added with the heading preceding it on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003.

Paragraph 109: Corresponds to paragraph 26.2 as it read before 21 November 2017. On that date, paragraph 26.2 was renumbered as paragraph 109 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 26.2 was added with the preceding heading on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003.

Paragraph 110: Deleted on 18 November 2025 together with the heading preceding it by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025. After 21 November 2017 and until 18 November 2025, paragraph 110 and the heading preceding it read as follows:

“Observation on the Commentary

110. With respect to paragraph 81, Switzerland considers that controlled foreign corporation legislation may, depending on the relevant concept, be contrary to the spirit of Article 7.”

Paragraph 110 as it read after 21 November 2017 corresponded to paragraph 27.9 as it read before that date. On 21 November 2017, paragraph 27.9 was amended and renumbered as paragraph 110 and the preceding heading was moved with it by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 28 January 2003 and until 21 November 2017, paragraph 27.9 read as follows:

“27.9 Switzerland does not share the view expressed in paragraph 7 according to which the purpose of double taxation conventions is to prevent tax avoidance and evasion. Also, this view seems to contradict the footnote to the Title of the Model Tax Convention. With respect to paragraph 22.1, Switzerland believes that domestic tax rules on abuse of tax conventions must conform to the general provisions of tax conventions, especially where the convention itself includes provisions intended to prevent its abuse. With respect to paragraph 23, Switzerland considers that controlled foreign corporation legislation may, depending on the relevant concept, be contrary to the spirit of Article 7.”

Paragraph 27.9 was added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003.

Paragraph 111: Amended on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025. After 21 November 2017 and until 18 November 2025, paragraph 111 read as follows:

“111. The United States reserves the right, with certain exceptions, to tax its citizens and residents, including certain former citizens and long-term residents, without regard to the Convention.”

Paragraph 111 corresponds to paragraph 28 as it read before 21 November 2017. On that date, paragraph 28 was renumbered as paragraph 111 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 28 was amended on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000. After 23 July 1992 and until 29 April 2000, paragraph 28 read as follows:

“28. The United States reserves the right to tax its citizens and residents (with certain exceptions) without regard to the Convention.”

Paragraph 28 as it read after 23 July 1992 corresponded to paragraph 11 of the 1977 Model Convention, which was renumbered as paragraph 28 by the report entitled “The Revision of the 1977 Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 11 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 112: Amended on 18 November 2025, by adding Chile as a country making the reservation, by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025. After 21 November 2017 and until 18 November 2025, paragraph 112 read as follows:

“112. Canada reserves the right to limit the entities or arrangements covered under paragraph 2 to those that are established in one of the Contracting States.”

Paragraph 112 was added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 113: Amended on 18 November 2025, by adding Mexico as a country making the reservation, by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025. After 21 November 2017 and until 18 November 2025, paragraph 113 read as follows:

“113. France reserves the right, in its conventions, not to include or to amend paragraph 2 in order to specify in which situations France will recognise the fiscal transparency of entities located in the other Contracting State or in a third State.”

Paragraph 113 was added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 114: Amended on 18 November 2025, by adding Costa Rica as a country making the reservation, by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025. After 21 November 2017 and until 18 November 2025, paragraph 114 read as follows:

“114. Germany reserves the right not to include paragraph 2 in its conventions.”

Paragraph 114 was added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 115: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 116: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 117: Amended on 18 November 2025, by adding Costa Rica, Latvia and Spain to the list of countries making the reservation, by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025. After 21 November 2017 and until 18 November 2025, paragraph 117 read as follows:

“117. France, Germany, Hungary, Ireland, Luxembourg and Switzerland reserve the right not to include paragraph 3 in their conventions.”

Paragraph 117 was added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 118: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 119: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 120: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Commentary on Article 2
Concerning taxes covered by the Convention

1. This Article is intended to make the terminology and nomenclature relating to the taxes covered by the Convention more acceptable and precise, to ensure identification of the Contracting States’ taxes covered by the Convention, to widen as much as possible the field of application of the Convention by including, as far as possible, and in harmony with the domestic laws of the Contracting States, the taxes imposed by their political subdivisions or local authorities, to avoid the necessity of concluding a new convention whenever the Contracting States’ domestic laws are modified, and to ensure for each Contracting State notification of significant changes in the taxation laws of the other State.

(Amended on 29 April 2000; see HISTORY)

Paragraph 1

2. This paragraph defines the scope of application of the Convention: taxes on income and on capital; the term “direct taxes” which is far too imprecise has therefore been avoided. It is immaterial on behalf of which authorities such taxes are imposed; it may be the State itself or its political subdivisions or local authorities (constituent States, regions, provinces, départements, cantons, districts, arrondissements, Kreise, municipalities or groups of municipalities, etc.). The method of levying the taxes is equally immaterial: by direct assessment or by deduction at the source, in the form of surtaxes or surcharges, or as additional taxes (centimes additionnels), etc.

(Amended on 11 April 1977; see HISTORY)

Paragraph 2

3. This paragraph gives a definition of taxes on income and on capital. Such taxes comprise taxes on total income and on elements of income, on total capital and on elements of capital. They also include taxes on profits and gains derived from the alienation of movable or immovable property, as well as taxes on capital appreciation. Finally, the definition extends to taxes on the total amounts of wages or salaries paid by undertakings (“payroll taxes”; in Germany, “Lohnsummensteuer”). Social security charges, or any other charges paid where there is a direct connection between the levy and the individual benefits to be received, shall not be regarded as “taxes on the total amount of wages”.

(Amended on 18 November 2025; see HISTORY)

4. Clearly a State possessing the right to tax an item of income or capital under the Convention may levy the taxes imposed by its legislation together with any duties or charges accessory to them: increases, costs, interest, penalties etc. It has not been considered necessary to specify this in the Article, as it is obvious that a Contracting State that has the right to levy a tax may also levy the accessory duties or charges related to the principal duty. Most States, however, do not consider that interest and penalties accessory to taxes covered by Article 2 are themselves included within the scope of Article 2 and, accordingly, would generally not treat such interest and penalties as payments to which all the provisions concerning the rights to tax of the State of source (or situs) or of the State of residence are applicable, including the limitations of the taxation by the State of source and the obligation for the State of residence to eliminate double taxation. Nevertheless, where taxation is withdrawn or reduced in accordance with a mutual agreement under Article 25, interest and administrative penalties accessory to such taxation should be withdrawn or reduced to the extent that they are directly connected to the taxation (i.e. a tax liability) that is relieved under the mutual agreement. This would be the case, for example, where the additional charge is computed with reference to the amount of the underlying tax liability and the competent authorities agree that all or part of the underlying taxation is not in accordance with the provisions of the Convention. This would also be the case, for example, where administrative penalties are imposed by reason of a transfer pricing adjustment and that adjustment is withdrawn because it is considered not in accordance with paragraph 1 of Article 9.

(Amended on 21 November 2017; see HISTORY)

5. The Article does not mention “ordinary taxes” or “extraordinary taxes”. Normally, it might be considered justifiable to include extraordinary taxes in a model convention, but experience has shown that such taxes are generally imposed in very special circumstances. In addition, it would be difficult to define them. They may be extraordinary for various reasons; their imposition, the manner in which they are levied, their rates, their objects, etc. This being so, it seems preferable not to include extraordinary taxes in the Article. But, as it is not intended to exclude extraordinary taxes from all conventions, ordinary taxes have not been mentioned either. The Contracting States are thus free to restrict the convention’s field of application to ordinary taxes, to extend it to extraordinary taxes, or even to establish special provisions.

(Amended on 11 April 1977; see HISTORY)

Paragraph 3

6. This paragraph lists the taxes in force at the time of signature of the Convention. The list is not exhaustive. It serves to illustrate the preceding paragraphs of the Article. In principle, however, it will be a complete list of taxes imposed in each State at the time of signature and covered by the Convention.

(Added on 30 July 1963; see HISTORY)

6.1 Some Member countries do not include paragraphs 1 and 2 in their bilateral conventions. These countries prefer simply to list exhaustively the taxes in each country to which the Convention will apply, and clarify that the Convention will also apply to subsequent taxes that are similar to those listed. Countries that wish to follow this approach might use the following wording:

1. The taxes to which the Convention shall apply are:

1. (in State A): ……………………..

2. (in State B): ……………………..

2. The Convention shall apply also to any identical or substantially similar taxes that are imposed after the date of signature of the Convention in addition to, or in place of, the taxes listed in paragraph 1. The competent authorities of the Contracting States shall notify each other of any significant changes that have been made in their taxation laws.

As mentioned in paragraph 3 above, social security charges and similar charges should be excluded from the list of taxes covered.

(Added on 29 April 2000; see HISTORY)

Paragraph 4

7. This paragraph provides, since the list of taxes in paragraph 3 is purely declaratory, that the Convention is also to apply to all identical or substantially similar taxes that are imposed in a Contracting State after the date of signature of the Convention in addition to, or in place of, the existing taxes in that State.

(Amended on 29 April 2000; see HISTORY)

8. Each State undertakes to notify the other of any significant changes made to its taxation laws by communicating to it, for example, details of new or substituted taxes. Member countries are encouraged to communicate other significant developments as well, such as new regulations or judicial decisions; many countries already follow this practice. Contracting States are also free to extend the notification requirement to cover any significant changes in other laws that have an impact on their obligations under the convention; Contracting States wishing to do so may replace the last sentence of the paragraph by the following:

The competent authorities of the Contracting States shall notify each other of any significant changes that have been made in their taxation laws or other laws affecting their obligations under the Convention.

(Amended on 29 April 2000; see HISTORY)

Observation on the Commentary

9. Portugal does not adhere to the interpretation in the last three sentences of paragraph 4 of the Commentary on Article 2. Portugal holds the view that interest and penalties are not taxes covered by the Convention and, therefore, cannot be dealt with in the mutual agreement procedure.

(Added on 21 November 2017; see HISTORY)

Reservations on the Article

10. Canada, Chile, Mexico and the United States reserve their positions on that part of paragraph 1 which states that the Convention should apply to taxes of political subdivisions or local authorities.

(Amended on 18 November 2025; see HISTORY)

11. Australia, Colombia, Japan and Korea reserve their position on that part of paragraph 1 which states that the Convention shall apply to taxes on capital.

(Amended on 18 November 2025; see HISTORY)

12. Greece and Latvia hold the view that “taxes on the total amounts of wages or salaries paid by enterprises” should not be regarded as taxes on income and therefore will not be covered by the Convention.

(Amended on 21 November 2017; see HISTORY)

13. Colombia and Costa Rica reserve the right not to include in paragraph 1 taxes imposed on behalf of political subdivisions or local authorities.

(Added on 18 November 2025; see HISTORY)

14. Costa Rica reserves its position on that part of paragraph 2 which states that the Convention shall apply to taxes on capital appreciation.

(Added on 18 November 2025; see HISTORY)

15. France reserves the right not to include in its tax conventions the reference to “taxes on the total amount of wages or salaries paid by enterprise” insofar as France does not consider such taxes to be covered income taxes.

(Added on 18 November 2025; see HISTORY)

16. France reserves the right to replace the term “local” by “territorial” in its conventions in the case of authorities, in accordance with its Constitution.

(Added on 18 November 2025; see HISTORY)

17. Hungary reserves its position on that part of paragraph 1 which states that the Convention shall apply to taxes on capital if there is no capital tax in the other Contracting State.

(Added on 18 November 2025; see HISTORY)

18. Spain reserves its position on that part of paragraph 1 which states that the Convention should apply to taxes of local authorities.

(Added on 18 November 2025; see HISTORY)

History

Paragraph 1: Amended on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000. In the 1977 Model Convention and until 29 April 2000, paragraph 1 read as follows:

“1. This Article is intended to make the terminology and nomenclature relating to the taxes covered by the Convention more acceptable and precise, to ensure identification of the Contracting States’ taxes covered by the Convention, to widen as much as possible the field of application of the Convention by including, as far as possible, and in harmony with the domestic laws of the Contracting States, the taxes imposed by their political subdivisions or local authorities, and to avoid the necessity of concluding a new convention whenever the Contracting States’ domestic laws are modified, by means of the periodical exchange of lists and through a procedure for mutual consultation.”

Paragraph 1 was previously amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 1 read as follows:

“1. The Article is intended to make the terminology and nomenclature relating to the taxes covered by the Convention more acceptable and precise, to ensure identification of the Contracting States’ taxes covered by the Convention, to widen as much as possible the field of application of the Convention by including as far as possible, and in harmony with the internal legislation of the Contracting States, the taxes imposed by their political subdivisions or local authorities – and to avoid the necessity of concluding a new Convention whenever the Contracting States’ taxation legislation is modified, by means of the periodical exchange of lists and through a procedure for mutual consultation.”

Paragraph 2: Amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 2 read as follows:

“2. This paragraph defines the subject of the Convention: taxes on income and capital; the term “direct taxes” which is far too imprecise has therefore been omitted. It is immaterial on behalf of which authorities such taxes are imposed; it may be the State itself or its political subdivisions or local authorities (constituent States, regions, provinces, “departements”, Cantons, districts, “arrondissements”, circles [“Kreise”], municipalities or groups of municipalities, etc.). The method of levying the taxes is equally immaterial: by direct assessment or by deduction at the source, in the form of surtaxes or surcharges, or as additional taxes [“centimes additionels”], etc.”

Paragraph 3: Amended on 18 November 2025, by deleting the words “; in France, “taxe sur les salaires””, by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025. After 11 April 1977 and until 18 November 2025, paragraph 3 read as follows:

“3. This paragraph gives a definition of taxes on income and on capital. Such taxes comprise taxes on total income and on elements of income, on total capital and on elements of capital. They also include taxes on profits and gains derived from the alienation of movable or immovable property, as well as taxes on capital appreciation. Finally, the definition extends to taxes on the total amounts of wages or salaries paid by undertakings (“payroll taxes”; in Germany, “Lohnsummensteuer”; in France, “taxe sur les salaires”). Social security charges, or any other charges paid where there is a direct connection between the levy and the individual benefits to be received, shall not be regarded as “taxes on the total amount of wages”.”

Paragraph 3 was previously amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 3 read as follows:

“3. This paragraph explains what is meant by taxes on income and capital. Such taxes comprise taxes on total income and on each element of income, on total capital and on each element of capital. They also include taxes on profits derived from the alienation of movable or immovable property, i.e. in particular capital gains and profits on real property, as well as taxes on capital appreciation, Finally, the definition extends to taxes on the total amounts of wages or salaries paid by undertakings (“payroll taxes”; in Germany, “Lohnsummensteuer”; in France the “versement forfaitaire a la charge des employeurs”).”

Paragraph 4: Amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 29 April 2000 and until 21 November 2017, paragraph 4 read as follows:

“4. Clearly a State possessing taxing powers – and it alone – may levy the taxes imposed by its legislation together with any duties or charges accessory to them: increases, costs, interest, etc. It has not been considered necessary to specify this in the Article, as it is obvious that in the levying of the tax the accessory duties or charges depend on the same rule as the principal duty. Practice among member countries varies with respect to the treatment of interest and penalties. Some countries never treat such items as taxes covered by the Article. Others take the opposite approach, especially in cases where the additional charge is computed with reference to the amount of the underlying tax. Countries are free to clarify this point in their bilateral negotiations.”

Paragraph 4 was previously amended on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until 29 April 2000, paragraph 4 read as follows:

“4. Clearly a State possessing taxing powers – and it alone – may levy the taxes imposed by its legislation together with any duties or charges accessory to them: increases, costs, interest, etc. It has not been considered necessary to specify this in the Article, as it is obvious that in the levying of the tax the accessory duties or charges depend on the same rule as the principal duty.”

Paragraph 5: Amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 5 read as follows:

“5. The Article does not mention ‘ordinary taxes’ or ‘extraordinary taxes’. Normally, it might be considered justifiable to include extraordinary taxes in a draft Convention, but experience has shown that such taxes are generally imposed in very special circumstances. In addition, it would be difficult to define them. They may be extraordinary for various reasons; their imposition, the manner in which they are levied, their rates, their objects, etc. This being so, it seems preferable not to include extraordinary taxes in the Article. But, as it is not intended to exclude extraordinary taxes from all the Conventions, ordinary taxes have not been mentioned either. The Contracting States are thus free to restrict the Convention’s field of application to ordinary taxes, to extend it to extraordinary taxes, or even to establish special provisions.”

Paragraph 6: Unchanged since the adoption of the 1963 Draft Convention by the OECD Council on 30 July 1963.

Paragraph 6.1: Added on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000.

Paragraph 7: Amended on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000. In the 1977 Model Convention and until 29 April 2000, paragraph 7 read as follows:

“7. This paragraph provides, since the list of taxes in paragraph 3 is purely declaratory, that the Convention is also to apply to all identical or substantially similar taxes which are imposed after the date of signature of the Convention in addition to, or in place of, the existing taxes. This provision is necessary to prevent the Convention from becoming inoperative in the event of one of the States modifying its taxation laws.”

Paragraph 7 was previously amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 7 read as follows:

“7. This paragraph provides, since the list of taxes in paragraph 3 is purely declaratory, that the Convention is also to apply to all identical or substantially similar taxes which are subsequently imposed in addition to, or in place of the existing taxes. This provision is necessary to prevent the Convention from becoming inoperative in the event of one of the States modifying its laws.”

Paragraph 8: Amended on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000. In the 1977 Model Convention and until 29 April 2000, paragraph 8 read as follows:

“8. Each State undertakes to notify the other of any amendments made to its taxation laws by communicating to it at the end of each year, when necessary, a list of new or substituted taxes imposed during that year.”

Paragraph 8 was previously amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 8 read as follows:

“8. Each State undertakes to notify to the other any amendments made to its tax laws by communication to it at the end of each year, when necessary, a list of new or substituted taxes, imposed during that year.”

Paragraph 9: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 9 and the heading preceding it were deleted on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003. After 21 September 1995 and until 28 January 2003, paragraph 9 and the heading read as follows:

“Observation on the Commentary

9. In contexts such as limitations on the rate of tax or the granting of credits for foreign tax, New Zealand would wish to make it clear that the term “tax” does not include penalties, or interest on overpayment or underpayment of tax.”

Paragraph 9 was amended on 21 September 1995, by adding the words “, or interest on overpayment or underpayment of tax”, by the report entitled “The 1995 Update to the Model Tax Convention”, adopted by the OECD Council on 21 September 1995. In the 1977 Model Convention and until 21 September 1995, paragraph 9 read as follows:

“9. In contexts such as limitations on the rate of tax or the granting of credits for foreign tax, New Zealand would wish to make it clear that the term “tax” does not include penalties.”

Paragraph 9 was replaced when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 9 of the 1963 Draft Convention was amended and renumbered as paragraph 10 (see history of paragraph 10) and a new paragraph 9 was added. In addition, the heading preceding paragraph 9 was moved immediately before paragraph 10 and a new heading was added immediately before paragraph 9.

Paragraph 10: Amended on 18 November 2025, by adding Mexico to the list of countries making the reservation, by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025. After 22 July 2010 and until 18 November 2025, paragraph 10 read as follows:

“10. Canada, Chile, and the United States reserve their positions on that part of paragraph 1 which states that the Convention should apply to taxes of political subdivisions or local authorities.”

Paragraph 10 was previously amended on 22 July 2010, by adding Chile to the list of countries making the reservation, by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010. After 15 July 2005 and until 22 July 2010, paragraph 10 read as follows:

“10. Canada and the United States reserve their positions on that part of paragraph 1 which states that the Convention should apply to taxes of political subdivisions or local authorities.”

Paragraph 10 was previously amended on 15 July 2005 by deleting Australia from the list of countries making the reservation, by the report entitled “The 2005 Update to the Model Tax Convention”, adopted by the OECD Council on 15 July 2005. In the 1977 Model Convention and until 15 July 2005, paragraph 10 read as follows:

“10. Australia, Canada and the United States reserve their positions on that part of paragraph 1 which states that the Convention should apply to taxes of political subdivisions or local authorities.”

Paragraph 10 of the 1977 Model Convention corresponded to paragraph 9 of the 1963 Draft Convention. Paragraph 9 of the 1963 Draft Convention was amended and renumbered as paragraph 10 and the heading preceding paragraph 9 was moved with it when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 9 read as follows:

“9. Canada and the United States reserve their position on that part of paragraph 1 of the Article which states that the Convention shall apply to taxes of political subdivisions or local authorities.”

Paragraph 11: Amended on 18 November 2025, by adding Colombia to the list of countries making the reservation, by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025. After 15 July 2005 and until 18 November 2025, paragraph 11 read as follows:

“11. Australia, Japan and Korea reserve their position on that part of paragraph 1 which states that the Convention shall apply to taxes on capital.”

Paragraph 11 was previously amended on 15 July 2005, by adding Australia to the list of countries making the reservation, by the report entitled “The 2005 Update to the Model Tax Convention”, adopted by the OECD Council on 15 July 2005. After 23 October 1997 and until 15 July 2005, paragraph 11 read as follows:

“11. Japan and Korea reserve their position on that part of paragraph 1 which states that the Convention shall apply to taxes on capital.”

Paragraph 11 was previously amended on 23 October 1997, by adding Korea to the list of countries making the reservation, by the report entitled “The 1997 Update to the Model Tax Convention”, adopted by the OECD Council on 23 October 1997. In the 1977 Model Convention and until 23 October 1997, paragraph 11 read as follows:

“11. Japan reserves its position on that part of paragraph 1 which states that the Convention shall apply to taxes on capital.”

Paragraph 11 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 12: Amended on 21 November 2017 by adding Latvia as a country making the reservation by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 21 September 1995 and until 21 November 2017, paragraph 12 read as follows:

“12. Greece holds the view that “taxes on the total amounts of wages or salaries paid by enterprises” should not be regarded as taxes on income and therefore will not be covered by the Convention.”

Paragraph 12 was added on 21 September 1995 by the report entitled “The 1995 Update to the Model Tax Convention”, adopted by the OECD Council on 21 September 1995.

Paragraph 13: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 14: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 15: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 16: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 17: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 18: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Commentary on Article 3
Concerning general definitions

1. This Article groups together a number of general provisions required for the interpretation of the terms used in the Convention. The meaning of some important terms, however, is explained elsewhere in the Convention. Thus, the terms “resident” and “permanent establishment” are defined in Articles 4 and 5 respectively, while the interpretation of certain terms appearing in the Articles on special categories of income (“income from immovable property”, “dividends”, etc.) is clarified by provisions embodied in those Articles. In addition to the definitions contained in the Article, Contracting States are free to agree bilaterally on definitions of the terms “a Contracting State” and “the other Contracting State”. Furthermore, Contracting States are free to agree bilaterally to include in the possible definitions of “Contracting States” a reference to continental shelves.

(Amended on 21 September 1995; see HISTORY)

Paragraph 1

The term “person”

2. The definition of the term “person” given in subparagraph a) is not exhaustive and should be read as indicating that the term “person” is used in a very wide sense (see especially Articles 1 and 4). The definition explicitly mentions individuals, companies and other bodies of persons. From the meaning assigned to the term “company” by the definition contained in subparagraph b) it follows that, in addition, the term “person” includes any entity that, although not incorporated, is treated as a body corporate for tax purposes. Thus, e.g. a foundation (fondation, Stiftung) may fall within the meaning of the term “person”. Partnerships will also be considered to be “persons” either because they fall within the definition of “company” or, where this is not the case, because they constitute other bodies of persons.

(Amended on 29 April 2000; see HISTORY)

The term “company”

3. The term “company” means in the first place any body corporate. In addition, the term covers any other taxable unit that is treated as a body corporate for the purposes of the tax law of the Contracting State of which it is a resident. The definition is drafted with special regard to the Article on dividends. The term “company” has a bearing only on that Article, paragraphs 7 and 8 of Article 5, and Articles 16 and 29.

(Amended on 21 November 2017; see HISTORY)

The term “enterprise”

4. The question whether an activity is performed within an enterprise or is deemed to constitute in itself an enterprise has always been interpreted according to the provisions of the domestic laws of the Contracting States. No exhaustive definition of the term “enterprise” has therefore been attempted in this Article. However, it is provided that the term “enterprise” applies to the carrying on of any business. Since the term “business” is expressly defined to include the performance of professional services and of other activities of an independent character, this clarifies that the performance of professional services or other activities of an independent character must be considered to constitute an enterprise, regardless of the meaning of that term under domestic law. States which consider that such clarification is unnecessary are free to omit the definition of the term “enterprise” from their bilateral conventions.

(Amended on 29 April 2000; see HISTORY)

The term “international traffic”

5. The definition of the term “international traffic” is based on the principle set forth in paragraph 1 of Article 8 that the right to tax profits of an enterprise of a Contracting State from the operation of ships or aircraft in international traffic resides only in that State in view of the special nature of the international traffic business. However, as stated in the Commentary on paragraph 1 of Article 8, the Contracting States are free on a bilateral basis to insert in subparagraph e) a reference to the State in which the place of effective management of the enterprise is situated. In such a case, the definition should read: “the term ‘international traffic’ means any transport by a ship or aircraft except when the ship or aircraft is operated solely between places in a Contracting State in which the enterprise that operates the ship or aircraft does not have its place of effective management”.

(Amended on 21 November 2017; see HISTORY)

6. The definition of the term “international traffic” is broader than is normally understood. The broader definition is intended to preserve for the State of the enterprise the right to tax purely domestic traffic as well as international traffic between third States, and to allow the other Contracting State to tax traffic solely within its borders. This intention may be clarified by the following illustration. Suppose an enterprise of a Contracting State, through an agent in the other Contracting State, sells tickets for a passage that is confined wholly within the first-mentioned State or alternatively, within a third State. The Article does not permit the other State to tax the profits of either voyage. The other State is allowed to tax such an enterprise of the first-mentioned State only where the operations are confined solely to places in that other State.

(Amended on 21 November 2017; see HISTORY)

6.1 The definition was amended in 2017 to ensure that it also applied to a transport by a ship or aircraft operated by an enterprise of a third State. Whilst this change does not affect the application of Article 8, which only deals with profits of an enterprise of a Contracting State, it allows the application of paragraph 3 of Article 15 to a resident of a Contracting State who derives remuneration from employment exercised aboard a ship or aircraft operated by an enterprise of a third State.

(Replaced on 21 November 2017; see HISTORY)

6.2 A ship or aircraft is operated solely between places in a State in relation to a particular voyage if the place of departure and the place of arrival of the ship or aircraft are both in that State. However, the definition applies where the journey of a ship or aircraft between places in a State forms part of a longer voyage of that ship or aircraft involving a place of departure or a place of arrival which is outside that State. For example, where, as part of the same voyage, an aircraft first flies between a place in one Contracting State to a place in the other Contracting State and then continues to another destination also located in that other Contracting State, the first and second legs of that trip will both be part of a voyage regarded as falling within the definition of “international traffic”.

(Renumbered and amended on 21 November 2017; see HISTORY)

6.3 Some States take the view that the definition of “international traffic” should rather refer to a transport as being the journey of a passenger or cargo so that any voyage of a passenger or cargo solely between two places in the same Contracting State should not be considered as covered by the definition even if that voyage is made on a ship or plane that is used for a voyage in international traffic. Contracting States having that view may agree bilaterally to delete the reference to “the ship or aircraft” in the first part of the exception included in the definition, so as to use the following definition:

1. the term “international traffic” means any transport by a ship or aircraft except when such transport is solely between places in a Contracting State and the enterprise that operates the ship or aircraft is not an enterprise of that State;

(Renumbered and amended on 21 November 2017; see HISTORY)

6.4 The definition of “international traffic” does not apply when a ship or aircraft is operated between two places in a Contracting State and the enterprise that operates the ship or aircraft is not an enterprise of that State, even if part of the transport takes place outside that State. Thus, for example, a cruise beginning and ending in that State without a stop in a foreign port does not constitute a transport of passengers in international traffic. Contracting States wishing to expressly clarify that point in their conventions may agree bilaterally to amend the definition accordingly.

(Renumbered and amended on 21 November 2017; see HISTORY)

The term “competent authority”

7. The definition of the term “competent authority” recognises that in some OECD Member countries the execution of double taxation conventions does not exclusively fall within the competence of the highest tax authorities; some matters are reserved or may be delegated to other authorities. The present definition enables each Contracting State to designate one or more authorities as being competent.

(Amended on 21 September 1995; see HISTORY)

The term “national”

8. The definition of the term “national” merely stipulates that, in relation to a Contracting State, the term applies to any individual possessing the nationality or citizenship of that Contracting State. Whilst the concept of nationality covers citizenship, the latter term was also included in 2002 because it is more frequently used in some States. It was not judged necessary to include in the text of the Convention any more precise definition of the terms nationality and citizenship, nor did it seem indispensable to make any special comment on the meaning and application of these words. Obviously, in determining what is meant by “national” in the case of an individual, reference must be made to the sense in which the term is usually employed and each State’s particular rules on the acquisition or loss of nationality or citizenship.

(Amended on 28 January 2003; see HISTORY)

9. Subparagraph g) is more specific as to legal persons, partnerships and associations. By declaring that any legal person, partnership or association deriving its status as such from the laws in force in a Contracting State is considered to be a national, the provision disposes of a difficulty that often arises. In defining the nationality of companies, certain States have regard less to the law that governs the company than to the origin of the capital with which the company was formed or the nationality of the individuals or legal persons controlling it.

(Replaced on 23 July 1992; see HISTORY)

10. Moreover, in view of the legal relationship created between a company and the State under whose law it is organised, which from certain points of view is closely akin to the relationship of nationality in the case of individuals, it seems justifiable not to deal with legal persons, partnerships and associations in a special provision, but to assimilate them with individuals under the term “national”.

(Replaced on 23 July 1992; see HISTORY)

10.1 The separate mention of partnerships in subparagraph g) is not inconsistent with the status of a partnership as a person under subparagraph a). Under the domestic laws of some countries, it is possible for an entity to be a “person” but not a “legal person” for tax purposes. The explicit statement is necessary to avoid confusion.

(Added on 29 April 2000; see HISTORY)

The term “business”

10.2 The Convention does not contain an exhaustive definition of the term “business”, which, under paragraph 2, should generally have the meaning which it has under the domestic law of the State that applies the Convention. Subparagraph h), however, provides expressly that the term includes the performance of professional services and of other activities of an independent character. This provision was added in 2000 at the same time as Article 14, which dealt with Independent Personal Services, was deleted from the Convention. This addition, which ensures that the term “business” includes the performance of the activities which were previously covered by Article 14, was intended to prevent that the term “business” be interpreted in a restricted way so as to exclude the performance of professional services, or other activities of an independent character, in States where the domestic law does not consider that the performance of such services or activities can constitute a business. Contracting States for which this is not the case are free to agree bilaterally to omit the definition.

(Added on 29 April 2000; see HISTORY)

The term “recognised pension fund”

10.3 The definition of the term “recognised pension fund” found in subparagraph i) was included in 2017 when this term was added to paragraph 1 of Article 4 in order to ensure that a pension fund that meets the definition is considered as a resident of the Contracting State in which it is established.

(Added on 21 November 2017; see HISTORY)

10.4 The effect of the definition of “recognised pension fund” and of the reference to that term in paragraph 1 of Article 4 will depend to a large extent on the domestic law and on the legal characteristics of the pension funds established in each Contracting State as well as on the other provisions of the Convention where the definition might be relevant.

(Added on 21 November 2017; see HISTORY)

10.5 In some States, a fund might be established within a legal entity (such as a company engaged in commercial activities, an insurance company or the State itself, or a political subdivision or local authority thereof) for the main purpose of providing retirement benefits to individuals, such as the employees of that entity or of other employers, or of investing funds for the benefit of other recognised pension funds. Such a fund might not, however, constitute a separate “person” (as this term is defined in subparagraph a)) under the taxation laws of the State in which it is established and, if that is the case, it would not meet the definition of recognised pension fund. To the extent, however, that the income derived from the investment assets of that fund is attributed, under the domestic law of the State in which it is established, to the legal entity (e.g. company engaged in commercial activities, insurance company or State) within which the fund has been established, the provisions of the Convention will apply to that income to the extent that the legal entity itself qualifies as a resident of a Contracting State under paragraph 1 of Article 4. As explained in paragraphs 8.7 to 8.10 of the Commentary on Article 4, the inclusion of the term “recognised pension fund” in paragraph 1 of Article 4 is irrelevant for such a fund.

(Added on 21 November 2017; see HISTORY)

10.6 There are also some States where a fund established for the main purpose of providing retirement benefits to individuals does not formally constitute a separate person under the taxation laws of the State in which it is established but where these taxation laws provide that the investment assets of the fund constitute a separate and distinct patrimony the income of which is not allocated to any person for tax purposes. These States may want to ensure that their domestic law and the definition of “person” in subparagraph a) are broad enough to include such a fund in order to make sure that the Convention, which applies to persons that are residents of the Contracting States, is applicable to the income derived through these funds.

(Added on 21 November 2017; see HISTORY)

10.7 As indicated in paragraph 69 of the Commentary on Article 18, where two Contracting States follow the same approach of generally exempting from tax the investment income of pension funds established in their territory, these States may include in their convention a provision extending that exemption to the investment income that a pension fund established in one State derives from the other State. The definition of “recognised pension fund” might then be used for that purpose. If that is the case, however, it would be necessary to ensure that a fund described in paragraph 10.5 above may qualify as a “recognised pension fund” in its own right notwithstanding the fact that it does not constitute a separate “person” under the taxation laws of the State in which it is established. Doing so, however, would require that, for the purposes of the Convention, the assets and income of such a fund are treated as the assets and income of a separate person so that, for example:

• the fund may constitute a person for the purposes of Article 1 and of all the relevant provisions of the Convention;

• the assets and income of the fund are considered those of a separate person and not those of the person within which the fund is established so that, for example, for the purposes of subparagraph a) of paragraph 2 of Article 10, any part of the capital of a company paying dividends to the fund that is held through the fund would not be aggregated with the capital of the same company that is held by the person within which the fund is established but that is not held through the fund;

• for the purposes of Articles 6 to 21, the income of the fund would be treated as derived, received and beneficially owned by the fund itself and not by the person within which the fund is established;

• the fund’s entitlement to treaty benefits under the limitation-on-benefits provisions of Article 29 is determined without consideration of the entitlement to treaty benefits of the person within which the fund is established.

(Added on 21 November 2017; see HISTORY)

10.8 The following is an example of a provision that could be added to the definition of “recognised pension fund” for that purpose:

Where an arrangement established in a Contracting State would constitute a recognised pension fund under subdivision (i) or (ii) if it were treated as a separate person under the taxation law of that State, it shall be considered, for the purposes of this Convention, as a separate person treated as such under the taxation law of that State and all the assets and income to which the arrangement applies shall be treated as assets held and income derived by that separate person and not by another person.

(Added on 21 November 2017; see HISTORY)

10.9 The first part of the definition of “recognised pension fund” refers to “an entity or arrangement established in that State”. There is considerable diversity in the legal and organisational characteristics of pension funds around the world and it is therefore necessary to adopt a broad formulation. The reference to an “arrangement” is intended to cover, among other things, cases where pension benefits are provided through vehicles such as a trust which, under the relevant trust law, would not constitute an entity: the definition will apply as long as the trust or the body of trustees is treated, for tax purposes, as a separate entity recognised as a separate person. It is required, however, that the entity or arrangement be treated as a separate person under the taxation laws of the State in which it is established: if that is not the case, it is not necessary to deal with the issue of the residence of the pension fund itself as the income of that fund is treated as the income of another person for tax purposes (see paragraph 10.5 above).

(Added on 21 November 2017; see HISTORY)

10.10 Subdivision (i) provides that in order to qualify as a “recognised pension fund”, an entity or arrangement must be established and operated exclusively or almost exclusively to administer or provide retirement and ancillary or incidental benefits to individuals. It does not matter how many individuals are entitled to such retirement benefits: a recognised pension fund may be set up, for instance, for a large group of employees or for a single self-employed individual. States are free to replace the phrase “retirement and ancillary or incidental benefits” by a different formulation, such as “retirement and similar benefits”, as long as this formulation is interpreted broadly to include benefits such as death benefits.

(Added on 21 November 2017; see HISTORY)

10.11 The phrase “exclusively or almost exclusively” makes it clear that all or almost all the activities of a recognised pension fund must be related to the administration or the provision of retirement benefits and ancillary or incidental benefits to individuals. The words “almost exclusively” recognise that a very small part of the activities of a pension fund might involve activities that are not strictly related to the administration or provision of such benefits (e.g. such as marketing the services of the pension fund). Some States, however, have a broader view of the term “recognised pension fund” and may want, for example, to cover entities or arrangements established and operated exclusively or almost exclusively to provide pensions and benefits, such as disability pensions, that are not related to retirement. These States are free to amend the definition so as to adapt it to their circumstances. In doing so, however, these States should take account of the fact that, as noted in paragraph 10.7 above, the definition of recognised pension fund may be used for the purposes of provisions exempting from source taxation the investment income that a pension fund established in one State derives from the other State; it will therefore be important for these States to ensure that the scope of that exemption is not inadvertently extended by changes made to the definition of “recognised pension fund”.

(Added on 21 November 2017; see HISTORY)

10.12 The entity or arrangement must be established and operated exclusively or almost exclusively for the purpose of administering or providing retirement benefits and ancillary or incidental benefits to individuals. A pension paid upon retirement from active employment or when an employee reaches retirement age would be the typical example of a “retirement benefit” but this term is broad enough to cover one or more payments made at or after retirement, or upon reaching retirement age, to an employee, a self-employed person or a director or officer of a company, even if these payments are not made in the form of regular pension payments.

(Added on 21 November 2017; see HISTORY)

10.13 In many States, pension funds provide a number of benefits that are not strictly linked to retirement and the phrase “ancillary or incidental benefits” is intended to cover such benefits. The words “ancillary or incidental” make it clear that such benefits are provided in addition to retirement benefits: a fund that would be set up primarily in order to provide benefits that are not retirement benefits would therefore not meet the definition. Whilst it would be impossible to provide an exhaustive list of all benefits that would qualify as “ancillary or incidental benefits”, the following are typical examples of such benefits:

• payments made as a result of the death or disability of an individual;

• pension or other types of payments made to surviving members of the family of a deceased individual who was entitled to retirement benefits;

• payments made to an individual suffering from a terminal illness;

• income substitution payments made in the case of long-term sickness or unemployment;

• housing benefits, such as a loan at a preferential rate granted from accumulated pension contributions to a pension contributor for the acquisition of a principal residence;

• education benefits, such as the withdrawal of accumulated pension contributions that a pension contributor would be allowed to make for the purpose of financing her education or that of her children;

• the provision of financial advice to pension contributors.

(Added on 21 November 2017; see HISTORY)

10.14 Subdivision (i) also requires that the entity or arrangement established and operated exclusively or almost exclusively to administer or provide retirement and ancillary or incidental benefits to individuals be “regulated as such”. The requirement is intended to restrict the definition to entities or arrangements that are subject to some conditions imposed by the State where it is established (or one of its political subdivisions or local authorities) in order to ensure that the entity or arrangement is used as a vehicle for investment in order to provide retirement and ancillary or incidental benefits to individuals. That part of the definition would therefore exclude an entity, such as a private company, that might be set up and used by a person to invest funds in order to provide retirement benefits to persons related to, or employed by, that person but that would not be subject to any special treatment or to rules imposed by the State, political subdivision or local authority concerning the use of that entity as a vehicle to provide retirement benefits. It does not matter whether the regulatory framework to which the entity or arrangement is subjected is provided in tax laws or in other legal instruments (e.g. the legislation that establishes a State-owned entity that will operate a public pension fund); what matters is that the entity or arrangement be recognised by law as a vehicle established to finance retirement benefits for individuals and be subject to conditions intended to ensure that it is used for that purpose.

(Added on 21 November 2017; see HISTORY)

10.15 An example of an entity or arrangement that would satisfy the requirements of the definition of “recognised pension fund” is an agency or instrumentality of a State set up exclusively or almost exclusively to administer or provide retirement benefits and ancillary or incidental benefits under the social security legislation of that State. Another example would be a company or other entity that is established in a State for the purpose of administering or providing retirement benefits and ancillary or incidental benefits to individuals and whose only assets include funds that are covered by a retirement scheme regulated by the tax laws of that State which provide that the income from that scheme is exempt from tax. The definition of recognised pension fund would apply to that company or entity regardless of whether that company or entity otherwise qualifies as a resident of a Contracting State because it is “liable to tax therein” by reason of the criteria mentioned in the first sentence of paragraph 1 of Article 4, e.g. because it must pay tax on any income not derived from the scheme (see paragraphs 8.8 to 8.10 of the Commentary on Article 4).

(Added on 21 November 2017; see HISTORY)

10.16 Subdivision (i) of the definition applies regardless of whether the benefits to which it refers are provided to individuals who are residents of the State in which the entity or arrangement is established or are residents of other States. Whilst the general anti-abuse rule in paragraph 9 of Article 29 addresses possible treaty-shopping concerns that may arise from that aspect of the rule, States that do not include that general anti-abuse rule in their treaties or for which this is a particular concern are free to include in the definition of “recognised pension fund” conditions similar to those found in subdivision (ii) of subparagraph e) of paragraph 2 of the detailed version of the limitation-on-benefits rule found in the Commentary on Article 29.

(Added on 21 November 2017; see HISTORY)

10.17 Subdivision (ii) of the definition covers entities or arrangements that pension funds covered by subdivision (i) use to invest indirectly. Pension funds often invest together with other pension funds pooling their assets in certain entities or arrangements and may, for various commercial, legal or regulatory reasons, invest via wholly owned entities or arrangements that are residents of the same State. Since such arrangements and entities act only as intermediaries for the investment of funds used to provide retirement benefits to individuals, it is appropriate to treat them like the pension funds that invest through them.

(Added on 21 November 2017; see HISTORY)

10.18 The phrase “exclusively or almost exclusively” found in subdivision (ii) makes it clear that all or almost all of the activities of such an intermediary entity or arrangement must be related to the investment of funds for the benefit of entities or arrangements that qualify as recognised pension funds under subdivision (i). The words “almost exclusively” recognise that a very small part of the activities of such entities or arrangements might involve other activities, such as the investment of funds for pension funds that are established in other States and, for that reason, are not covered by subdivision (i). States in which it is common for intermediary entities or arrangements to invest funds obtained from pension funds established in other States are free to broaden the scope of subdivision (ii) in order to cover the case where a large part of the funds invested by the intermediary entity or arrangement are invested for the benefit of pension funds established in other States; these States could address any treaty-shopping concerns that may then arise through the provisions of Article 29.

(Added on 21 November 2017; see HISTORY)

Paragraph 2

11. This paragraph provides a general rule of interpretation for terms used in the Convention but not defined therein. However, the question arises which legislation must be referred to in order to determine the meaning of terms not defined in the Convention, the choice being between the legislation in force when the Convention was signed or that in force when the Convention is being applied, i.e. when the tax is imposed. The Committee on Fiscal Affairs concluded that the latter interpretation should prevail, and in 1995 amended the Model to make this point explicitly.

(Amended on 21 September 1995; see HISTORY)

12. However, paragraph 2 specifies that the domestic law meaning of an undefined term applies only if the context does not require an alternative interpretation and the competent authorities do not agree to a different meaning pursuant to the provisions of Article 25. The context is determined in particular by the intention of the Contracting States when signing the Convention as well as the meaning given to the term in question in the legislation of the other Contracting State (an implicit reference to the principle of reciprocity on which the Convention is based). The wording of the Article therefore allows the competent authorities some leeway.

(Amended on 21 November 2017; see HISTORY)

13. Consequently, the wording of paragraph 2 provides a satisfactory balance between, on the one hand, the need to ensure the permanency of commitments entered into by States when signing a convention (since a State should not be allowed to make a convention partially inoperative by amending afterwards in its domestic law the scope of terms not defined in the Convention) and, on the other hand, the need to be able to apply the Convention in a convenient and practical way over time (the need to refer to outdated concepts should be avoided).

(Added on 23 July 1992; see HISTORY)

13.1 Paragraph 2 was amended in 1995 to conform its text more closely to the general and consistent understanding of Member States. For purposes of paragraph 2, the meaning of any term not defined in the Convention may be ascertained by reference to the meaning it has for the purpose of any relevant provision of the domestic law of a Contracting State, whether or not a tax law. However, where a term is defined differently for the purposes of different laws of a Contracting State, the meaning given to that term for purposes of the laws imposing the taxes to which the Convention applies shall prevail over all others, including those given for the purposes of other tax laws.

(Amended on 21 November 2017; see HISTORY)

13.2 The Commentary was also amended in 1995 to provide that States that are able to enter into mutual agreements (under the provisions of Article 25 and, in particular, paragraph 3 thereof) that establish the meaning of terms not defined in the Convention should take those agreements into account in interpreting those terms. In 2017, the wording of paragraph 2 was amended to remove any doubt that in a case where a mutual agreement reached under Article 25 indicates that the competent authorities have agreed on a common meaning of an undefined term, the domestic law meaning of that term would not be applicable, as is the case when a term is defined in the Convention or when the context requires a meaning that is different from the domestic law meaning. Some States, however, consider that this exception should only be applicable in the case of agreements reached under paragraph 3 of Article 25; these States are free to replace the phrase “pursuant to the provisions of Article 25” by “pursuant to the provisions of paragraph 3 of Article 25”. Other States consider that, under their law, the competent authorities cannot be given the power to agree on a meaning of a term that would prevent recourse to the domestic law meaning of that term; these States are free to omit the phrase “or the competent authorities agree to a different meaning pursuant to the provisions of Article 25”.

(Added on 21 November 2017; see HISTORY)

Reservations on the Article

14. Chile, Costa Rica, Italy, Lithuania and Portugal reserve the right not to include the definitions in subparagraphs 1 c) and h) (“enterprise” and “business”) because they reserve the right to include an article concerning the taxation of independent personal services.

(Amended on 18 November 2025; see HISTORY)

15. Türkiye reserves the right to use the following definition of the term “international traffic”: “the term “international traffic” means any transport by a ship or aircraft operated by an enterprise of a Contracting State, except when the ship or aircraft is operated solely between places in the other Contracting State”.

(Amended on 18 November 2025; see HISTORY)

16. Israel reserves the right to include a trust within the definition of a “person”.

(Added on 15 July 2014; see HISTORY)

17. Chile and Mexico reserve the right to not include the definition of “recognised pension fund” in subparagraph i) of paragraph 1 because a determination to include a pension fund as a resident in a tax treaty is best discussed bilaterally between Contracting States due to the diversity of legal arrangements for providing retirement benefits.

(Added on 21 November 2017; see HISTORY)

18. Hungary and Israel reserve the right not to limit the definition of “recognised pension fund” to a separate person under the taxation laws.

(Amended on 18 November 2025; see HISTORY)

19. Portugal reserves the right not to include the definition in subparagraph i) of paragraph 1 (“recognised pension fund”) in its conventions because it reserves the right not to expressly include “a recognised pension fund” in paragraph 1 of Article 4 and to treat pension funds in accordance with the general definition of “resident” or with bilaterally agreed special provisions.

(Added on 21 November 2017; see HISTORY)

20. With respect to the definition of “national”, Costa Rica reserves the right to replace the concepts of partnership and association by “a group of persons”.

(Added on 18 November 2025; see HISTORY)

21. Colombia reserves the right to extend the scope of the definition of “recognised pension fund” to cover severance funds.

(Added on 18 November 2025; see HISTORY)

22. Belgium reserves the right not to include the words “exclusively or almost exclusively” in the definition of “recognised pension fund”.

(Added on 18 November 2025; see HISTORY)

23. Germany reserves the right to use the term “pension funds” in place of the term “recognised pension funds” in the definition in subparagraph 1 i) and to limit the definition of “pension funds” to such pension funds that are operated exclusively to administer or provide retirement benefits and ancillary or incidental benefits to individuals.

(Added on 18 November 2025; see HISTORY)

24. Chile reserves the right to include recognised pension funds within the definition of the term “person”.

(Added on 18 November 2025; see HISTORY)

25. The United States reserves the right to include additional criteria in the definition of “recognised pension fund”.

(Added on 18 November 2025; see HISTORY)

History

Paragraph 1: Amended on 21 September 1995 when a number of minor drafting changes that did not affect the meaning of the text were made to the Commentary on Article 3. In the 1977 Model Convention and until 21 September 1995, paragraph 1 read as follows:

“1. This Article groups together a number of general provisions required for the interpretation of the terms used in the Convention. It should be observed, however, that the meaning of some important terms, however, is explained elsewhere in the Convention. Thus, the terms “resident” and “permanent establishment” are defined in Articles 4 and 5 respectively, while the interpretation of certain terms appearing in the Articles on special categories of income (“immovable property”, “dividends”, etc.) is clarified by provisions embodied in those Articles. In addition to the definitions contained in the Article, Contracting States are free to agree bilaterally on definitions of the terms “a Contracting State” and “the other Contracting State”. Furthermore, Contracting States are free to agree bilaterally to include in the possible definitions of “Contracting States” a reference to continental shelves.”

Paragraph 1 was previously amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 1 read as follows:

“1. This Article groups together a number of general provisions required for the interpretation of the terms used in the Convention. It should be observed, however, that the meaning of some important terms is explained elsewhere in the Convention. Thus, the terms “resident” and “permanent establishment” are defined in Articles 4 and 5 respectively, while the interpretation of certain terms appearing in the Articles on special categories of income (“immovable property”, “dividends”, etc.) is clarified by provisions embodied in those Articles.”

Paragraph 2: Amended on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000, on the basis of Annex I of another report entitled “The Application of the OECD Model Tax Convention to Partnerships” (adopted by the OECD Committee on Fiscal Affairs on 20 January 1999). After 21 September 1995 and until 29 April 2000, paragraph 2 read as follows:

“2. The definition of the term “person” given in subparagraph a) is not exhaustive and should be read as indicating that the term “person” is used in a very wide sense (see especially Articles 1 and 4). The definition explicitly mentions individuals, companies and other bodies of persons. From the meaning assigned to the term “company” by the definition contained in subparagraph b) it follows that, in addition, the term “person” includes any entity that, although not incorporated, is treated as a body corporate for tax purposes. Thus, e.g. a foundation (fondation, Stiftung) may fall within the meaning of the term “person”. Special considerations for the application of the Convention to partnerships are found in paragraphs 2 to 6 of the Commentary on Article 1.”

Paragraph 2 was previously amended on 21 September 1995 when a number of minor drafting changes that did not affect the meaning of the text were made to the Commentary on Article 3. In the 1977 Model Convention and until 21 September 1995, paragraph 2 read as follows:

“2. The definition of the term “person” given in subparagraph a) is not exhaustive and should be read as indicating that the term “person” is used in a very wide sense (see especially Articles 1 and 4). The definition explicitly mentions individuals, companies and other bodies of persons. From the meaning assigned to the term “company” by the definition contained in subparagraph b) it follows that, in addition, the term “person” includes any entity which, although itself not a body of persons, is treated as a body corporate for tax purposes. Thus, e.g. a foundation (“fondation”, “Stiftung”) may fall within the meaning of the term “person”. Special considerations for the application of the Convention to partnerships are found in paragraphs 2 to 6 of the Commentary on Article 1.”

Paragraph 2 was previously amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 2 read as follows:

“2. The definition of the term “person” given in subparagraph (b) is in substance similar to the one commonly included in current double taxation Conventions. The provision is not worded as an exhaustive definition and should be read as indicating that the term person is used in a very wide sense (see especially Articles 1 and 4). The definition explicitly mentions individuals, companies and other bodies of persons. From the meaning assigned to the term “company” by the definition contained in sub-paragraph (c) it follows that, in addition, the term “person” comprises any entity which, although itself not a body of persons, is treated as a body corporate for purposes of tax. Thus, e.g. a foundation (“fondation”, “Stiftung”) may fall within the meaning of the term person.”

Paragraph 3: Amended on 21 November 2017, by changing cross-references, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 15 July 2014 and until 21 November 2017, paragraph 3 read as follows:

“3. The term “company” means in the first place any body corporate. In addition, the term covers any other taxable unit that is treated as a body corporate for the purposes of the tax law of the Contracting State of which it is a resident. The definition is drafted with special regard to the Article on dividends. The term “company” has a bearing only on that Article, paragraph 7 of Article 5, and Article 16.”

Paragraph 3 was previously amended on 15 July 2014 by the report entitled “The 2014 Update to the Model Tax Convention”, adopted by the OECD Council on 15 July 2014. After 21 September 1995 and until 15 July 2014, paragraph 3 read as follows:

“3. The term “company” means in the first place any body corporate. In addition, the term covers any other taxable unit that is treated as a body corporate according to the tax laws of the Contracting State in which it is organised. The definition is drafted with special regard to the Article on dividends. The term “company” has a bearing only on that Article, paragraph 7 of Article 5, and Article 16.”

Paragraph 3 was previously amended on 21 September 1995 when a number of minor drafting changes that did not affect the meaning of the text were made to the Commentary on Article 3. In the 1977 Model Convention and until 21 September 1995, paragraph 3 read as follows:

“3. The term “company” means in the first place any body corporate. In addition, the term covers any other taxable unit that is treated as a body corporate according to the tax laws of the Contracting State in which it is organised. The definition is drafted with special regard to the Article on dividends. It should be noted that the term “company” has a bearing only on that Article, paragraph 7 of Article 5, and Article 16.”

Paragraph 3 of the 1977 Model Convention corresponded to paragraph 4 of the 1963 Draft Convention. Paragraph 3 of the 1963 Draft Convention was deleted, paragraph 4 of the 1963 Draft Convention was amended and renumbered as paragraph 3 and the heading preceding paragraph 4 was moved with it when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 4 read as follows:

“4. The term “company” includes in the first place all corporate bodies. In addition, the term covers other taxable units which are treated as corporate bodies according to the tax laws of the Contracting State in which they are organised. The definition is drafted with special regard to the Article on dividends. It should be noted that the term company has a bearing only on that Article and Article 16 on taxation of directors’ fees and paragraph 6 of Article 5 on permanent establishment.”

Paragraph 3 of the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and was deleted when the 1977 Model Convention was adopted on 11 April 1977. In the 1963 Draft Convention and until 11 April 1977 paragraph 3 read as follows:

“3. If differences exist between two Contracting States in the taxation of profits of partnerships or like taxable units, the tax treatment of the partnership or like taxable units on the one hand and of the resident or non-resident partners on the other hand, could give rise to double taxation or non-taxation. In this case special appropriate provisions should be agreed upon by the Contracting States concerned and adopted in their bilateral relations.”

Paragraph 4: Amended on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000, on the basis of the Annex of another report entitled “Issues Related to Article 14 of the OECD Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 27 January 2000). After 21 September 1995 and until 29 April 2000, paragraph 4 read as follows:

“4. The question whether an activity is performed within an enterprise or is deemed to constitute in itself an enterprise has always been interpreted according to the provisions of the domestic laws of the Contracting States. No definition of the term “enterprise” has therefore been attempted in this Article.”

Paragraph 4 was previously amended on 21 September 1995 when a number of minor drafting changes that did not affect the meaning of the text were made to the Commentary on Article 3. In the 1977 Model Convention and until 21 September 1995, paragraph 4 read as follows:

“4. The question whether an activity is performed within the framework of an enterprise or is deemed to constitute in itself an enterprise has always been interpreted according to the provisions of the domestic laws of the Contracting States. No definition, properly speaking, of the term “enterprise” has therefore been attempted in this Article.”

Paragraph 4 of the 1977 Model Convention corresponded to paragraph 5 of the 1963 Draft Convention. Paragraph 4 of the 1963 Draft Convention was amended and renumbered as paragraph 3 (see history of paragraph 3), paragraph 5 of the 1963 Draft Convention was amended and renumbered as paragraph 4 of the 1977 Model Convention and the heading preceding paragraph 5 was moved with it when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 5 read as follows:

“5. The question whether an activity is performed within the framework of an enterprise or is deemed to constitute in itself an enterprise has hitherto always been interpreted according to the provisions of the national law of the Contracting States. No definition, properly speaking, of the term “enterprise” has been attempted in this Article; also no such definition can be found in the double taxation Conventions in force.”

Paragraph 5: Amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 21 September 1995 and until 21 November 2017, paragraph 5 read as follows:

“5. The definition of the term “international traffic” is based on the principle set forth in paragraph 1 of Article 8 that the right to tax profits from the operation of ships or aircraft in international traffic resides only in the Contracting State in which the place of effective management is situated in view of the special nature of the international traffic business. However, as stated in the Commentary on paragraph 1 of Article 8, the Contracting States are free on a bilateral basis to insert in subparagraph e) a reference to residence, in order to be consistent with the general pattern of the other Articles. In such a case, the words “an enterprise that has its place of effective management in a Contracting State” should be replaced, by “an enterprise of a Contracting State” or “a resident of a Contracting State”.”

Paragraph 5 was previously amended on 21 September 1995 when a number of minor drafting changes that did not affect the meaning of the text were made to the Commentary on Article 3. In the 1977 Model Convention and until 21 September 1995, paragraph 5 read as follows:

“5. The definition of the term “international traffic” is based on the principle as set forth in paragraph 1 of Article 8 that the right to tax profits from the operation of ships or aircraft in international traffic resides only in the Contracting State in which the place of effective management is situated in view of the special nature of the international traffic business. However, as stated in the Commentary on paragraph 1 of Article 8, the Contracting States are free on a bilateral basis to insert in subparagraph d) the reference to residence, in order to be consistent with the general pattern of the other Articles. In such a case, the words “an enterprise which has its place of effective management in a Contracting State” should be replaced, by “an enterprise of a Contracting State” or “a resident of a Contracting State.””

Paragraph 5 of the 1977 Model Convention replaced paragraph 5 of the 1963 Draft Convention when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 5 of the 1963 Draft Convention was amended and renumbered as paragraph 4 (see history of paragraph 4) and a new paragraph 5 and the heading preceding it were added.

Paragraph 6: Amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 21 September 1995 and until 21 November 2017, paragraph 6 read as follows:

“6. The definition of the term “international traffic” is broader than is normally understood. The broader definition is intended to preserve for the State of the place of effective management the right to tax purely domestic traffic as well as international traffic between third States, and to allow the other Contracting State to tax traffic solely within its borders. This intention may be clarified by the following illustration. Suppose an enterprise of a Contracting State or an enterprise that has its place of effective management in a Contracting State, through an agent in the other Contracting State, sells tickets for a passage that is confined wholly within the first-mentioned State or alternatively, within a third State. The Article does not permit the other State to tax the profits of either voyage. The other State is allowed to tax such an enterprise of the first-mentioned State only where the operations are confined solely to places in that other State.”

Paragraph 6 was previously amended on 21 September 1995 when a number of minor drafting changes that did not affect the meaning of the text were made to the Commentary on Article 3. In the 1977 Model Convention and until 21 September 1995, paragraph 6 read as follows:

“6. It is to be noted that the definition of the term “international traffic” is broader than the term normally signifies. However, this has been deliberate in order to preserve for the State of the place of effective management the right to tax purely domestic traffic as well as international traffic between third States, and to allow the other Contracting State to tax traffic solely within its borders. This intention may be clarified by the following illustration. Suppose an enterprise of a Contracting State or an enterprise which has its place of effective management in a Contracting State, through an agent in the other Contracting State, sells tickets for a passage which is confined wholly within the first-mentioned State or, alternatively, within a third State. The Article does not permit the other State to tax the profits of either voyage. The other State is allowed to tax such an enterprise of the first-mentioned State only where the operations are confined solely to places in that other State.”

Paragraph 6 of the 1977 Model Convention replaced paragraph 6 of the 1963 Draft Convention when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 6 of the 1963 Draft Convention was deleted and a new paragraph 6 was added. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the 1977 Model Convention was adopted, paragraph 6 read as follows:

“6. The laws of some Member States do not treat a partnership as a taxable unit and, consequently, a partnership as such cannot be regarded as “a resident of a Contracting State” under Article 4 on fiscal domicile; where such a Member State is concerned, it could be maintained that an enterprise carried on by a partnership is not strictly “an enterprise carried on by a resident of a Contracting State”. In such a case, it may assist towards a clarification of the meaning of the term “an enterprise of a Contracting State” if each participation in a partnership is looked upon as a separate enterprise, the test being whether the partner holding the participation is a resident of the one or the other Contracting State or of a third State. The Member States concerned may consider adopting this line of interpretation in bilateral relations.”

Paragraph 6.1: Replaced on 21 November 2017 when paragraph 6.1 was renumbered as paragraph 6.2 (see history of paragraph 6.2) and a new paragraph 6.1 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.2: Corresponds to paragraph 6.1 as it read before 21 November 2017. On that date, paragraph 6.2 was renumbered as paragraph 6.3 (see history of paragraph 6.3) and paragraph 6.1 was amended and renumbered as paragraph 6.2, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 29 April 2000 and until 21 November 2017, paragraph 6.1 read as follows:

“6.1 A ship or aircraft is operated solely between places in the other Contracting State in relation to a particular voyage if the place of departure and the place of arrival of the ship or aircraft are both in that other Contracting State. However, the definition applies where the journey of a ship or aircraft between places in the other Contracting State forms part of a longer voyage of that ship or aircraft involving a place of departure or a place of arrival which is outside that other Contracting State. For example, where, as part of the same voyage, an aircraft first flies between a place in one Contracting State to a place in the other Contracting State and then continues to another destination also located in that other Contracting State, the first and second legs of that trip will both be part of a voyage regarded as falling within the definition of “international traffic”.”

Paragraph 6.1 was added on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000.

Paragraph 6.3: Corresponds to paragraph 6.2 as it read before 21 November 2017. On that date, paragraph 6.3 was renumbered as paragraph 6.4 (see history of paragraph 6.4) and paragraph 6.2 was amended and renumbered as paragraph 6.3, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 29 April 2000 and until 21 November 2017, paragraph 6.2 read as follows:

“6.2 Some States take the view that the definition of “international traffic” should rather refer to a transport as being the journey of a passenger or cargo so that any voyage of a passenger or cargo solely between two places in the same Contracting State should not be considered as covered by the definition even if that voyage is made on a ship or plane that is used for a voyage in international traffic. Contracting States having that view may agree bilaterally to delete the reference to “the ship or aircraft” in the exception included in the definition, so as to use the following definition:

1. the term “international traffic” means any transport by a ship or aircraft operated by an enterprise that has its place of effective management in a Contracting State, except when such transport is solely between places in the other Contracting State;”

Paragraph 6.2 was added on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000.

Paragraph 6.4: Corresponds to paragraph 6.3 as it read before 21 November 2017. On that date, paragraph 6.3 was amended and renumbered as paragraph 6.4 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 15 July 2005 and until 21 November 2017, paragraph 6.3 read as follows:

“6.3 The definition of “international traffic” does not apply to a transport by an enterprise which has its place of effective management in one Contracting State when the ship or aircraft is operated between two places in the other State, even if part of the transport takes place outside that State. Thus, for example, a cruise beginning and ending in that other State without a stop in a foreign port does not constitute a transport of passengers in international traffic. Contracting States wishing to expressly clarify that point in their conventions may agree bilaterally to amend the definition accordingly.”

Paragraph 6.3 was previously amended on 15 July 2005 by the report entitled “The 2005 Update to the Model Tax Convention”, adopted by the OECD Council on 15 July 2005. After 29 April 2000 and until 15 July 2005, paragraph 6.3 read as follows:

“6.3 The definition of “international traffic” does not apply to any transport when the ship is operated between two places in the same Contracting State, even if part of the transport takes place outside that State. Thus, for example, a cruise beginning and ending in the same Contracting State without a stop in a foreign port does not constitute a transport of passengers in international traffic. Contracting States wishing to expressly clarify that point in their conventions may agree bilaterally to amend the definition accordingly.”

Paragraph 6.3 was added on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000.

Paragraph 7: Amended on 21 September 1995 when a number of minor drafting changes that did not affect the meaning of the text were made to the Commentary on Article 3. In the 1977 Model Convention and until 21 September 1995, paragraph 7 read as follows:

“7. The definition of the term “competent authority” has regard to the fact that in some OECD member countries the execution of double taxation conventions does not exclusively fall within the competence of the highest tax authorities but that some matters are reserved or may be delegated to other authorities. The present definition enables each Contracting State to nominate one or more authorities as being competent.”

Paragraph 7 was previously amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 7 read as follows:

“7. The definition of the term “competent authorities” has regard to the fact that in some O.E.C.D. Member countries the execution of double taxation Conventions does not exclusively fall within the competence of the highest fiscal authorities, but that some matters are reserved or may be delegated to other authorities. The present definition enables each Contracting State to nominate one or more authorities as being competent.”

Paragraph 8: Amended on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003. After 23 July 1992 and until 28 January 2003, paragraph 8 read as follows:

“8. The definition of the term “national” merely stipulates that the term applies to any individual possessing the nationality of a Contracting State. It was not judged necessary to include in the text of the Convention any more precise definition of nationality, nor did it seem indispensable to make any special comment on the meaning and application of the word. Obviously, in determining what is meant by “the nationals of a Contracting State” in relation to individuals, reference must be made to the sense in which the term is usually employed and each State’s particular rules on the acquisition or loss of nationality.”

Paragraph 8, as it read after 23 July 1992, corresponded to paragraph 11 of the Commentary on Article 24 of the 1977 Model Convention. On 23 July 1992 paragraph 8 was amended and renumbered as paragraph 11 (see history of paragraph 11) and the heading preceding paragraph 8 was moved with it by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992. At the same time, paragraph 11 of the Commentary on Article 24 was amended and renumbered as paragraph 8 of the Commentary on Article 3 and the heading preceding paragraph 8 (The term “national”) was added.

The renumbering and amendment of paragraph 11 of the Commentary on Article 24 on 23 July 1992 was a consequence of the redesignation of paragraph 2 of Article 24 as subparagraph 1 f) of Article 3 (see history of subparagraph 1 f) of Article 3 of the Model Convention). In the 1977 Model Convention and until 23 July 1992, paragraph 11 of the Commentary on Article 24 and the heading preceding it read as follows:

“Paragraph 2

11. Paragraph 2 merely stipulates that the term “nationals” applies to all individuals possessing the nationality of a Contracting State. It has not been judged necessary here to introduce into the text of the Article any considerations on the signification of the concept of nationality, any more than it seemed indispensable to make any special comment here on the meaning and application of the word. Obviously, in determining in relation to individuals, what is meant by “the nationals of a Contracting State”, reference must be made to the sense in which the term is usually employed and each State’s particular rules on the acquisition or loss of nationality.”

Paragraph 11 of the Commentary on Article 24 of the 1977 Model Convention corresponded to paragraph 10 of the Commentary on Article 24 of the 1963 Draft Convention. Paragraph 11 of the 1963 Draft Convention was amended and renumbered as paragraph 12 (see history of paragraph 9 of the Commentary on Article 24) and paragraph 10 of the 1963 Draft Convention was amended and renumbered as paragraph 11 of the 1977 Model Convention when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 10 read as follows:

“10. The purpose of paragraph 2 is more to specify the content of the expression “nationals” used in paragraph 1 than to define it. It merely stipulates in a customary formula that this expression applies to all individuals possessing the nationality of one of the Contracting States. It has not been judged necessary here to introduce into the text of the Article any considerations on the signification of the concept of nationality, any more than it seemed indispensable to make any special comment here on the meaning and application of the word. Obviously, in determining, in relation to individuals, what is meant by “the nationals of a Contracting State”, reference must be made to the sense in which the term is usually employed and each State’s particular rules on the acquisition or loss of nationality.”

Paragraph 9: Paragraph 9 as it read after 23 July 1992, corresponded to paragraph 12 of the Commentary on Article 24 of the 1977 Model Convention. Paragraph 9 was amended and renumbered as paragraph 14 (see history of paragraph 14) and paragraph 12 of the Commentary on Article 24 was amended and renumbered as paragraph 9 of the Commentary on Article 3 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992. The renumbering and amendment of paragraph 12 of the Commentary on Article 24 on 23 July 1992 was a consequence of the redesignation of paragraph 2 of Article 24 as subparagraph 1 f) of Article 3 (see history of subparagraph 1 f) of Article 3 of the Model Convention). In the 1977 Model Convention and until 23 July 1992, paragraph 12 of the Commentary on Article 24 read as follows:

“12. But paragraph 2 is more specific as to legal persons, partnerships and associations. By declaring that all legal persons, partnerships and associations deriving their status as such from the laws in force in a Contracting State are considered to be nationals for the purposes of paragraph 1, the provision disposes of a difficulty which often arises in determining the nationality of companies. In defining the nationality of companies, certain States have regard less to the law which governs the company than to the origin of the capital with which the company was formed or the nationality of the individuals or legal persons controlling it.”

Paragraph 12 of the Commentary on Article 24 of the 1977 Model Convention corresponded to paragraph 11 of the Commentary on Article 24 of the 1963 Draft Convention. Paragraph 12 of the 1963 Draft Convention was amended and renumbered as paragraph 13 (see history of paragraph 13 of the Commentary on Article 24) and paragraph 11 of the 1963 Draft Convention was amended and renumbered as paragraph 12 of the 1977 Model Convention when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 11 read as follows:

“11. But paragraph 2 is more specific as to legal persons, partnerships and associations. By declaring that all legal persons, partnerships and associations deriving their status as such from the law in force in a Contracting State are considered to be nationals for the purposes of paragraph 1 of the Article, the provision disposes of a difficulty which often arises in determining the nationality of companies. In defining the nationality of companies, certain States have regard less to the law which governs the company than to the origin of the capital with which the company was formed or the nationality of the individuals or legal persons controlling it. No ambiguity need be apprehended therefore.”

Paragraph 10: Corresponds to paragraph 13 of the Commentary on Article 24 of the 1977 Model Convention. On 23 July 1992, paragraph 10 of the 1977 Model Convention was deleted, the heading preceding paragraph 10 was moved immediately before paragraph 15 and paragraph 13 of the Commentary on Article 24 was amended and renumbered as paragraph 10 of the Commentary on Article 3 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992. The renumbering and amendment of paragraph 13 of the Commentary on Article 24 on 23 July 1992 was a consequence of the redesignation of paragraph 2 of Article 24 as subparagraph 1 f) of Article 3 (see history of subparagraph 1 f) of Article 3 of the Model Convention). In the 1977 Model Convention and until 23 July 1992, paragraph 13 of the Commentary on Article 24 read as follows:

“13. Moreover, in view of the legal relationship created between the company and the State under whose law it is constituted, which from certain points of view is closely akin to the relationship of nationality in the case of individuals, it seems justifiable not to deal with legal persons, partnerships and associations in a special provision, but to assimilate them with individuals under the term “nationals”.”

Paragraph 13 of the Commentary on Article 24 of the 1977 Model Convention corresponded to paragraph 12 of the Commentary on Article 24 of the 1963 Draft Convention. Paragraph 12 was amended and renumbered as paragraph 13 when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 12 of the Commentary on Article 24 read as follows:

“12. Moreover, in view of the legal relationship created between the company and the State under whose law it is constituted, which from certain points of view is closely akin to the relationship of nationality in the case on individuals, it seems justifiable not to deal with legal persons, partnerships and associations in a special provision, but to bring them under the same term with individuals.”

In the 1977 Model Convention and until 23 July 1992, paragraph 10 of the Commentary on Article 3 and the preceding heading read as follows:

“RESERVATION ON THE ARTICLE

10. Belgium reserves the right to vary, in its conventions, subparagraph b) of paragraph 1 of Article 3, and paragraph 1 of Article 4, so as to make it clear that partnerships constituted under Belgian law must be treated as residents of Belgium, in view of the twofold fact that they are legal persons and that their world income is in all cases subject to tax in Belgium.”

Paragraph 10 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 10.1: Added on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000, on the basis of Annex I of another report entitled “The Application of the OECD Model Tax Convention to Partnerships” (adopted by the OECD Committee on Fiscal Affairs on 20 January 1999).

Paragraph 10.2: Added on 29 April 2000 with the heading preceding it by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000, on the basis of the Annex of another report entitled “Issues Related to Article 14 of the OECD Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 27 January 2000).

Paragraph 10.3: Added together with the preceding heading on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 10.4: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2017.

Paragraph 10.5: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 10.6: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 10.7: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 10.8: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 10.9: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 10.10: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 10.11: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 10.12: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 10.13: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 10.14: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 10.15: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 10.16: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 10.17: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 10.18: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 11: Amended on 21 September 1995, by adding at the end of the paragraph the words “, and in 1995 amended the Model to make this point explicitly”, by the report entitled “The 1995 Update to the Model Tax Convention”, adopted by the OECD Council on 21 September 1995. After 23 July 1992 and until 21 September 1995, paragraph 11 read as follows:

“11. This paragraph provides a general rule of interpretation for terms used in the Convention but not defined therein. However, the question arises which legislation must be referred to in order to determine the meaning of terms not defined in the Convention, the choice being between the legislation in force when the Convention was signed or that in force when the Convention is being applied, i.e. when the tax is imposed. The Committee on Fiscal Affairs concluded that the latter interpretation should prevail.”

Paragraph 11 as it read after 23 July 1992 corresponded to paragraph 8 of the 1977 Model Convention. Paragraph 8 of the 1977 Model Convention was amended and renumbered as paragraph 11 and the heading preceding paragraph 8 was moved with it by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992. In the 1977 Model Convention and until 23 July 1992, paragraph 8 read as follows:

“8. This paragraph provides a general rule of interpretation in respect of terms used in the Convention but not defined therein.”

Paragraph 8 of the 1963 Draft Convention was replaced when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 8 of the 1963 Draft Convention was deleted and a new paragraph 8 was added. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 8 read as follows:

“8. The rule of interpretation laid down in paragraph 2 corresponds to similar provisions normally appearing in double taxation Conventions. The rule of interpretation in paragraph 2 of Article 6 on the taxation of income from immovable property, which has to be regarded as “lex specialis” is in no way affected by the present general rule of interpretation.”

Paragraph 12: Amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 23 July 1992 and until 21 November 2017, paragraph 12 read as follows:

“12. However, paragraph 2 specifies that this applies only if the context does not require an alternative interpretation. The context is determined in particular by the intention of the Contracting States when signing the Convention as well as the meaning given to the term in question in the legislation of the other Contracting State (an implicit reference to the principle of reciprocity on which the Convention is based). The wording of the Article therefore allows the competent authorities some leeway.”

Paragraph 12 was added on 23 July 1992 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 13: Added on 23 July 1992 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 13.1: Amended on 21 November 2017 by removing the last sentence, which was incorporated into paragraph 13.2, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 21 September 1995 and until 21 November 2017, paragraph 13.1 read as follows:

“13.1 Paragraph 2 was amended in 1995 to conform its text more closely to the general and consistent understanding of member states. For purposes of paragraph 2, the meaning of any term not defined in the Convention may be ascertained by reference to the meaning it has for the purpose of any relevant provision of the domestic law of a Contracting State, whether or not a tax law. However, where a term is defined differently for the purposes of different laws of a Contracting State, the meaning given to that term for purposes of the laws imposing the taxes to which the Convention applies shall prevail over all others, including those given for the purposes of other tax laws. States that are able to enter into mutual agreements (under the provisions of Article 25 and, in particular, paragraph 3 thereof) that establish the meanings of terms not defined in the Convention should take those agreements into account in interpreting those terms.”

Paragraph 13.1 was added on 21 September 1995 by the report entitled “The 1995 Update to the Model Tax Convention”, adopted by the OECD Council on 21 September 1995.

Paragraph 13.2: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. Paragraph 13.2 includes the last sentence of paragraph 13.1 as it read before 21 November 2017 (see history of paragraph 13.1).

Paragraph 14: Amended on 18 November 2025, by adding Chile, Costa Rica and Lithuania to the list of countries making the reservation, by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025. After 29 April 2000 and until 18 November 2025, paragraph 14 read as follows:

“14. Italy and Portugal reserve the right not to include the definitions in subparagraphs 1 c) and h) (“enterprise” and “business”) because they reserve the right to include an article concerning the taxation of independent personal services.”

Paragraph 14 was previously replaced on 29 April 2000 when paragraph 14 and the heading preceding it were deleted by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000. At the same time, a new paragraph 14 was added and the heading preceding paragraph 15 was moved immediately before paragraph 14. After 23 July 1992 and until 29 April 2000, paragraph 14 and the heading preceding it read as follows:

“Observation on the Commentary

14. For the purposes of Articles 10, 11 and 12, New Zealand would wish to treat dividends, interest and royalties in respect of which a trustee is subject to tax in the State of which he is a resident as being beneficially owned by that trustee.”

Paragraph 14 as it read after 23 July 1992 corresponded to paragraph 9 of the 1977 Model Convention, which was renumbered as paragraph 14 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 9 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 15: Amended on 18 November 2025, by replacing “Turkey” with “Türkiye”, by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025. After 29 April 2000 and until 18 November 2025, paragraph 15 read as follows:

“15. Turkey reserves the right to use the following definition of the term “international traffic”: “the term “international traffic” means any transport by a ship or aircraft operated by an enterprise of a Contracting State, except when the ship or aircraft is operated solely between places in the other Contracting State”.”

Paragraph 15 was previously replaced on 21 November 2017 when paragraph 15 was deleted and a new paragraph 15 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 22 July 2010 and until 21 November 2017, paragraph 15 read as follows:

“15. Chile, Mexico and the United States reserve the right to omit the phrase “operated by an enterprise that has its place of effective management in a Contracting State” from the definition of “international traffic” in subparagraph e) of paragraph 1.”

Paragraph 15 was amended on 22 July 2010, by adding Chile to the list of countries making the reservation, by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010. After 15 July 2005 and until 22 July 2010, paragraph 15 read as follows:

“15. Mexico and the United States reserve the right to omit the phrase “operated by an enterprise that has its place of effective management in a Contracting State” from the definition of “international traffic” in subparagraph e) of paragraph 1.”

Paragraph 15 was previously amended on 15 July 2005 by adding Mexico as a country making the reservation, by the report entitled “The 2005 Update to the Model Tax Convention”, adopted by the OECD Council on 15 July 2005. After 29 April 2000 and until 15 July 2005, paragraph 15 read as follows:

“15. The United States reserves the right to omit the phrase “operated by an enterprise that has its place of effective management in a Contracting State” from the definition of “international traffic” in subparagraph e) of paragraph 1.”

Paragraph 15 was added on 29 April 2000 and the heading preceding paragraph 15 was moved immediately before paragraph 14 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000.

Paragraph 15 as it read before 21 September 1995 was deleted by the report entitled “The 1995 Update to the Model Tax Convention”, adopted by the OECD Council on 21 September 1995. After 23 July 1992 and until 21 September 1995, paragraph 15 read as follows:

“15. France reserves the right to specify in paragraph 2 that for the purposes of the Convention, the meaning that a term or expression has under taxation law will prevail over any other meanings that the term or the expression may have under other branches of the law.”

Paragraph 15 was added on 23 July 1992 and the heading preceding paragraph 10 of the 1977 Model Convention was moved immediately before paragraph 15 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 16: Added on 15 July 2014 by the report entitled “The 2014 Update to the Model Tax Convention”, adopted by the OECD Council on 15 July 2014.

Paragraph 16 as it read before 28 January 2003 was deleted by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003. After 21 September 1995 and until 28 January 2003, paragraph 16 read as follows:

“16. Ireland reserves the right to omit the final phrase of paragraph 2, which gives tax law precedence over other laws.”

Paragraph 16 was added on 21 September 1995 by the report entitled “The 1995 Update to the Model Tax Convention”, adopted by the OECD Council on 21 September 1995.

Paragraph 17: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention” adopted by the OECD Council on 21 November 2017.

Paragraph 18: Amended on 18 November 2025, by adding Hungary as a country making the reservation, by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025. After 21 November 2017 and until 18 November 2025, paragraph 18 read as follows:

“18. Israel reserves the right not to limit the definition of “recognised pension fund” to a separate person under the taxation laws.”

Paragraph 18 was added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention” adopted by the OECD Council on 21 November 2017.

Paragraph 19: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention” adopted by the OECD Council on 21 November 2017.

Paragraph 20: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 21: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 22: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 23: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 24: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 25: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Commentary on Article 4
Concerning the definition of resident

I. Preliminary remarks

1. The concept of “resident of a Contracting State” has various functions and is of importance in three cases:

1. in determining a convention’s personal scope of application;

2. in solving cases where double taxation arises in consequence of double residence;

3. in solving cases where double taxation arises as a consequence of taxation in the State of residence and in the State of source or situs.

(Amended on 11 April 1977; see HISTORY)

2. The Article is intended to define the meaning of the term “resident of a Contracting State” and to solve cases of double residence. To clarify the scope of the Article some general comments are made below referring to the two typical cases of conflict, i.e. between two residences and between residence and source or situs. In both cases the conflict arises because, under their domestic laws, one or both Contracting States claim that the person concerned is resident in their territory.

(Amended on 11 April 1977; see HISTORY)

3. Generally the domestic laws of the various States impose a comprehensive liability to tax – “full tax liability” – based on the taxpayers’ personal attachment to the State concerned (the “State of residence”). This liability to tax is not imposed only on persons who are “domiciled” in a State in the sense in which “domicile” is usually taken in the legislations (private law). The cases of full liability to tax are extended to comprise also, for instance, persons who stay continually, or maybe only for a certain period, in the territory of the State. Some legislations impose full liability to tax on individuals who perform services on board ships which have their home harbour in the State.

(Amended on 11 April 1977; see HISTORY)

4. Conventions for the avoidance of double taxation do not normally concern themselves with the domestic laws of the Contracting States laying down the conditions under which a person is to be treated fiscally as “resident” and, consequently, is fully liable to tax in that State. They do not lay down standards which the provisions of the domestic laws on “residence” have to fulfil in order that claims for full tax liability can be accepted between the Contracting States. In this respect the States take their stand entirely on the domestic laws.

(Amended on 11 April 1977; see HISTORY)

5. This manifests itself quite clearly in the cases where there is no conflict at all between two residences, but where the conflict exists only between residence and source or situs. But the same view applies in conflicts between two residences. The special point in these cases is only that no solution of the conflict can be arrived at by reference to the concept of residence adopted in the domestic laws of the States concerned. In these cases special provisions must be established in the Convention to determine which of the two concepts of residence is to be given preference.

(Amended on 11 April 1977; see HISTORY)

6. An example will elucidate the case. An individual has his permanent home in State A, where his wife and children live. He has had a stay of more than six months in State B and according to the legislation of the latter State he is, in consequence of the length of the stay, taxed as being a resident of that State. Thus, both States claim that he is fully liable to tax. This conflict has to be solved by the Convention.

(Amended on 11 April 1977; see HISTORY)

7. In this particular case the Article (under paragraph 2) gives preference to the claim of State A. This does not, however, imply that the Article lays down special rules on “residence” and that the domestic laws of State B are ignored because they are incompatible with such rules. The fact is quite simply that in the case of such a conflict a choice must necessarily be made between the two claims, and it is on this point that the Article proposes special rules.

(Amended on 11 April 1977; see HISTORY)

II. Commentary on the provisions of the Article

Paragraph 1

8. Paragraph 1 provides a definition of the expression “resident of a Contracting State” for the purposes of the Convention. The definition refers to the concept of residence adopted in the domestic laws (see Preliminary remarks). As criteria for the taxation as a resident the definition mentions: domicile, residence, place of management or any other criterion of a similar nature. As far as individuals are concerned, the definition aims at covering the various forms of personal attachment to a State which, in the domestic taxation laws, form the basis of a comprehensive taxation (full liability to tax). It also covers cases where a person is deemed, according to the taxation laws of a State, to be a resident of that State and on account thereof is fully liable to tax therein (e.g. diplomats or other persons in government service).

(Amended on 17 July 2008; see HISTORY)

8.1 In accordance with the provisions of the second sentence of paragraph 1, however, a person is not to be considered a “resident of a Contracting State” in the sense of the Convention if, although not domiciled in that State, he is considered to be a resident according to the domestic laws but is subject only to a taxation limited to the income from sources in that State or to capital situated in that State. That situation exists in some States in relation to individuals, e.g. in the case of foreign diplomatic and consular staff serving in their territory.

(Replaced on 17 July 2008; see HISTORY)

8.2 According to its wording and spirit the second sentence also excludes from the definition of a resident of a Contracting State foreign held companies exempted from tax on their foreign income by privileges tailored to attract conduit companies. It also excludes companies and other persons who are not subject to comprehensive liability to tax in a Contracting State because these persons, whilst being residents of that State under that State’s tax law, are considered to be residents of another State pursuant to a treaty between these two States. The exclusion of certain companies or other persons from the definition would not of course prevent Contracting States from exchanging information about their activities (see paragraph 2 of the Commentary on Article 26). Indeed States may feel it appropriate to develop spontaneous exchanges of information about persons who seek to obtain unintended treaty benefits.

(Replaced on 17 July 2008; see HISTORY)

8.3 The application of the second sentence, however, has inherent difficulties and limitations. It has to be interpreted in the light of its object and purpose, which is to exclude persons who are not subjected to comprehensive taxation (full liability to tax) in a State, because it might otherwise exclude from the scope of the Convention all residents of countries adopting a territorial principle in their taxation, a result which is clearly not intended.

(Replaced on 17 July 2008; see HISTORY)

8.4 It has been the general understanding of most Member countries that the government of each State, as well as any political subdivision or local authority thereof, is a resident of that State for purposes of the Convention. Before 1995, the Model did not explicitly state this; in 1995, Article 4 was amended to conform the text of the Model to this understanding.

(Renumbered on 17 July 2008; see HISTORY)

8.5 This raises the issue of the application of paragraph 1 to sovereign wealth funds, which are special purpose investment funds or arrangements created by a State or a political subdivision for macroeconomic purposes. These funds hold, manage or administer assets to achieve financial objectives, and employ a set of investment strategies which include investing in foreign financial assets. They are commonly established out of balance of payments surpluses, official foreign currency operations, the proceeds of privatisations, fiscal surpluses or receipts resulting from commodity exports.^[22] Whether a sovereign wealth fund qualifies as a “resident of a Contracting State” depends on the facts and circumstances of each case. For example, when a sovereign wealth fund is an integral part of the State, it will likely fall within the scope of the expression “[the] State and any political subdivision or local authority thereof” in Article 4. In other cases, paragraphs 8.11 and 8.12 below will be relevant. States may want to address the issue in the course of bilateral negotiations, particularly in relation to whether a sovereign wealth fund qualifies as a “person” and is “liable to tax” for purposes of the relevant tax treaty (see also paragraphs 50 to 53 of the Commentary on Article 1).

(Amended on 21 November 2017; see HISTORY)

8.6 Paragraph 1 also refers expressly to a “recognised pension fund”. Most Member countries have long considered that a pension fund established in a Contracting State is a resident of that State regardless of the fact that it may benefit from a limited or complete exemption from taxation in that State. Until 2017, that view was reflected in the previous version of paragraph 8.6, which referred to “pension funds, charities and other organisations” as entities that most States viewed as residents. Paragraph 1 of the Article was modified in 2017 to remove any doubt about the fact that a pension fund that meets the definition of “recognised pension fund” in paragraph 1 of Article 3 constitutes a resident of the Contracting State in which it is established.

(Replaced on 21 November 2017; see HISTORY)

8.7 As indicated in paragraph 10.4 of the Commentary on Article 3, the effect of the definition of “recognised pension fund” and of the reference to that term in paragraph 1 of the Article will depend to a large extent on the domestic law and on the legal characteristics of the pension funds established in each Contracting State. The type of fund established within a legal entity that is described in paragraph 10.5 of the Commentary on Article 3 would not be covered by the definition of “recognised pension fund”, which applies to an entity or arrangement that constitutes a separate person, but since the income of these funds is attributed to the legal entity of which it is part, the provisions of the Convention will apply to that income to the extent that the legal entity itself qualifies as a resident of a Contracting State under paragraph 1 of the Article.

(Replaced on 21 November 2017; see HISTORY)

8.8 Where, however, a fund constitutes a “person” which is distinct from any other person by whom, or for the benefit of whom, it has been established and is operated, the definition of “recognised pension fund” will be relevant and, to the extent that the conditions of that definition are met, the fund will itself constitute a “resident of a Contracting State”. This will be the case in many countries because it is “liable to tax therein” by reason of the criteria mentioned in the first sentence of paragraph 1, as this sentence is interpreted by the Contracting States or, if that is not the case, because of the specific inclusion of the term “recognised pension fund” in paragraph 1.

(Replaced on 21 November 2017; see HISTORY)

8.9 Contracting States are of course free to omit the reference to “recognised pension funds” in paragraph 1 if they conclude that the income of the pension arrangements established in both States is derived by persons that otherwise qualify as residents of the Contracting States, although they might prefer to keep that reference in the paragraph simply to remove any uncertainty.

(Added on 21 November 2017; see HISTORY)

8.10 Given the diversity of arrangements through which retirement benefits are provided, it will therefore often be useful for the Contracting States to review the main types of pension arrangements used in each State and to clarify whether or not the definition of “recognised pension fund” applies to each type of arrangement and, more generally, how the provisions of the tax convention between these States apply to these arrangements. This could be done at the time of the negotiation of that convention or subsequently through the mutual agreement procedure.

(Added on 21 November 2017; see HISTORY)

8.11 Paragraph 1 refers to persons who are “liable to tax” in a Contracting State under its laws by reason of various criteria. In many States, a person is considered liable to comprehensive taxation even if the Contracting State does not in fact impose tax. For example, charities and other organisations may be exempted from tax, but they are exempt only if they meet all of the requirements for exemption specified in the tax laws. They are, thus, subject to the tax laws of a Contracting State. Furthermore, if they do not meet the standards specified, they are also required to pay tax. Most States would view such entities as residents for purposes of the Convention (see, for example, paragraph 1 of Article 10 and paragraph 5 of Article 11).

(Renumbered and amended on 21 November 2017; see HISTORY)

8.12 In some States, however, these entities are not considered liable to tax if they are exempt from tax under domestic tax laws. These States may not regard such entities as residents for purposes of a convention unless these entities are expressly covered by the convention. Contracting States taking this view are free to address the issue in their bilateral negotiations.

(Renumbered and amended on 21 November 2017; see HISTORY)

8.13 Where a State disregards a partnership for tax purposes and treats it as fiscally transparent, taxing the partners on their share of the partnership income, the partnership itself is not liable to tax and may not, therefore, be considered to be a resident of that State. In that case, however, paragraph 2 of Article 1 clarifies that the Convention will apply to the partnership’s income to the extent that the income is treated, for purposes of taxation by that State, as the income of a partner who is a resident of that State. The same treatment will apply to income of other entities or arrangements that are treated as fiscally transparent under the tax law of a Contracting State (see paragraphs 2 to 16 of the Commentary on Article 1).

(Renumbered and amended on 21 November 2017; see HISTORY)

Paragraph 2

9. This paragraph relates to the case where, under the provisions of paragraph 1, an individual is a resident of both Contracting States.

(Renumbered and amended on 11 April 1977; see HISTORY)

10. To solve this conflict special rules must be established which give the attachment to one State a preference over the attachment to the other State. As far as possible, the preference criterion must be of such a nature that there can be no question but that the person concerned will satisfy it in one State only, and at the same time it must reflect such an attachment that it is felt to be natural that the right to tax devolves upon that particular State. The facts to which the special rules will apply are those existing during the period when the residence of the taxpayer affects tax liability, which may be less than an entire taxable period. For example, in one calendar year an individual is a resident of State A under that State’s tax laws from 1 January to 31 March, then moves to State B. Because the individual resides in State B for more than 183 days, the individual is treated by the tax laws of State B as a State B resident for the entire year. Applying the special rules to the period 1 January to 31 March, the individual was a resident of State A. Therefore, both State A and State B should treat the individual as a State A resident for that period, and as a State B resident from 1 April to 31 December.

(Amended on 21 September 1995; see HISTORY)

11. The Article gives preference to the Contracting State in which the individual has a permanent home available to him. This criterion will frequently be sufficient to solve the conflict, e.g. where the individual has a permanent home in one Contracting State and has only made a stay of some length in the other Contracting State.

(Renumbered and amended on 11 April 1977; see HISTORY)

12. Subparagraph a) means, therefore, that in the application of the Convention (that is, where there is a conflict between the laws of the two States) it is considered that the residence is that place where the individual owns or possesses a home; this home must be permanent, that is to say, the individual must have arranged and retained it for his permanent use as opposed to staying at a particular place under such conditions that it is evident that the stay is intended to be of short duration.

(Replaced on 11 April 1977; see HISTORY)

13. As regards the concept of home, it should be observed that any form of home may be taken into account (house or apartment belonging to or rented by the individual, rented furnished room). But the permanence of the home is essential; this means that the individual has arranged to have the dwelling available to him at all times continuously, and not occasionally for the purpose of a stay which, owing to the reasons for it, is necessarily of short duration (travel for pleasure, business travel, educational travel, attending a course at a school, etc.). For instance, a house owned by an individual cannot be considered to be available to that individual during a period when the house has been rented out and effectively handed over to an unrelated party so that the individual no longer has the possession of the house and the possibility to stay there.

(Amended on 21 November 2017; see HISTORY)

14. If the individual has a permanent home in both Contracting States, paragraph 2 gives preference to the State with which the personal and economic relations of the individual are closer, this being understood as the centre of vital interests. In the cases where the residence cannot be determined by reference to this rule, paragraph 2 provides as subsidiary criteria, first, habitual abode, and then nationality. If the individual is a national of both States or of neither of them, the question shall be solved by mutual agreement between the States concerned according to the procedure laid down in Article 25.

(Amended on 11 April 1977; see HISTORY)

15. If the individual has a permanent home in both Contracting States, it is necessary to look at the facts in order to ascertain with which of the two States his personal and economic relations are closer. Thus, regard will be had to his family and social relations, his occupations, his political, cultural or other activities, his place of business, the place from which he administers his property, etc. The circumstances must be examined as a whole, but it is nevertheless obvious that considerations based on the personal acts of the individual must receive special attention. If a person who has a home in one State sets up a second in the other State while retaining the first, the fact that he retains the first in the environment where he has always lived, where he has worked, and where he has his family and possessions, can, together with other elements, go to demonstrate that he has retained his centre of vital interests in the first State.

(Replaced on 11 April 1977; see HISTORY)

16. Subparagraph b) establishes a secondary criterion for two quite distinct and different situations:

1. the case where the individual has a permanent home available to him in both Contracting States and it is not possible to determine in which one he has his centre of vital interests;

2. the case where the individual has a permanent home available to him in neither Contracting State.

Preference is given to the Contracting State where the individual has an habitual abode.

(Replaced on 11 April 1977; see HISTORY)

17. In the first situation, the case where the individual has a permanent home available to him in both States, the fact of having an habitual abode in one State but not in the other appears therefore as the circumstance which, in case of doubt as to where the individual has his centre of vital interests, tips the balance towards the State where he stays more frequently. For this purpose regard must be had to stays made by the individual not only at the permanent home in the State in question but also at any other place in the same State.

(Amended on 21 November 2017; see HISTORY)

18. The second situation is the case of an individual who has a permanent home available to him in neither Contracting State, as for example, a person going from one hotel to another. In this case also all stays made in a State must be considered without it being necessary to ascertain the reasons for them.

(Replaced on 11 April 1977; see HISTORY)

19. The application of the criterion provided for in subparagraph b) requires a determination of whether the individual lived habitually, in the sense of being customarily or usually present, in one of the two States but not in the other during a given period; the test will not be satisfied by simply determining in which of the two Contracting States the individual has spent more days during that period. The phrase “séjourne de façon habituelle”, which is used in the French version of subparagraph b), provides a useful insight as to the meaning of “habitual abode”, a notion that refers to the frequency, duration and regularity of stays that are part of the settled routine of an individual’s life and are therefore more than transient. As recognised in subparagraph c), it is possible for an individual to have an habitual abode in the two States, which would be the case if the individual was customarily or usually present in each State during the relevant period, regardless of the fact that he spent more days in one State than in the other. Assume, for instance, that over a period of five years, an individual owns a house in both States A and B but the facts do not allow the determination of the State in which the individual’s centre of vital interests is situated. The individual works in State A where he habitually lives but returns to State B two days a month and once a year for a three-week holiday. In that case, the individual will have an habitual abode in State A but not in State B. Assume, however, that over the same period of five years, the individual works short periods of time in State A, where he returns 15 times a year for stays of two weeks each time, but is present in State B the rest of the time (assume also that the facts of the case do not allow the determination of the State in which the individual’s centre of vital interests is situated). In that case, the individual will have an habitual abode in both State A and State B.

(Replaced on 21 November 2017; see HISTORY)

19.1 Subparagraph b) does not specify over what length of time the determination of whether an individual has an habitual abode in one or both States must be made. The determination must cover a sufficient length of time for it to be possible to ascertain the frequency, duration and regularity of stays that are part of the settled routine of the individual’s life. Care should be taken, however, to consider a period of time during which there were no major changes of personal circumstances that would clearly affect the determination (such as a separation or divorce). The relevant period for purposes of the determination of whether an individual has an habitual abode in one or both States will not always correspond to the period of dual-residence, especially where the period of dual-residence is very short. This is illustrated by the following example. Assume that an individual resident of State C moves to State D to work at different locations for a period of 190 days. During that 190-day period, he is considered a resident of both States C and D under their respective domestic tax laws. The individual lived in State C for many years before moving to State D, remains in State D for the entire period of his employment there and returns to State C to live there permanently at the end of the 190-day period. During the period of his employment in State D, the individual does not have a permanent home available to him in either State C or State D. In this example, the determination of whether the individual has an habitual abode in one or both States would appropriately consider a period of time longer than the 190-day period of dual-residence in order to ascertain the frequency, duration and regularity of stays that were part of the settled routine of the individual’s life.

(Added on 21 November 2017; see HISTORY)

20. Where, in the two situations referred to in subparagraph b) the individual has an habitual abode in both Contracting States or in neither, preference is given to the State of which he is a national. If, in these cases still, the individual is a national of both Contracting States or of neither of them, subparagraph d) assigns to the competent authorities the duty of resolving the difficulty by mutual agreement according to the procedure established in Article 25.

(Replaced on 11 April 1977; see HISTORY)

Paragraph 3

21. This paragraph concerns companies and other bodies of persons, irrespective of whether they are or not legal persons. It may be rare in practice for a company, etc. to be subject to tax as a resident in more than one State, but it is, of course, possible if, for instance, one State attaches importance to the registration and the other State to the place of effective management. So, in the case of companies, etc., also, special rules as to the preference must be established.

(Renumbered and amended on 11 April 1977; see HISTORY)

22. When paragraph 3 was first drafted, it was considered that it would not be an adequate solution to attach importance to a purely formal criterion like registration and preference was given to a rule based on the place of effective management, which was intended to be based on the place where the company, etc. was actually managed.

(Amended on 21 November 2017; see HISTORY)

23. In 2017, however, the Committee on Fiscal Affairs recognised that although situations of double residence of entities other than individuals were relatively rare, there had been a number of tax-avoidance cases involving dual resident companies. It therefore concluded that a better solution to the issue of dual residence of entities other than individuals was to deal with such situations on a case-by-case basis.

(Replaced on 21 November 2017; see HISTORY)

24. As a result of these considerations, the current version of paragraph 3 provides that the competent authorities of the Contracting States shall endeavour to resolve by mutual agreement cases of dual residence of a person other than an individual.

(Replaced on 21 November 2017; see HISTORY)

24.1 Competent authorities having to apply paragraph 3 would be expected to take account of various factors, such as where the meetings of the person’s board of directors or equivalent body are usually held, where the chief executive officer and other senior executives usually carry on their activities, where the senior day-to-day management of the person is carried on, where the person’s headquarters are located, which country’s laws govern the legal status of the person, where its accounting records are kept, whether determining that the legal person is a resident of one of the Contracting States but not of the other for the purpose of the Convention would carry the risk of an improper use of the provisions of the Convention etc. Countries that consider that the competent authorities should not be given the discretion to solve such cases of dual residence without an indication of the factors to be used for that purpose may want to supplement the provision to refer to these or other factors that they consider relevant.

(Amended on 21 November 2017; see HISTORY)

24.2 A determination under paragraph 3 will normally be requested by the person concerned through the mechanism provided for under paragraph 1 of Article 25. Such a request may be made as soon as it is probable that the person will be considered a resident of each Contracting State under paragraph 1. Due to the notification requirement in paragraph 1 of Article 25, it should in any event be made within three years from the first notification to that person of taxation measures taken by one or both States that indicate that reliefs or exemptions have been denied to that person because of its dual-residence status without the competent authorities having previously endeavoured to determine a single State of residence under paragraph 3. The competent authorities to which a request for determination of residence is made under paragraph 3 should deal with it expeditiously and should communicate their response to the taxpayer as soon as possible.

(Added on 21 November 2017; see HISTORY)

24.3 Since the facts on which a decision will be based may change over time, the competent authorities that reach a decision under that provision should clarify which period of time is covered by that decision.

(Added on 21 November 2017; see HISTORY)

24.4 The last sentence of paragraph 3 provides that in the absence of a determination by the competent authorities, the dual-resident person shall not be entitled to any relief or exemption under the Convention except to the extent and in such manner as may be agreed upon by the competent authorities. This will not, however, prevent the taxpayer from being considered a resident of each Contracting State for purposes other than granting treaty reliefs or exemptions to that person. This will mean, for example, that the condition in subparagraph b) of paragraph 2 of Article 15 will not be met with respect to an employee of that person who is a resident of either Contracting State exercising employment activities in the other State. Similarly, if the person is a company, it will be considered to be a resident of each State for the purposes of the application of Article 10 to dividends that it will pay.

(Added on 21 November 2017; see HISTORY)

24.5 Some States, however, consider that it is preferable to deal with cases of dual residence of entities through the rule based on the “place of effective management” that was included in the Convention before 2017. These States also consider that this rule can be interpreted in a way that prevents it from being abused. States that share that view and that agree on how the concept of “place of effective management” should be interpreted are free to include in their bilateral treaty the following version of paragraph 3:

Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident only of the State in which its place of effective management is situated.

(Added on 21 November 2017; see HISTORY)

Observations on the Commentary

25. Chile wishes to clarify that where a Contracting State exempts a person from tax under its domestic tax law, Chile does not regard that person as liable to comprehensive taxation nor consider that person to be a resident of a Contracting State, unless addressed specifically in the Convention.

(Replaced on 18 November 2025; see HISTORY)

26. Spain, due to the fact that according to its internal law the fiscal year coincides with the calendar year and there is no possibility of concluding the fiscal period by reason of the taxpayer’s change of residence, will not be able to proceed in accordance with paragraph 10 of the Commentary on Article 4. In this case, a mutual agreement procedure will be needed to ascertain the date from which the taxpayer will be deemed to be a resident of one of the Contracting States.

(Replaced on 21 September 1995; see HISTORY)

26.1 (Deleted on 21 November 2017; see HISTORY)

26.2 (Deleted on 21 November 2017; see HISTORY)

26.3 (Deleted on 21 November 2017; see HISTORY)

26.4 (Deleted on 21 November 2017; see HISTORY)

27. Hungary cannot fully share the interpretation in paragraph 19 of the Commentary regarding the term “habitual abode”. Hungary considers that during the examination of a person’s habitual abode priority should be given to the comparison of the number of days of presence in each State over a given period of time.

(Added on 21 November 2017; see HISTORY)

27.1 With respect to paragraphs 8 and 8.3 of the Commentary and the references to “comprehensive taxation”, the United States wishes to clarify that, where a Contracting State generally taxes income of individual residents on one basis (e.g. a worldwide basis) but permits a class of individual residents who meet certain criteria to be taxed on a more limited basis (e.g. a territorial basis or on an amount determined without reference to their income), individuals in that class are not subject to that Contracting State’s comprehensive taxation and are not considered residents of a Contracting State pursuant to paragraph 1.

(Added on 18 November 2025; see HISTORY)

Reservations on the Article

28. Japan and Korea reserve their position on the provisions in this and other Articles in the Model Tax Convention which refer directly or indirectly to the place of effective management. Instead of the term “place of effective management”, these countries wish to use in their conventions the term “head or main office”.

(Amended on 23 October 1997; see HISTORY)

29. France does not agree with the general principle according to which if tax owed by a partnership is determined on the basis of the personal characteristics of the partners, these partners are entitled to the benefits of tax conventions entered into by the States of which they are residents as regards income that “flows through” that partnership. For this reason, France reserves the right to amend the Article in its tax conventions in order to specify that French partnerships must be considered as residents of France in view of their legal and tax characteristics and to indicate in which situations and under which conditions flow-through partnerships located in the other Contracting State or in a third State will be entitled to benefit from the recognition by France of their flow-through nature.

(Amended on 17 July 2008; see HISTORY)

30. France reserves the right not to include the reference to “recognised pension funds” in paragraph 1 and thus to treat pension funds like other entities that do not meet the requirements relative to residence.

(Replaced on 21 November 2017; see HISTORY)

31. The United States reserves the right not to treat a company resident in both Contracting States as a resident of either Contracting State for purposes of claiming the benefits provided by the Convention.

(Replaced on 18 November 2025; see HISTORY)

32. Portugal and Sweden reserve the right not to include the words “as well as a recognised pension fund of that State” in paragraph 1 and to treat pension funds in accordance with the general definition of “resident” or with bilaterally agreed special provisions.

(Added on 21 November 2017; see HISTORY)

33. Israel reserves the right to include a separate provision regarding a trust that is a resident of both Contracting States.

(Added on 15 July 2014; see HISTORY)

34. Colombia, Costa Rica, Estonia, Latvia, Lithuania and the United States reserve the right to include the place of incorporation or a similar criterion in paragraph 1.

(Amended on 18 November 2025; see HISTORY)

35. Japan reserves the right to omit the phrase “except to the extent and in such manner as may be agreed upon by the competent authorities of the Contracting States” in paragraph 3.

(Added on 21 November 2017; see HISTORY)

36. Colombia and Costa Rica reserve the right to deny benefits under the Convention to dual resident persons other than individuals.

(Added on 18 November 2025; see HISTORY)

37. Costa Rica reserves the right to add “domicile” and “residence” to the factors listed in paragraph 3.

(Added on 18 November 2025; see HISTORY)

38. The United States reserves the right to exclude from the definition of “resident” in paragraph 1 any person whose tax is determined in that Contracting State, in whole or in part, on a fixed-fee, “forfait” or similar basis.

(Added on 18 November 2025; see HISTORY)

39. France reserves the right not to include the second sentence of paragraph 3 regarding the consequences of the absence of an agreement between the States in the case of a conflict related to the residence of a legal entity.

(Added on 18 November 2025; see HISTORY)

40. France considers that public law entities of a State, its political subdivisions or its territorial authorities should be considered residents for purposes of the Convention in the same way as the State, its political subdivisions and its territorial authorities, and reserves the right to refer to them in its conventions.

(Added on 18 November 2025; see HISTORY)

41. Hungary reserves the right to use the place of effective management concept in cases of dual residence of companies and other bodies of persons with the addition that when determining the place of effective management, one should not only consider the place where key management and commercial decisions that are necessary for the conduct of the entity’s business as a whole are in substance made, but should also take into account the place where the chief executive officer and other senior executives usually carry on their activities as well as the place where the senior day-to-day management of the enterprise is usually carried on.

(Added on 18 November 2025; see HISTORY)

42. Australia reserves the right to replace “settle” with “endeavour to resolve” in subparagraph d) of paragraph 2.

(Added on 18 November 2025; see HISTORY)

43. Australia reserves the right to omit the phrase “except to the extent and in such manner as may be agreed by the competent authorities of the Contracting States” in paragraph 3.

(Added on 18 November 2025; see HISTORY)

History

Title: Amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, the heading read as follows:

“COMMENTARY ON ARTICLE 4 CONCERNING FISCAL DOMICILE”

Paragraph 1: Amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 1 and the heading preceding it read as follows:

“1. GENERAL COMMENTS

1. The concept of “domicile” has various functions and is of importance in three cases:

1. in determining a Convention’s field of application with respect to physical and legal persons;

2. in solving cases where double taxation arises in consequence of double domicile;

3. in solving cases where double taxation arises as a consequence of conflict between domicile and source.”

Paragraph 2: Amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 2 read as follows:

“2. The Article is intended only to define the meaning of the term “resident of a Contracting State” and to solve cases of conflict between two domiciles. For further elucidation of the Article some general comments are made below referring to the two typical cases of conflict, i.e. between two domiciles and between domicile and source. In both cases the conflict arises because, under their internal legislation, one or both Contracting States claim that the person concerned has his domicile in their territories.”

Paragraph 3: Amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 3 read as follows:

“3. Generally the national legislations of the various States impose a comprehensive liability to tax – “full tax liability” based on the taxpayers’ personal attachment to the State concerned (the State of “domicile”). This liability to tax is not imposed only on persons who are “domiciled” in a State in the sense in which “domicile” is usually taken in the legislations (civil law). The cases of full liability to tax are extended to comprise also, for instance, persons who stay continually, or maybe only for a certain period, in the territory of the State. Some legislations impose full liability to tax on individuals who perform services on board ships which have their home port in the State.”

Paragraph 4: Amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 4 read as follows:

“4. Conventions for the avoidance of double taxation do not normally concern themselves with the national rules of law of the Contracting States laying down the cases in which a person is to be treated fiscally as “domiciled” and, consequently, is “fully liable to taxation” in that State. They do not lay down standards which the national rules of law on “domicile” have to fulfil in order that claims for full tax liability can be accepted between the Contracting States. In this respect the States take their stand entirely on the national legislations.”

Paragraph 5: Amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 5 read as follows:

“5. This manifests itself quite clearly in the cases where there is no conflict at all between two domiciles, but where the conflict exists only between domicile and source. But the same view applies in conflicts between two domiciles. The special point in these cases is only that no solution of the conflict can be arrived at by reference to the concept of domicile adopted in the national laws of the States concerned. In these cases special provisions must be established in the Convention to determine which of the two concepts of domicile is to be given preference.”

Paragraph 6: Amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 6 read as follows:

“6. An example will elucidate the case. An individual has his permanent home in State A, where his wife and children live. He has had a stay of more than six months in State B and according to the legislation of the latter State he is, in consequence of the length of the stay, taxed as being domiciled in that State. Thus, both States claim that he is fully liable to tax. This conflict has to be solved by the Convention.”

Paragraph 7: Amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 7 read as follows:

“7. In this particular case the Article (under paragraph 2) gives preference to the claim of State A. This does not, however, imply that the Article lays down special rules on “domicile” and that the national rules of law of State B are ignored because they are incompatible with such rules. The fact is quite simply that in the case of such a conflict a choice must necessarily be made between the two claims, and it is on this point that the Article proposes special rules.”

Paragraph 8: Amended on 17 July 2008 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008. Paragraph 8 as amended includes the first five sentences of paragraph 8 as they read before 17 July 2008. The sixth and seventh sentences were incorporated into paragraph 8.1, the ninth sentence was amended and incorporated into paragraph 8.3 and the eighth, penultimate and final sentences were amended and incorporated into paragraph 8.2. After 23 July 1992 and until 17 July 2008, paragraph 8 read as follows:

“8. Paragraph 1 provides a definition of the expression “resident of a Contracting State” for the purposes of the Convention. The definition refers to the concept of residence adopted in the domestic laws (cf. Preliminary remarks). As criteria for the taxation as a resident the definition mentions: domicile, residence, place of management or any other criterion of a similar nature. As far as individuals are concerned, the definition aims at covering the various forms of personal attachment to a State which, in the domestic taxation laws, form the basis of a comprehensive taxation (full liability to tax). It also covers cases where a person is deemed, according to the taxation laws of a State, to be a resident of that State and on account thereof is fully liable to tax therein (e.g. diplomats or other persons in government service). In accordance with the provisions of the second sentence of paragraph 1, however, a person is not to be considered a “resident of a Contracting State” in the sense of the Convention if, although not domiciled in that State, he is considered to be a resident according to the domestic laws but is subject only to a taxation limited to the income from sources in that State or to capital situated in that State. That situation exists in some States in relation to individuals, e.g. in the case of foreign diplomatic and consular staff serving in their territory. According to its wording and spirit the provision would also exclude from the definition of a resident of a Contracting State foreign-held companies exempted from tax on their foreign income by privileges tailored to attract conduit companies. This, however, has inherent difficulties and limitations. Thus it has to be interpreted restrictively because it might otherwise exclude from the scope of the Convention all residents of countries adopting a territorial principle in their taxation, a result which is clearly not intended. The exclusion of certain companies from the definition would not of course prevent Contracting States from exchanging information about their activities (cf. paragraph 2 of the Commentary on Article 26). Indeed States may feel it appropriate to develop spontaneous exchanges of information about companies which seek to obtain treaty benefits unintended by the Model Convention.”

Paragraph 8 was previously amended on 23 July 1992 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992, on the basis of paragraph 14 of a previous report entitled “Double Taxation Conventions and the Use of Conduit Companies” (adopted by the OECD Council on 27 November 1986). In the 1977 Model Convention and until 23 July 1992, paragraph 8 read as follows:

“8. Paragraph 1 provides a definition of the expression “resident of a Contracting State” for the purposes of the Convention. The definition refers to the concept of residence adopted in the domestic laws (cf. Preliminary Remarks). As criteria for the taxation as a resident the definition mentions: domicile, residence, place of management or any other criterion of a similar nature. As far as individuals are concerned, the definition aims at covering the various forms of personal attachment to a State which, in the domestic taxation laws, form the basis of a comprehensive taxation (full liability to tax). It also covers cases where a person is deemed, according to the taxation laws of a State, to be a resident of that State and on account thereof is fully liable to tax therein (e.g. diplomats or other persons in government service). In accordance with the provisions of the second sentence of paragraph 1, however, a person is not to be considered a “resident of a Contracting State” in the sense of the Convention if, although not domiciled in that State, he is considered to be a resident according to the domestic laws but is subject only to a taxation limited to the income from sources in that State or to capital situated in that State. That situation exists in some States in relation to individuals, e.g. in the case of foreign diplomatic and consular staff serving in their territory.”

Paragraph 8 of the 1977 Model Convention corresponded to paragraph 10 of the 1963 Draft Convention. Paragraph 8 of the 1963 Draft Convention was deleted and paragraph 10 of the 1963 Draft Convention was amended and renumbered as paragraph 8 when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At the same time, the headings preceding paragraph 9 of the 1963 Draft Convention were amended and moved immediately before paragraph 8 (see history of paragraph 9). In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 10 read as follows:

“10. Paragraph 1 provides a definition of the expression “resident of a Contracting State” for the purposes of the Convention. The definition refers to the concept of residence adopted in the national laws (cf. General Comments). As criteria for the taxation as a resident the definition mentions: domicile, residence, place of management or any other similar criterion. As far as individuals are concerned, the definition aims at covering the various forms of personal attachment to a State which, in the national fiscal legislations, form the basis of a more comprehensive taxation (full liability to tax). An individual, however, is not to be considered a “resident of a Contracting State” in the sense of the Convention if, although not domiciled in that State, he is considered as a resident according to the national law and is only subject to a limited taxation on the income arising in that State.”

In the 1963 Draft Convention and until it was deleted when the 1977 Model Convention was adopted, paragraph 8 read as follows:

“8. What is stated above gives the general background of the Article. Special comments are made below.”

Paragraph 8.1: Replaced on 17 July 2008 when paragraph 8.1 was renumbered as paragraph 8.4 (see history of paragraph 8.4) and a new paragraph 8.1 was added by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008. The new paragraph 8.1 incorporated the sixth and seventh sentences of paragraph 8 as they read before 17 July 2008 (see history of paragraph 8).

Paragraph 8.2: Replaced on 17 July 2008 when paragraph 8.2 was renumbered as paragraph 8.5 (see history of paragraph 8.5) and a new paragraph 8.2 was added by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008. The new paragraph 8.2 incorporated, with amendments, the eighth, penultimate and final sentences of paragraph 8 as they read before 17 July 2008 (see history of paragraph 8).

Paragraph 8.3: Replaced on 17 July 2008 when paragraph 8.3 was renumbered as paragraph 8.6 (see history of paragraph 8.6) and a new paragraph 8.3 was added by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008. The new paragraph 8.3 incorporated, with amendments, the ninth sentence of paragraph 8 as it read before 17 July 2008 (see history of paragraph 8).

Paragraph 8.4: Corresponds to paragraph 8.1 as it read before 17 July 2008. On that date, paragraph 8.4 was renumbered as paragraph 8.7 (see history of paragraph 8.7) and paragraph 8.1 was renumbered as paragraph 8.4 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008.

Paragraph 8.1 was added on 21 September 1995 by the report entitled “The 1995 Update to the Model Tax Convention”, adopted by the OECD Council on 21 September 1995.

Paragraph 8.5: Amended on 21 November 2017 by changing the cross-references by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 22 July 2010 and until 21 November 2017, paragraph 8.5 read as follows:

“8.5 This raises the issue of the application of paragraph 1 to sovereign wealth funds, which are special purpose investment funds or arrangements created by a State or a political subdivision for macroeconomic purposes. These funds hold, manage or administer assets to achieve financial objectives, and employ a set of investment strategies which include investing in foreign financial assets. They are commonly established out of balance of payments surpluses, official foreign currency operations, the proceeds of privatisations, fiscal surpluses or receipts resulting from commodity exports.^[23] Whether a sovereign wealth fund qualifies as a “resident of a Contracting State” depends on the facts and circumstances of each case. For example, when a sovereign wealth fund is an integral part of the State, it will likely fall within the scope of the expression “[the] State and any political subdivision or local authority thereof” in Article 4. In other cases, paragraphs 8.6 and 8.7 below will be relevant. States may want to address the issue in the course of bilateral negotiations, particularly in relation to whether a sovereign wealth fund qualifies as a “person” and is “liable to tax” for purposes of the relevant tax treaty (see also paragraphs 6.35 to 6.39 of the Commentary on Article 1).

Paragraph 8.5 was replaced on 22 July 2010 when paragraph 8.5 was renumbered as paragraph 8.6 (see history of paragraph 8.6) and a new paragraph 8.5 was added by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2010.

Paragraph 8.6: Replaced on 21 November 2017 when paragraph 8.6 was amended and renumbered as paragraph 8.11 (see history of paragraph 8.11) and a new paragraph 8.6 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 8.7: Replaced on 21 November 2017 when paragraph 8.7 was renumbered as paragraph 8.12 (see history of paragraph 8.12) and a new paragraph 8.7 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 8.8: Replaced on 21 November 2017 when paragraph 8.8 was amended and renumbered as paragraph 8.13 (see history of paragraph 8.13) and a new paragraph 8.8 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 8.9: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 8.10: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 8.11: Corresponds to paragraph 8.6 as it read before 21 November 2017. On that date, paragraph 8.6 was amended and renumbered as paragraph 8.11 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 22 July 2010 and until 21 November 2017, paragraph 8.6 read as follows:

“8.6 Paragraph 1 refers to persons who are “liable to tax” in a Contracting State under its laws by reason of various criteria. In many States, a person is considered liable to comprehensive taxation even if the Contracting State does not in fact impose tax. For example, pension funds, charities and other organisations may be exempted from tax, but they are exempt only if they meet all of the requirements for exemption specified in the tax laws. They are, thus, subject to the tax laws of a Contracting State. Furthermore, if they do not meet the standards specified, they are also required to pay tax. Most States would view such entities as residents for purposes of the Convention (see, for example, paragraph 1 of Article 10 and paragraph 5 of Article 11).”

Paragraph 8.6 as it read after 22 July 2010 corresponded to previous paragraph 8.5. On that date, paragraph 8.6 was renumbered as paragraph 8.7 (see history of paragraph 8.7) and paragraph 8.5 was renumbered as paragraph 8.6 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2010.

Paragraph 8.5 as it read after 17 July 2008 corresponded to previous paragraph 8.2. On 17 July 2008 paragraph 8.2 was renumbered as paragraph 8.5 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008.

Paragraph 8.2 was added on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000.

Paragraph 8.12: Corresponds to paragraph 8.7 as it read before 21 November 2017. On that date, paragraph 8.7 was renumbered as paragraph 8.12 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 8.7 as it read after 22 July 2010 corresponded to previous paragraph 8.6. On that date, paragraph 8.7 was renumbered as paragraph 8.8 (see history of paragraph 8.13) and paragraph 8.6 was renumbered as paragraph 8.7 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2010.

Paragraph 8.6 as it read after 17 July 2008 corresponded to previous paragraph 8.3. On 17 July 2008, paragraph 8.3 was renumbered as paragraph 8.6 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008.

Paragraph 8.3 was added on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000.

Paragraph 8.13: Corresponds to paragraph 8.8 as it read before 21 November 2017. On that date, paragraph 8.8 was amended and renumbered as paragraph 8.13 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, as a result of follow-up work on another report entitled “Neutralising the Effects of Hybrid Mismatch Arrangements, Action 2 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. After 22 July 2010 and until 21 November 2017, paragraph 8.8 read as follows:

“8.8 Where a State disregards a partnership for tax purposes and treats it as fiscally transparent, taxing the partners on their share of the partnership income, the partnership itself is not liable to tax and may not, therefore, be considered to be a resident of that State. In such a case, since the income of the partnership “flows through” to the partners under the domestic law of that State, the partners are the persons who are liable to tax on that income and are thus the appropriate persons to claim the benefits of the conventions concluded by the States of which they are residents. This latter result will be achieved even if, under the domestic law of the State of source, the income is attributed to a partnership which is treated as a separate taxable entity. For States which could not agree with this interpretation of the Article, it would be possible to provide for this result in a special provision which would avoid the resulting potential double taxation where the income of the partnership is differently allocated by the two States.”

Paragraph 8.8 as it read after 22 July 2010 corresponded to previous paragraph 8.7. On that date, paragraph 8.7 was renumbered as paragraph 8.8 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2010.

Paragraph 8.7, as it read after 17 July 2008 corresponded to previous paragraph 8.4. On 17 July 2008, paragraph 8.4 was renumbered as paragraph 8.7 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008.

Paragraph 8.4 was added on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000, on the basis of Annex I of another report entitled “The Application of the OECD Model Tax Convention to Partnerships” (adopted by the OECD Committee on Fiscal Affairs on 20 January 1999).

Paragraph 9: Corresponds to paragraph 11 of the 1963 Draft Convention. Paragraph 9 of the 1963 Draft Convention was deleted and paragraph 11 of the 1963 Draft Convention was amended and renumbered as paragraph 9 when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At the same time, the headings preceding paragraph 9 of the 1963 Draft Convention were amended and moved immediately before paragraph 8 and the heading preceding paragraph 11 of the 1963 Draft Convention was moved immediately before paragraph 9. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 11 read as follows:

“11. This paragraph relates to the case where, under the provision of paragraph 1, an individual is subject to tax as a resident in both Contracting States.”

In the 1963 Draft Convention and until the adoption of the 1977 Model Convention, paragraph 9 and the headings preceding it read as follows:

“2. SPECIAL COMMENTS ON THE ARTICLE

Paragraph 1

9. The Conventions usually refer to the State of “domicile” in several Articles. It was felt that, for terminological reasons, it would be useful if a “shorthand expression” could be used in all cases where the State of “domicile” is mentioned. In the Article the term “resident” is used. This term is used in Conventions concluded by the United Kingdom and by the United States of America. In the Convention between the United Kingdom and France the expression “un résident” is used in the French text.”

Paragraph 10: Amended on 21 September 1995 by the report entitled “The 1995 Update to the Model Tax Convention”, adopted by the OECD Council on 21 September 1995. In the 1977 Model Convention and until 21 September 1995, paragraph 10 read as follows:

“10. To solve this conflict special rules must be established which give the attachment to one State a preference over the attachment to the other State. As far as possible, the preference criterion must be of such a nature that there can be no question but that the person concerned will satisfy it in one State only, and At the same time, it must reflect such an attachment that it is felt to be natural that the right to tax devolves upon that particular State.”

Paragraph 10 of the 1977 Model Convention corresponded to paragraph 12 of the 1963 Draft Convention. Paragraph 10 of the 1963 Draft Convention was amended and renumbered as paragraph 8 (see history of paragraph 8) and paragraph 12 of the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) was renumbered as paragraph 10 when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 11: Corresponds to paragraph 13 of the 1963 Draft Convention. Paragraph 11 of the 1963 Draft Convention was amended and renumbered as paragraph 9 (see history of paragraph 9) and paragraph 13 of the 1963 Draft Convention was amended and renumbered as paragraph 11 when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 13 read as follows:

“13. The Article gives preference to the Contracting State in which the individual has a permanent home available to him. This is in accordance with the usual provisions in double taxation Conventions, and this criterion will frequently be sufficient to solve the conflict, e.g. where the individual has a permanent home in one Contracting State and has only made a stay of some length in the other Contracting State.”

Paragraph 12: Replaced when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 12 of the 1963 Draft Convention was renumbered as paragraph 10 (see history of paragraph 10) and a new paragraph 12 was added.

Paragraph 13: Amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. In the 1977 Model Convention and until 21 November 2017, paragraph 13 read as follows:

“13. As regards the concept of home, it should be observed that any form of home may be taken into account (house or apartment belonging to or rented by the individual, rented furnished room). But the permanence of the home is essential; this means that the individual has arranged to have the dwelling available to him at all times continuously, and not occasionally for the purpose of a stay which, owing to the reasons for it, is necessarily of short duration (travel for pleasure, business travel, educational travel, attending a course at a school, etc.).”

Paragraph 13 was replaced when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 13 of the 1963 Draft Convention was renumbered as paragraph 11 (see history of paragraph 11) and a new paragraph 13 was added.

Paragraph 14: Amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 14 read as follows:

“14. If the individual has a permanent home in both Contracting States, the Article gives preference to the State with which his personal and economic relations are closest, this being understood as the centre of vital interests.”

Paragraph 15: Replaced when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 15 of the 1963 Draft Convention was deleted and a new paragraph 15 was added. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 15 read as follows:

“15. In the cases where the residence cannot be determined by reference to the above mentioned provisions, the Article provides as subsidiary criteria, first, habitual abode, and then nationality.”

Paragraph 16: Replaced when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 16 of the 1963 Draft Convention was deleted and a new paragraph 16 was added. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of 1977 Model Convention, paragraph 16 read as follows:

“16. If the individual is a national of both Contracting States or of none of them, the question shall be solved by mutual agreement between the States concerned according to the procedure laid down in Article 25.”

Paragraph 17: Amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. In the 1977 Model Convention and until 21 November 2017, paragraph 17 read as follows:

“17. In the first situation, the case where the individual has a permanent home available to him in both States, the fact of having an habitual abode in one State rather than in the other appears therefore as the circumstance which, in case of doubt as to where the individual has his centre of vital interests, tips the balance towards the State where he stays more frequently. For this purpose regard must be had to stays made by the individual not only at the permanent home in the State in question but also at any other place in the same State.”

Paragraph 17 was replaced when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 17 of the 1963 Draft Convention was amended and renumbered as paragraph 21 (see history of paragraph 21), the heading preceding paragraph 17 was moved with it and a new paragraph 17 was added.

Paragraph 18: Replaced when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 18 of the 1963 Draft Convention was amended and renumbered as paragraph 22 (see history of paragraph 22) and a new paragraph 18 was added.

Paragraph 19: Replaced on 21 November 2017 when paragraph 19 was deleted and a new paragraph 19 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. In the 1977 Model Convention and until 21 November 2017, paragraph 19 read as follows:

“19. In stipulating that in the two situations which it contemplates preference is given to the Contracting State where the individual has an habitual abode, subparagraph b) does not specify over what length of time the comparison must be made. The comparison must cover a sufficient length of time for it to be possible to determine whether the residence in each of the two States is habitual and to determine also the intervals at which the stays take place.”

Paragraph 19 was replaced when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 19 of the 1963 Draft Convention was amended and renumbered as paragraph 23 (see history of paragraph 23) and a new paragraph 19 was added.

Paragraph 19.1: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 20: Replaced when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 20 of the 1963 Draft Convention was renumbered as paragraph 24 (see history of paragraph 24) and a new paragraph 20 was added.

Paragraph 21: Corresponds to paragraph 17 of the 1963 Draft Convention. Paragraph 21 of the 1963 Draft Convention was deleted and paragraph 17 of the 1963 Draft Convention was amended and renumbered as paragraph 21 when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At the same time, the heading preceding paragraph 17 was moved with it and the heading preceding paragraph 21 was moved immediately before paragraph 26. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 17 and the heading preceding it read as follows:

“Paragraph 3

17. This paragraph concerns companies and other bodies of persons not being individuals, irrespective of whether they are or not legal persons. It may be rare in practice for a company, etc. to be subject to tax as a resident in more than one State, but it is, of course, possible if, for instance, one State attaches importance to the registration and the other State to the place of effective management. So, in the case of companies, etc., also, special rules as to the preference must be established.”

In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until it was deleted when the 1977 Model Convention was adopted, paragraph 21 read as follows:

“21. Ireland cannot envisage treating as non-resident in Ireland an individual who is resident in that country under Irish law. In Conventions which have been made by Ireland with other countries double taxation of the dual resident is relieved by way of exemption or of credit.”

Paragraph 22: Amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. In the 1977 Model Convention and until 21 November 2017, paragraph 22 read as follows:

“22. It would not be an adequate solution to attach importance to a purely formal criterion like registration. Therefore paragraph 3 attaches importance to the place where the company, etc. is actually managed.”

Paragraph 22 as it read in the 1977 Model Convention corresponded to paragraph 18 of the 1963 Draft Convention. Paragraph 22 of the 1963 Draft Convention was deleted and paragraph 18 of the 1963 Draft Convention was amended and renumbered as paragraph 22 when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 18 read as follows:

“18. It would not be natural to attach importance to a purely formal criterion like registration which is used but rarely in double taxation Conventions. Generally, these attach importance to the place where the company is actually managed, but the formulation of this criterion varies from one Convention to another.”

In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until it was deleted when the 1977 Model Convention was adopted, paragraph 22 read as follows:

“22. Since the United States has traditionally imposed tax on the basis of citizenship (place of incorporation, in the case of companies), it reserves the right to do so when entering into tax Conventions with other O.E.C.D. Member countries.”

Paragraph 23: Replaced on 21 November 2017 when paragraph 23 was deleted and a new paragraph 23 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. After 23 July 1992 and until 21 November 2017, paragraph 23 read as follows:

“23. The formulation of the preference criterion in the case of persons other than individuals was considered in particular in connection with the taxation of income from shipping, inland waterways transport and air transport. A number of conventions for the avoidance of double taxation on such income accord the taxing power to the State in which the “place of management” of the enterprise is situated; other conventions attach importance to its “place of effective management”, others again to the “fiscal domicile of the operator”.”

Paragraph 23 was amended on 23 July 1992, by deleting the last sentence of the paragraph, by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992. In the 1977 Model Convention and until 23 July 1992, paragraph 23 read as follows:

“23. The formulation of the preference criterion in the case of persons other than individuals was considered in particular in connection with the taxation of income from shipping, inland waterways transport and air transport. A number of conventions for the avoidance of double taxation on such income accord the taxing power to the State in which the “place of management” of the enterprise is situated; other conventions attach importance to its “place of effective management”, others again to the “fiscal domicile of the operator”. Concerning conventions concluded by the United Kingdom which provide that a company shall be regarded as resident in the State in which “its business is managed and controlled”, it has been made clear, on the United Kingdom side, that this expression means the “effective management” of the enterprise.”

Paragraph 23 of the 1977 Model Convention corresponded to paragraph 19 of the 1963 Draft Convention. Paragraph 19 of the 1963 Draft Convention was amended and renumbered as paragraph 23 when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 19 read as follows:

“19. The formulation of the preference criterion in the case of persons other than individuals was considered in connection with the question of the taxation of income of shipping, inland waterways transport and air transport enterprises. A study of the existing bilateral Conventions for the avoidance of double taxation on such income has shown that a number of Conventions accord the taxing power to the State in which the “place of management” of the enterprise is situated; other Conventions attach importance to its “place of effective management”, others again to “the fiscal domicile of the operator”. The Conventions concluded by the United Kingdom in recent years provide, as regards corporate bodies, that a company shall be regarded as resident in the State in which “its business is managed and controlled”. In this connection it has been made clear on the United Kingdom side that this expression means the “effective management” of the enterprise.”

Paragraph 24: Replaced on 21 November 2017 when paragraph 24 was deleted and a new paragraph 24 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. After 17 July 2008 and until 21 November 2017, paragraph 24 read as follows:

“24. As a result of these considerations, the “place of effective management” has been adopted as the preference criterion for persons other than individuals. The place of effective management is the place where key management and commercial decisions that are necessary for the conduct of the entity’s business as a whole are in substance made. All relevant facts and circumstances must be examined to determine the place of effective management. An entity may have more than one place of management, but it can have only one place of effective management at any one time.”

Paragraph 24 was amended on 17 July 2008 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008. After 29 April 2000 and until 17 July 2008, paragraph 24 read as follows:

“24. As a result of these considerations, the “place of effective management” has been adopted as the preference criterion for persons other than individuals. The place of effective management is the place where key management and commercial decisions that are necessary for the conduct of the entity’s business are in substance made. The place of effective management will ordinarily be the place where the most senior person or group of persons (for example a board of directors) makes its decisions, the place where the actions to be taken by the entity as a whole are determined; however, no definitive rule can be given and all relevant facts and circumstances must be examined to determine the place of effective management. An entity may have more than one place of management, but it can have only one place of effective management at any one time.”

Paragraph 24 was previously amended on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000. In the 1977 Model Convention and until 29 April 2000, paragraph 24 read as follows:

“24. As a result of these considerations, the “place of effective management” has been adopted as the preference criterion for persons other than individuals.”

Paragraph 24 of the 1977 Model Convention corresponded to paragraph 20 of the 1963 Draft Convention. Paragraph 20 of the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963), was renumbered as paragraph 24 when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 24.1: Amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. When paragraph 24.1 was amended, the first half was deleted, the penultimate sentence was included in new paragraph 24.2 and the last sentence formed new paragraph 24.3. After 17 July 2008 and until 21 November 2017, paragraph 24.1 read as follows:

“24.1 Some countries, however, consider that cases of dual residence of persons who are not individuals are relatively rare and should be dealt with on a case-by-case basis. Some countries also consider that such a case-by-case approach is the best way to deal with the difficulties in determining the place of effective management of a legal person that may arise from the use of new communication technologies. These countries are free to leave the question of the residence of these persons to be settled by the competent authorities, which can be done by replacing the paragraph by the following provision:

3. Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, the competent authorities of the Contracting States shall endeavour to determine by mutual agreement the Contracting State of which such person shall be deemed to be a resident for the purposes of the Convention, having regard to its place of effective management, the place where it is incorporated or otherwise constituted and any other relevant factors. In the absence of such agreement, such person shall not be entitled to any relief or exemption from tax provided by this Convention except to the extent and in such manner as may be agreed upon by the competent authorities of the Contracting States.

Competent authorities having to apply such a provision to determine the residence of a legal person for purposes of the Convention would be expected to take account of various factors, such as where the meetings of its board of directors or equivalent body are usually held, where the chief executive officer and other senior executives usually carry on their activities, where the senior day-to-day management of the person is carried on, where the person’s headquarters are located, which country’s laws govern the legal status of the person, where its accounting records are kept, whether determining that the legal person is a resident of one of the Contracting States but not of the other for the purpose of the Convention would carry the risk of an improper use of the provisions of the Convention etc. Countries that consider that the competent authorities should not be given the discretion to solve such cases of dual residence without an indication of the factors to be used for that purpose may want to supplement the provision to refer to these or other factors that they consider relevant. Also, since the application of the provision would normally be requested by the person concerned through the mechanism provided for under paragraph 1 of Article 25, the request should be made within three years from the first notification to that person that its taxation is not in accordance with the Convention since it is considered to be a resident of both Contracting States. Since the facts on which a decision will be based may change over time, the competent authorities that reach a decision under that provision should clarify which period of time is covered by that decision.”

Paragraph 24.1 was added on 17 July 2008 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008.

Paragraph 24.2: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. Paragraph 24.2 incorporates part of the penultimate sentence of paragraph 24.1 (see history of paragraph 24.1).

Paragraph 24.3: Corresponds to the last sentence of paragraph 24.1 as it read before 21 November 2017. On that date, the last sentence of paragraph 24.1 became new paragraph 24.3 (see history of paragraph 24.1) on the basis of the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 24.4: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 24.5: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 25: Replaced on 18 November 2025, when paragraph 25 was deleted and a new paragraph 25 was added, by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025. After 21 November 2017 and until 18 November 2025, paragraph 25 read as follows:

“25. Chile wishes to clarify that, with respect to paragraph 8.12, entities that are not regarded as residents may also include pension funds unless expressly covered by the convention.”

Paragraph 25 was previously replaced on 21 November 2017 when paragraph 25 was deleted and a new paragraph 25 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 17 July 2008 and until 21 November 2017, paragraph 25 read as follows:

“25. As regards paragraphs 24 and 24.1, Italy holds the view that the place where the main and substantial activity of the entity is carried on is also to be taken into account when determining the place of effective management of a person other than an individual.”

Paragraph 25 was previously amended on 17 July 2008 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008. After 29 April 2000 and until 17 July 2008, paragraph 25 read as follows:

“25. Italy does not adhere to the interpretation given in paragraph 24 above concerning “the most senior person or group of persons (for example, a board of directors)” as the sole criterion to identify the place of effective management of an entity. In its opinion the place where the main and substantial activity of the entity is carried on is also to be taken into account when determining the place of effective management.”

Paragraph 25 was previously replaced on 29 April 2000 when paragraph 25 of the 1977 Model Convention was deleted and a new paragraph 25 was added by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000. In the 1977 Model Convention and until 29 April 2000, paragraph 25 read as follows:

“25. New Zealand’s interpretation of the term “effective management” is practical day to day management, irrespective of where the overriding control is exercised.”

Paragraph 25 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 26: Replaced on 21 September 1995 when paragraph 26 of the 1977 Model was renumbered as paragraph 27 (see history of paragraph 27) by the report entitled “The 1995 Update to the Model Tax Convention”, adopted by the OECD Council on 21 September 1995. At the same time the heading preceding paragraph 26 was moved with it and a new paragraph 26 was added.

Paragraph 26.1: Deleted on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 17 July 2008 and until 21 November 2017, paragraph 26.1 read as follows:

“26.1 Mexico does not agree with the general principle expressed in paragraph 8.8 of the Commentary according to which if tax owed by a partnership is determined on the basis of the personal characteristics of the partners, these partners are entitled to the benefits of tax conventions entered into by the States of which they are residents as regards income that “flows through” that partnership.”

Paragraph 26.1 was amended on 17 July 2008, by replacing the cross-reference to “paragraph 8.4” with “paragraph 8.7”, by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008. After 28 January 2003 and until 17 July 2008, paragraph 26.1 read as follows:

“26.1 Mexico does not agree with the general principle expressed in paragraph 8.4 of the Commentary according to which if tax owed by a partnership is determined on the basis of the personal characteristics of the partners, these partners are entitled to the benefits of tax conventions entered into by the States of which they are residents as regards income that “flows through” that partnership.”

Paragraph 26.1 was added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003.

Paragraph 26.2: Deleted on 17 July 2008 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008. After 28 January 2003 and until 17 July 2008, paragraph 26.2 read as follows:

“26.2 Concerning the residence of tax-exempt not profit making organisations and charities, Greece adopts the view presented in paragraph 8.3 of the Commentary.”

Paragraph 26.2 was added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003.

Paragraph 26.3: Deleted on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 17 July 2008 and until 21 November 2017, paragraph 26.3 read as follows:

“26.3 France considers that the definition of the place of effective management in paragraph 24, according to which “the place of effective management is the place where key management and commercial decisions that are necessary for the conduct of the entity’s business as a whole are in substance made”, will generally correspond to the place where the person or group of persons who exercises the most senior functions (for example a board of directors or management board) makes its decisions. It is the place where the organs of direction, management and control of the entity are, in fact, mainly located.”

Paragraph 26.3 was added on 17 July 2008 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008.

Paragraph 26.4: Deleted on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 17 July 2008 and until 21 November 2017, paragraph 26.4 read as follows:

“26.4 As regards paragraph 24, Hungary is of the opinion that in determining the place of effective management, one should not only consider the place where key management and commercial decisions that are necessary for the conduct of the entity’s business as a whole are in substance made, but should also take into account the place where the chief executive officer and other senior executives usually carry on their activities as well as the place where the senior day-to-day management of the enterprise is usually carried on.”

Paragraph 26.4 was added on 17 July 2008 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008.

Paragraph 27: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. At the same time the heading preceding paragraph 27 was moved immediately before paragraph 28.

Paragraph 27 as it read before 15 July 2014 was deleted by the report entitled “The 2014 Update to the Model Tax Convention”, adopted by the OECD Council on 15 July 2014. After 29 April 2000 and until 15 July 2014, paragraph 27 read as follows:

“27. Canada reserves the right to use as the test for paragraph 3 the place of incorporation or organisation with respect to a company and, failing that, to deny dual resident companies the benefits under the Convention.”

Paragraph 27 was amended on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000. After 21 September 1995 and until 29 April 2000, paragraph 27 read as follows:

“27. Canada reserves the right to use as the test for paragraph 3 the place of incorporation or organisation with respect to a company.”

Paragraph 27 as it read after 21 September 1995 corresponded to previous paragraph 26. On 21 September 1995 paragraph 27 was renumbered as paragraph 28 (see history of paragraph 28), paragraph 26 was renumbered as paragraph 27 and the heading preceding paragraph 26 was moved with it by the report entitled “The 1995 Update to the Model Tax Convention”, adopted by the OECD Council on 21 September 1995.

Paragraph 26 was previously amended on 23 July 1992, by deleting the United States as a country making the reservation and incorporating that reservation into paragraph 30 (see history of paragraph 31), by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992. In the 1977 Model Convention and until 23 July 1992, paragraph 26 read as follows:

“26. Canada and the United States reserve the right to use as the test for paragraph 3 the place of incorporation or organisation with respect to a company.”

Paragraph 26 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 27.1: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 28: Amended on 23 October 1997, by adding Korea to the list of countries making the reservation, by the report entitled “The 1997 Update to the Model Tax Convention”, adopted by the OECD Council on 23 October 1997. After 21 September 1995 and until 23 October 1997, paragraph 28 read as follows:

“28. Japan reserves its position on the provisions in this and other Articles in the Model Tax Convention which refer directly or indirectly to the place of effective management. Instead of the term “place of effective management”, Japan wishes to use in its conventions the term “head or main office”.”

Paragraph 28 as it read after 21 September 1995 corresponded to previous paragraph 27. On 21 September 1995, paragraph 27 was renumbered as paragraph 28 by the report entitled “The 1995 Update to the Model Tax Convention”, adopted by the OECD Council on 21 September 1995.

Paragraph 27 was amended on 31 March 1994, by adding a second sentence, by the report entitled “1994 Update to the Model Tax Convention”, adopted by the OECD Council on 31 March 1994. After 23 July 1992 and until 31 March 1994, paragraph 27 read as follows:

“27. Japan reserves its position on the provisions in this and other Articles in the Model Convention which refer directly or indirectly to the place of effective management.”

Paragraph 27 as it read after 23 July 1992 corresponded to paragraph 28 of the 1977 Model Convention. On 23 July 1992, paragraph 27 of the 1977 Model Convention was deleted and paragraph 28 of the 1977 Model Convention was renumbered as paragraph 27 and amended, by deleting the word “also” immediately after “Japan”, by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992. In the 1977 Model Convention and until 23 July 1992, paragraph 28 read as follows:

“28. Japan also reserves its position on the provisions in this and other Articles in the Model Convention which refer directly or indirectly to the place of effective management.”

Paragraph 28 of the 1977 Model Convention was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

In the 1977 Model Convention and until it was deleted on 23 July 1992, paragraph 27 read as follows:

“27. Japan wishes to be free to conclude a bilateral convention which provides that the fiscal domicile of a resident of both Contracting States is to be determined through consultation between competent authorities. When entering into such consultation, Japan is prepared to take into consideration the rules set out in paragraph 2 of this Article as far as practicable.”

Paragraph 27 of the 1977 Model Convention was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 29: Amended on 17 July 2008 by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008. After 29 April 2000 and until 17 July 2008, paragraph 29 read as follows:

“29. France does not agree with the general principle according to which if tax owed by a partnership is determined on the basis of the personal characteristics of the partners, these partners are entitled to the benefits of tax conventions entered into by the States of which they are residents as regards income that “flows through” that partnership. Under French domestic law, a partnership is considered to be liable to tax even though, technically, that tax is collected from the partners; for that reason, France reserves the right to amend the Article in its tax conventions in order to specify that French partnerships must be considered as residents of France in view of their legal and tax characteristics.”

Paragraph 29 was previously amended on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000. After 21 September 1995 and until 29 April 2000, paragraph 29 read as follows:

“29. France reserves the right to amend the Article in its tax conventions in order to specify that French partnerships must be considered as residents of France in view of their legal and tax characteristics.”

Paragraph 29 as it read after 21 September 1995 corresponded to previous paragraph 28. On 21 September 1995, paragraph 28 was renumbered as paragraph 29 by the report entitled “The 1995 Update to the Model Tax Convention”, adopted by the OECD Council on 21 September 1995.

Paragraph 28 was replaced on 23 July 1992 when paragraph 28 of the 1977 Model Convention was amended and renumbered as paragraph 27 (see history of paragraph 28) and a new paragraph 28 was added by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 30: Replaced on 21 November 2017 when paragraph 30 was deleted and a new paragraph 30 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 21 September 1995 and until 21 November 2017, paragraph 30 read as follows:

“30. Turkey reserves the right to use the “registered office” criterion (legal head office) as well as the “place of effective management” criterion for determining the residence of a person, other than an individual, which is a resident of both Contracting States because of the provisions of paragraph 1 of the Article.”

Paragraph 30 as it read after 21 September 1995 corresponded to previous paragraph 29. On that date paragraph 30 was renumbered as paragraph 31 (see history of paragraph 31) and paragraph 29 was renumbered as paragraph 30 by the report entitled “The 1995 Update to the Model Tax Convention”, adopted by the OECD Council on 21 September 1995.

Paragraph 29 was added on 23 July 1992 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 31: Replaced on 18 November 2025, when paragraph 31 was deleted and a new paragraph 31 was added, by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025. After 17 July 2008 and until 18 November 2025, paragraph 31 read as follows:

“31. The United States reserves the right to use a place of incorporation test for determining the residence of a corporation, and, failing that, to deny dual resident companies certain benefits under the Convention.”

Paragraph 31 was previously amended on 17 July 2008, by deleting Mexico from the list of countries making the reservation, by the report entitled “The 2008 Update to the Model Tax Convention”, adopted by the OECD Council on 17 July 2008. After 29 April 2000 and until 17 July 2008, paragraph 31 read as follows:

“31. Mexico and the United States reserve the right to use a place of incorporation test for determining the residence of a corporation, and, failing that, to deny dual resident companies certain benefits under the Convention.”

Paragraph 31 was previously amended on 29 April 2000, by adding Mexico as a country making the reservation, by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000. After 21 September 1995 and until 29 April 2000, paragraph 31 read as follows:

“31. The United States reserves the right to use a place of incorporation test for determining the residence of a corporation, and, failing that, to deny dual resident companies certain benefits under the Convention.”

Paragraph 31 as it read after 21 September 1995 corresponded to previous paragraph 30. On 21 September 1995 paragraph 31 was renumbered paragraph 32 (see history of paragraph 32) and paragraph 30 was renumbered as paragraph 31 by the report entitled “The 1995 Update to the Model Tax Convention”, adopted by the OECD Council on 21 September 1995.

Paragraph 30 was amended on 31 March 1994, by adding the word “certain” before the word “benefits”, by the report entitled “1994 Update to the Model Tax Convention”, adopted by the OECD Council on 31 March 1994. After 23 July 1992 and until 31 March 1994, paragraph 30 read as follows:

“30. The United States reserves the right to use a place of incorporation test for determining the residence of a corporation, and, failing that, to deny dual resident companies benefits under the Convention.”

Paragraph 30 as it read after 23 July 1992 corresponded in part to paragraph 26 of the 1977 Model Convention (see history of paragraph 27). The reservation of the United States was incorporated into paragraph 30 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 32: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 32 was it read before 15 July 2014 was deleted by the report entitled “The 2014 Update to the Model Tax Convention”, adopted by the OECD Council on 15 July 2014. After 29 April 2000 and until 15 July 2014, paragraph 32 read as follows:

“32. Germany reserves the right to include a provision under which a partnership that is not a resident of a Contracting State according to the provisions of paragraph 1 is deemed to be a resident of the Contracting State where the place of its effective management is situated, but only to the extent that the income derived from the other Contracting State or the capital situated in that other State is liable to tax in the first-mentioned State.”

Paragraph 32 was replaced on 29 April 2000 when it was deleted and a new paragraph 32 was added by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000. After 21 September 1995 and until 29 April 2000, paragraph 32 read as follows:

“32. Mexico reserves the right to be excluded from the application of the portion of subparagraph d) of paragraph 2 that addresses double nationality, because the Mexican Constitution does not allow Mexican nationals to be nationals of any other State.”

Paragraph 32 was added on 21 September 1995 by the report entitled “The 1995 Update to the Model Tax Convention”, adopted by the OECD Council on 21 September 1995.

Paragraph 33: Added on 15 July 2014 by the report entitled “The 2014 Update to the Model Tax Convention”, adopted by the OECD Council on 15 July 2014.

Paragraph 34: Amended on 18 November 2025, by adding Colombia, Costa Rica, Lithuania and the United States to the list of countries making the reservation, by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025. After 21 November 2017 and until 18 November 2025, paragraph 34 read as follows:

“34. Estonia and Latvia reserve the right to include the place of incorporation or similar criterion in paragraph 1.”

Paragraph 34 was previously amended on 21 November 2017, by adding Latvia as a country making the reservation, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 15 July 2014 and until 21 November 2017, paragraph 34 read as follows:

“34. Estonia reserves the right to include the place of incorporation or similar criterion in paragraph 1.”

Paragraph 34 was added on 15 July 2014 by the report entitled “The 2014 Update to the Model Tax Convention”, adopted by the OECD Council on 15 July 2014.

Paragraph 35: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 36: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 37: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 38: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 39: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 40: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 41: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 42: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 43: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Commentary on Article 5
Concerning the definition of permanent establishment

1. The main use of the concept of a permanent establishment is to determine the right of a Contracting State to tax the profits of an enterprise of the other Contracting State. Under Article 7 a Contracting State cannot tax the profits of an enterprise of the other Contracting State unless it carries on its business through a permanent establishment situated therein.

(Replaced on 11 April 1977; see HISTORY)

1.1 (Renumbered on 21 November 2017; see HISTORY)

2. Before 2000, income from professional services and other activities of an independent character was dealt with under a separate Article, i.e. Article 14. The provisions of that Article were similar to those applicable to business profits but it used the concept of fixed base rather than that of permanent establishment since it had originally been thought that the latter concept should be reserved to commercial and industrial activities. The elimination of Article 14 in 2000 reflected the fact that there were no intended differences between the concepts of permanent establishment, as used in Article 7, and fixed base, as used in Article 14, or between how profits were computed and tax was calculated according to which of Article 7 or 14 applied. The elimination of Article 14 therefore meant that the definition of permanent establishment became applicable to what previously constituted a fixed base.

(Renumbered on 21 November 2017; see HISTORY)

3. In 2017, a number of changes were made to this Commentary. Some of these changes were intended to clarify the interpretation of the Article and, as such, should be taken into account for the purposes of the interpretation and application of conventions concluded before their adoption because they reflect the consensus of the OECD Member countries as to the proper interpretation of existing provisions and their application to specific situations (see paragraph 35 of the Introduction).

(Replaced on 21 November 2017; see HISTORY)

4. Changes to this Commentary related to the addition of paragraph 4.1 and the modification of paragraphs 4, 5 and 6 of the Article that were made as a result of the adoption of the Report on Action 7 of the OECD/G20 Base Erosion and Profit Shifting Project were, however, prospective only and, as such, do not affect the interpretation of the former provisions of the OECD Model Tax Convention and of treaties in which these provisions are included, in particular as regards the interpretation of paragraphs 4 and 5 of the Article as they read before these changes (see paragraph 4 of that Report).

(Replaced on 21 November 2017; see HISTORY)

4.1 (Renumbered on 21 November 2017; see HISTORY)

4.2 (Renumbered and amended on 21 November 2017; see HISTORY)

4.3 (Renumbered and amended on 21 November 2017; see HISTORY)

4.4 (Renumbered on 21 November 2017; see HISTORY)

4.5 (Renumbered and amended on 21 November 2017; see HISTORY)

4.6 (Renumbered on 21 November 2017; see HISTORY)

5. In many States, a foreign enterprise may be allowed or required to register for the purposes of a value added tax or goods and services tax (VAT/ GST) regardless of whether it has in that State a fixed place of business through which its business is wholly or partly carried on or whether it is deemed to have a permanent establishment in that State under paragraph 5 of Article 5. By itself, however, treatment under VAT/GST is irrelevant for the purposes of the interpretation and application of the definition of permanent establishment in the Convention; when applying that definition, one should not, therefore, draw any inference from the treatment of a foreign enterprise for VAT/GST purposes, including from the fact that a foreign enterprise has registered for VAT/GST purposes.^[24]

(Replaced on 21 November 2017; see HISTORY)

5.1 (Renumbered and amended on 21 November 2017; see HISTORY)

5.2 (Renumbered on 21 November 2017; see HISTORY)

5.3 (Renumbered on 21 November 2017; see HISTORY)

5.4 (Renumbered on 21 November 2017; see HISTORY)

5.5 (Renumbered on 21 November 2017; see HISTORY)

Paragraph 1

6. Paragraph 1 gives a general definition of the term “permanent establishment” which brings out its essential characteristics of a permanent establishment in the sense of the Convention, i.e. a distinct “situs”, a “fixed place of business”. The paragraph defines the term “permanent establishment” as a fixed place of business, through which the business of an enterprise is wholly or partly carried on. This definition, therefore, contains the following conditions:

• the existence of a “place of business”, i.e. a facility such as premises or, in certain instances, machinery or equipment;

• this place of business must be “fixed”, i.e. it must be established at a distinct place with a certain degree of permanence;

• the carrying on of the business of the enterprise through this fixed place of business. This means usually that persons who, in one way or another, are dependent on the enterprise (personnel) conduct the business of the enterprise in the State in which the fixed place is situated.

(Renumbered on 21 November 2017; see HISTORY)

6.1 (Renumbered and amended on 21 November 2017; see HISTORY)

6.2 (Renumbered and amended on 21 November 2017; see HISTORY)

6.3 (Renumbered and amended on 21 November 2017; see HISTORY)

7. It could perhaps be argued that in the general definition some mention should also be made of the other characteristic of a permanent establishment to which some importance has sometimes been attached in the past, namely that the establishment must have a productive character, i.e. contribute to the profits of the enterprise. In the present definition this course has not been taken. Within the framework of a well-run business organisation it is surely axiomatic to assume that each part contributes to the productivity of the whole. It does not, of course, follow in every case that because in the wider context of the whole organisation a particular establishment has a “productive character” it is consequently a permanent establishment to which profits can properly be attributed for the purpose of tax in a particular territory (see Commentary on paragraph 4).

(Renumbered on 21 November 2017; see HISTORY)

8. It is also important to note that the way in which business is carried on evolves over the years so that the facts and arrangements applicable at one point in time may no longer be relevant after a change in the way that the business activities are carried on in a given State. Clearly, whether or not a permanent establishment exists in a State during a given period must be determined on the basis of the circumstances applicable during that period and not those applicable during a past or future period, such as a period preceding the adoption of new arrangements that modified the way in which business is carried on.

(Replaced on 21 November 2017; see HISTORY)

9. Also, the determination of whether or not an enterprise of a Contracting State has a permanent establishment in the other Contracting State must be made independently from the determination of which provisions of the Convention apply to the profits derived by that enterprise. For instance, a farm or apartment rental office situated in a Contracting State and exploited by a resident of the other Contracting State may constitute a permanent establishment regardless of whether or not the profits attributable to such permanent establishment would constitute income from immovable property covered by Article 6; whilst the existence of a permanent establishment in such cases may not be relevant for the application of Article 6, it would remain relevant for the purposes of other provisions such as paragraphs 4 and 5 of Article 11, subparagraph c) of paragraph 2 of Article 15 and paragraph 3 of Article 24.

(Replaced on 21 November 2017; see HISTORY)

9.1 (Renumbered on 21 November 2017; see HISTORY)

10. The term “place of business” covers any premises, facilities or installations used for carrying on the business of the enterprise whether or not they are used exclusively for that purpose. A place of business may also exist where no premises are available or required for carrying on the business of the enterprise and it simply has a certain amount of space at its disposal. It is immaterial whether the premises, facilities or installations are owned or rented by or are otherwise at the disposal of the enterprise. A place of business may thus be constituted by a pitch in a market place, or by a certain permanently used area in a customs depot (e.g. for the storage of dutiable goods). Again the place of business may be situated in the business facilities of another enterprise. This may be the case for instance where the foreign enterprise has at its constant disposal certain premises or a part thereof owned by the other enterprise.

(Renumbered on 21 November 2017; see HISTORY)

11. As noted above, the mere fact that an enterprise has a certain amount of space at its disposal which is used for business activities is sufficient to constitute a place of business. No formal legal right to use that place is therefore required. Thus, for instance, a permanent establishment could exist where an enterprise illegally occupied a certain location where it carried on its business.

(Renumbered on 21 November 2017; see HISTORY)

12. Whilst no formal legal right to use a particular place is required for that place to constitute a permanent establishment, the mere presence of an enterprise at a particular location does not necessarily mean that that location is at the disposal of that enterprise. Whether a location may be considered to be at the disposal of an enterprise in such a way that it may constitute a “place of business through which the business of [that] enterprise is wholly or partly carried on” will depend on that enterprise having the effective power to use that location as well as the extent of the presence of the enterprise at that location and the activities that it performs there. This is illustrated by the following examples. Where an enterprise has an exclusive legal right to use a particular location which is used only for carrying on that enterprise’s own business activities (e.g. where it has legal possession of that location), that location is clearly at the disposal of the enterprise. This will also be the case where an enterprise is allowed to use a specific location that belongs to another enterprise or that is used by a number of enterprises and performs its business activities at that location on a continuous basis during an extended period of time. This will not be the case, however, where the enterprise’s presence at a location is so intermittent or incidental that the location cannot be considered a place of business of the enterprise (e.g. where employees of an enterprise have access to the premises of associated enterprises which they often visit but without working in these premises for an extended period of time). Where an enterprise does not have a right to be present at a location and, in fact, does not use that location itself, that location is clearly not at the disposal of the enterprise; thus, for instance, it cannot be considered that a plant that is owned and used exclusively by a supplier or contract-manufacturer is at the disposal of an enterprise that will receive the goods produced at that plant merely because all these goods will be used in the business of that enterprise (see also paragraphs 65, 66 and 121 below). It is also important to remember that even if a place is a place of business through which the activities of an enterprise are partly carried on, that place will be deemed not to be a permanent establishment if paragraph 4 applies to the business activities carried on at that place.

(Renumbered and amended on 21 November 2017; see HISTORY)

13. These principles are illustrated by the following additional examples where representatives of one enterprise are present on the premises of another enterprise.

(Replaced on 21 November 2017; see HISTORY)

14. A first example is that of a salesman who regularly visits a major customer to take orders and meets the purchasing director in his office to do so. In that case, the customer’s premises are not at the disposal of the enterprise for which the salesman is working and therefore do not constitute a place of business through which the business of that enterprise is carried on (depending on the circumstances, however, paragraph 5 could apply to deem a permanent establishment to exist).

(Replaced on 21 November 2017; see HISTORY)

15. A second example is that of an employee of a company who, for a long period of time, is allowed to use an office in the headquarters of another company (e.g. a newly acquired subsidiary) in order to ensure that the latter company complies with its obligations under contracts concluded with the former company. In that case, the employee is carrying on activities related to the business of the former company and the office that is at his disposal at the headquarters of the other company will constitute a permanent establishment of his employer, provided that the office is at his disposal for a sufficiently long period of time so as to constitute a “fixed place of business” (see paragraphs 28 to 34) and that the activities that are performed there go beyond the activities referred to in paragraph 4 of the Article.

(Renumbered and amended on 21 November 2017; see HISTORY)

16. A third example is that of a road transportation enterprise which would use a delivery dock at a customer’s warehouse every day for a number of years for the purpose of delivering goods purchased by that customer. In that case, the presence of the road transportation enterprise at the delivery dock would be so limited that that enterprise could not consider that place as being at its disposal so as to constitute a permanent establishment of that enterprise.

(Renumbered and amended on 21 November 2017; see HISTORY)

17. A fourth example is that of a painter who, for two years, spends three days a week in the large office building of its main client. In that case, the presence of the painter in that office building where he is performing the most important functions of his business (i.e. painting) constitute a permanent establishment of that painter.

(Renumbered on 21 November 2017; see HISTORY)

18. (Deleted on 18 November 2025; see HISTORY)

19. (Deleted on 18 November 2025; see HISTORY)

19.1 (Renumbered and amended on 21 November 2017; see HISTORY)

20. The words “through which” must be given a wide meaning so as to apply to any situation where business activities are carried on at a particular location that is at the disposal of the enterprise for that purpose. Thus, for instance, an enterprise engaged in paving a road will be considered to be carrying on its business “through” the location where this activity takes place.

(Renumbered on 21 November 2017; see HISTORY)

21. According to the definition, the place of business has to be a “fixed” one. Thus in the normal way there has to be a link between the place of business and a specific geographical point. It is immaterial how long an enterprise of a Contracting State operates in the other Contracting State if it does not do so at a distinct place, but this does not mean that the equipment constituting the place of business has to be actually fixed to the soil on which it stands. It is enough that the equipment remains on a particular site (but see paragraph 57 below).

(Renumbered and amended on 21 November 2017; see HISTORY)

22. Where the nature of the business activities carried on by an enterprise is such that these activities are often moved between neighbouring locations, there may be difficulties in determining whether there is a single “place of business” (if two places of business are occupied and the other requirements of Article 5 are met, the enterprise will, of course, have two permanent establishments). As recognised in paragraphs 51 and 57 below a single place of business will generally be considered to exist where, in light of the nature of the business, a particular location within which the activities are moved may be identified as constituting a coherent whole commercially and geographically with respect to that business.

(Renumbered and amended on 21 November 2017; see HISTORY)

23. This principle may be illustrated by examples. A mine clearly constitutes a single place of business even though business activities may move from one location to another in what may be a very large mine as it constitutes a single geographical and commercial unit as concerns the mining business. Similarly, an “office hotel” in which a consulting firm regularly rents different offices may be considered to be a single place of business of that firm since, in that case, the building constitutes a whole geographically and the hotel is a single place of business for the consulting firm. For the same reason, a pedestrian street, outdoor market or fair in different parts of which a trader regularly sets up his stand represents a single place of business for that trader.

(Renumbered on 21 November 2017; see HISTORY)

24. By contrast, where there is no commercial coherence, the fact that activities may be carried on within a limited geographic area should not result in that area being considered as a single place of business. For example, where a painter works successively under a series of unrelated contracts for a number of unrelated clients in a large office building so that it cannot be said that there is one single project for repainting the building, the building should not be regarded as a single place of business for the purpose of that work. However, in the different example of a painter who, under a single contract, undertakes work throughout a building for a single client, this constitutes a single project for that painter and the building as a whole can then be regarded as a single place of business for the purpose of that work as it would then constitute a coherent whole commercially and geographically.

(Renumbered on 21 November 2017; see HISTORY)

25. Conversely, an area where activities are carried on as part of a single project which constitutes a coherent commercial whole may lack the necessary geographic coherence to be considered as a single place of business. For example, where a consultant works at different branches in separate locations pursuant to a single project for training the employees of a bank, each branch should be considered separately. However if the consultant moves from one office to another within the same branch location, he should be considered to remain in the same place of business. The single branch location possesses geographical coherence which is absent where the consultant moves between branches in different locations.

(Renumbered on 21 November 2017; see HISTORY)

26. A ship that navigates in international waters or within one or more States is not fixed and does not, therefore, constitute a fixed place of business (unless the operation of the ship is restricted to a particular area that has commercial and geographic coherence). Business activities carried on aboard such a ship, such as the operation of a shop or restaurant, must be treated the same way for the purposes of determining whether paragraph 1 applies (paragraph 5 could apply, however, to some of these activities, e.g. where contracts are concluded when such shops or restaurants are operated within a State).

(Replaced on 21 November 2017; see HISTORY)

26.1 (Renumbered and amended on 21 November 2017; see HISTORY)

27. Clearly, a permanent establishment may only be considered to be situated in a Contracting State if the relevant place of business is situated in the territory of that State. The question of whether a satellite in geostationary orbit could constitute a permanent establishment for the satellite operator relates in part to how far the territory of a State extends into space. No Member country would agree that the location of these satellites can be part of the territory of a Contracting State under the applicable rules of international law and could therefore be considered to be a permanent establishment situated therein. Also, the particular area over which a satellite’s signals may be received (the satellite’s “footprint”) cannot be considered to be at the disposal of the operator of the satellite so as to make that area a place of business of the satellite’s operator.

(Renumbered on 21 November 2017; see HISTORY)

27.1 (Renumbered and amended on 21 November 2017; see HISTORY)

28. Since the place of business must be fixed, it also follows that a permanent establishment can be deemed to exist only if the place of business has a certain degree of permanency, i.e. if it is not of a purely temporary nature. A place of business may, however, constitute a permanent establishment even though it exists, in practice, only for a very short period of time because the nature of the business is such that it will only be carried on for that short period of time. It is sometimes difficult to determine whether this is the case. Whilst the practices followed by Member countries have not been consistent in so far as time requirements are concerned, experience has shown that permanent establishments normally have not been considered to exist in situations where a business had been carried on in a country through a place of business that was maintained for less than six months (conversely, practice shows that there were many cases where a permanent establishment has been considered to exist where the place of business was maintained for a period longer than six months).

(Renumbered and amended on 21 November 2017; see HISTORY)

29. One exception to this general practice has been where the activities were of a recurrent nature; in such cases, each period of time during which the place is used needs to be considered in combination with the number of times during which that place is used (which may extend over a number of years). That exception is illustrated by the following example. An enterprise of State R carries on drilling operations at a remote arctic location in State S. The seasonal conditions at that location prevent such operations from going on for more than three months each year but the operations are expected to last for five years. In that case, given the nature of the business operations at that location, it could be considered that the time requirement for a permanent establishment is met due to the recurring nature of the activity regardless of the fact that any continuous presence lasts less than six months; the time requirement could similarly be met in the case of shorter recurring periods of time that would be dictated by the specific nature of the relevant business.

(Replaced on 21 November 2017; see HISTORY)

30. Another exception to this general practice has been where activities constituted a business that was carried on exclusively in that country; in this situation, the business may have short duration because of its nature but since it is wholly carried on in that country, its connection with that country is stronger. That exception is illustrated by the following example. An individual resident of State R has learned that a television documentary will be shot in a remote village in State S where her parents still own a large house. The documentary will require the presence of a number of actors and technicians in that village during a period of four months. The individual contractually agrees with the producer of the documentary to provide catering services to the actors and technicians during the four-month period and, pursuant to that contract, she uses the house of her parents as a cafeteria that she operates as sole proprietor during that period. These are the only business activities that she has carried on and the enterprise is terminated after that period; the cafeteria will therefore be the only location where the business of that enterprise will be wholly carried on. In that case, it could be considered that the time requirement for a permanent establishment is met since the restaurant is operated during the whole existence of that particular business. This would not be the situation, however, where a company resident of State R which operates various catering facilities in State R would operate a cafeteria in State S during a four-month production of a documentary. In that case, the company’s business, which is permanently carried on in State R, is only temporarily carried on in State S.

(Replaced on 21 November 2017; see HISTORY)

31. For ease of administration, countries may want to consider the practices reflected in paragraphs 28 to 30 when they address disagreements as to whether a particular place of business that exists only for a short period of time constitutes a permanent establishment.

(Replaced on 21 November 2017; see HISTORY)

32. As mentioned in paragraphs 44 and 55, temporary interruptions of activities do not cause a permanent establishment to cease to exist. Similarly, as discussed in paragraph 29, where a particular place of business is used for only very short periods of time but such usage takes place regularly over long periods of time, the place of business should not be considered to be of a purely temporary nature.

(Amended on 18 November 2025; see HISTORY)

32.1 (Deleted on 21 November 2017; see HISTORY)

33. Also, there may be cases where a particular place of business would be used for very short periods of time by a number of similar businesses carried on by the same or related persons in an attempt to avoid that the place be considered to have been used for more than purely temporary purposes by each particular business. The remarks of paragraphs 52 and 53 on arrangements intended to abuse the twelve-month period provided for in paragraph 3 would equally apply to such cases.

(Renumbered and amended on 21 November 2017; see HISTORY)

33.1 (Renumbered and amended on 21 November 2017; see HISTORY)

34. Where a place of business which was, at the outset, designed to be used for such a short period of time that it would not have constituted a permanent establishment but is in fact maintained for such a period that it can no longer be considered as a temporary one, it becomes a fixed place of business and thus – retrospectively – a permanent establishment. A place of business can also constitute a permanent establishment from its inception even though it existed, in practice, for a very short period of time, if as a consequence of special circumstances (e.g. death of the taxpayer, investment failure), it was prematurely liquidated.

(Renumbered on 21 November 2017; see HISTORY)

35. For a place of business to constitute a permanent establishment the enterprise using it must carry on its business wholly or partly through it. As stated in paragraph 7 above, the activity need not be of a productive character. Furthermore, the activity need not be permanent in the sense that there is no interruption of operation, but operations must be carried out on a regular basis.

(Amended on 18 November 2025; see HISTORY)

36. Where tangible property such as facilities, industrial, commercial or scientific (ICS) equipment, buildings, or intangible property such as patents, procedures and similar property, are let or leased to third parties through a fixed place of business maintained by an enterprise of a Contracting State in the other State, this activity will, in general, render the place of business a permanent establishment. The same applies if capital is made available through a fixed place of business. If an enterprise of a State lets or leases facilities, ICS equipment, buildings or intangible property to an enterprise of the other State without maintaining for such letting or leasing activity a fixed place of business in the other State, the leased facility, ICS equipment, building or intangible property, as such, will not constitute a permanent establishment of the lessor provided the contract is limited to the mere leasing of the ICS equipment, etc. This remains the case even when, for example, the lessor supplies personnel after installation to operate the equipment provided that their responsibility is limited solely to the operation or maintenance of the ICS equipment under the direction, responsibility and control of the lessee. If the personnel have wider responsibilities, for example, participation in the decisions regarding the work for which the equipment is used, or if they operate, service, inspect and maintain the equipment under the responsibility and control of the lessor, the activity of the lessor may go beyond the mere leasing of ICS equipment and may constitute an entrepreneurial activity. In such a case a permanent establishment could be deemed to exist if the criterion of permanency is met. When such activity is connected with, or is similar in character to, those mentioned in paragraph 3, the time limit of twelve months applies. Other cases have to be determined according to the circumstances.

(Renumbered on 21 November 2017; see HISTORY)

37. The leasing of containers is one particular case of the leasing of industrial or commercial equipment which does, however, have specific features. The question of determining the circumstances in which an enterprise involved in the leasing of containers should be considered as having a permanent establishment in another State is more fully discussed in a report entitled “The Taxation of Income Derived from the Leasing of Containers.”^[25]

(Replaced on 21 November 2017; see HISTORY)

38. Another example where an enterprise cannot be considered to carry on its business wholly or partly through a place of business is that of a telecommunications operator of a Contracting State who enters into a “roaming” agreement with a foreign operator in order to allow its users to connect to the foreign operator’s telecommunications network. Under such an agreement, a user who is outside the geographical coverage of that user’s home network can automatically make and receive voice calls, send and receive data or access other services through the use of the foreign network. The foreign network operator then bills the operator of that user’s home network for that use. Under a typical roaming agreement, the home network operator merely transfers calls to the foreign operator’s network and does not operate or have physical access to that network. For these reasons, any place where the foreign network is located cannot be considered to be at the disposal of the home network operator and cannot, therefore, constitute a permanent establishment of that operator.

(Renumbered on 21 November 2017; see HISTORY)

38.1 (Renumbered and amended on 21 November 2017; see HISTORY)

38.2 (Renumbered and amended on 21 November 2017; see HISTORY)

38.3 (Renumbered on 21 November 2017; see HISTORY)

38.4 (Renumbered on 21 November 2017; see HISTORY)

38.5 (Renumbered on 21 November 2017; see HISTORY)

38.6 (Renumbered and amended on 21 November 2017; see HISTORY)

38.7 (Renumbered and amended on 21 November 2017; see HISTORY)

38.8 (Deleted on 21 November 2017; see HISTORY)

39. There are different ways in which an enterprise may carry on its business. In most cases, the business of an enterprise is carried on by the entrepreneur or persons who are in a paid-employment relationship with the enterprise (personnel). This personnel includes employees and other persons receiving instructions from the enterprise (e.g. dependent agents). The powers of such personnel in its relationship with third parties are irrelevant. It makes no difference whether or not the dependent agent is authorised to conclude contracts if he works at the fixed place of business of the enterprise (see paragraph 100 below). As explained in paragraph 8.11 of the Commentary on Article 15, however, there may be cases where individuals who are formally employed by an enterprise will actually be carrying on the business of another enterprise and where, therefore, the first enterprise should not be considered to be carrying on its own business at the location where these individuals will perform that work. Within a multinational group, it is relatively common for employees of one company to be temporarily seconded to another company of the group and to perform business activities that clearly belong to the business of that other company. In such cases, administrative reasons (e.g. the need to preserve seniority or pension rights) often prevent a change in the employment contract. The analysis described in paragraphs 8.13 to 8.15 of the Commentary on Article 15 will be relevant for the purposes of distinguishing these cases from other cases where employees of a foreign enterprise perform that enterprise’s own business activities.

(Renumbered and amended on 21 November 2017; see HISTORY)

40. An enterprise may also carry on its business through subcontractors, acting alone or together with employees of the enterprise. In that case, a permanent establishment will only exist for the enterprise if the other conditions of Article 5 are met (this, however, does not address the separate question of how much profit is attributable to such a permanent establishment). In the context of paragraph 1, the existence of a permanent establishment in these circumstances will require that these subcontractors perform the work of the enterprise at a fixed place of business that is at the disposal of the enterprise. Whether a fixed place of business where subcontractors perform work of an enterprise is at the disposal of that enterprise will be determined on the basis of the guidance in paragraph 12; in the absence of employees of the enterprise, however, it will be necessary to show that such a place is at the disposal of the enterprise on the basis of other factors showing that the enterprise clearly has the effective power to use that site, e.g. because the enterprise owns or has legal possession of that site and controls access to and use of the site. Paragraph 54 illustrates such a situation in the case of a construction site; this could also happen in other situations. An example would be where an enterprise that owns a small hotel and rents out the hotel’s rooms through the Internet has subcontracted the on-site operation of the hotel to a company that is remunerated on a cost-plus basis.

(Replaced on 21 November 2017; see HISTORY)

41. Also, a permanent establishment may exist if the business of the enterprise is carried on mainly through automatic equipment, the activities of the personnel being restricted to setting up, operating, controlling and maintaining such equipment. Whether or not gaming and vending machines and the like set up by an enterprise of a State in the other State constitute a permanent establishment thus depends on whether or not the enterprise carries on a business activity besides the initial setting up of the machines. A permanent establishment does not exist if the enterprise merely sets up the machines and then leases the machines to other enterprises. A permanent establishment may exist, however, if the enterprise which sets up the machines also operates and maintains them for its own account. This also applies if the machines are operated and maintained by an agent dependent on the enterprise.

(Replaced on 21 November 2017; see HISTORY)

41.1 (Renumbered and amended on 21 November 2017; see HISTORY)

42. It follows from the definition of “enterprise of a Contracting State” in Article 3 that this term, as used in Article 7, and the term “enterprise” used in Article 5, refer to any form of enterprise carried on by a resident of a Contracting State, whether this enterprise is legally set up as a company, partnership, sole proprietorship or other legal form. Different enterprises may collaborate on the same project and the question of whether their collaboration constitutes a separate enterprise (e.g. in the form of a partnership) is a question that depends on the facts and the domestic law of each State. Clearly, if two persons each carrying on a separate enterprise decide to form a company in which these persons are shareholders, the company constitutes a legal person that will carry on what becomes another separate enterprise. It will often be the case, however, that different enterprises will simply agree to each carry on a separate part of the same project and that these enterprises will not jointly carry on business activities, will not share the profits thereof and will not be liable for each other’s activities related to that project even though they may share the overall output from the project or the remuneration for the activities that will be carried on in the context of that project. In such a case, it would be difficult to consider that a separate enterprise has been set up. Although such an arrangement would be referred to as a “joint venture” in many countries, the meaning of “joint venture” depends on domestic law and it is therefore possible that, in some countries, the term “joint venture” would refer to a distinct enterprise.

(Replaced on 21 November 2017; see HISTORY)

42.1 (Renumbered on 21 November 2017; see HISTORY)

42.2 (Renumbered and amended on 21 November 2017; see HISTORY)

42.3 (Renumbered and amended on 21 November 2017; see HISTORY)

42.4 (Renumbered on 21 November 2017; see HISTORY)

42.5 (Renumbered on 21 November 2017; see HISTORY)

42.6 (Renumbered on 21 November 2017; see HISTORY)

42.7 (Renumbered on 21 November 2017; see HISTORY)

42.8 (Renumbered and amended on 21 November 2017; see HISTORY)

42.9 (Renumbered and amended on 21 November 2017; see HISTORY)

42.10 (Renumbered and amended on 21 November 2017; see HISTORY)

42.11 (Renumbered on 21 November 2017; see HISTORY)

42.12 (Renumbered on 21 November 2017; see HISTORY)

42.13 (Renumbered on 21 November 2017; see HISTORY)

42.14 (Renumbered on 21 November 2017; see HISTORY)

42.15 (Renumbered on 21 November 2017; see HISTORY)

42.16 (Renumbered on 21 November 2017; see HISTORY)

42.17 (Renumbered on 21 November 2017; see HISTORY)

42.18 (Renumbered on 21 November 2017; see HISTORY)

42.19 (Renumbered on 21 November 2017; see HISTORY)

42.20 (Renumbered on 21 November 2017; see HISTORY)

42.21 (Renumbered and amended on 21 November 2017; see HISTORY)

42.22 (Renumbered on 21 November 2017; see HISTORY)

42.23 (Renumbered and amended on 21 November 2017; see HISTORY)

42.24 (Renumbered and amended on 21 November 2017; see HISTORY)

42.25 (Renumbered on 21 November 2017; see HISTORY)

42.26 (Renumbered on 21 November 2017; see HISTORY)

42.27 (Renumbered on 21 November 2017; see HISTORY)

42.28 (Renumbered and amended on 21 November 2017; see HISTORY)

42.29 (Renumbered on 21 November 2017; see HISTORY)

42.30 (Renumbered on 21 November 2017; see HISTORY)

42.31 (Renumbered on 21 November 2017; see HISTORY)

42.32 (Renumbered and amended on 21 November 2017; see HISTORY)

42.33 (Renumbered and amended on 21 November 2017; see HISTORY)

42.34 (Renumbered on 21 November 2017; see HISTORY)

42.35 (Renumbered on 21 November 2017; see HISTORY)

42.36 (Renumbered and amended on 21 November 2017; see HISTORY)

42.37 (Renumbered on 21 November 2017; see HISTORY)

42.38 (Renumbered on 21 November 2017; see HISTORY)

42.39 (Renumbered on 21 November 2017; see HISTORY)

42.40 (Renumbered on 21 November 2017; see HISTORY)

42.41 (Renumbered and amended on 21 November 2017; see HISTORY)

42.42 (Renumbered on 21 November 2017; see HISTORY)

42.43 (Renumbered and amended on 21 November 2017; see HISTORY)

42.44 (Renumbered on 21 November 2017; see HISTORY)

42.45 (Renumbered and amended on 21 November 2017; see HISTORY)

42.46 (Renumbered on 21 November 2017; see HISTORY)

42.47 (Renumbered on 21 November 2017; see HISTORY)

42.48 (Renumbered and amended on 21 November 2017; see HISTORY)

43. In the case of an enterprise that takes the form of a fiscally transparent partnership, the enterprise is carried on by each partner and, as regards the partners’ respective shares of the profits, is therefore an enterprise of each Contracting State of which a partner is a resident. If such a partnership has a permanent establishment in a Contracting State, each partner’s share of the profits attributable to the permanent establishment will therefore constitute, for the purposes of Article 7, profits derived by an enterprise of the Contracting State of which that partner is a resident (see also paragraph 56 below).

(Replaced on 21 November 2017; see HISTORY)

44. A permanent establishment begins to exist as soon as the enterprise commences to carry on its business through a fixed place of business. This is the case once the enterprise prepares, at the place of business, the activity for which the place of business is to serve permanently. The period of time during which the fixed place of business itself is being set up by the enterprise should not be counted, provided that this activity differs substantially from the activity for which the place of business is to serve permanently. The permanent establishment ceases to exist with the disposal of the fixed place of business or with the cessation of any activity through it, that is when all acts and measures connected with the former activities of the permanent establishment are terminated (winding up current business transactions, maintenance and repair of facilities). A temporary interruption of operations, however, cannot be regarded as a closure. If the fixed place of business is leased to another enterprise, it will normally only serve the activities of that enterprise instead of the lessor’s; in general, the lessor’s permanent establishment ceases to exist, except where he continues carrying on a business activity of his own through the fixed place of business.

(Renumbered on 21 November 2017; see HISTORY)

Cross-border working from a home or other relevant place

44.1 Increasingly, some individuals are able to, and choose to for personal reasons, carry out all or part of their work for an enterprise of a Contracting State from a place in the other Contracting State that is not a premises of the enterprise nor the premises of another enterprise with contractual or other connections to the first-mentioned enterprise such as a customer, supplier or associated enterprise (e.g. the individual’s home or another place such as a second home, a holiday rental, the home of a friend or relative etc.). Such cross-border working arrangements present particular issues when determining whether a home or other place described in the preceding sentence (hereafter “other relevant place”) is a fixed place of business through which the business of an enterprise is wholly or partly carried on in accordance with paragraph 1 of Article 5.

(Added on 18 November 2025; see HISTORY)

44.2 Arrangements where a home or other relevant place is used by an individual to carry out activities related to the business of an enterprise will typically have features that distinguish them from the use of other places by an enterprise. For example, most homes or other relevant places are not accessible by other persons working for the enterprise and have a greater degree of connection to, and are under the control of, the individual. As a result, it may be difficult to establish whether the activities carried out at such a place are sufficient to constitute a fixed place of business through which the business of that enterprise is carried on. The considerations below are relevant, but not exhaustive, for determining whether a home or other relevant place is a fixed place of business through which the business of an enterprise is carried on.

(Added on 18 November 2025; see HISTORY)

44.3 As described in paragraph 8 above, whether a permanent establishment exists in a State must be determined on the basis of the facts and circumstances applicable during a given period and not those applicable during a past or future period in which the way the business of the enterprise is carried on is different.

(Added on 18 November 2025; see HISTORY)

44.4 According to the definition in paragraph 1 of Article 5, a place of business must be fixed to constitute a permanent establishment. This requires that a place of business has a certain degree of permanency (see paragraph 28 above). The determination of whether a home or other relevant place is fixed will be undertaken in accordance with paragraphs 28 to 34.

(Added on 18 November 2025; see HISTORY)

44.5 Paragraph 4 of Article 5 will also need to be considered in the context of the activities undertaken by the individual. Even if a fixed place of business would otherwise constitute a permanent establishment under paragraph 1 of Article 5, paragraph 4 will deem that place not to constitute a permanent establishment if the activities undertaken at that place are limited to activities of a preparatory or auxiliary character.

(Added on 18 November 2025; see HISTORY)

44.6 To constitute a permanent establishment under paragraph 1 of Article 5, a home or other relevant place must be a place of business of the enterprise. The mere fact that a place is used by an individual (e.g. an employee) to carry out activities related to the business of an enterprise should not lead to the automatic conclusion that that place is a place of business of that enterprise. Whether or not such a place constitutes a place of business of the enterprise will depend on the facts and circumstances of each case.

(Added on 18 November 2025; see HISTORY)

44.7 In many cases, the carrying on of activities related to the business of an enterprise at the home of an individual (e.g. an employee), or at another relevant place, will be so intermittent or incidental that the place will not be considered to be a place of business of the enterprise (see paragraph 12 above). Where, however, a home, or another relevant place, is used on a continuous basis during an extended period of time for carrying on activities related to the business of an enterprise, this and other facts (such as those considered further below) may indicate that that place should be considered a place of business of the enterprise.

(Added on 18 November 2025; see HISTORY)

44.8 An individual will typically spend time at a home or other relevant place in a private context and may also undertake activities related to the business of an enterprise at the same home or other relevant place. This presents certain considerations that need to be taken into account in determining whether that home or other relevant place is a place of business of the enterprise. In the specific context of the use by an individual of that individual’s home or another relevant place to carry out activities related to the business of an enterprise, that home or other relevant place would generally not be considered a place of business of the enterprise if the individual worked from that home or relevant place for less than 50 per cent of their total working time for that enterprise over the course of any twelve-month period commencing or ending in the fiscal year concerned. Exceptions to the approach in the prior sentence are not anticipated to occur in most situations given the context and understanding of cross-border working arrangements described in paragraph 44.1 above.

(Added on 18 November 2025; see HISTORY)

44.9 The actual conduct of the individual will determine the calculation of working time. The formal contractual arrangements between the individual and the enterprise (including any relevant policies of the enterprise) may be of practical assistance in this regard, to the extent that they correspond with the actual conduct of the individual.

(Added on 18 November 2025; see HISTORY)

44.10 If an individual works from a home or other relevant place for at least 50 per cent of their total working time over the course of any twelve-month period commencing or ending in the fiscal year concerned, then whether the enterprise has a place of business at such a place will be determined by the facts and circumstances.

(Added on 18 November 2025; see HISTORY)

44.11 A prominent consideration is whether there is a commercial reason for the activities to be undertaken by that individual in the Contracting State where the home or other relevant place is located. A commercial reason for the performance of the individual’s activities related to the business of the enterprise in a Contracting State will be considered to exist where the physical presence of the individual in that State will itself facilitate the carrying on of the business of the enterprise, such as where there are people or resources in that State to which the enterprise needs access for the performance of its business activities.

(Added on 18 November 2025; see HISTORY)

44.12 Generally, this would be the case if the enterprise has a reason to have an individual (e.g. an employee) physically present in that other Contracting State for the conduct of the activities of the enterprise and the use of that home or other relevant place facilitates the conduct of such activities. For example, it might be that if the home or other relevant place was not available, then the enterprise would make use of other premises in the other State (such as an office rented by the enterprise). A commercial reason will be present where the individual directly engages with customers, suppliers, associated enterprises or other persons on behalf of the enterprise and that engagement is facilitated by the individual being located in that State.

(Added on 18 November 2025; see HISTORY)

44.13 As described in paragraph 7 above, it is axiomatic to assume that each part of an enterprise contributes to the productivity of the whole, and determining whether arrangements have a commercial reason accordingly does not require a consideration of whether the individual’s use of a home or other relevant place has a “productive character”. There may be several reasons for using a home or other relevant place to carry out activities related to the business of an enterprise; if one of those reasons is a commercial reason, then this indicator will be satisfied.

(Added on 18 November 2025; see HISTORY)

44.14 Consistent with the considerations described in paragraph 12 above, a commercial reason would not be considered present if that engagement is on an intermittent or incidental basis. For example, short occasional visits to the premises of a customer, or engagement that is minor in the context of the overall business relationship with that customer, would not be sufficient to conclude that there was a commercial reason for the performance of the individual’s activities related to the business of the enterprise in a Contracting State. Evaluating whether there is a commercial reason will require a consideration of the business of the enterprise and how the specific activities of the individual relate to that business.

(Added on 18 November 2025; see HISTORY)

44.15 A commercial reason requires a link between the individual’s presence at a home or other relevant place in that State and the carrying on of the business of the enterprise. This would not be the case where an enterprise enables an individual to work from home or another relevant place solely to obtain or retain the services of that individual.

(Added on 18 November 2025; see HISTORY)

44.16 An enterprise that permits work from home or another relevant place solely to reduce costs (for example, reduced expenditure on office space) will do so for that purpose, and not because there is a commercial reason for an individual to perform activities related to the business of the enterprise in the Contracting State or in the same geographic region of the State where the home or other relevant place is located.

(Added on 18 November 2025; see HISTORY)

44.17 A commercial reason to undertake activities related to the business of the enterprise in the other Contracting State may exist if, for example, any of the following take place and are facilitated (e.g. because they require physical interaction in that State or in the same geographic region as that State) by an individual working from a home or another relevant place in that other State:

• meetings between the individual and customers of the enterprise;

• cultivation of a new customer base, or identification of business opportunities;

• identification of new suppliers, managing relationships with suppliers, or undertaking, monitoring or managing contractual arrangements with suppliers;

• the real-time, or near real-time, interaction with customers or suppliers in different time zone(s) (e.g. providing call centre services, or virtual IT support or medical services);

• access to business-relevant expertise that is used in the conduct of the activities of the enterprise, such as regular meetings with personnel of a university carrying out research relevant to the business of the enterprise;

• collaboration with other businesses;

• performance of services for customers or clients located in that other State where such services require the physical presence of employees or other personnel of the enterprise in that other State (e.g. training or repair services performed on the premises of the customer);

• interaction with employees and other personnel of the enterprise, or of associated enterprises.

These considerations apply in the same way irrespective of whether the person is a third party or an associated enterprise.

(Added on 18 November 2025; see HISTORY)

44.18 The mere presence of customers or suppliers of the enterprise, of other persons mentioned in paragraph 44.17 above, or of an associated enterprise in the Contracting State where the home or other relevant place is located should not lead to the automatic conclusion that there is a commercial reason for the use of such a place in that State to carry out activities related to the business of the enterprise. Likewise, the mere fact that the home or other relevant place is located in a different time zone to that of the Contracting State in which the enterprise is located should not lead to the automatic conclusion that there is a commercial reason for the use of such a place in that State to carry out activities related to the business of an enterprise.

(Added on 18 November 2025; see HISTORY)

44.19 Where there is no commercial reason for undertaking the activities related to the business of the enterprise of a Contracting State from a home or other relevant place located in the other Contracting State, that place would not be a place of business of the enterprise unless other facts and circumstances indicated otherwise.

(Added on 18 November 2025; see HISTORY)

44.20 Different considerations from those described above are presented in circumstances where an individual is the only person, or the primary person, conducting the business of an enterprise. A clear example is that of a non-resident consultant who is present for an extended period in a given State where she carries on most of the business activities of her own consulting enterprise from an office set up in her home in that State; in that case, that home office constitutes a place of business of the enterprise.

(Added on 18 November 2025; see HISTORY)

44.21 The following examples illustrate the application of paragraph 1 of Article 5 in the context of cross-border working from a home or other relevant place. Example A considers whether a place of business is fixed and Examples B to E consider more specifically whether a home or other relevant place is a place of business of an enterprise. When reading these examples, it is important to remember that paragraph 1 of Article 5 must be applied based on the facts and circumstances of each case:

• Example A: An employee of RCo, an enterprise of State R, works from State R as part of her regular working pattern. During a twelve-month period, she rents and works from a place in State S for a period of three consecutive months following a holiday stay in State S.

  The place in State S from which she works should not be considered fixed because RCo’s business has been carried on at that place for three months during the twelve-month period. It therefore lacks permanence.

  The same conclusion would arise where the facts were the same as above but the time working from a place in State S resulted from some other personal reason, such as to care for a sick relative. The conclusion would also be the same if the facts were the same as the above, but the place from which she worked was not a place where she was staying but was some other place.

  In circumstances where a place is used to perform the activities of the enterprise on a recurrent basis over several years, each period of time during which the place is used needs to be considered in combination with the number of times during which that place is used over a number of years.

  The fact that an individual retains a place (such as a holiday home) and incurs costs related to its upkeep throughout a period is not relevant; the time spent performing activities related to the business of the enterprise from that place is the determinative consideration in evaluating whether that place is fixed for purposes of paragraph 1 of Article 5.

• Example B: An employee of RCo, an enterprise of State R, works from her home in State S for one or two days per week throughout a twelve-month period, which totals 30 per cent of her working time during that twelve-month period.

  The home in State S from which she works should be considered fixed because the place has been used to undertake activities related to the business of RCo throughout the twelve-month period and therefore has a sufficient degree of permanence.

  The individual spends less than 50 per cent of her working time working from her home in State S. In the absence of other facts and circumstances showing otherwise, the home would not be a place of business of RCo and therefore it would not be a fixed place of business permanent establishment of RCo in State S.

• Example C: An employee of RCo, an enterprise of State R, works from his home in State S for 80 per cent of his working time in any twelve-month period. He regularly visits clients of RCo in State S in order to provide services to those clients.

  The home in State S from which he works should be considered fixed because the place has been used to undertake activities related to the business of RCo throughout the twelve-month period and therefore has a sufficient degree of permanence.

  The individual spends at least 50 per cent of his working time working from his home in State S and there is a commercial reason for the individual’s presence in State S. RCo has a commercial reason for the employee’s presence in State S because it facilitates the provision of services by RCo (through the individual) to customers in State S, where the individual’s home is located. In the absence of other facts and circumstances showing otherwise, the home would be a place of business of RCo and a fixed place of business permanent establishment of RCo in State S.

• Example D: An employee of RCo, an enterprise of State R, works from his home in State S for 60 per cent of his working time in a twelve-month period. He has an exclusively client-facing role and provides services to clients of RCo in State R, in State S and in third States. He provides those services remotely and does so without physically meeting those clients. Once a quarter, he visits the premises of a client in State S to spend a day reviewing performance against the terms of the contract with RCo.

  The home in State S from which he works should be considered fixed because the place has been used to undertake activities related to the business of RCo throughout the twelve-month period and therefore has a sufficient degree of permanence.

  While the individual spends more than 50 per cent of his working time working from his home in State S, other facts and circumstances including the reason for the individual’s presence in State S must also be considered. The mere presence of clients of RCo in State S does not mean there is a commercial reason for his presence there. In addition, his visits to a client are on an intermittent and incidental basis. As a result, there is no commercial reason for him to carry out activities related to the business of RCo at his home in State S.

  In the absence of other facts and circumstances showing otherwise, the home would not be a place of business of RCo and therefore would not be a fixed place of business permanent establishment of RCo in State S.

• Example E: An employee of RCo, an enterprise of State R, works almost exclusively from her home located in State S. The employee provides services virtually to customers in State R and/or in other jurisdictions located in time zones which differ from that in State S. The performance of those activities in State S enables the employee to be fully available (e.g. offering real-time or near real-time services around the clock) to customers of RCo in the time zones where those customers are located.

  The home in State S from which she works should be considered fixed because the place has been used to undertake activities related to the business of RCo throughout the twelve-month period and therefore has a sufficient degree of permanence.

  The individual spends at least 50 per cent of her working time working from her home in State S and there is a commercial reason for the individual’s presence in State S. RCo has a commercial reason for the employee’s presence in State S because it facilitates the provision of services by RCo (through the individual) to customers in State R (and to those located in other time zones that differ to that of State S). In the absence of other facts and circumstances showing otherwise, the home would be a place of business of RCo and a fixed place of business permanent establishment of RCo in State S.

(Added on 18 November 2025; see HISTORY)

Paragraph 2

45. This paragraph contains a list, by no means exhaustive, of examples of places of business, each of which can be regarded as constituting a permanent establishment under paragraph 1 provided that it meets the requirements of that paragraph. As these examples are to be read in the context of the general definition given in paragraph 1, the terms listed, “a place of management”, “a branch”, “an office”, etc. must be interpreted in such a way that such places of business constitute permanent establishments only if they meet the requirements of paragraph 1 and are not places of business to which paragraph 4 applies.

(Renumbered and amended on 21 November 2017; see HISTORY)

45.1 (Renumbered and amended on 21 November 2017; see HISTORY)

45.2 (Renumbered and amended on 21 November 2017; see HISTORY)

45.3 (Renumbered and amended on 21 November 2017; see HISTORY)

45.4 (Renumbered and amended on 21 November 2017; see HISTORY)

45.5 (Renumbered and amended on 21 November 2017; see HISTORY)

45.6 (Renumbered and amended on 21 November 2017; see HISTORY)

45.7 (Renumbered and amended on 21 November 2017; see HISTORY)

45.8 (Renumbered and amended on 21 November 2017; see HISTORY)

45.9 (Renumbered and amended on 21 November 2017; see HISTORY)

45.10 (Renumbered and amended on 21 November 2017; see HISTORY)

45.11 (Renumbered and amended on 21 November 2017; see HISTORY)

46. The term “place of management” has been mentioned separately because it is not necessarily an “office”. However, where the laws of the two Contracting States do not contain the concept of “a place of management” as distinct from an “office”, there will be no need to refer to the former term in their bilateral convention.

(Renumbered on 21 November 2017; see HISTORY)

47. Subparagraph f) provides that mines, oil or gas wells, quarries or any other place of extraction of natural resources are permanent establishments. The term “any other place of extraction of natural resources” should be interpreted broadly. It includes, for example, all places of extraction of hydrocarbons whether onshore or offshore.

(Amended on 18 November 2025; see HISTORY)

48. Subparagraph f) refers to the extraction of natural resources, but does not mention the exploration of such resources, whether onshore or offshore. Therefore, whenever income from such activities is considered to be business profits, the question whether these activities are carried on through a permanent establishment is governed by paragraph 1. Since, however, it has not been possible to arrive at a common view on the basic questions of the attribution of taxation rights and of the qualification of the income from exploration activities, the Contracting States may agree upon the insertion of specific provisions. They may agree, for instance, that an enterprise of a Contracting State, as regards its activities of exploration of natural resources in a place or area in the other Contracting State:

1. shall be deemed not to have a permanent establishment in that other State; or

2. shall be deemed to carry on such activities through a permanent establishment in that other State; or

3. shall be deemed to carry on such activities through a permanent establishment in that other State if such activities last longer than a specified period of time.

The Contracting States may moreover agree to adopt the free-standing alternative provision on the taxation of activities carried out in connection with the exploration and exploitation of extractible natural resources that is described in paragraphs 170 to 203 below, the centrepiece of which is a lower permanent establishment threshold that would be crossed after a non-resident enterprise had carried out relevant activities in a State for more than a bilaterally agreed period.

(Amended on 18 November 2025; see HISTORY)

Paragraph 3

49. The paragraph provides expressly that a building site or construction or installation project constitutes a permanent establishment only if it lasts more than twelve months. Any of those items which does not meet this condition does not of itself constitute a permanent establishment, even if there is within it an installation, for instance an office or a workshop within the meaning of paragraph 2, associated with the construction activity. Where, however, such an office or workshop is used for a number of construction projects and the activities performed therein go beyond those mentioned in paragraph 4, it will be considered a permanent establishment if the conditions of the Article are otherwise met even if none of the projects involve a building site or construction or installation project that lasts more than twelve months. In that case, the situation of the workshop or office will therefore be different from that of these sites or projects, none of which will constitute a permanent establishment, and it will be important to ensure that only the profits properly attributable to the functions performed through that office or workshop, taking into account the assets used and the risks assumed through that office or workshop, are attributed to the permanent establishment. This could include profits attributable to functions performed in relation to the various construction sites but only to the extent that these functions are properly attributable to the office.

(Renumbered on 21 November 2017; see HISTORY)

50. The term “building site or construction or installation project” includes not only the construction of buildings but also the construction of roads, bridges or canals, the renovation (involving more than mere maintenance or redecoration) of buildings, roads, bridges or canals, the laying of pipe-lines and excavating and dredging. Additionally, the term “installation project” is not restricted to an installation related to a construction project; it also includes the installation of new equipment, such as a complex machine, in an existing building or outdoors. On-site planning and supervision of the erection of a building are covered by paragraph 3. States wishing to modify the text of the paragraph to provide expressly for that result are free to do so in their bilateral conventions.

(Renumbered on 21 November 2017; see HISTORY)

51. The twelve-month test applies to each individual site or project. In determining how long the site or project has existed, no account should be taken of the time previously spent by the contractor concerned on other sites or projects which are totally unconnected with it. A building site should be regarded as a single unit, even if it is based on several contracts, provided that it forms a coherent whole commercially and geographically. Subject to this proviso, a building site forms a single unit even if the orders have been placed by several persons (e.g. for a row of houses).

(Renumbered and amended on 21 November 2017; see HISTORY)

52. The twelve-month threshold has given rise to abuses; it has sometimes been found that enterprises (mainly contractors or subcontractors working on the continental shelf or engaged in activities connected with the exploration and exploitation of the continental shelf) divided their contracts up into several parts, each covering a period of less than twelve months and attributed to a different company which was, however, owned by the same group. Apart from the fact that such abuses may, depending on the circumstances, fall under the application of legislative or judicial anti-avoidance rules, these abuses could also be addressed through the application of the anti-abuse rule of paragraph 9 of Article 29, as shown by example J in paragraph 182 of the Commentary on Article 29. Some States may nevertheless wish to deal expressly with such abuses. Moreover, States that do not include paragraph 9 of Article 29 in their treaties should include an additional provision to address contract splitting. Such a provision could, for example, be drafted along the following lines:

For the sole purpose of determining whether the twelve-month period referred to in paragraph 3 has been exceeded,

1. where an enterprise of a Contracting State carries on activities in the other Contracting State at a place that constitutes a building site or construction or installation project and these activities are carried on during one or more periods of time that, in the aggregate, exceed 30 days without exceeding twelve months, and

2. connected activities are carried on at the same building site or construction or installation project during different periods of time, each exceeding 30 days, by one or more enterprises closely related to the first-mentioned enterprise,

these different periods of time shall be added to the period of time during which the first-mentioned enterprise has carried on activities at that building site or construction or installation project.

The concept of “closely related enterprises” that is used in the above provision is defined in paragraph 8 of the Article (see paragraphs 119 to 121 below).

(Replaced on 21 November 2017; see HISTORY)

53. For the purposes of the alternative provision found in paragraph 52, the determination of whether activities are connected will depend on the facts and circumstances of each case. Factors that may especially be relevant for that purpose include:

• whether the contracts covering the different activities were concluded with the same person or related persons;

• whether the conclusion of additional contracts with a person is a logical consequence of a previous contract concluded with that person or related persons;

• whether the activities would have been covered by a single contract absent tax planning considerations;

• whether the nature of the work involved under the different contracts is the same or similar;

• whether the same employees are performing the activities under the different contracts.

(Replaced on 21 November 2017; see HISTORY)

54. A site exists from the date on which the contractor begins his work, including any preparatory work, in the country where the construction is to be established, e.g. if he installs a planning office for the construction. If an enterprise (general contractor) which has undertaken the performance of a comprehensive project subcontracts all or parts of such a project to other enterprises (subcontractors), the period spent by a subcontractor working on the building site must be considered as being time spent by the general contractor on the building project for purposes of determining whether a permanent establishment exists for the general contractor. In that case, the site should be considered to be at the disposal of the general contractor during the time spent on that site by any subcontractor where circumstances indicate that, during that time, the general contractor clearly has the construction site at its disposal by reason of factors such as the fact that he has legal possession of the site, controls access to and use of the site and has overall responsibility for what happens at that location during that period. The subcontractor himself has a permanent establishment at the site if his activities there last more than twelve months.

(Renumbered and amended on 21 November 2017; see HISTORY)

55. In general, a construction site continues to exist until the work is completed or permanently abandoned. The period during which the building or its facilities are being tested by the contractor or subcontractor should therefore generally be included in the period during which the construction site exists. In practice, the delivery of the building or facilities to the client will usually represent the end of the period of work, provided that the contractor and subcontractors no longer work on the site after its delivery for the purposes of completing its construction. A site should not be regarded as ceasing to exist when work is temporarily discontinued. Seasonal or other temporary interruptions should be included in determining the life of a site. Seasonal interruptions include interruptions due to bad weather. Temporary interruption could be caused, for example, by shortage of material or labour difficulties. Thus, for example, if a contractor started work on a road on 1 May, stopped on 1 November because of bad weather conditions or a lack of materials but resumed work on 1 February the following year, completing the road on 1 June, his construction project should be regarded as a permanent establishment because thirteen months elapsed between the date he first commenced work (1 May) and the date he finally finished (1 June of the following year). Work that is undertaken on a site after the construction work has been completed pursuant to a guarantee that requires an enterprise to make repairs would normally not be included in the original construction period. Depending on the circumstances, however, any subsequent work (including work done under a guarantee) performed on the site during an extended period of time may need to be taken into account in order to determine whether such work is carried on through a distinct permanent establishment. For example, where after delivery of a technologically advanced construction project, employees of the contractor or subcontractor remain for four weeks on the construction site to train the owner’s employees, that training work shall not be considered work done for the purposes of completing the construction project. Concerns related to the splitting-up of contracts for the purposes of avoiding the inclusion of subsequent construction work in the original construction project are dealt with in paragraph 52 above.

(Renumbered and amended on 21 November 2017; see HISTORY)

56. In the case of fiscally transparent partnerships, the twelve-month test is applied at the level of the partnership as concerns its own activities. If the period of time spent on the site by the partners and the employees of the partnership exceeds twelve months, the enterprise carried on through the partnership will therefore be considered to have a permanent establishment. Each partner will thus be considered to have a permanent establishment for purposes of the taxation of his share of the business profits derived by the partnership regardless of the time spent by himself on the site. Assume for instance that a resident of State A and a resident of State B are partners in a partnership established in State B which carries on its construction activities on a construction site situated in State C that lasts 10 months. Whilst the tax treaty between States A and C is identical to the OECD Model, paragraph 3 of Article 5 of the treaty between State B and State C provides that a construction site constitutes a permanent establishment only if it lasts more than 8 months. In that case, the time-threshold of each treaty would be applied at the level of the partnership but only with respect to each partner’s share of the profits covered by that treaty; since the treaties provide for different time-thresholds, State C will have the right to tax the share of the profits of the partnership attributable to the partner who is a resident of State B but will not have the right to tax the share attributable to the partner who is a resident of State A. This results from the fact that whilst the provisions of paragraph 3 of each treaty are applied at the level of the same enterprise (i.e. the partnership), the outcome differs with respect to the different shares of the profits of the partnership depending on the time-threshold of the treaty that applies to each share.

(Renumbered and amended on 21 November 2017; see HISTORY)

57. The very nature of a construction or installation project may be such that the contractor’s activity has to be relocated continuously or at least from time to time, as the project progresses. This would be the case for instance where roads or canals were being constructed, waterways dredged, or pipe-lines laid. Similarly, where parts of a substantial structure such as an offshore platform are assembled at various locations within a country and moved to another location within the country for final assembly, this is part of a single project. In such cases, the fact that the work force is not present for twelve months in one particular location is immaterial. The activities performed at each particular spot are part of a single project, and that project must be regarded as a permanent establishment if, as a whole, it lasts more than twelve months.

(Renumbered on 21 November 2017; see HISTORY)

Paragraph 4

58. This paragraph lists a number of business activities which are treated as exceptions to the general definition laid down in paragraph 1 and which when carried on through fixed places of business, are not sufficient for these places to constitute permanent establishments. The final part of the paragraph provides that these exceptions only apply if the listed activities have a preparatory or auxiliary character. Since subparagraph e) applies to any activity that is not otherwise listed in the paragraph (as long as that activity has a preparatory or auxiliary character), the provisions of the paragraph actually amount to a general restriction of the scope of the definition of permanent establishment contained in paragraph 1 and, when read with that paragraph, provide a more selective test by which to determine what constitutes a permanent establishment. To a considerable degree, these provisions limit the definition in paragraph 1 and exclude from its rather wide scope a number of fixed places of business which, because the business activities exercised through these places are merely preparatory or auxiliary, should not be treated as permanent establishments. It is recognised that such a place of business may well contribute to the productivity of the enterprise, but the services it performs are so remote from the actual realisation of profits that it is difficult to allocate any profit to the fixed place of business in question. Moreover subparagraph f) provides that combinations of activities mentioned in subparagraphs a) to e) in the same fixed place of business shall be deemed not to be a permanent establishment, subject to the condition, expressed in the final part of the paragraph, that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character. Thus the provisions of paragraph 4 are designed to prevent an enterprise of one State from being taxed in the other State if it only carries on activities of a purely preparatory or auxiliary character in that State. The provisions of paragraph 4.1 (see below) complement that principle by ensuring that the preparatory or auxiliary character of activities carried on at a fixed place of business must be viewed in the light of other activities that constitute complementary functions that are part of a cohesive business and which the same enterprise or closely related enterprises carry on in the same State.

(Renumbered and amended on 21 November 2017; see HISTORY)

59. It is often difficult to distinguish between activities which have a preparatory or auxiliary character and those which have not. The decisive criterion is whether or not the activity of the fixed place of business in itself forms an essential and significant part of the activity of the enterprise as a whole. Each individual case will have to be examined on its own merits. In any case, a fixed place of business whose general purpose is one which is identical to the general purpose of the whole enterprise does not exercise a preparatory or auxiliary activity.

(Replaced on 21 November 2017; see HISTORY)

60. As a general rule, an activity that has a preparatory character is one that is carried on in contemplation of the carrying on of what constitutes the essential and significant part of the activity of the enterprise as a whole. Since a preparatory activity precedes another activity, it will often be carried on during a relatively short period, the duration of that period being determined by the nature of the core activities of the enterprise. This, however, will not always be the case as it is possible to carry on an activity at a given place for a substantial period of time in preparation for activities that take place somewhere else. Where, for example, a construction enterprise trains its employees at one place before these employees are sent to work at remote work sites located in other countries, the training that takes place at the first location constitutes a preparatory activity for that enterprise. An activity that has an auxiliary character, on the other hand, generally corresponds to an activity that is carried on to support, without being part of, the essential and significant part of the activity of the enterprise as a whole. It is unlikely that an activity that requires a significant proportion of the assets or employees of the enterprise could be considered as having an auxiliary character.

(Replaced on 21 November 2017; see HISTORY)

61. Subparagraphs a) to e) refer to activities that are carried on for the enterprise itself. A permanent establishment would therefore exist if such activities were performed on behalf of other enterprises at the same fixed place of business. If, for instance, an enterprise that maintained an office for the advertising of its own products or services were also to engage in advertising on behalf of other enterprises at that location, that office would be regarded as a permanent establishment of the enterprise by which it is maintained.

(Replaced on 21 November 2017; see HISTORY)

62. Subparagraph a) relates to a fixed place of business constituted by facilities used by an enterprise for storing, displaying or delivering its own goods or merchandise. Whether the activity carried on at such a place of business has a preparatory or auxiliary character will have to be determined in the light of factors that include the overall business activity of the enterprise. Where, for example, an enterprise of State R maintains in State S a very large warehouse in which a significant number of employees work for the main purpose of storing and delivering goods owned by the enterprise that the enterprise sells online to customers in State S, paragraph 4 will not apply to that warehouse since the storage and delivery activities that are performed through that warehouse, which represents an important asset and requires a number of employees, constitute an essential part of the enterprise’s sale/ distribution business and do not have, therefore, a preparatory or auxiliary character.

(Renumbered and amended on 21 November 2017; see HISTORY)

63. Subparagraph a) would cover, for instance, a bonded warehouse with special gas facilities that an exporter of fruit from one State maintains in another State for the sole purpose of storing fruit in a controlled environment during the customs clearance process in that other State. It would also cover a fixed place of business that an enterprise maintained solely for the delivery of spare parts to customers for machinery sold to those customers. Paragraph 4 would not apply, however, where an enterprise maintained a fixed place of business for the delivery of spare parts to customers for machinery supplied to those customers and, in addition, for the maintenance or repair of such machinery, as this would go beyond the pure delivery mentioned in subparagraph a) and would not constitute preparatory or auxiliary activities since these after-sale activities constitute an essential and significant part of the services of an enterprise vis-à-vis its customers.

(Renumbered and amended on 21 November 2017; see HISTORY)

64. Issues may arise concerning the application of the definition of permanent establishment to facilities such as cables or pipelines that cross the territory of a country. Apart from the fact that income derived by the owner or operator of such facilities from their use by other enterprises is covered by Article 6 where these facilities constitute immovable property under paragraph 2 of Article 6, the question may arise as to whether subparagraph a) applies to them. Where these facilities are used to transport property belonging to other enterprises, subparagraph a), which is restricted to delivery of goods or merchandise belonging to the enterprise that uses the facility, will not be applicable as concerns the owner or operator of these facilities. Subparagraph e) also will not be applicable as concerns that enterprise since the cable or pipeline is not used solely for the enterprise and its use is not of preparatory or auxiliary character given the nature of the business of that enterprise. The situation is different, however, where an enterprise owns and operates a cable or pipeline that crosses the territory of a country solely for purposes of transporting its own property and such transport is merely incidental to the business of that enterprise, as in the case of an enterprise that is in the business of refining oil and that owns and operates a pipeline that crosses the territory of a country solely to transport its own oil to its refinery located in another country. In such case, subparagraph a) would be applicable. A separate question is whether the cable or pipeline could constitute a permanent establishment for the customer of the operator of the cable or pipeline, i.e. the enterprise whose data, power or property is transmitted or transported from one place to another. In such a case, the enterprise is merely obtaining transmission or transportation services provided by the operator of the cable or pipeline and does not have the cable or pipeline at its disposal. As a consequence, the cable or pipeline cannot be considered to be a permanent establishment of that enterprise.

(Renumbered and amended on 21 November 2017; see HISTORY)

65. Subparagraph b) relates to the maintenance of a stock of goods or merchandise belonging to the enterprise. This subparagraph is irrelevant in cases where a stock of goods or merchandise belonging to an enterprise is maintained by another person in facilities operated by that other person and the enterprise does not have the facilities at its disposal as the place where the stock is maintained cannot therefore be a permanent establishment of that enterprise. Where, for example, a logistics company operates a warehouse in State S and continuously stores in that warehouse goods or merchandise belonging to an enterprise of State R to which the logistics company is not closely related, the warehouse does not constitute a fixed place of business at the disposal of the enterprise of State R and subparagraph b) is therefore irrelevant. Where, however, that enterprise is allowed unlimited access to a separate part of the warehouse for the purpose of inspecting and maintaining the goods or merchandise stored therein, subparagraph b) is applicable and the question of whether a permanent establishment exists will depend on whether these activities constitute a preparatory or auxiliary activity.

(Replaced on 21 November 2017; see HISTORY)

66. For the purposes of the application of subparagraphs a) and b), it does not matter whether the storage or delivery takes place before or after the goods or merchandise have been sold, provided that the goods or merchandise belong to the enterprise whilst they are at the relevant location (e.g. the subparagraphs could apply regardless of the fact that some of the goods that are stored at a location have already been sold as long as the property title to these goods only passes to the customer upon or after delivery). Subparagraphs a) and b) also cover situations where a facility is used, or a stock of goods or merchandise is maintained, for any combination of storage, display and delivery since facilities used for the delivery of goods will almost always be also used for the storage of these goods, at least for a short period. For the purposes of subparagraphs a) to d), the words “goods” and “merchandise” refer to tangible property and would not cover, for example, immovable property and data (although the subparagraphs would apply to tangible products that include data such as CDs and DVDs).

(Replaced on 21 November 2017; see HISTORY)

67. Subparagraph c) covers the situation where a stock of goods or merchandise belonging to one enterprise is processed by a second enterprise on behalf of, or for the account of, the first-mentioned enterprise. As explained in paragraph 65, the mere presence of goods or merchandise belonging to an enterprise does not mean that the fixed place of business where these goods or merchandise are stored is at the disposal of that enterprise. Where, for example, a stock of goods belonging to RCO, an enterprise of State R, is maintained by a toll-manufacturer located in State S for the purposes of processing by that toll-manufacturer, no fixed place of business is at the disposal of RCO and the place where the stock is maintained cannot therefore be a permanent establishment of RCO. If, however, RCO is allowed unlimited access to a separate part of the facilities of the toll-manufacturer for the purpose of inspecting and maintaining the goods stored therein, subparagraph c) will apply and it will be necessary to determine whether the maintenance of that stock of goods by RCO constitutes a preparatory or auxiliary activity. This will be the case if RCO is merely a distributor of products manufactured by other enterprises as in that case the mere maintenance of a stock of goods for the purposes of processing by another enterprise would not form an essential and significant part of RCO’s overall activity. In such a case, unless paragraph 4.1 applies, paragraph 4 will deem a permanent establishment not to exist in relation to such a fixed place of business that is at the disposal of the enterprise of State R for the purposes of maintaining its own goods to be processed by the toll-manufacturer.

(Replaced on 21 November 2017; see HISTORY)

68. The first part of subparagraph d) relates to the case where premises are used solely for the purpose of purchasing goods or merchandise for the enterprise. Since this exception only applies if that activity has a preparatory or auxiliary character, it will typically not apply in the case of a fixed place of business used for the purchase of goods or merchandise where the overall activity of the enterprise consists in selling these goods and where purchasing is a core function in the business of the enterprise. The following examples illustrate the application of paragraph 4 in the case of fixed places of business where purchasing activities are performed:

• Example 1: RCO is a company resident of State R that is a large buyer of a particular agricultural product produced in State S, which RCO sells from State R to distributors situated in different countries. RCO maintains a purchasing office in State S. The employees who work at that office are experienced buyers who have special knowledge of this type of product and who visit producers in State S, determine the type/quality of the products according to international standards (which is a difficult process requiring special skills and knowledge) and enter into different types of contracts (spot or forward) for the acquisition of the products by RCO. In this example, although the only activity performed through the office is the purchasing of products for RCO, which is an activity covered by subparagraph d), paragraph 4 does not apply and the office therefore constitutes a permanent establishment because that purchasing function forms an essential and significant part of RCO’s overall activity.

• Example 2: RCO, a company resident of State R which operates a number of large discount stores, maintains an office in State S during a two-year period for the purposes of researching the local market and lobbying the government for changes that would allow RCO to establish stores in State S. During that period, employees of RCO occasionally purchase supplies for their office. In this example, paragraph 4 applies because subparagraph f) applies to the activities performed through the office (since subparagraphs d) and e) would apply to the purchasing, researching and lobbying activities if each of these was the only activity performed at the office) and the overall activity of the office has a preparatory character.

(Replaced on 21 November 2017; see HISTORY)

69. The second part of subparagraph d) relates to a fixed place of business that is used solely to collect information for the enterprise. An enterprise will frequently need to collect information before deciding whether and how to carry on its core business activities in a State. If the enterprise does so without maintaining a fixed place of business in that State, subparagraph d) will obviously be irrelevant. If, however, a fixed place of business is maintained solely for that purpose, subparagraph d) will be relevant and it will be necessary to determine whether the collection of information goes beyond the preparatory or auxiliary threshold. Where, for example, an investment fund sets up an office in a State solely to collect information on possible investment opportunities in that State, the collecting of information through that office will be a preparatory activity. The same conclusion would be reached in the case of an insurance enterprise that sets up an office solely for the collection of information, such as statistics, on risks in a particular market and in the case of a newspaper bureau set up in a State solely to collect information on possible news stories without engaging in any advertising activities: in both cases, the collecting of information will be a preparatory activity.

(Added on 21 November 2017; see HISTORY)

70. Subparagraph e) applies to a fixed place of business maintained solely for the purpose of carrying on, for the enterprise, any activity that is not expressly listed in subparagraphs a) to d); as long as that activity has a preparatory or auxiliary character, that place of business is deemed not to be a permanent establishment. The wording of this subparagraph makes it unnecessary to produce an exhaustive list of the activities to which the paragraph may apply, the examples listed in subparagraphs a) to d) being merely common examples of activities that are covered by the paragraph because they often have a preparatory or auxiliary character.

(Renumbered and amended on 21 November 2017; see HISTORY)

71. Examples of places of business covered by subparagraph e) are fixed places of business used solely for the purpose of advertising or for the supply of information or for scientific research or for the servicing of a patent or a know-how contract, if such activities have a preparatory or auxiliary character. Paragraph 4 would not apply, however, if a fixed place of business used for the supply of information would not only give information but would also furnish plans etc. specially developed for the purposes of the individual customer. Nor would it apply if a research establishment were to concern itself with manufacture. Similarly, where the servicing of patents and know-how is the purpose of an enterprise, a fixed place of business of such enterprise exercising such an activity cannot get the benefits of paragraph 4. A fixed place of business which has the function of managing an enterprise or even only a part of an enterprise or of a group of the concern cannot be regarded as doing a preparatory or auxiliary activity, for such a managerial activity exceeds this level. If an enterprise with international ramifications establishes a so-called “management office” in a State in which it maintains subsidiaries, permanent establishments, agents or licensees, such office having supervisory and coordinating functions for all departments of the enterprise located within the region concerned, subparagraph e) will not apply to that “management office” because the function of managing an enterprise, even if it only covers a certain area of the operations of the concern, constitutes an essential part of the business operations of the enterprise and therefore can in no way be regarded as an activity which has a preparatory or auxiliary character within the meaning of paragraph 4.

(Renumbered and amended on 21 November 2017; see HISTORY)

72. Also, where an enterprise that sells goods worldwide establishes an office in a State and the employees working at that office take an active part in the negotiation of important parts of contracts for the sale of goods to buyers in that State without habitually concluding contracts or playing the principal role leading to the conclusion of contracts (e.g. by participating in decisions related to the type, quality or quantity of products covered by these contracts), such activities will usually constitute an essential part of the business operations of the enterprise and should not be regarded as having a preparatory or auxiliary character within the meaning of subparagraph e) of paragraph 4. If the conditions of paragraph 1 are met, such an office will therefore constitute a permanent establishment.

(Added on 21 November 2017; see HISTORY)

73. As already mentioned in paragraph 58 above, paragraph 4 is designed to provide exceptions to the general definition of paragraph 1 in respect of fixed places of business which are engaged in activities having a preparatory or auxiliary character. Therefore, according to subparagraph f), the fact that one fixed place of business combines any of the activities mentioned in subparagraphs a) to e) does not mean of itself that a permanent establishment exists. As long as the combined activity of such a fixed place of business is merely preparatory or auxiliary, a permanent establishment should be deemed not to exist. Such combinations should not be viewed on rigid lines, but should be considered in the light of the particular circumstances.

(Renumbered and amended on 21 November 2017; see HISTORY)

74. Unless the anti-fragmentation provisions of paragraph 4.1 are applicable (see below), subparagraph f) is of no relevance in a case where an enterprise maintains several fixed places of business to which subparagraphs a) to e) apply as in such a case each place of business has to be viewed separately and in isolation for deciding whether a permanent establishment exists.

(Renumbered and amended on 21 November 2017; see HISTORY)

75. The fixed places of business to which paragraph 4 applies do not constitute permanent establishments so long as the business activities performed through those fixed places of business are restricted to the activities referred to in that paragraph. This will be the case even if the contracts necessary for establishing and carrying on these business activities are concluded by those in charge of the places of business themselves. The conclusion of such contracts by these employees will not constitute a permanent establishment of the enterprise under paragraph 5 as long as the conclusion of these contracts satisfies the conditions of paragraph 4 (see paragraph 97 below). An example would be where the manager of a place of business where preparatory or auxiliary research activities are conducted concludes the contracts necessary for establishing and maintaining that place of business as part of the activities carried on at that location.

(Renumbered and amended on 21 November 2017; see HISTORY)

76. If, under paragraph 4, a fixed place of business is deemed not to be a permanent establishment, this exception applies likewise to the disposal of movable property forming part of the business property of the place of business at the termination of the enterprise’s activity at that place (see paragraph 44 above and paragraph 2 of Article 13). Where, for example, the display of merchandise during a trade fair or convention is excepted under subparagraphs a) and b), the sale of that merchandise at the termination of the trade fair or convention is covered by subparagraph e) as such sale is merely an auxiliary activity. The exception does not, of course, apply to sales of merchandise not actually displayed at the trade fair or convention.

(Renumbered and amended on 21 November 2017; see HISTORY)

77. Where paragraph 4 does not apply because a fixed place of business used by an enterprise for activities that are listed in that paragraph is also used for other activities that go beyond what is preparatory or auxiliary, that place of business constitutes a single permanent establishment of the enterprise and the profits attributable to the permanent establishment with respect to both types of activities may be taxed in the State where that permanent establishment is situated.

(Renumbered and amended on 21 November 2017; see HISTORY)

78. Some States consider that some of the activities referred to in paragraph 4 are intrinsically preparatory or auxiliary and, in order to provide greater certainty for both tax administrations and taxpayers, take the view that these activities should not be subject to the condition that they be of a preparatory or auxiliary character, any concern about the inappropriate use of these exceptions being addressed through the provisions of paragraph 4.1. States that share that view are free to amend paragraph 4 as follows (and may also agree to delete some of the activities listed in subparagraphs a) to d) below if they consider that these activities should be subject to the preparatory or auxiliary condition in subparagraph e)):

4. Notwithstanding the preceding provisions of this Article, the term “permanent establishment” shall be deemed not to include:

1. the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise;

2. the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery;

3. the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;

4. the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information, for the enterprise;

5. the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any activity not listed in subparagraphs a) to d), provided that this activity has a preparatory or auxiliary character; or

6. the maintenance of a fixed place of business solely for any combination of activities mentioned in subparagraphs a) to e), provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character

(Added on 21 November 2017; see HISTORY)

Paragraph 4.1

79. The purpose of paragraph 4.1 is to prevent an enterprise or a group of closely related enterprises from fragmenting a cohesive business operation into several small operations in order to argue that each is merely engaged in a preparatory or auxiliary activity. Under paragraph 4.1, the exceptions provided for by paragraph 4 do not apply to a place of business that would otherwise constitute a permanent establishment where the activities carried on at that place and other activities of the same enterprise or of closely related enterprises exercised at that place or at another place in the same State constitute complementary functions that are part of a cohesive business operation. For paragraph 4.1 to apply, however, at least one of the places where these activities are exercised must constitute a permanent establishment or, if that is not the case, the overall activity resulting from the combination of the relevant activities must go beyond what is merely preparatory or auxiliary.

(Added on 21 November 2017; see HISTORY)

80. The provisions of paragraph 8 are applicable in order to determine whether an enterprise is a closely related enterprise with respect to another one (see paragraphs 119 to 121 below).

(Added on 21 November 2017; see HISTORY)

81. The following examples illustrate the application of paragraph 4.1:

• Example A: RCO, a bank resident of State R, has a number of branches in State S which constitute permanent establishments. It also has a separate office in State S where a few employees verify information provided by clients that have made loan applications at these different branches. The results of the verifications done by the employees are forwarded to the headquarters of RCO in State R where other employees analyse the information included in the loan applications and provide reports to the branches where the decisions to grant the loans are made. In that case, the exceptions of paragraph 4 will not apply to the office because another place (i.e. any of the other branches where the loan applications are made) constitutes a permanent establishment of RCO in State S and the business activities carried on by RCO at the office and at the relevant branch constitute complementary functions that are part of a cohesive business operation (i.e. providing loans to clients in State S).

• Example B: RCO, a company resident of State R, manufactures and sells appliances. SCO, a resident of State S that is a wholly-owned subsidiary of RCO, owns a store where it sells appliances that it acquires from RCO. RCO also owns a small warehouse in State S where it stores a few large items that are identical to some of those displayed in the store owned by SCO. When a customer buys such a large item from SCO, SCO employees go to the warehouse where they take possession of the item before delivering it to the customer; the ownership of the item is only acquired by SCO from RCO when the item leaves the warehouse. In this case, paragraph 4.1 prevents the application of the exceptions of paragraph 4 to the warehouse and it will not be necessary, therefore, to determine whether paragraph 4, and in particular subparagraph a) thereof, applies to the warehouse. The conditions for the application of paragraph 4.1 are met because

  • SCO and RCO are closely related enterprises;

  • SCO’s store constitutes a permanent establishment of SCO (the definition of permanent establishment is not limited to situations where a resident of one Contracting State uses or maintains a fixed place of business in the other State; it applies equally where an enterprise of one State uses or maintains a fixed place of business in that same State); and

  • The business activities carried on by RCO at its warehouse and by SCO at its store constitute complementary functions that are part of a cohesive business operation (i.e. storing goods in one place for the purpose of delivering these goods as part of the obligations resulting from the sale of these goods through another place in the same State).

(Added on 21 November 2017; see HISTORY)

Paragraph 5

82. It is a generally accepted principle that an enterprise should be treated as having a permanent establishment in a State if there is under certain conditions a person acting for it, even though the enterprise may not have a fixed place of business in that State within the meaning of paragraphs 1 and 2. This provision intends to give that State the right to tax in such cases. Thus paragraph 5 stipulates the conditions under which an enterprise is deemed to have a permanent establishment in respect of any activity of a person acting for it.

(Renumbered and amended on 21 November 2017; see HISTORY)

83. Persons whose activities may create a permanent establishment for the enterprise are persons, whether or not employees of the enterprise, who act on behalf of the enterprise and are not doing so in the course of carrying on a business as an independent agent falling under paragraph 6. Such persons may be either individuals or companies and need not be residents of, nor have a place of business in, the State in which they act for the enterprise. It would not have been in the interest of international economic relations to provide that any person undertaking activities on behalf of the enterprise would lead to a permanent establishment for the enterprise. Such treatment is to be limited to persons who in view of the nature of their activity involve the enterprise to a particular extent in business activities in the State concerned. Therefore, paragraph 5 proceeds on the basis that only persons habitually concluding contracts that are in the name of the enterprise or that are to be performed by the enterprise, or habitually playing the principal role leading to the conclusion of such contracts which are routinely concluded without material modification by the enterprise, can lead to a permanent establishment for the enterprise. In such a case the person’s actions on behalf of the enterprise, since they result in the conclusion of such contracts and go beyond mere promotion or advertising, are sufficient to conclude that the enterprise participates in a business activity in the State concerned. The use of the term “permanent establishment” in this context presupposes, of course, that the conclusion of contracts by that person, or as a direct result of the actions of that person, takes place repeatedly and not merely in isolated cases.

(Renumbered and amended on 21 November 2017; see HISTORY)

84. For paragraph 5 to apply, all the following conditions must be met:

• a person acts in a Contracting State on behalf of an enterprise;

• in doing so, that person habitually concludes contracts, or habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the enterprise, and

• these contracts are either in the name of the enterprise or for the transfer of the ownership of, or for the granting of the right to use, property owned by that enterprise or that the enterprise has the right to use, or for the provision of services by that enterprise.

(Added on 21 November 2017; see HISTORY)

85. Even if these conditions are met, however, paragraph 5 will not apply if the activities performed by the person on behalf of the enterprise are covered by the independent agent exception of paragraph 6 or are limited to activities mentioned in paragraph 4 which, if exercised through a fixed place of business, would be deemed not to create a permanent establishment. This last exception is explained by the fact that since, by virtue of paragraph 4, the maintenance of a fixed place of business solely for the purposes of preparatory or auxiliary activities is deemed not to constitute a permanent establishment, a person whose activities are restricted to such purposes should not create a permanent establishment either. Where, for example, a person acts solely as a buying agent for an enterprise and, in doing so, habitually concludes purchase contracts in the name of that enterprise, paragraph 5 will not apply even if that person is not independent of the enterprise as long as such activities are preparatory or auxiliary (see paragraph 68 above).

(Added on 21 November 2017; see HISTORY)

86. A person is acting in a Contracting State on behalf of an enterprise when that person involves the enterprise to a particular extent in business activities in the State concerned. This will be the case, for example, where an agent acts for a principal, where a partner acts for a partnership, where a director acts for a company or where an employee acts for an employer. A person cannot be said to be acting on behalf of an enterprise if the enterprise is not directly or indirectly affected by the action performed by that person. As indicated in paragraph 83, the person acting on behalf of an enterprise can be a company; in that case, the actions of the employees and directors of that company are considered together for the purpose of determining whether and to what extent that company acts on behalf of the enterprise.

(Added on 21 November 2017; see HISTORY)

87. The phrase “concludes contracts” focuses on situations where, under the relevant law governing contracts, a contract is considered to have been concluded by a person. A contract may be concluded without any active negotiation of the terms of that contract; this would be the case, for example, where the relevant law provides that a contract is concluded by reason of a person accepting, on behalf of an enterprise, the offer made by a third party to enter into a standard contract with that enterprise. Also, a contract may, under the relevant law, be concluded in a State even if that contract is signed outside that State; where, for example, the conclusion of a contract results from the acceptance, by a person acting on behalf of an enterprise, of an offer to enter into a contract made by a third party, it does not matter that the contract is signed outside that State. In addition, a person who negotiates in a State all elements and details of a contract in a way binding on the enterprise can be said to conclude the contract in that State even if that contract is signed by another person outside that State.

(Added on 21 November 2017; see HISTORY)

88. The phrase “or habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the enterprise” is aimed at situations where the conclusion of a contract directly results from the actions that the person performs in a Contracting State on behalf of the enterprise even though, under the relevant law, the contract is not concluded by that person in that State. Whilst the phrase “concludes contracts” provides a relatively well-known test based on contract law, it was found necessary to supplement that test with a test focusing on substantive activities taking place in one State in order to address cases where the conclusion of contracts is clearly the direct result of these activities although the relevant rules of contract law provide that the conclusion of the contract takes place outside that State. The phrase must be interpreted in the light of the object and purpose of paragraph 5, which is to cover cases where the activities that a person exercises in a State are intended to result in the regular conclusion of contracts to be performed by a foreign enterprise, i.e. where that person acts as the sales force of the enterprise. The principal role leading to the conclusion of the contract will therefore typically be associated with the actions of the person who convinced the third party to enter into a contract with the enterprise. The words “contracts that are routinely concluded without material modification by the enterprise” clarify that where such principal role is performed in that State, the actions of that person will fall within the scope of paragraph 5 even if the contracts are not formally concluded in the State, for example, where the contracts are routinely subject, outside that State, to review and approval without such review resulting in a modification of the key aspects of these contracts.

(Added on 21 November 2017; see HISTORY)

89. The phrase “habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the enterprise” therefore applies where, for example, a person solicits and receives (but does not formally finalise) orders which are sent directly to a warehouse from which goods belonging to the enterprise are delivered and where the enterprise routinely approves these transactions. It does not apply, however, where a person merely promotes and markets goods or services of an enterprise in a way that does not directly result in the conclusion of contracts. Where, for example, representatives of a pharmaceutical enterprise actively promote drugs produced by that enterprise by contacting doctors who subsequently prescribe these drugs, that marketing activity does not directly result in the conclusion of contracts between the doctors and the enterprise so that the paragraph does not apply even though the sales of these drugs may significantly increase as a result of that marketing activity.

(Added on 21 November 2017; see HISTORY)

90. The following is another example that illustrates the application of paragraph 5. RCO, a company resident of State R, distributes various products and services worldwide through its websites. SCO, a company resident of State S, is a wholly-owned subsidiary of RCO. SCO’s employees send emails, make telephone calls to, or visit large organisations in order to convince them to buy RCO’s products and services and are therefore responsible for large accounts in State S; SCO’s employees, whose remuneration is partially based on the revenues derived by RCO from the holders of these accounts, use their relationship building skills to try to anticipate the needs of these account holders and to convince them to acquire the products and services offered by RCO. When one of these account holders is persuaded by an employee of SCO to purchase a given quantity of goods or services, the employee indicates the price that will be payable for that quantity, indicates that a contract must be concluded online with RCO before the goods or services can be provided by RCO and explains the standard terms of RCO’s contracts, including the fixed price structure used by RCO, which the employee is not authorised to modify. The account holder subsequently concludes that contract online for the quantity discussed with SCO’s employee and in accordance with the price structure presented by that employee. In this example, SCO’s employees play the principal role leading to the conclusion of the contract between the account holder and RCO and such contracts are routinely concluded without material modification by the enterprise. The fact that SCO’s employees cannot vary the terms of the contracts does not mean that the conclusion of the contracts is not the direct result of the activities that they perform on behalf of the enterprise, convincing the account holder to accept these standard terms being the crucial element leading to the conclusion of the contracts between the account holder and RCO.

(Added on 21 November 2017; see HISTORY)

91. The wording of subparagraphs a), b) and c) ensures that paragraph 5 applies not only to contracts that create rights and obligations that are legally enforceable between the enterprise on behalf of which the person is acting and the third parties with which these contracts are concluded but also to contracts that create obligations that will effectively be performed by such enterprise rather than by the person contractually obliged to do so.

(Added on 21 November 2017; see HISTORY)

92. A typical case covered by these subparagraphs is where contracts are concluded with clients by an agent, a partner or an employee of an enterprise so as to create legally enforceable rights and obligations between the enterprise and these clients. These subparagraphs also cover cases where the contracts concluded by a person who acts on behalf of an enterprise do not legally bind that enterprise to the third parties with which these contracts are concluded but are contracts for the transfer of the ownership of, or for the granting of the right to use, property owned by that enterprise or that the enterprise has the right to use, or for the provision of services by that enterprise. A typical example would be the contracts that a “commissionnaire” would conclude with third parties under a commissionnaire arrangement with a foreign enterprise pursuant to which that commissionnaire would act on behalf of the enterprise but, in doing so, would conclude in its own name contracts that do not create rights and obligations that are legally enforceable between the foreign enterprise and the third parties even though the results of the arrangement between the commissionnaire and the foreign enterprise would be such that the foreign enterprise would directly transfer to these third parties the ownership or use of property that it owns or has the right to use.

(Added on 21 November 2017; see HISTORY)

93. The reference to contracts “in the name of” in subparagraph a) does not restrict the application of the subparagraph to contracts that are literally in the name of the enterprise; it may apply, for example, to certain situations where the name of the enterprise is undisclosed in a written contract.

(Added on 21 November 2017; see HISTORY)

94. The crucial condition for the application of subparagraphs b) and c) is that the person who habitually concludes the contracts, or habitually plays the principal role leading to the conclusion of the contracts that are routinely concluded without material modification by the enterprise, is acting on behalf of an enterprise in such a way that the parts of the contracts that relate to the transfer of the ownership or use of property, or the provision of services, will be performed by the enterprise as opposed to the person that acts on the enterprise’s behalf.

(Added on 21 November 2017; see HISTORY)

95. For the purposes of subparagraph b), it does not matter whether or not the relevant property existed or was owned by the enterprise at the time of the conclusion of the contracts between the person who acts for the enterprise and the third parties. For example, a person acting on behalf of an enterprise might well sell property that the enterprise will subsequently produce before delivering it directly to the customers. Also, the reference to “property” covers any type of tangible or intangible property.

(Added on 21 November 2017; see HISTORY)

96. The cases to which paragraph 5 applies must be distinguished from situations where a person concludes contracts on its own behalf and, in order to perform the obligations deriving from these contracts, obtains goods or services from other enterprises or arranges for other enterprises to deliver such goods or services. In these cases, the person is not acting “on behalf” of these other enterprises and the contracts concluded by the person are neither in the name of these enterprises nor for the transfer to third parties of the ownership or use of property that these enterprises own or have the right to use or for the provision of services by these other enterprises. Where, for example, a company acts as a distributor of products in a particular market and, in doing so, sells to customers products that it buys from an enterprise (including an associated enterprise), it is neither acting on behalf of that enterprise nor selling property that is owned by that enterprise since the property that is sold to the customers is owned by the distributor. This would still be the case if that distributor acted as a so-called “low-risk distributor” (and not, for example, as an agent) but only if the transfer of the title to property sold by that “low-risk” distributor passed from the enterprise to the distributor and from the distributor to the customer (regardless of how long the distributor would hold title in the product sold) so that the distributor would derive a profit from the sale as opposed to a remuneration in the form, for example, of a commission.

(Added on 21 November 2017; see HISTORY)

97. The contracts referred to in paragraph 5 cover contracts relating to operations which constitute the business proper of the enterprise. It would be irrelevant, for instance, if the person concluded employment contracts for the enterprise to assist that person’s activity for the enterprise or if the person concluded, in the name of the enterprise, similar contracts relating to internal operations only. Moreover, whether or not a person habitually concludes contracts or habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the enterprise should be determined on the basis of the commercial realities of the situation. The mere fact that a person has attended or even participated in negotiations in a State between an enterprise and a client will not be sufficient, by itself, to conclude that the person has concluded contracts or played the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the enterprise. The fact that a person has attended or even participated in such negotiations could, however, be a relevant factor in determining the exact functions performed by that person on behalf of the enterprise.

(Renumbered and amended on 21 November 2017; see HISTORY)

98. The requirement that an agent must “habitually” conclude contracts or play the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the enterprise reflects the underlying principle in Article 5 that the presence which an enterprise maintains in a Contracting State should be more than merely transitory if the enterprise is to be regarded as maintaining a permanent establishment, and thus a taxable presence, in that State. The extent and frequency of activity necessary to conclude that the agent is “habitually” concluding contracts or playing the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the enterprise will depend on the nature of the contracts and the business of the principal. It is not possible to lay down a precise frequency test. Nonetheless, the same sorts of factors considered in paragraphs 28 to 30 would be relevant in making that determination.

(Renumbered and amended on 21 November 2017; see HISTORY)

99. Where the requirements set out in paragraph 5 are met, a permanent establishment of the enterprise exists to the extent that the person acts for the latter, i.e. not only to the extent that such a person concludes contracts or plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the enterprise.

(Renumbered and amended on 21 November 2017; see HISTORY)

100. Under paragraph 5, only those persons who meet the specific conditions may create a permanent establishment; all other persons are excluded. It should be borne in mind, however, that paragraph 5 simply provides an alternative test of whether an enterprise has a permanent establishment in a State. If it can be shown that the enterprise has a permanent establishment within the meaning of paragraphs 1 and 2 (subject to the provisions of paragraph 4), it is not necessary to show that the person in charge is one who would fall under paragraph 5.

(Renumbered on 21 November 2017; see HISTORY)

101. Whilst one effect of paragraph 5 will typically be that the rights and obligations resulting from the contracts to which the paragraph refers will be allocated to the permanent establishment resulting from the paragraph (see paragraph 21 of the Commentary on Article 7), it is important to note that this does not mean that the entire profits resulting from the performance of these contracts should be attributed to the permanent establishment. The determination of the profits attributable to a permanent establishment resulting from the application of paragraph 5 will be governed by the rules of Article 7; clearly, this will require that activities performed by other enterprises and by the rest of the enterprise to which the permanent establishment belongs be properly remunerated so that the profits to be attributed to the permanent establishment in accordance with Article 7 are only those that the permanent establishment would have derived if it were a separate and independent enterprise performing the activities that paragraph 5 attributes to that permanent establishment.

(Added on 21 November 2017; see HISTORY)

Paragraph 6

102. Where an enterprise of a Contracting State carries on business dealings through an independent agent carrying on business as such, it cannot be taxed in the other Contracting State in respect of those dealings if the agent is acting in the ordinary course of that business (see paragraph 83 above). The activities of such an agent, who represents a separate and independent enterprise, should not result in the finding of a permanent establishment of the foreign enterprise.

(Renumbered and amended on 21 November 2017; see HISTORY)

103. The exception of paragraph 6 only applies where a person acts on behalf of an enterprise in the course of carrying on a business as an independent agent. It would therefore not apply where a person acts on behalf of an enterprise in a different capacity, such as where an employee acts on behalf of her employer or a partner acts on behalf of a partnership. As explained in paragraph 8.1 of the Commentary on Article 15, it is sometimes difficult to determine whether the services rendered by an individual constitute employment services or services rendered by a separate enterprise and the guidance in paragraphs 8.2 to 8.28 of the Commentary on Article 15 will be relevant for that purpose. Where an individual acts on behalf of an enterprise in the course of carrying on his own business and not as an employee, however, the application of paragraph 6 will still require that the individual do so as an independent agent; as explained in paragraph 111 below, this independent status is less likely if the activities of that individual are performed exclusively or almost exclusively on behalf of one enterprise or closely related enterprises.

(Added on 21 November 2017; see HISTORY)

104. Whether a person acting as an agent is independent of the enterprise represented depends on the extent of the obligations which this person has vis-à-vis the enterprise. Where the person’s commercial activities for the enterprise are subject to detailed instructions or to comprehensive control by it, such person cannot be regarded as independent of the enterprise. Another important criterion will be whether the entrepreneurial risk has to be borne by the person or by the enterprise the person represents. In any event, the last sentence of paragraph 6 provides that in certain circumstances a person shall not be considered to be an independent agent (see paragraphs 119 to 121 below). The following considerations should be borne in mind when determining whether an agent to whom that last sentence does not apply may be considered to be independent.

(Renumbered and amended on 21 November 2017; see HISTORY)

105. It should be noted that, where the last sentence of paragraph 6 does not apply because a subsidiary does not act exclusively or almost exclusively for closely related enterprises, the control which a parent company exercises over its subsidiary in its capacity as shareholder is not relevant in a consideration of the dependence or otherwise of the subsidiary in its capacity as an agent for the parent. This is consistent with the rule in paragraph 7 of Article 5 (see also paragraph 113 below).

(Renumbered and amended on 21 November 2017; see HISTORY)

106. An independent agent will typically be responsible to his principal for the results of his work but not subject to significant control with respect to the manner in which that work is carried out. He will not be subject to detailed instructions from the principal as to the conduct of the work. The fact that the principal is relying on the special skill and knowledge of the agent is an indication of independence.

(Renumbered on 21 November 2017; see HISTORY)

107. Limitations on the scale of business which may be conducted by the agent clearly affect the scope of the agent’s authority. However such limitations are not relevant to dependency which is determined by consideration of the extent to which the agent exercises freedom in the conduct of business on behalf of the principal within the scope of the authority conferred by the agreement.

(Renumbered on 21 November 2017; see HISTORY)

108. It may be a feature of the operation of an agreement that an agent will provide substantial information to a principal in connection with the business conducted under the agreement. This is not in itself a sufficient criterion for determination that the agent is dependent unless the information is provided in the course of seeking approval from the principal for the manner in which the business is to be conducted. The provision of information which is simply intended to ensure the smooth running of the agreement and continued good relations with the principal is not a sign of dependence.

(Renumbered on 21 November 2017; see HISTORY)

109. Another factor to be considered in determining independent status is the number of principals represented by the agent. As indicated in paragraph 111, independent status is less likely if the activities of the agent are performed wholly or almost wholly on behalf of only one enterprise over the lifetime of the business or a long period of time. However, this fact is not by itself determinative. All the facts and circumstances must be taken into account to determine whether the agent’s activities constitute an autonomous business conducted by him in which he bears risk and receives reward through the use of his entrepreneurial skills and knowledge. Where an agent acts for a number of principals in the ordinary course of his business and none of these is predominant in terms of the business carried on by the agent, dependence may exist if the principals act in concert to control the acts of the agent in the course of his business on their behalf.

(Renumbered and amended on 21 November 2017; see HISTORY)

110. An independent agent cannot be said to act in the ordinary course of its business as agent when it performs activities that are unrelated to that agency business. Where, for example, a company that acts on its own account as a distributor for a number of companies also acts as an agent for another enterprise, the activities that the company undertakes as a distributor will not be considered to be part of the activities that the company carries on in the ordinary course of its business as an agent for the purposes of the application of paragraph 6. Activities that are part of the ordinary course of a business that an enterprise carries on as an agent will, however, include intermediation activities which, in line with the common practice in a particular business sector, are performed sometimes as agent and sometimes on the enterprise’s own account, provided that these intermediation activities are, in substance, indistinguishable from each other. Where, for example, a broker-dealer in the financial sector performs a variety of market intermediation activities in the same way but, informed by the needs of the clients, does it sometimes as an agent for another enterprise and sometimes on its own account, the broker-dealer will be considered to be acting in the ordinary course of its business as an agent when it performs these various market intermediation activities.

(Renumbered and amended on 21 November 2017; see HISTORY)

111. The last sentence of paragraph 6 provides that a person is not considered to be an independent agent where the person acts exclusively or almost exclusively for one or more enterprises to which it is closely related. That last sentence does not mean, however, that paragraph 6 will apply automatically where a person acts for one or more enterprises to which that person is not closely related. Paragraph 6 requires that the person must be carrying on a business as an independent agent and be acting in the ordinary course of that business. Independent status is less likely if the activities of the person are performed wholly or almost wholly on behalf of only one enterprise (or a group of enterprises that are closely related to each other) over the lifetime of that person’s business or over a long period of time. Where, however, a person is acting exclusively for one enterprise, to which it is not closely related, for a short period of time (e.g. at the beginning of that person’s business operations), it is possible that paragraph 6 could apply. As indicated in paragraph 109 above, all the facts and circumstances would need to be taken into account to determine whether the person’s activities constitute the carrying on of a business as an independent agent.

(Added on 21 November 2017; see HISTORY)

112. The last sentence of paragraph 6 applies only where the person acts “exclusively or almost exclusively” on behalf of closely related enterprises, as defined in paragraph 8. This means that where the person’s activities on behalf of enterprises to which it is not closely related do not represent a significant part of that person’s business, that person will not qualify as an independent agent. Where, for example, the sales that an agent concludes for enterprises to which it is not closely related represent less than 10 per cent of all the sales that it concludes as an agent acting for other enterprises, that agent should be viewed as acting “exclusively or almost exclusively” on behalf of closely related enterprises.

(Added on 21 November 2017; see HISTORY)

113. The rule in the last sentence of paragraph 6 and the fact that the definition of “closely related” in paragraph 8 covers situations where one company controls or is controlled by another company do not restrict in any way the scope of paragraph 7 of Article 5. As explained in paragraph 117 below, it is possible that a subsidiary will act on behalf of its parent company in such a way that the parent will be deemed to have a permanent establishment under paragraph 5; if that is the case, a subsidiary acting exclusively or almost exclusively for its parent will be unable to benefit from the “independent agent” exception of paragraph 6. This, however, does not imply that the parent-subsidiary relationship eliminates the requirements of paragraph 5 and that such a relationship could be sufficient in itself to conclude that any of these requirements are met.

(Added on 21 November 2017; see HISTORY)

114. According to the definition of the term “permanent establishment” an insurance company of one State may be taxed in the other State on its insurance business, if it has a fixed place of business within the meaning of paragraph 1 or if it carries on business through a person within the meaning of paragraph 5. Since agencies of foreign insurance companies sometimes do not meet either of the above requirements, it is conceivable that these companies do large-scale business in a State without being taxed in that State on their profits arising from such business. In order to obviate this possibility, various conventions concluded by OECD Member countries before 2017 include a provision which stipulates that insurance companies of a State are deemed to have a permanent establishment in the other State if they collect premiums in that other State through an agent established there – other than an agent who already constitutes a permanent establishment by virtue of paragraph 5 – or insure risks situated in that territory through such an agent. The decision as to whether or not a provision along these lines should be included in a convention will depend on the factual and legal situation prevailing in the Contracting States concerned. Also, the changes to paragraphs 5 and 6 made in 2017 have addressed some of the concerns that such a provision is intended to address. Frequently, therefore, such a provision will not be contemplated. In view of this fact, it did not seem advisable to insert a provision along these lines in the Model Convention.

(Renumbered and amended on 21 November 2017; see HISTORY)

Paragraph 7

115. It is generally accepted that the existence of a subsidiary company does not, of itself, constitute that subsidiary company a permanent establishment of its parent company. This follows from the principle that, for the purpose of taxation, such a subsidiary company constitutes an independent legal entity. Even the fact that the trade or business carried on by the subsidiary company is managed by the parent company does not constitute the subsidiary company a permanent establishment of the parent company.

(Renumbered on 21 November 2017; see HISTORY)

116. A parent company may, however, be found, under the rules of paragraph 1 or 5 of the Article, to have a permanent establishment in a State where a subsidiary has a place of business. Thus, any space or premises belonging to the subsidiary that is at the disposal of the parent company (see paragraphs 10 to 17 above) and that constitutes a fixed place of business through which the parent carries on its own business will constitute a permanent establishment of the parent under paragraph 1, subject to paragraphs 3 and 4 of the Article (see for instance, the example in paragraph 15 above). Also, under paragraph 5, a parent will be deemed to have a permanent establishment in a State in respect of any activities that its subsidiary undertakes for it if the conditions of that paragraph are met (see paragraphs 82 to 99 above), unless paragraph 6 of the Article applies.

(Amended on 18 November 2025; see HISTORY)

117. The same principles apply to any company forming part of a multinational group so that such a company may be found to have a permanent establishment in a State where it has at its disposal (see paragraphs 10 to 17 above) and uses premises belonging to another company of the group, or if the former company is deemed to have a permanent establishment under paragraph 5 of the Article (see paragraphs 82 to 99 above). The determination of the existence of a permanent establishment under the rules of paragraph 1 or 5 of the Article must, however, be done separately for each company of the group. Thus, the existence in one State of a permanent establishment of one company of the group will not have any relevance as to whether another company of the group has itself a permanent establishment in that State.

(Amended on 18 November 2025; see HISTORY)

118. Whilst premises belonging to a company that is a member of a multinational group can be put at the disposal of another company of the group and may, subject to the other conditions of Article 5, constitute a permanent establishment of that other company if the business of that other company is carried on through that place, it is important to distinguish that case from the frequent situation where a company that is a member of a multinational group provides services (e.g. management services) to another company of the group as part of its own business carried on in premises that are not those of that other company and using its own personnel. In that case, the place where those services are provided is not at the disposal of the latter company and it is not the business of that company that is carried on through that place. That place cannot, therefore, be considered to be a permanent establishment of the company to which the services are provided. Indeed, the fact that a company’s own activities at a given location may provide an economic benefit to the business of another company does not mean that the latter company carries on its business through that location: clearly, a company that merely purchases parts produced or services supplied by another company in a different country would not have a permanent establishment because of that, even though it may benefit from the manufacturing of these parts or the supplying of these services.

(Renumbered on 21 November 2017; see HISTORY)

Paragraph 8

119. Paragraph 8 explains the meaning of the concept of a person or enterprise “closely related to an enterprise” for the purposes of the Article and, in particular, of paragraphs 4.1 and 6. That concept is to be distinguished from the concept of “associated enterprises” which is used for the purposes of Article 9; although the two concepts overlap to a certain extent, they are not intended to be equivalent.

(Added on 21 November 2017; see HISTORY)

120. The first part of paragraph 8 includes the general definition of a person or enterprise closely related to an enterprise. It provides that a person or enterprise is closely related to an enterprise if, based on all the relevant facts and circumstances, one has control of the other or both are under the control of the same persons or enterprises. This general rule would cover, for example, situations where a person or enterprise controls an enterprise by virtue of a special arrangement that allows that person or enterprise to exercise rights that are similar to those that it would hold if it possessed directly or indirectly more than 50 per cent of the beneficial interests in the enterprise. As in most cases where the plural form is used, the reference to the “same persons or enterprises” at the end of the first sentence of paragraph 8 covers cases where there is only one such person or enterprise.

(Added on 21 November 2017; see HISTORY)

121. The second part of paragraph 8 provides that the requirements of the definition of a person or enterprise closely related to an enterprise are automatically met in certain circumstances. Under that second part, a person or enterprise is considered to be closely related to an enterprise if either one possesses directly or indirectly more than 50 per cent of the beneficial interests in the other or if a third person possesses directly or indirectly more than 50 per cent of the beneficial interests in both the person and the enterprise or in both enterprises. In the case of a company, this condition is met where a person holds directly or indirectly more than 50 per cent of the aggregate vote and value of the company’s shares or of the beneficial equity interest in the company.

(Added on 21 November 2017; see HISTORY)

Electronic commerce

122. There has been some discussion as to whether the mere use in electronic commerce operations of computer equipment in a country could constitute a permanent establishment. That question raises a number of issues in relation to the provisions of the Article.

(Renumbered on 21 November 2017; see HISTORY)

123. Whilst a location where automated equipment is operated by an enterprise may constitute a permanent establishment in the country where it is situated (see below), a distinction needs to be made between computer equipment, which may be set up at a location so as to constitute a permanent establishment under certain circumstances, and the data and software which is used by, or stored on, that equipment. For instance, an Internet web site, which is a combination of software and electronic data, does not in itself constitute tangible property. It therefore does not have a location that can constitute a “place of business” as there is no “facility such as premises or, in certain instances, machinery or equipment” (see paragraph 6 above) as far as the software and data constituting that web site is concerned. On the other hand, the server on which the web site is stored and through which it is accessible is a piece of equipment having a physical location and such location may thus constitute a “fixed place of business” of the enterprise that operates that server.

(Renumbered and amended on 21 November 2017; see HISTORY)

124. The distinction between a web site and the server on which the web site is stored and used is important since the enterprise that operates the server may be different from the enterprise that carries on business through the web site. For example, it is common for the web site through which an enterprise carries on its business to be hosted on the server of an Internet Service Provider (ISP). Although the fees paid to the ISP under such arrangements may be based on the amount of disk space used to store the software and data required by the web site, these contracts typically do not result in the server and its location being at the disposal of the enterprise (see paragraphs 10 to 17 above), even if the enterprise has been able to determine that its web site should be hosted on a particular server at a particular location. In such a case, the enterprise does not even have a physical presence at that location since the web site is not tangible. In these cases, the enterprise cannot be considered to have acquired a place of business by virtue of that hosting arrangement. However, if the enterprise carrying on business through a web site has the server at its own disposal, for example it owns (or leases) and operates the server on which the web site is stored and used, the place where that server is located could constitute a permanent establishment of the enterprise if the other requirements of the Article are met.

(Amended on 18 November 2025; see HISTORY)

125. Computer equipment at a given location may only constitute a permanent establishment if it meets the requirement of being fixed. In the case of a server, what is relevant is not the possibility of the server being moved, but whether it is in fact moved. In order to constitute a fixed place of business, a server will need to be located at a certain place for a sufficient period of time so as to become fixed within the meaning of paragraph 1.

(Renumbered on 21 November 2017; see HISTORY)

126. Another issue is whether the business of an enterprise may be said to be wholly or partly carried on at a location where the enterprise has equipment such as a server at its disposal. The question of whether the business of an enterprise is wholly or partly carried on through such equipment needs to be examined on a case-by-case basis, having regard to whether it can be said that, because of such equipment, the enterprise has facilities at its disposal where business functions of the enterprise are performed.

(Renumbered on 21 November 2017; see HISTORY)

127. Where an enterprise operates computer equipment at a particular location, a permanent establishment may exist even though no personnel of that enterprise is required at that location for the operation of the equipment. The presence of personnel is not necessary to consider that an enterprise wholly or partly carries on its business at a location when no personnel are in fact required to carry on business activities at that location. This conclusion applies to electronic commerce to the same extent that it applies with respect to other activities in which equipment operates automatically, e.g. automatic pumping equipment used in the exploitation of natural resources.

(Renumbered on 21 November 2017; see HISTORY)

128. Another issue relates to the fact that no permanent establishment may be considered to exist where the electronic commerce operations carried on through computer equipment at a given location in a country are restricted to the preparatory or auxiliary activities covered by paragraph 4. The question of whether particular activities performed at such a location fall within paragraph 4 needs to be examined on a case-by-case basis having regard to the various functions performed by the enterprise through that equipment. Examples of activities which would generally be regarded as preparatory or auxiliary include:

• providing a communications link – much like a telephone line – between suppliers and customers;

• advertising of goods or services;

• relaying information through a mirror server for security and efficiency purposes;

• gathering market data for the enterprise;

• supplying information.

(Renumbered on 21 November 2017; see HISTORY)

129. Where, however, such functions form in themselves an essential and significant part of the business activity of the enterprise as a whole, or where other core functions of the enterprise are carried on through the computer equipment, these would go beyond the activities covered by paragraph 4 and if the equipment constituted a fixed place of business of the enterprise (as discussed in paragraphs 123 to 127 above), there would be a permanent establishment.

(Renumbered and amended on 21 November 2017; see HISTORY)

130. What constitutes core functions for a particular enterprise clearly depends on the nature of the business carried on by that enterprise. For instance, some ISPs are in the business of operating their own servers for the purpose of hosting web sites or other applications for other enterprises. For these ISPs, the operation of their servers in order to provide services to customers is an essential part of their commercial activity and cannot be considered preparatory or auxiliary. A different example is that of an enterprise (sometimes referred to as an “e-tailer”) that carries on the business of selling products through the Internet. In that case, the enterprise is not in the business of operating servers and the mere fact that it may do so at a given location is not enough to conclude that activities performed at that location are more than preparatory and auxiliary. What needs to be done in such a case is to examine the nature of the activities performed at that location in light of the business carried on by the enterprise. If these activities are merely preparatory or auxiliary to the business of selling products on the Internet (for example, the location is used to operate a server that hosts a web site which, as is often the case, is used exclusively for advertising, displaying a catalogue of products or providing information to potential customers), paragraph 4 will apply and the location will not constitute a permanent establishment. If, however, the typical functions related to a sale are performed at that location (for example, the conclusion of the contract with the customer, the processing of the payment and the delivery of the products are performed automatically through the equipment located there), these activities cannot be considered to be merely preparatory or auxiliary.

(Renumbered on 21 November 2017; see HISTORY)

131. A last issue is whether paragraph 5 may apply to deem an ISP to constitute a permanent establishment. As already noted, it is common for ISPs to provide the service of hosting the web sites of other enterprises on their own servers. The issue may then arise as to whether paragraph 5 may apply to deem such ISPs to constitute permanent establishments of the enterprises that carry on electronic commerce through web sites operated through the servers owned and operated by these ISPs. Whilst this could be the case in very unusual circumstances, paragraph 5 will generally not be applicable because the ISPs will not constitute an agent of the enterprises to which the web sites belong, because they will not conclude contracts or play the principal role leading to the conclusion of contracts in the name of these enterprises, or for the transfer of property belonging to these enterprises or the provision of services by these enterprises, or because they will act in the ordinary course of a business as an independent agent, as evidenced by the fact that they host the web sites of many different enterprises. It is also clear that since the web site through which an enterprise carries on its business is not itself a “person” as defined in Article 3, paragraph 5 cannot apply to deem a permanent establishment to exist by virtue of the web site being an agent of the enterprise for purposes of that paragraph.

(Renumbered and amended on 21 November 2017; see HISTORY)

The taxation of services

132. The combined effect of this Article and Article 7 is that the profits from services performed in the territory of a Contracting State by an enterprise of the other Contracting State are not taxable in the first-mentioned State if they are not attributable to a permanent establishment situated therein (as long as they are not covered by other Articles of the Convention that would allow such taxation). This result, under which these profits are only taxable in the other State, is supported by various policy and administrative considerations. It is consistent with the principle of Article 7 that until an enterprise of one State sets up a permanent establishment in another State, it should not be regarded as participating in the economic life of that State to such an extent that it comes within the taxing jurisdiction of that other State. Also, the provision of services should, as a general rule subject to a few exceptions for some types of service (e.g. those covered by Articles 8 and 17), be treated the same way as other business activities and, therefore, the same permanent establishment threshold of taxation should apply to all business activities, including the provision of independent services.

(Renumbered on 21 November 2017; see HISTORY)

133. One of the administrative considerations referred to above is that the extension of the cases where source taxation of profits from services performed in the territory of a Contracting State by an enterprise of the other Contracting State would be allowed would increase the compliance and administrative burden of enterprises and tax administrations. This would be especially problematic with respect to services provided to non-business consumers, which would not need to be disclosed to the source country’s tax administration for purposes of claiming a business expense deduction. Since the rules that have typically been designed for that purpose are based on the amount of time spent in a State, both tax administrations and enterprises would need to take account of the time spent in a country by personnel of service enterprises and these enterprises would face the risk of having a permanent establishment in unexpected circumstances in cases where they would be unable to determine in advance how long personnel would be present in a particular country (e.g. in situations where that presence would be extended because of unforeseen difficulties or at the request of a client). These cases create particular compliance difficulties as they require an enterprise to retroactively comply with a number of administrative requirements associated with a permanent establishment. These concerns relate to the need to maintain books and records, the taxation of the employees (e.g. the need to make source deductions in another country) as well as other non-income tax requirements.

(Renumbered on 21 November 2017; see HISTORY)

134. Also, the source taxation of profits from services performed in the territory of a Contracting State by an enterprise of the other Contracting State that does not have a fixed place of business in the first-mentioned State would create difficulties concerning the determination of the profits to be taxed and the collection of the relevant tax. In most cases, the enterprise would not have the accounting records and assets typically associated with a permanent establishment and there would be no dependent agent which could comply with information and collection requirements. Moreover, whilst it is a common feature of States’ domestic law to tax profits from services performed in their territory, it does not necessarily represent optimal tax treaty policy.

(Renumbered on 21 November 2017; see HISTORY)

135. Some States, however, are reluctant to adopt the principle of exclusive residence taxation of services that are not attributable to a permanent establishment situated in their territory but that are performed in that territory. These States propose changes to the Article in order to preserve source taxation rights, in certain circumstances, with respect to the profits from such services. States that believe that additional source taxation rights should be allocated under a treaty with respect to services performed in their territory rely on various arguments to support their position.

(Renumbered on 21 November 2017; see HISTORY)

136. These States may consider that profits from services performed in a given state should be taxable in that state on the basis of the generally-accepted policy principles for determining when business profits should be considered to have their source within a jurisdiction. They consider that, from the exclusive angle of the pure policy question of where business profits originate, the State where services are performed should have a right to tax even when these services are not attributable to a permanent establishment as defined in Article 5. They would note that the domestic law of many countries provides for the taxation of services performed in these countries even in the absence of a permanent establishment (even though services performed over very short periods of time may not always be taxed in practice).

(Renumbered on 21 November 2017; see HISTORY)

137. These States are concerned that some service businesses do not require a fixed place of business in their territory in order to carry on a substantial level of business activities therein and consider that these additional rights are therefore appropriate.

(Renumbered on 21 November 2017; see HISTORY)

138. Also, these States consider that even if the taxation of profits of enterprises carried on by non-residents that are not attributable to a permanent establishment raises certain compliance and administrative difficulties, these difficulties do not justify exempting from tax the profits from all services performed on their territory by such enterprises. Those who support that view may refer to mechanisms that are already in place in some States to ensure taxation of services performed in these States but not attributable to permanent establishments (such mechanisms are based on requirements for resident payers to report, and possibly withhold tax on, payments to non-residents for services performed in these States).

(Renumbered on 21 November 2017; see HISTORY)

139. It should be noted, however, that all Member States agree that a State should not have source taxation rights on income derived from the provision of services performed by a non-resident outside that State. Under tax conventions, the profits from the sale of goods that are merely imported by a resident of a country and that are neither produced nor distributed through a permanent establishment in that country are not taxable therein and the same principle should apply in the case of services. The mere fact that the payer of the consideration for services is a resident of a State, or that such consideration is borne by a permanent establishment situated in that State or that the result of the services is used within the State does not constitute a sufficient nexus to warrant allocation of income taxing rights to that State.

(Renumbered on 21 November 2017; see HISTORY)

140. Another fundamental issue on which there is general agreement relates to the determination of the amount on which tax should be levied. In the case of non-employment services (and subject to possible exceptions such as Article 17) only the profits derived from the services should be taxed. Thus, provisions that are sometimes included in bilateral conventions and that allow a State to tax the gross amount of the fees paid for certain services if the payer of the fees is a resident of that State do not seem to provide an appropriate way of taxing services. First, because these provisions are not restricted to services performed in the State of source, they have the effect of allowing a State to tax business activities that do not take place in that State. Second, these rules allow taxation of the gross payments for services as opposed to the profits therefrom.

(Renumbered on 21 November 2017; see HISTORY)

141. Also, Member States agree that it is appropriate, for compliance and other reasons, not to allow a State to tax the profits from services performed in their territory in certain circumstances (e.g. when such services are provided during a very short period of time).

(Renumbered on 21 November 2017; see HISTORY)

142. The Committee therefore considered that it was important to circumscribe the circumstances in which States that did not agree with the conclusion in paragraph 132 above could, if they wished to, provide that profits from services performed in the territory of a Contracting State by an enterprise of the other Contracting State would be taxable by that State even if there was no permanent establishment, as defined in Article 5, to which the profits were attributable.

(Renumbered and amended on 21 November 2017; see HISTORY)

143. Clearly, such taxation should not extend to services performed outside the territory of a State and should apply only to the profits from these services rather than to the payments for them. Also, there should be a minimum level of presence in a State before such taxation is allowed.

(Renumbered on 21 November 2017; see HISTORY)

144. The following is an example of a provision that would conform to these requirements; States are free to agree bilaterally to include such a provision in their tax treaties:

Notwithstanding the provisions of paragraphs 1, 2 and 3, where an enterprise of a Contracting State performs services in the other Contracting State

1. through an individual who is present in that other State for a period or periods exceeding in the aggregate 183 days in any twelve month period, and more than 50 per cent of the gross revenues attributable to active business activities of the enterprise during this period or periods are derived from the services performed in that other State through that individual, or

2. for a period or periods exceeding in the aggregate 183 days in any twelve month period, and these services are performed for the same project or for connected projects through one or more individuals who are present and performing such services in that other State

the activities carried on in that other State in performing these services shall be deemed to be carried on through a permanent establishment of the enterprise situated in that other State, unless these services are limited to those mentioned in paragraph 4 which, if performed through a fixed place of business (other than a fixed place of business to which paragraph 4.1 would apply), would not make this fixed place of business a permanent establishment under the provisions of that paragraph. For the purposes of this paragraph, services performed by an individual on behalf of one enterprise shall not be considered to be performed by another enterprise through that individual unless that other enterprise supervises, directs or controls the manner in which these services are performed by the individual.

(Renumbered and amended on 21 November 2017; see HISTORY)

145. That alternative provision constitutes an extension of the permanent establishment definition that allows taxation of income from services provided by enterprises carried on by non-residents but does so in conformity with the principles described in paragraph 143. The following paragraphs discuss various aspects of the alternative provision; clearly these paragraphs are not relevant in the case of treaties that do not include such a provision and do not, therefore, allow a permanent establishment to be found merely because the conditions described in this provision have been met.

(Renumbered and amended on 21 November 2017; see HISTORY)

146. The provision has the effect of deeming a permanent establishment to exist where one would not otherwise exist under the definition provided in paragraph 1 and the examples of paragraph 2. It therefore applies notwithstanding these paragraphs. As is the case of paragraph 5 of the Article, the provision provides a supplementary basis under which an enterprise may be found to have a permanent establishment in a State; it could apply, for example, where a consultant provides services over a long period in a country but at different locations that do not meet the conditions of paragraph 1 to constitute one or more permanent establishments. If it can be shown that the enterprise has a permanent establishment within the meaning of paragraphs 1 and 2 (subject to the provisions of paragraph 4), it is not necessary to apply the provision in order to find a permanent establishment. Since the provision simply creates a permanent establishment when none would otherwise exist, it does not provide an alternative definition of the concept of permanent establishment and obviously cannot limit the scope of the definition in paragraph 1 and of the examples in paragraph 2.

(Renumbered on 21 November 2017; see HISTORY)

147. The provision also applies notwithstanding paragraph 3. Thus, an enterprise may be deemed to have a permanent establishment because it performs services in a country for the periods of time provided for in the suggested paragraph even if the various locations where these services are performed do not constitute permanent establishments pursuant to paragraph 3. The following example illustrates that result. A self-employed individual resident of one Contracting State provides services and is present in the other Contracting State for more than 183 days during a twelve month period but his services are performed for equal periods of time at a location that is not a construction site (and are not in relation to a construction or installation project) as well as on two unrelated building sites which each lasts less than the period of time provided for in paragraph 3. Whilst paragraph 3 would deem the two sites not to constitute permanent establishments, the proposed paragraph, which applies notwithstanding paragraph 3, would deem the enterprise carried on by that person to have a permanent establishment (since the individual is self-employed, it must be assumed that the 50 per cent of gross revenues test will be met with respect to his enterprise).

(Renumbered on 21 November 2017; see HISTORY)

148. Another example is that of a large construction enterprise that carries on a single construction project in a country. If the project is carried on at a single site, the provision should not have a significant impact as long as the period required for the site to constitute a permanent establishment is not substantially different from the period required for the provision to apply. States that wish to use the alternative provision may therefore wish to consider referring to the same periods of time in that provision and in paragraph 3 of Article 5; if a shorter period is used in the alternative provision, this will reduce, in practice, the scope of application of paragraph 3.

(Renumbered on 21 November 2017; see HISTORY)

149. The situation, however, may be different if the project, or connected projects, are carried out in different parts of a country. If the individual sites where a single project is carried on do not last sufficiently long for each of them to constitute a permanent establishment (see, however, paragraph 57 above), a permanent establishment will still be deemed to exist if the conditions of the alternative provision are met. That result is consistent with the purpose of the provision, which is to subject to source taxation foreign enterprises that are present in a country for a sufficiently long period of time notwithstanding the fact that their presence at any particular location in that country is not sufficiently long to make that location a fixed place of business of the enterprise. Some States, however, may consider that paragraph 3 should prevail over the alternative provision and may wish to amend the provision accordingly.

(Renumbered and amended on 21 November 2017; see HISTORY)

150. The suggested paragraph only applies to services. Other types of activities that do not constitute services are therefore excluded from its scope. Thus, for instance, the paragraph would not apply to a foreign enterprise that carries on fishing activities in the territorial waters of a State and derives revenues from selling its catches (in some treaties, however, activities such as fishing and oil extraction may be covered by specific provisions).

(Renumbered on 21 November 2017; see HISTORY)

151. The provision applies to services performed by an enterprise. Thus, services must be provided by the enterprise to third parties. Clearly, the provision could not have the effect of deeming an enterprise to have a permanent establishment merely because services are provided to that enterprise. For example, services might be provided by an individual to his employer without that employer performing any services (e.g. an employee who provides manufacturing services to an enterprise that sells manufactured products). Another example would be where the employees of one enterprise provide services in one country to an associated enterprise under detailed instructions and close supervision of the latter enterprise; in that case, assuming the services in question are not for the benefit of any third party, the latter enterprise does not itself perform any services to which the provision could apply.

(Renumbered on 21 November 2017; see HISTORY)

152. Also, the provision only applies to services that are performed in a State by a foreign enterprise. Whether or not the relevant services are furnished to a resident of the State does not matter; what matters is that the services are performed in the State through an individual present in that State.

(Renumbered on 21 November 2017; see HISTORY)

153. The alternative provision does not specify that the services must be provided “through employees or other personnel engaged by the enterprise”, a phrase that is sometimes found in bilateral treaties. It simply provides that the services must be performed by an enterprise. As explained in paragraph 39 above, the business of an enterprise (which, in the context of the paragraph, would include the services performed in a Contracting State) “is carried on by the entrepreneur or persons who are in paid-employment relationship with the enterprise (personnel). This personnel includes employees and other persons receiving instructions from the enterprise (e.g. dependent agents).” For the purposes of the alternative provision, the individuals through which an enterprise provides services will therefore be the individuals referred to in paragraph 39, subject to the exception included in the last sentence of that provision (see paragraph 164 below).

(Renumbered and amended on 21 November 2017; see HISTORY)

154. The alternative provision will apply in two different sets of circumstances. Subparagraph a) looks at the duration of the presence of the individual through whom an enterprise derives most of its revenues in a way that is similar to that of subparagraph a) of paragraph 2 of Article 15; subparagraph b) looks at the duration of the activities of the individuals through whom the services are performed.

(Renumbered and amended on 21 November 2017; see HISTORY)

155. Subparagraph a) deals primarily with the situation of an enterprise carried on by a single individual. It also covers, however, the case of an enterprise which, during the relevant period or periods, derives most of its revenues from services provided by one individual. Such extension is necessary to avoid a different treatment between, for example, a case where services are provided by an individual and a case where similar services are provided by a company all the shares of which are owned by the only employee of that company.

(Renumbered on 21 November 2017; see HISTORY)

156. The subparagraph may apply in different situations where an enterprise performs services through an individual, such as when the services are performed by a sole proprietorship, by the partner of a partnership, by the employee of a company etc. The main conditions are that

• the individual through whom the services are performed be present in a State for a period or periods exceeding in the aggregate 183 days in any twelve month period, and

• more than 50 per cent of the gross revenues attributable to active business activities of the enterprise during the period or periods of presence be derived from the services performed in that State through that individual.

(Renumbered on 21 November 2017; see HISTORY)

157. The first condition refers to the days of presence of an individual. Since the formulation is identical to that of subparagraph a) of paragraph 2 of Article 15, the principles applicable to the computation of the days of presence for purposes of that last subparagraph are also applicable to the computation of the days of presence for the purpose of the suggested paragraph.

(Renumbered and amended on 21 November 2017; see HISTORY)

158. For the purposes of the second condition, according to which more than 50 per cent of the gross revenues attributable to active business activities of the enterprise during the relevant period or periods must be derived from the services performed in that State through that individual, the gross revenues attributable to active business activities of the enterprise would represent what the enterprise has charged or should charge for its active business activities, regardless of when the actual billing will occur or of domestic law rules concerning when such revenues should be taken into account for tax purposes. Such active business activities are not restricted to activities related to the provision of services. Gross revenues attributable to “active business activities” would clearly exclude income from passive investment activities, including, for example, receiving interest and dividends from investing surplus funds. States may, however, prefer to use a different test, such as “50 per cent of the business profits of the enterprise during this period or periods is derived from the services” or “the services represent the most important part of the business activities of the enterprise”, in order to identify an enterprise that derives most of its revenues from services performed by an individual on their territory.

(Renumbered on 21 November 2017; see HISTORY)

159. The following examples illustrate the application of subparagraph a) (assuming that the alternative provision has been included in a treaty between States R and S):

• Example 1: W, a resident of State R, is a consultant who carries on her business activities in her own name (i.e. that enterprise is a sole proprietorship). Between 2 February 00 and 1 February 01, she is present in State S for a period or periods of 190 days and during that period all the revenues from her business activities are derived from services that she performs in State S. Since subparagraph a) applies in that situation, these services shall be deemed to be performed through a permanent establishment in State S.

• Example 2: X, a resident of State R, is one of the two shareholders and employees of XCO, a company resident of State R that provides engineering services. Between 20 December 00 and 19 December 01, X is present in State S for a period or periods of 190 days and during that period, 70 per cent of all the gross revenues of XCO attributable to active business activities are derived from the services that X performs in State S. Since subparagraph a) applies in that situation, these services shall be deemed to be performed through a permanent establishment of XCO in State S.

• Example 3: X and Y, who are residents of State R, are the two partners of X&Y, a partnership established in State R which provides legal services. For tax purposes, State R treats partnerships as transparent entities. Between 15 July 00 and 14 July 01, Y is present in State S for a period or periods of 240 days and during that period, 55 per cent of all the fees of X&Y attributable to X&Y’s active business activities are derived from the services that Y performs in State S. Subparagraph a) applies in that situation and, for the purposes of the taxation of X and Y, the services performed by Y are deemed to be performed through a permanent establishment in State S.

• Example 4: Z, a resident of State R, is one of 10 employees of ACO, a company resident of State R that provides accounting services. Between 10 April 00 and 9 April 01, Z is present in State S for a period or periods of 190 days and during that period, 12 per cent of all the gross revenues of ACO attributable to its active business activities are derived from the services that Z performs in State S. Subparagraph a) does not apply in that situation and, unless subparagraph b) applies to ACO, the alternative provision will not deem ACO to have a permanent establishment in State S.

(Renumbered on 21 November 2017; see HISTORY)

160. Subparagraph b) addresses the situation of an enterprise that performs services in a Contracting State in relation to a particular project (or for connected projects) and which performs these through one or more individuals over a substantial period. The period or periods referred to in the subparagraph apply in relation to the enterprise and not to the individuals. It is therefore not necessary that it be the same individual or individuals who perform the services and are present throughout these periods. As long as, on a given day, the enterprise is performing its services through at least one individual who is doing so and is present in the State, that day would be included in the period or periods referred to in the subparagraph. Clearly, however, that day will count as a single day regardless of how many individuals are performing such services for the enterprise during that day.

(Renumbered on 21 November 2017; see HISTORY)

161. The reference to an “enterprise … performing these services for the same project” should be interpreted from the perspective of the enterprise that provides the services. Thus, an enterprise may have two different projects to provide services to a single customer (e.g. to provide tax advice and to provide training in an area unrelated to tax) and whilst these may be related to a single project of the customer, one should not consider that the services are performed for the same project.

(Renumbered on 21 November 2017; see HISTORY)

162. The reference to “connected projects” is intended to cover cases where the services are provided in the context of separate projects carried on by an enterprise but these projects have a commercial coherence (see paragraphs 24 and 25 above). The determination of whether projects are connected will depend on the facts and circumstances of each case but factors that would generally be relevant for that purpose include:

• whether the projects are covered by a single master contract;

• where the projects are covered by different contracts, whether these different contracts were concluded with the same person or with related persons and whether the conclusion of the additional contracts would reasonably have been expected when concluding the first contract;

• whether the nature of the work involved under the different projects is the same;

• whether the same individuals are performing the services under the different projects.

(Renumbered and amended on 21 November 2017; see HISTORY)

163. Subparagraph b) requires that during the relevant periods, the enterprise is performing services through individuals who are performing such services in that other State. For that purpose, a period during which individuals are performing services means a period during which the services are actually provided, which would normally correspond to the working days of these individuals. An enterprise that agrees to keep personnel available in case a client needs the services of such personnel and charges the client standby charges for making such personnel available is performing services through the relevant individuals even though they are idle during the working days when they remain available.

(Renumbered on 21 November 2017; see HISTORY)

164. As indicated in paragraph 153 above, for the purposes of the alternative provision, the individuals through whom an enterprise provides services will be the individuals referred to in paragraph 39 above. If, however, an individual is providing the services on behalf of one enterprise, the exception included in the last sentence of the provision clarifies that the services performed by that individual will only be taken into account for another enterprise if the work of that individual is exercised under the supervision, direction or control of the last-mentioned enterprise. Thus, for example, where a company that has agreed by contract to provide services to third parties provides these services through the employees of a separate enterprise (e.g. an enterprise providing outsourced services), the services performed through these employees will not be taken into account for purposes of the application of subparagraph b) to the company that entered into the contract to provide services to third parties. This rule applies regardless of whether the separate enterprise is associated to, or independent from, the company that entered into the contract.

(Renumbered and amended on 21 November 2017; see HISTORY)

165. The following examples illustrate the application of subparagraph b) (assuming that the alternative provision has been included in a treaty between States R and S):

• Example 1: X, a company resident of State R, has agreed with company Y to carry on geological surveys in various locations in State S where company Y owns exploration rights. Between 15 May 00 and 14 May 01, these surveys are carried on over 185 working days by employees of X as well as by self-employed individuals to whom X has sub-contracted part of the work but who work under the direction, supervision or control of X. Since subparagraph b) applies in that situation, these services shall be deemed to be performed through a permanent establishment of X in State S.

• Example 2: Y, a resident of State T, is one of the two shareholders and employees of WYCO, a company resident of State R that provides training services. Between 10 June 00 and 9 June 01, Y performs services in State S under a contract that WYCO has concluded with a company which is a resident of State S to train the employees of that company. These services are performed in State S over 185 working days. During the period of Y’s presence in State S, the revenues from these services account for 40 per cent of the gross revenues of WYCO from its active business activities. Whilst subparagraph a) does not apply in that situation, subparagraph b) applies and these services shall be deemed to be performed through a permanent establishment of WYCO in State S.

• Example 3: ZCO, a resident of State R, has outsourced to company OCO, which is a resident of State S, the technical support that it provides by telephone to its clients. OCO operates a call centre for a number of companies similar to ZCO. During the period of 1 January 00 to 31 December 00, the employees of OCO provide technical support to various clients of ZCO. Since the employees of OCO are not under the supervision, direction or control of ZCO, it cannot be considered, for the purposes of subparagraph b), that ZCO is performing services in State S through these employees. Additionally, whilst the services provided by OCO’s employees to the various clients of ZCO are similar, these are provided under different contracts concluded by ZCO with unrelated clients: these services cannot, therefore, be considered to be rendered for the same or connected projects.

(Renumbered on 21 November 2017; see HISTORY)

166. The 183-day thresholds provided for in the alternative provision may give rise to the same type of abuse as is described in paragraph 52 above. As indicated in that paragraph, apart from the fact that such abuses may, depending on the circumstances, fall under the application of legislative or judicial anti-avoidance rules, these abuses could also be addressed through the application of the anti-abuse rule of paragraph 9 of Article 29. Some States, however, may prefer to deal with them by including a specific provision in the Article. Such a provision could be drafted along the following lines:

For the purposes of paragraph [x], where an enterprise of a Contracting State that is performing services in the other Contracting State is, during a period of time, closely related to another enterprise that performs substantially similar services in that other State for the same project or for connected projects through one or more individuals who, during that period, are present and performing such services in that State, the first-mentioned enterprise shall be deemed, during that period of time, to be performing services in the other State for that same project or for connected projects through these individuals.

(Renumbered and amended on 21 November 2017; see HISTORY)

167. According to the provision, the activities carried on in the other State by the individuals referred to in subparagraph a) or b) through which the services are performed by the enterprise during the period or periods referred to in these subparagraphs are deemed to be carried on through a permanent establishment that the enterprise has in that other State. The enterprise is therefore deemed to have a permanent establishment in that other State for the purposes of all the provisions of the Convention (including, for example, paragraph 5 of Article 11 and paragraph 2 of Article 15) and the profits derived from the activities carried on in the other State in providing these services are attributable to that permanent establishment and are therefore taxable in that State pursuant to Article 7.

(Renumbered on 21 November 2017; see HISTORY)

168. By deeming the activities carried on in performing the relevant services to be carried on through a permanent establishment that the enterprise has in a Contracting State, the provision allows the application of Article 7 and therefore, the taxation, by that State, of the profits attributable to these activities. As a general rule, it is important to ensure that only the profits derived from the activities carried on in performing the services are taxed; whilst there may be certain exceptions, it would be detrimental to the cross-border trade in services if payments received for these services were taxed regardless of the direct or indirect expenses incurred for the purpose of performing these services.

(Renumbered on 21 November 2017; see HISTORY)

169. This alternative provision will not apply if the services performed are limited to those mentioned in paragraph 4 of Article 5 which, if performed through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph. Since the provision refers to the performance of services by the enterprise and this would not cover services provided to the enterprise itself, most of the provisions of paragraph 4 would not appear to be relevant. It may be, however, that the services that are performed are exclusively of a preparatory or auxiliary character (e.g. the supply of information to prospective customers when this is merely preparatory to the conduct of the ordinary business activities of the enterprise; see paragraph 71 above) and in that case, it is logical not to consider that the performance of these services will constitute a permanent establishment.

(Renumbered and amended on 21 November 2017; see HISTORY)

The taxation of activities in connection with the exploration and exploitation of extractible natural resources

170. This section of the Commentary sets out an alternative provision that States could use to govern the taxation of enterprises in the extractive industries. Its centrepiece is a lower permanent establishment threshold, which would be crossed after a non-resident enterprise had operated in a State for more than a bilaterally agreed period. The provision is similar to that found in a number of existing bilateral tax treaties. The alternative provision set out here brings greater consistency and certainty of interpretation for States agreeing to such an approach. It is drafted as a free-standing article for use in a bilateral tax treaty based on the Convention.

(Replaced on 18 November 2025; see HISTORY)

171. Countries with abundant extractible natural resources (oil, gas and minerals) face policy choices concerning their exploitation. Implications for jobs and the effect on the environment, for example, are among the issues to be considered. But countries will certainly look to secure for themselves an adequate share of the value that is bound up in the resources that they own and which is due, in part at least, to their finite nature. How countries secure that share of the value is a complex matter, and will depend on factors unique to each country, to the non-resident enterprises, and to the resource in question. Typically, countries will use several instruments to optimise their return on the exploitation of those resources – for example, production-sharing contracts, up front bonus payments, ongoing royalties, as well as corporate income taxes (possibly in a ring-fenced regime with a higher rate)

(Replaced on 18 November 2025; see HISTORY)

172. Guidance on how to deploy these instruments, and other possible ones, is beyond the scope of this Commentary. Instead, the starting point of this section of the Commentary is that States have agreed bilaterally, taking all considerations into account, to enlarge the taxing right of the source State over profits from the exploitation of its extractible natural resources by non-resident enterprises beyond what a treaty following the Convention would otherwise deliver – and to do so through lowering the permanent establishment threshold.

(Replaced on 18 November 2025; see HISTORY)

173. Some of those considerations, emphasised by States that do not favour this provision, are the increased compliance and administrative burdens due to the presence of more permanent establishments, with the attendant difficulties of attributing profits (or losses), especially where the permanent establishment can last for only a short period. Striking a balance between the source and the residence State is a matter for bilateral negotiation. But source States should be mindful that the extraction of natural resources can be a difficult, risky, and technically advanced process, and the investing enterprise may require a higher return than would an enterprise operating in a less risky industry. It is therefore important that in allocating greater taxing rights to the source State, this post-tax rate of return for the enterprise is not lowered excessively, especially for pre-existing investments.

(Replaced on 18 November 2025; see HISTORY)

174. However, the alternative provision set out here recognises that some States choose, and other States agree, to adopt a regime for the taxation of profits in the extractive industries that is more in favour of the source State – especially where activities are carried out offshore – and that this is most frequently done by setting a lower permanent establishment threshold than would follow from the provisions of Article 5. The point is that under Article 7 a State may generally tax the profits of non-resident enterprises (which may be disproportionately involved in the extractive industries, especially in small countries) only if those enterprises carry on business in that State though a permanent establishment. That condition will likely be fulfilled for onshore exploitation activities – a mine, for example, will generally constitute a permanent establishment – and the same might be true for offshore exploitation activities themselves. But offshore exploration and various service activities connected with offshore exploration or exploitation may be of short duration and may not take place at a geographically fixed place of business (see also paragraph 48 above) – which would mean they were not performed through a permanent establishment within the meaning of paragraph 1 of Article 5.

(Replaced on 18 November 2025; see HISTORY)

175. Some States consider that a provision restricted to offshore activities is sufficient because, as just mentioned, the main site for onshore activities – a mine, for example – will generally be a permanent establishment for a non-resident enterprise doing the mining. Furthermore, short duration and mobile services may be more prevalent in the offshore sector. These services can be highly profitable, and the places they are performed may not fall within the definition of a permanent establishment in paragraph 1 of Article 5.

(Replaced on 18 November 2025; see HISTORY)

176. Other States might see a need for a provision that covers both offshore and onshore activities in order to capture a fuller share of the value of those onshore resources. The activities of some enterprises carrying out work connected to onshore finite natural resources – such as engineering or consultancy services or seismic surveys – might otherwise fall below the permanent establishment threshold. For example, a mining operation may require the services of individuals resident in a neighbouring country whose activities, without such a provision, would not create a permanent establishment under either paragraph 1 of Article 5 or under the alternative provision for services in paragraph 144 above. Another feature of a provision covering onshore activities is that it would treat non-resident service providers carrying out similar work offshore and onshore equally. However, bringing onshore activities within the scope of the provision could set up a difference in treatment for an enterprise that was, for example, performing similar advanced technical work at both a mine and a factory. States will want to balance these considerations when deciding on the geographical scope of the provision.

(Replaced on 18 November 2025; see HISTORY)

177. Given the multiplicity of existing bilateral provisions governing the taxation of activities in connection with the exploration and exploitation of natural resources, some of which may not operate as intended, the Committee considered that it would be helpful to offer a standard provision that States that wanted a different taxation treatment of such activities could use in their bilateral treaties. The following is an example of such a provision. It is based in large part on existing practice and therefore reflects certain policy choices that States have made:

Provision on activities in connection with the exploration and exploitation of extractible natural resources

1. The provisions of this Article shall apply notwithstanding the provisions of Articles 5 and 13.

Offshore only	Offshore and onshore
2. For the purposes of this Article, the term “relevant activity” means an activity carried on offshore in connection with the exploration or exploitation of the seabed and its subsoil and their natural resources.	2. For the purposes of this Article, the term “relevant activity” means an activity carried on in connection with the exploration or exploitation of the seabed and its subsoil and their natural resources. The term also includes the exploration for and exploitation of onshore finite natural resources, and other specialised activities carried on in connection therewith.

However, the operation of ships or aircraft used for the primary purpose of (i) transporting supplies or personnel, or (ii) towing or anchor handling, or the operation of other vessels whose function is auxiliary to the exploration or exploitation of the seabed and its subsoil and their natural resources, does not constitute a relevant activity.

3. Where an enterprise of a Contracting State carries on relevant activities in the other Contracting State for a period or periods exceeding in the aggregate [period to be bilaterally agreed] in any twelve month period commencing or ending in the fiscal year concerned, the relevant activities carried on in that other State shall be deemed to be carried on through a permanent establishment of the enterprise situated in that other State.

4. Gains derived by a resident of a Contracting State from the alienation of:

1. immovable property referred to in Article 6 (including exploration or exploitation rights) pertaining to natural resources situated in the other Contracting State; or

Offshore only	Offshore and onshore
b) movable property forming part of the business property of a permanent establishment which that resident has in the other Contracting State and which is used in connection with the exploration or exploitation of the seabed and its subsoil and their natural resources situated in that other State; or	b) movable property forming part of the business property of a permanent establishment which that resident has in the other Contracting State and which is used in connection with the exploration or exploitation of the seabed and its subsoil and their natural resources, or onshore finite natural resources, situated in that other State; or

1. shares or comparable interests, such as interests in a partnership or trust, if at any time during the 365 days preceding the alienation these shares or comparable interests derived more than 50 per cent of their value directly or indirectly from property mentioned in subparagraphs a) or b) or from such property taken together may be taxed in that other State.

(Replaced on 18 November 2025; see HISTORY)

Paragraph 1 of the provision

178. This paragraph provides that the provision shall apply notwithstanding the provisions of Articles 5 and 13 of the Convention, which might otherwise preclude the taxation by a State with finite natural resources of certain income and gains derived in connection with the exploration and exploitation of those resources by a non-resident. Conversely, where the source State maintains its taxing right by virtue of Articles 5 or 13 but not by virtue of this provision, that taxing right continues.

(Replaced on 18 November 2025; see HISTORY)

Paragraph 2 of the provision

179. This paragraph defines the term “relevant activity” and it has two forms: one for States that wish to confine the scope of the article to offshore activities, and one for those that wish to include onshore activities.

(Replaced on 18 November 2025; see HISTORY)

180. The reference to activities carried on “offshore” (in the “Offshore only” version of paragraph 2) means, for a Contracting State, activities carried on within the area of its internal or archipelagic waters, its territorial sea, and any area beyond its territorial sea in which, in accordance with international law, it may exercise its sovereign rights with respect to the seabed and subsoil and their natural resources. The above terms have the meaning ascribed to them in the United Nations Convention on the Law of the Sea 1982^[26], which codifies this aspect of what is now generally regarded as customary international law. This paragraph is without prejudice to paragraph 1 of the Commentary on Article 3, which notes that: “In addition to the definitions contained in the Article, Contracting States are free to agree bilaterally on definitions of the terms ‘a Contracting State’ and ‘the other Contracting State’. Furthermore, Contracting States are free to agree bilaterally to include in the possible definitions of ‘Contracting States’ a reference to continental shelves.” As compared to the “Offshore only” version of paragraph 2, the “Offshore and onshore” version of paragraph 2 does not limit the concept of “relevant activities” with respect to the exploration or exploitation of the seabed or its subsoil and their natural resources to activities carried on offshore. In the “Offshore and onshore” version of paragraph 2, the concept of “relevant activities” also includes activities performed onshore in connection with the offshore exploration and exploitation activities (in addition to the onshore activities covered in the second sentence and discussed in paragraph 183 below).

(Replaced on 18 November 2025; see HISTORY)

181. In both cases, through the use of the expression “in connection with”, the term “relevant activity” includes not only the activities of exploration and exploitation themselves, but also the performance of certain related services. The paragraphs below explain how these services are generally performed within the fields of exploration and exploitation.

(Replaced on 18 November 2025; see HISTORY)

182. For offshore activities there is a specific exclusion for the activities of certain vessels. But the relevant activities otherwise include all activities connected with the exploration and exploitation of the seabed, its subsoil, and their natural resources (with the added limitation, in the “Offshore only” version of the provision, that such relevant activities must also be carried on offshore). In practice, given the remoteness and difficulty of offshore activities, services performed offshore (e.g. saturation diving on the seabed and the laying of pipelines) are frequently exclusively associated with the exploration and exploitation of natural resources.

(Replaced on 18 November 2025; see HISTORY)

183. For onshore activities, the use of the qualifying word “specialised” restricts the coverage of related services to those that are tailored to the onshore exploration and exploitation activities. Specialised services involve a degree of expertise or the use of specialised equipment that would not be involved in the provision of similar services in a different context. Where an enterprise provides services (e.g. catering services) to an array of clients in various industries, using the same type of equipment and expertise in respect of all clients, this would typically be considered generic (non-specialised). Moreover, a service is not considered specialised merely because it is performed at the site where onshore exploration and exploitation activities are also taking place; however, if the site is especially remote and difficult to access or operate in, this could suggest that most services performed at that site are specialised. Examples of specialised activities include the assembly, installation and maintenance of specialised mining infrastructure and equipment, the performance of engineering and consultancy services relating to the onshore exploration and exploitation activities, and the carrying out of seismic surveys. But supplying a mine operator with electricity, water or Internet access – or even a monthly delivery by road of provisions from a cross-border supplier – are generic (non-specialised) services that fall outside the scope of the provision. Distinctions can be drawn, for example, between the provision of Internet access to a mine operator (non-specialised) and the provision of information technology services specifically tailored to the nature of mining operations (specialised); between the installation of a water pipe at an onshore drilling site involving the same equipment and degree of expertise on behalf of the installer as would be involved at any other geographic location (non-specialised) and the installation of a water pipe involving specific equipment and expertise to adapt to the nature of the drilling site (specialised). The profits from such non-specialised activities are nevertheless subject to the ordinary rules of Article 5 (including, as applicable, its paragraph 3) and Article 7. For example, an enterprise of a Contracting State that provides standard food delivery services to a mining site in the other Contracting State would not be covered under paragraph 2 of the provision. However, that enterprise might nevertheless have a permanent establishment in that other Contracting State if the conditions of paragraph 1 of Article 5 are satisfied (such that the profits attributable to that permanent establishment would be taxable in that other Contracting State, in accordance with Article 7).

(Replaced on 18 November 2025; see HISTORY)

184. Following the same logic, the language at the end of the provision that applies to both its forms contains a specific exclusion for transportation, towing, anchor handling, and the operation of other vessels whose functions are auxiliary to the exploration or exploitation of the seabed and its subsoil and their natural resources. Towing services include those services performed by tugboats, and encompass services that assist in the moving of ocean vessels in and out of port and between berths, towing (pushing) of barges, and transporting port pilots to ships waiting to enter a ship channel or port. Vessels performing auxiliary functions include those used for fire-fighting and rescue support. But, for example, the following types of vessels carry out core activities to natural resource exploitation and are hence not covered by the exemption: oil production vessels; rigs or platforms (including those used for accommodation); floating storage production and offloading vessels used for hydrocarbon resources; dredging vessels; pipe-laying vessels; seismic or underwater survey vessels; and heavy-lift vessels.

(Replaced on 18 November 2025; see HISTORY)

185. Article 8 already provides that the profits of an enterprise of a Contracting State from the operation of ships or aircraft in international traffic shall be taxable only in that State. Therefore, although some transportation vessels may already in effect be excluded from the operation of this provision because their journeys fall within definition of “international traffic”, this specific exclusion from the operation of the alternative provision is a wider one. But the profits from the operation of these excluded vessels are nevertheless subject to the ordinary rules of Article 5 and Article 7. For example, an enterprise of a Contracting State that operates a tugboat to tow dredging vessels in and out of a port in the other Contracting State could be excluded under paragraph 2 of the provision, but might nevertheless have a permanent establishment in that other Contracting State pursuant to paragraph 1 of Article 5 (such that the profits attributable to that permanent establishment would be taxable in that other Contracting State, in accordance with Article 7).

(Replaced on 18 November 2025; see HISTORY)

186. The formulation “in connection with” is also used in a temporal sense, and includes equivalent activities at every stage of the process of extracting natural resources: exploration (when preliminary surveys take place, exploratory rights are acquired and the exploration itself happens); development (when the necessary infrastructure is built); production (when the resources are extracted, processed, transported, marketed and sold – processes that could together be described as “exploitation”); and decommissioning (when infrastructure is removed and sites are rehabilitated).

(Replaced on 18 November 2025; see HISTORY)

187. In referring to “the seabed and its subsoil and their natural resources”, or “onshore finite natural resources”, the provision encompasses the extraction of non renewable commodities such as hydrocarbons, precious metals, metal ores, rare earth elements and other minerals. Following the logic of paragraph 171, it does not cover, for example, the harnessing of renewable resources such as hydroelectric, wind, wave, tidal or solar power.

(Replaced on 18 November 2025; see HISTORY)

188. Some treaties that include an article similar to this provision exclude from scope those activities mentioned in paragraph 4 of Article 5. Following the more common practice, in the interest of simplicity, and recognising that these activities can be high-value, this provision does not do that; it also seems less appropriate to include such a provision for activities that can already be of a much shorter duration than would normally take place through a permanent establishment. Nor does it seem as likely that activities covered by this provision (both offshore and onshore) would be of a preparatory or auxiliary character. Nevertheless, States that wish to provide for such exemptions could do so – for example, by adding to the end of paragraph 3 the words: “, unless the activities of such enterprise are limited to those mentioned in paragraph 4 of Article 5 which, if exercised through a fixed place of business (other than a fixed place of business to which paragraph 4.1 of Article 5 would apply), would not make this fixed place of business a permanent establishment under the provisions of that paragraph.”

(Replaced on 18 November 2025; see HISTORY)

Paragraph 3 of the provision

189. Where an enterprise of a Contracting State carries on relevant activities in the other Contracting State for more than a minimum period to be bilaterally agreed, this paragraph deems those activities to be carried on through a permanent establishment in that other State. This encompasses all relevant activities carried on by the enterprise – without regard to whether such activities relate to one or more customers, projects or other factors – provided that such activities are carried out in the other Contracting State. Activities carried out anywhere else are not relevant to the assessment of whether a permanent establishment is deemed to exist in that other State. For example, analysis of satellite imaging data or other geophysical data carried out in State R by an enterprise that is a resident of State R is irrelevant to the question whether the enterprise has a permanent establishment in State S, even though that is where the deposits to be explored may be located.

(Replaced on 18 November 2025; see HISTORY)

190. Once a permanent establishment is deemed to exist, the source State may tax the non-resident enterprise’s profits attributable to the deemed permanent establishment in accordance with Article 7 and the residence State will eliminate double taxation in accordance with Article 23. There is no requirement that the activities are attached to the same project or performed for the same customer; the test is only one of duration in the source State. The usual rules of Article 7 will apply to the attribution of profits to that deemed permanent establishment.

(Replaced on 18 November 2025; see HISTORY)

191. The duration of the time threshold is to be bilaterally agreed. Existing bilateral treaties that contain a similar provision use a range of different thresholds (that include 30, 90, and 183 days and other periods).

(Replaced on 18 November 2025; see HISTORY)

192. Paragraph 3 of the provision refers to activities “in the other Contracting State”. In order to clarify the meaning of this phrase, it is an established practice for States to define themselves by using a formulation that (for example) includes the area in which, in accordance with international law, they may exercise their sovereign rights with respect to the seabed and its subsoil and their natural resources.

(Replaced on 18 November 2025; see HISTORY)

193. Paragraph 3 contains no anti-contract splitting rule, for the reasons set out at paragraph 52 above. But some States may nevertheless wish to deal expressly with such abuses, especially those States that do not include in their treaties the principal purposes test at paragraph 9 of Article 29. Such a provision could be drafted along the following lines:

For the sole purpose of determining whether the “[period to be bilaterally agreed]” threshold in paragraph 3 has been exceeded, where an enterprise of a Contracting State carries on relevant activities in the other Contracting State and substantially the same relevant activities are carried on in that other State during different periods of time by one or more enterprises closely related to the first-mentioned enterprise within the meaning of paragraph 8 of Article 5, these different periods of time shall be added to the period of time during which the first-mentioned enterprise has carried on the relevant activities.

This rule would not require the relevant activities to be performed at the same location but only that the relevant activities carried on by one or more closely related enterprises were “substantially the same” (rather than “connected”, as in the provision in paragraph 52). The expression “substantially the same” would apply to the same type of resource and method of exploration or extraction. So, for example, it would not permit the aggregation of drilling activities on the continental shelf with on-shore exploration and mining, or of geomagnetic field analysis at sea with seismic exploration on land. There would be no minimum period during which the fragmented activities had to take place to fall within the scope of the rule. This reflects the fact that the bilaterally agreed period specified in paragraph 3 of the provision may be substantially lower than the twelve month period in paragraph 3 of Article 5.

(Replaced on 18 November 2025; see HISTORY)

194. The anti-contract splitting rule above refers to one or more enterprises closely related to the first-mentioned enterprise “within the meaning of paragraph 8 of Article 5”. This is because the Convention defines the term there for the purposes of paragraphs 4.1 and 6 of Article 5. States adopting the rule might prefer to move the definition from paragraph 8 of Article 5 to paragraph 1 of Article 3 – in which case the words “within the meaning of paragraph 8 of Article 5” above would be deleted.

(Replaced on 18 November 2025; see HISTORY)

Paragraph 4 of the provision

195. This paragraph deals with the taxation of gains, assigning to the source State the primary right to tax gains from the disposal of certain assets (immovable property, certain movable property, and shares and other comparable interests). The source State’s right to tax these gains will generally be preserved by the operation of paragraphs 1, 2 or 4 of Article 13. However, paragraph 4 of the provision brings together the rules governing the treatment of each category of extractives-related income and gains, thereby providing transparency and clarity. Subparagraphs a), b) and c) describe the assets in question. Subparagraph c) is a potential expansion of the taxing right under paragraph 4 of Article 13.

(Replaced on 18 November 2025; see HISTORY)

196. Subparagraph a) confirms that, for purposes of the application of paragraph 4, exploration and exploitation rights pertaining to natural resources are within the definition of immovable property. These rights fall within the definition of immovable property in Article 6 (either explicitly or for example as property accessory to immovable property), and thus also fall within the ambit of paragraph 1 of Article 13. It is not considered necessary to define an exploration or exploitation right. Because a partial right is itself a right, the term also encompasses arrangements such as farm-in and farm-out agreements, under which, for example, the owner of an oil or gas interest (the farmor) assigns part of it (as opposed to the whole of it) to another person (the farmee), in exchange for certain obligations – e.g. to share the cost of a project, to perform some service, or just to make a cash payment.

(Replaced on 18 November 2025; see HISTORY)

197. Subparagraph b) is in two parts (offshore only, and offshore and onshore) and encompasses a gain derived by a resident of a Contracting State from the alienation of movable property forming part of the business property of a permanent establishment and used in connection with the exploration or exploitation mentioned in paragraph 2 of the provision. The subparagraph therefore matches the provision in paragraph 2 of Article 13.

(Replaced on 18 November 2025; see HISTORY)

198. Subparagraph c) deals with shares or comparable interests that, at any time during the 365 days preceding their alienation, derived more than 50 per cent of their value directly or indirectly from the property mentioned in subparagraphs a) and b). The provision is modelled on the one in paragraph 4 of Article 13, but goes beyond it by allowing the aggregation of the value of the property mentioned in subparagraphs a) and b) when applying the 50 per cent value test. This would allow, for example, the source State to tax the gains from the disposal of shares in a company where 30 per cent of the value was contributed by extraction rights and 30 per cent by a movable rig that was exploiting those rights.

(Replaced on 18 November 2025; see HISTORY)

Employment Income

199. The provision deals with the taxation only of the enterprise that performs relevant activities. However, provisions in some bilateral treaties also enlarge the taxing right of the source State over income from employment beyond that permitted by Article 15. Article 15 itself would preserve the source State’s right to tax a non-resident’s employment income in most instances. But where a non-resident employee performed consecutive contracts with different non-resident employers – and the remuneration was not borne by a permanent establishment (including one deemed to exist under paragraph 3 of the provision) – Article 15 would not provide for source State taxation (unless the non-resident employee was present in the source State for a period or periods exceeding 183 days in any twelve month period commencing or ending in the fiscal year concerned). Depending on the facts and circumstances, the formal contractual relationship between the employee and the employer could be challenged for purposes of determining the “employer” for Article 15 purposes (see paragraphs 8.1 to 8.28 of the Commentary on Article 15), if necessary invoking the principal purposes test in paragraph 9 of Article 29. But if this situation remains a concern, a provision such as the following could be inserted after paragraph 2 of Article 15:

Notwithstanding the preceding provisions of this Article, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State, and connected with relevant activities within the meaning of Article [X] carried on in that other State, may be taxed in that other State if the employment is so exercised for a period or periods exceeding in the aggregate [period to be bilaterally agreed] in any twelve month period commencing or ending in the fiscal year concerned.

(Replaced on 18 November 2025; see HISTORY)

200. Under this provision, the State where the employment was exercised could tax the remuneration of a non-resident employee even if the employer did not have a permanent establishment, provided the employment was exercised there for more than a bilaterally agreed period in the relevant twelve month period. But whether or not the provision is used, Article 15 preserves the right of the State where a non-resident’s employment is exercised to tax the remuneration in respect of any such employment, regardless of its duration, if the remuneration is borne by a permanent establishment (including one deemed to exist under paragraph 3 of the provision) that the employer has in that State, given that the condition in subparagraph c) of paragraph 2 of Article 15 is not met.

(Replaced on 18 November 2025; see HISTORY)

201. An alternative way of expanding the taxing rights of the source State over employment income would be to amend subparagraph a) of paragraph 2 of Article 15 as follows:

1. the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days (or, where the employment is exercised in connection with relevant activities within the meaning of paragraph 3 of Article [X], [period to be bilaterally agreed]) in any twelve month period commencing or ending in the fiscal year concerned, and

Under this approach, the test refers to days of presence, rather than the period in which the employment is exercised, in line with the way that Article 15 otherwise operates.

(Replaced on 18 November 2025; see HISTORY)

202. States contemplating the use of an expanded provision on employment income should recall that, as explained in the Commentary on Article 15, one reason for the general rule in that Article is to avoid taxation of short-term employment contracts in the source State where the employment income is not allowed as a deductible expense in the State of source. States adopting this provision may wish to consider the potential increase in administrative burden where the employer is neither a resident of, nor has a permanent establishment in, that State.

(Replaced on 18 November 2025; see HISTORY)

203. States that adopt the exemption method should also be careful to ensure that the inclusion of an expanded provision on employment income does not result in double non-taxation of that income. These States may wish to exclude such employment income from exemption and apply the credit method, as suggested by paragraph 35 of the Commentary on Articles 23 A and 23 B.

(Replaced on 18 November 2025; see HISTORY)

Observations on the Commentary

204. Concerning paragraph 64, Germany reserves its position on whether and under which circumstances the acquisition of a right of disposal over the transport capacity of pipelines or the capacity of technical installations, lines and cables for the transmission of electrical power or communications (including the distribution of radio and television programs) owned by an unrelated third party could result in disposal over the pipeline, cable or line as a fixed place of business.

(Renumbered on 18 November 2025; see HISTORY)

205. Regarding paragraph 104, Mexico believes that the arm’s length principle should also be considered in determining whether or not an agent is of an independent status for purposes of paragraph 6 of the Article and wishes, when necessary, to add wording to its conventions to clarify that this is how the paragraph should be interpreted.

(Renumbered on 18 November 2025; see HISTORY)

206. Germany, as regards sentence 3 of paragraph 50, takes the view that business activities limited to on-site planning and supervision over a construction project can only constitute a permanent establishment if they meet the requirements specified in paragraph 1 of Article 5.

(Renumbered on 18 November 2025; see HISTORY)

207. Italy and Portugal deem as essential to take into consideration that – irrespective of the meaning given to the third sentence of paragraph 2 – as far as the method for computing taxes is concerned, national systems are not affected by the new wording of the model, i.e. by the elimination of Article 14.

(Renumbered on 18 November 2025; see HISTORY)

208. The Czech Republic has expressed a number of explanations and reservations on the report on “Issues Arising Under Article 5 of the OECD Model Tax Convention”. In particular, the Czech Republic does not agree with the interpretation mentioned in paragraphs 24 (first part of the paragraph) and 25 (first part of the paragraph). According to its policy, these examples could also be regarded as constituting a permanent establishment if the services are furnished on its territory over a substantial period of time.

(Renumbered on 18 November 2025; see HISTORY)

209. As regards paragraph 50, the Czech Republic adopts a narrower interpretation of the term “installation project” and therefore, it restricts it to an installation and assembly related to a construction project. Furthermore, the Czech Republic adheres to an interpretation that supervisory activities will be automatically covered by paragraph 3 of Article 5 only if they are carried on by the building contractor. Otherwise, they will be covered by it, but only if they are expressly mentioned in this special provision. In the case of an installation project not in relation with a construction project and in the case that supervisory activity is carried on by an enterprise other than the building contractor and it is not expressly mentioned in paragraph 3 of Article 5, then these activities are automatically subject to the rules concerning the taxation of income derived from the provision of other services.

(Renumbered on 18 November 2025; see HISTORY)

210. In relation to paragraphs 122 to 131, the United Kingdom takes the view that a server used by an e-tailer, either alone or together with web sites, could not as such constitute a permanent establishment.

(Renumbered on 18 November 2025; see HISTORY)

211. Chile and Greece do not adhere to all the interpretations in paragraphs 122 to 131.

(Renumbered on 18 November 2025; see HISTORY)

212. Germany does not agree with the interpretation of the “painter example” in paragraph 17 which it regards as inconsistent with the principle stated in the first sentence of paragraph 12, thus not giving rise to a permanent establishment under Article 5 paragraph 1 of the Model Convention. As regards the example described in paragraph 25, Germany would require that the consultant has disposal over the offices used apart from his mere presence during the training activities.

(Renumbered on 18 November 2025; see HISTORY)

213. Germany reserves its position concerning the scope and limits of application of guidance in sentence 2 of paragraph 28 and paragraphs 29 and 30, taking the view that in order to permit the assumption of a fixed place of business, the necessary degree of permanency requires a certain minimum period of presence during the year concerned, irrespective of the recurrent or other nature of an activity. Germany does in particular not agree with the criterion of economic nexus – as described in sentence 1 of paragraph 30 – to justify an exception from the requirements of qualifying presence and duration.

(Renumbered on 18 November 2025; see HISTORY)

214. Germany, as regards paragraph 98 (with reference to paragraphs 83, and 28 to 30), attaches increased importance to the requirement of minimum duration of representation of the enterprise under Article 5 paragraph 5 of the Model Convention in the absence of a residence and/or fixed place of business of the agent in the source country. Germany therefore in these cases takes a particularly narrow view on the applicability of the factors mentioned in paragraphs 28 to 30.

(Renumbered on 18 November 2025; see HISTORY)

215. Mexico and Portugal wish to reserve their right not to follow the position expressed in paragraphs 122 to 131.

(Renumbered on 18 November 2025; see HISTORY)

216. Türkiye reserves its position on whether and under which circumstances the activities referred to in paragraphs 122 to 131 constitute a permanent establishment.

(Renumbered and amended on 18 November 2025; see HISTORY)

217. Finland and Sweden consider that when a State chooses to include in a convention the alternative version of paragraph 4 of Article 5 in paragraph 78 of the Commentary, it is not necessary also to include paragraph 4.1 of Article 5 in the convention.

(Renumbered on 18 November 2025; see HISTORY)

218. Germany reserves its position regarding the application of the first sentence of paragraph 9.

(Renumbered on 18 November 2025; see HISTORY)

219. Greece does not adhere to all of the interpretations in paragraph 45.

(Renumbered on 18 November 2025; see HISTORY)

220. Israel reserves the right, when applying the approach described in paragraph 44.8, to determine whether the 50 per cent threshold is met by using the greater of: a comparison between the number of full or partial working days present in the Contracting State in which the home or other relevant place is located (“home jurisdiction”) and the number of full working days present outside of the home jurisdiction (counting days of presence that are working days in either the home jurisdiction or in another relevant jurisdiction); or a comparison between the number of full or partial days actually worked from the home jurisdiction and the number of full days actually worked outside of the home jurisdiction.

(Added on 18 November 2025; see HISTORY)

221. Regarding paragraph 44.18, Israel reserves the right to consider a commercial reason to exist where a number of employees are located in the Contracting State in which the home or other relevant place is located creating a meaningful group relative to their business unit.

(Added on 18 November 2025; see HISTORY)

222. Regarding paragraph 44.19, Israel wishes to clarify that, where there is no commercial reason for undertaking the activities related to the business of the enterprise of a Contracting State from a home or other relevant place located in the other Contracting State, it will take account of circumstances whereby the individual is employed to perform activity that is “core” to the business or activity that significantly contributes to value creation for the enterprise.

(Added on 18 November 2025; see HISTORY)

223. Regarding paragraph 44.20, Israel reserves the right to consider a home office used by one of the primary persons of an enterprise, such as a founder, partner or relatively significant senior executive, to constitute a permanent establishment of the enterprise.

(Added on 18 November 2025; see HISTORY)

224. Israel reserves the right to consider that the facts and circumstances of example D in paragraph 44.21 could indicate that the physical presence of the employee in that State facilitates his quarterly visits to clients in the same region or enables him to provide services in a different time zone.

(Added on 18 November 2025; see HISTORY)

225. In relation to paragraphs 44.1 to 44.21, the Czech Republic reserves its position regarding the application of the additional specific criteria described in those paragraphs because it does not agree that the category of premises involved should be so determinative and thus limiting the possibility of existence of a permanent establishment in cases of working from a home (or other relevant place) when assessing the existence of “a fixed place of business through which the business of an enterprise is wholly or partly carried on”.

(Added on 18 November 2025; see HISTORY)

226. Chile does not adhere to all of the interpretations in paragraphs 44.6 to 44.21.

(Added on 18 November 2025; see HISTORY)

227. Regarding paragraph 104, Colombia believes that the arm’s length principle should also be considered in determining whether or not an agent is of an independent status for purposes of paragraph 6 of the Article and wishes, when necessary, to add wording to its conventions to clarify that this is how the paragraph should be interpreted.

(Added on 18 November 2025; see HISTORY)

Reservations on the Article

228. The United States reserves its right to follow the versions of paragraphs 5 and 6 as they stood before the 2017 update of the Model Tax Convention.

(Renumbered on 18 November 2025; see HISTORY)

Paragraph 1

229. Australia reserves the right to treat an enterprise as having a permanent establishment in a State if it operates substantial equipment in that State with a certain degree of continuity, or a person – acting in that State on behalf of the enterprise – manufactures or processes in that State goods or merchandise belonging to the enterprise.

(Renumbered and amended on 18 November 2025; see HISTORY)

230. Chile and Colombia reserve the right to deem an enterprise to have a permanent establishment in certain circumstances where services are provided. Chile also reserves the right to propose in bilateral negotiations other forms of taxation of services.

(Renumbered and amended on 18 November 2025; see HISTORY)

231. The Czech Republic and the Slovak Republic, whilst agreeing with the “fixed place of business” requirement of paragraph 1, reserve the right to propose in bilateral negotiations specific provisions clarifying the application of this principle to arrangements for the performance of services over a substantial period of time.

(Renumbered on 18 November 2025; see HISTORY)

232. Greece reserves the right to treat an enterprise as having a permanent establishment in Greece if the enterprise carries on planning, supervisory or consultancy activities in connection with a building site or construction or installation project lasting more than six months, or if the enterprise carries out more than one separate project, each one lasting less than six months, in the same period of time (i.e. within a calendar year).

(Renumbered and amended on 18 November 2025; see HISTORY)

233. Estonia and Mexico reserve the right to tax individuals performing professional services or other activities of an independent character if they are present in these States for a period or periods exceeding in the aggregate 183 days in any twelve month period.

(Renumbered on 18 November 2025; see HISTORY)

234. New Zealand reserves the right to insert provisions that deem a permanent establishment to exist if, for more than six months, an enterprise uses or leases substantial equipment.

(Renumbered and amended on 18 November 2025; see HISTORY)

235. Türkiye reserves the right to treat a person as having a permanent establishment in Türkiye if the person performs professional services and other activities of independent character, including planning, supervisory or consultancy activities, with a certain degree of continuity either directly or through the employees of a separate enterprise.

(Renumbered and amended on 18 November 2025; see HISTORY)

236. Latvia reserves the right to deem any person performing professional services or other activities of an independent character to have a permanent establishment if that person is present in the State for a period or periods exceeding in the aggregate 183 days in any twelve month period.

(Renumbered on 18 November 2025; see HISTORY)

237. Chile reserves the right to deem an enterprise to have a permanent establishment in certain circumstances where substantial equipment is operated.

(Added on 18 November 2025; see HISTORY)

Paragraph 2

238. Canada, Chile, Colombia, Costa Rica and Israel reserve the right in subparagraph 2 f) to replace the words “of extraction” with the words “relating to the exploration for or the exploitation”.

(Renumbered and amended on 18 November 2025; see HISTORY)

239. Greece reserves the right to include paragraph 2 of Article 5 as it was drafted in the 1963 Draft Convention.

(Renumbered on 18 November 2025; see HISTORY)

240. Greece and Mexico reserve the right in subparagraph 2 f) to replace the words “of extraction” with the words “relating to the extraction, exploration for or the exploitation”.

(Renumbered on 18 November 2025; see HISTORY)

Paragraph 3

241. Australia, Chile, Greece, Korea, New Zealand, Portugal and Türkiye reserve their positions on paragraph 3, and consider that any building site or construction or installation project which lasts more than six months should be regarded as a permanent establishment.

(Renumbered and amended on 18 November 2025; see HISTORY)

242. Australia reserves the right to treat an enterprise as having a permanent establishment in a State if it carries on in that State supervisory or consultancy activities for more than 183 days in any twelve month period in connection with a building site or construction or installation project in that State.

(Renumbered on 18 November 2025; see HISTORY)

243. Korea reserves its position so as to be able to tax an enterprise which carries on supervisory activities for more than six months in connection with a building site or construction or installation project lasting more than six months.

(Renumbered on 18 November 2025; see HISTORY)

244. Slovenia reserves the right to include connected supervisory or consultancy activities in paragraph 3 of the Article.

(Renumbered on 18 November 2025; see HISTORY)

245. Chile, Mexico and the Slovak Republic reserve the right to tax an enterprise that carries on supervisory activities for more than six months in connection with a building site or a construction, assembly, or installation project.

(Renumbered and amended on 18 November 2025; see HISTORY)

246. Costa Rica and Mexico reserve their position on paragraph 3 and consider that any building site or construction, assembly, or installation project that lasts more than six months should be regarded as a permanent establishment. Costa Rica additionally considers that a supervisory or consultancy activity connected with any building site, construction, assembly or installation project constitutes a permanent establishment if such supervisory or consultancy activity lasts for a period of more than six months

(Renumbered and amended on 18 November 2025; see HISTORY)

246.1 Colombia reserves the right to include a lower time threshold to create a permanent establishment for the situations described in this paragraph.

(Added on 18 November 2025; see HISTORY)

247. Hungary, Poland and Slovenia reserve the right to replace “construction or installation project” with “construction, assembly, or installation project”.

(Renumbered and amended on 18 November 2025; see HISTORY)

248. Portugal reserves the right to treat an enterprise as having a permanent establishment in Portugal if the enterprise carries on an activity consisting of planning, supervising, consulting, any auxiliary work or any other activity in connection with a building site or construction or installation project lasting more than six months, if such activities or work also last more than six months.

(Renumbered on 18 November 2025; see HISTORY)

249. The United States reserves the right to add “an installation or drilling rig or ship used for the exploration of the seabed and its subsoil and their natural resources” to the activities covered by the twelve month threshold test in paragraph 3.

(Renumbered and amended on 18 November 2025; see HISTORY)

Paragraph 4

250. Chile reserves the right to amend paragraph 4 by eliminating subparagraph f), replacing the text of subparagraph e) with “the maintenance of a fixed place of business solely for the purpose of advertising, for the supply of information, for scientific research or for similar activities, for the enterprise;”, and deleting “or, in the case of subparagraph f), the overall activity of the fixed place of business,” from the final part of paragraph 4.

(Renumbered on 18 November 2025; see HISTORY)

251. Mexico reserves the right to exclude subparagraph f) of paragraph 4 of the Article to consider that a permanent establishment could exist where a fixed place of business is maintained for any combination of activities mentioned in subparagraphs a) to e) of paragraph 4.

(Renumbered on 18 November 2025; see HISTORY)

252. Colombia reserves the right not to include the word “delivery” in subparagraphs a) and b) of paragraph 4.

(Added on 18 November 2025; see HISTORY)

Paragraph 4.1

253. Finland, Hungary, Luxembourg, Sweden, Switzerland and the United States reserve the right not to include paragraph 4.1 in their conventions.

(Renumbered and amended on 18 November 2025; see HISTORY)

Paragraph 5

254. Finland, Hungary, Luxembourg, Sweden and Switzerland reserve the right to use the previous version of paragraph 5 of Article 5 (i.e. the version included in the Model Tax Convention immediately before the 2017 update of the Model Tax Convention).

(Renumbered and amended on 18 November 2025; see HISTORY)

255. Germany reserves the right to limit paragraph 5 of Article 5 to persons who habitually exercise an authority to conclude contracts in the name of the enterprise in accordance with the version of paragraph 5 of Article 5 in the 2014 Model Tax Convention.

(Added on 18 November 2025; see HISTORY)

Paragraph 6

256. Finland, Hungary, Luxembourg, Portugal and Sweden reserve the right to use the previous version of paragraph 6 of Article 5 (i.e. the version included in the Model Tax Convention immediately before the 2017 update of the Model Tax Convention).

(Renumbered and amended on 18 November 2025; see HISTORY)

257. Germany reserves the right to use the previous version of paragraph 6 (i.e. the version included in the Model Tax Convention immediately before the 2017 update of the Model Tax Convention) because it does not agree that a person should not be considered an independent agent only because the person acts exclusively or almost exclusively on behalf of one or more closely related enterprises.

(Renumbered on 18 November 2025; see HISTORY)

Paragraph 8

258. Finland, Hungary and Sweden reserve the right not to include paragraph 8 in their conventions.

(Renumbered on 18 November 2025; see HISTORY)

Other reservations

259. Colombia reserves the right to provide that an insurance enterprise of a Contracting State shall, except with respect to re-insurance, be deemed to have a permanent establishment in the other Contracting State if it collects premiums in the territory of that other State or insures risks situated therein through a person other than an agent of an independent status to whom paragraph 6 applies.

(Added on 18 November 2025; see HISTORY)

History

Title: Amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, the title read as follows:

“COMMENTARY ON ARTICLE 5 CONCERNING PERMANENT ESTABLISHMENT”

Paragraph 1: Replaced when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 1 of the 1963 Draft Convention was deleted and a new paragraph 1 was added. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the 1977 Model Convention was adopted, paragraph 1 read as follows:

“1. The permanent establishment Article is the result of a good deal of discussion and much careful thought and consideration. During the drafting of the Article a number of proposals and suggestions were made which for good reason were finally rejected. In view of this, the Commentary does not restrict itself to giving the reasons for, and putting a gloss on, the proposals now contained in the Article. It also mentions the reasons for the rejection or omission of a number of the more important proposals that were not ultimately adopted, since these omissions are themselves of some significance and the reasons for them may be of interest.”

Paragraph 1.1: Renumbered as paragraph 2 (see history of paragraph 2) by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 2: Corresponds to paragraph 1.1 as it read before 21 November 2017. On that date, paragraph 2 was renumbered as paragraph 6 (see history of paragraph 6) and paragraph 1.1 was renumbered as paragraph 2, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 1.1 was added on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000, on the basis of the Annex of another report entitled “Issues Related to Article 14 of the OECD Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 27 January 2000).

Paragraph 3: Replaced on 21 November 2017 when paragraph 3 was renumbered as paragraph 7 (see history of paragraph 7) and a new paragraph 3 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 4: Replaced on 21 November 2017 when paragraph 4 was renumbered as paragraph 10 (see history of paragraph 10) and a new paragraph 4 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 4.1: Renumbered as paragraph 11 (see history of paragraph 11) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 4.2: Renumbered primarily as paragraph 12 and also incorporated into paragraphs 13 and 14 (see history of paragraph 12) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 4.3: Renumbered as paragraph 15 (see history of paragraph 15) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 4.4: Renumbered as paragraph 16 (see history of paragraph 16) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 4.5: Renumbered as paragraph 17 (see history of paragraph 17) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 4.6: Renumbered as paragraph 20 (see history of paragraph 20) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 5: Replaced on 21 November 2017 when paragraph 5 was amended and renumbered as paragraph 21 (see history of paragraph 21) and a new paragraph 5 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 5.1: Renumbered as paragraph 22 (see history of paragraph 22) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 5.2: Renumbered as paragraph 23 (see history of paragraph 23) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 5.3: Renumbered as paragraph 24 (see history of paragraph 24) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 5.4: Renumbered as paragraph 25 (see history of paragraph 25) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 5.5: Renumbered as paragraph 27 (see history of paragraph 27) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6: Corresponds to paragraph 2 as it read before 21 November 2017. On that date, paragraph 6 was amended and renumbered as paragraph 28 (see history of paragraph 28), paragraph 2 was renumbered as paragraph 6 and the heading preceding paragraph 2 was moved with it, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 2 was replaced when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 2 of the 1963 Draft Convention was deleted and a new paragraph 2 was added. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of 1977 Model Convention, paragraph 2 read as follows:

“2. For the sake of clarity, it is preferable to have a general definition of the concept of “permanent establishment” which is set out in a separate paragraph and not one which is almost hidden in a list of a number of agreed examples, as is the case in Article V, paragraph 1, of the Mexico and London Drafts of the Model Tax Convention published by the League of Nations. For this reason, the Article begins in paragraph 1 by attempting a general definition of “permanent establishment”. This general definition attempts to bring out the essential characteristic of a permanent establishment, viz. that it has a distinct “situs”, a “fixed place of business”.”

Paragraph 6.1: Renumbered as paragraph 32 (see history of paragraph 32) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.2: Renumbered as paragraph 33 (see history of paragraph 33) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.3: Renumbered as paragraph 34 (see history of paragraph 34) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 7: Corresponds to paragraph 3 as it read before 21 November 2017. On that date, paragraph 7 was renumbered as paragraph 35 (see history of paragraph 35) and paragraph 3 was renumbered as paragraph 7, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 3 was amended when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 3 read as follows:

“3. It could perhaps be argued that in the terms of the general definition some mention should also be made of the other characteristic of a permanent establishment to which some importance is attached in the Commentary on the Mexico and London Drafts, namely that, in the words of that Commentary, the establishment “must have a productive character – i.e. contribute to business earnings”. In the present permanent establishment Article this course has not been taken. Within the framework of a well run business organisation it is surely axiomatic to assume that each part contributes to the productivity of the whole. It does not, of course, follow in every case that because in the wider context of the whole organisation a particular establishment has a “productive character” it is consequently an establishment to which profits can properly be attributed for the purpose of tax in a particular territory (see the Commentary on paragraph 3).”

Paragraph 8: Replaced on 21 November 2017 when paragraph 8 was renumbered as paragraph 36 (see history of paragraph 36) and a new paragraph 8 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 9: Replaced on 21 November 2017 when paragraph 9 was renumbered as paragraph 37 (see history of paragraph 37) and a new paragraph 9 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 9.1: Renumbered as paragraph 38 (see history of paragraph 38) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 10: Corresponds to paragraph 4 as it read before 21 November 2017. On that date, paragraph 10 was amended and renumbered as paragraph 39 (see history of paragraph 39) and paragraph 4 was renumbered as paragraph 10, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 4 was replaced when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 4 of the 1963 Draft Convention was deleted and a new paragraph 4 was added. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 4 read as follows:

“4. The criterion of “productive character” having been rejected, it would have been possible as an alternative to add to the general definition as it is now drafted in paragraph 1 of the Article the criterion of “profitability”. This course was not taken mainly because the concept of profitability did not seem wholly relevant. There seemed to be three possible ways of distinguishing such a concept. First, it would be possible to add at the end of the general definition as it now stands in paragraph 1, the words “and through which profits are made or realised” or some similar formula. But this is clearly unsatisfactory because a permanent establishment which makes profits one year may not do so the next and it would be a most unfortunate result if, because of fluctuations in profitability, certain business activities were deemed to constitute a permanent establishment in one year and not in the next. To some extent this difficulty could be surmounted by taking the second course and adopting a formula on the lines “and through which, taking one year with another, profits are made or realised”, but this is by no means a complete answer to the problem, because even a branch establishment which year after year itself makes a loss may, nevertheless, in the context of the whole enterprise of which it is a part, “contribute to business earnings” in the sense that the League of Nations’ Commentary seems to have meant. The third course is to draft an addition to the general definition in a manner which pays no regard to the question whether the establishment does or does not make distinguishable profits and to adopt the formula “… in which the business of the enterprise is wholly or partly carried on with the intention of realising profits”. In many respects this third course could perhaps be regarded as the most satisfactory of the three, because it ignores what may be the actual accounting results of the enterprise and attempts to define its inherent profitability. But as will be seen, it is based upon a test not of fact but of motive and this is clearly a serious objection. To import a motive test into a set of rules intended to define with precision the taxation liabilities of individuals and companies is wholly undesirable and obviously unacceptable on that ground alone.”

Paragraph 11: Corresponds to paragraph 4.1 as it read before 21 November 2017. On that date, paragraph 11 was renumbered as paragraph 44 (see history of paragraph 44) and paragraph 4.1 was renumbered as paragraph 11, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 4.1 was added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Issues Arising under Article 5 (Permanent Establishment) of the Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002).

Paragraph 12: Corresponds to part of paragraph 4.2 as it read before 21 November 2017. On that date, paragraph 12 was amended and renumbered as paragraph 45 (see history of paragraph 45) and paragraph 4.2 was amended and renumbered as paragraph 12, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. The amendment of paragraph 4.2 included incorporating the second and third sentences of paragraph 4.2 into new paragraphs 13 and 14. After 28 January 2003 and until 21 November 2017, paragraph 4.2 read as follows:

“4.2 Whilst no formal legal right to use a particular place is required for that place to constitute a permanent establishment, the mere presence of an enterprise at a particular location does not necessarily mean that that location is at the disposal of that enterprise. These principles are illustrated by the following examples where representatives of one enterprise are present on the premises of another enterprise. A first example is that of a salesman who regularly visits a major customer to take orders and meets the purchasing director in his office to do so. In that case, the customer’s premises are not at the disposal of the enterprise for which the salesman is working and therefore do not constitute a fixed place of business through which the business of that enterprise is carried on (depending on the circumstances, however, paragraph 5 could apply to deem a permanent establishment to exist).”

Paragraph 4.2 was added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Issues Arising under Article 5 (Permanent Establishment) of the Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002).

Paragraph 13: Corresponds to the second sentence of paragraph 4.2 as it read before 21 November 2017. On that date, paragraph 13 was renumbered as paragraph 46 (see history of paragraph 46) and the second sentence of paragraph 4.2 was incorporated into a new paragraph 13 (see history of paragraph 4.2 in the history of paragraph 12), by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 14: Corresponds to the third sentence of paragraph 4.2 as it read before 21 November 2017. On that date, paragraph 14 was renumbered as paragraph 47 (see history of paragraph 47) and the third sentence of paragraph 4.2 was incorporated into a new paragraph 14 (see history of paragraph 4.2 in the history of paragraph 12), by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 15: Corresponds to paragraph 4.3 as it read before 21 November 2017. On that date, paragraph 15 was renumbered as paragraph 48 (see history of paragraph 48) and paragraph 4.3 was amended, by changing the cross references, and renumbered as paragraph 15, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 28 January 2003 and until 21 November 2017, paragraph 4.3 read as follows:

“4.3 A second example is that of an employee of a company who, for a long period of time, is allowed to use an office in the headquarters of another company (e.g. a newly acquired subsidiary) in order to ensure that the latter company complies with its obligations under contracts concluded with the former company. In that case, the employee is carrying on activities related to the business of the former company and the office that is at his disposal at the headquarters of the other company will constitute a permanent establishment of his employer, provided that the office is at his disposal for a sufficiently long period of time so as to constitute a “fixed place of business” (see paragraphs 6 to 6.3) and that the activities that are performed there go beyond the activities referred to in paragraph 4 of the Article.”

Paragraph 4.3 was added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Issues Arising under Article 5 (Permanent Establishment) of the Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002).

Paragraph 16: Corresponds to paragraph 4.4 as it read before 21 November 2017. On that date, paragraph 16 was renumbered as paragraph 49 (see history of paragraph 49) and paragraph 4.4 was amended and renumbered as paragraph 16, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 16 was added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Issues Arising under Article 5 (Permanent Establishment) of the Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002).

Paragraph 17: Corresponds to paragraph 4.5 as it read before 21 November 2017. On that date, paragraph 17 was renumbered as paragraph 50 (see history of paragraph 50) and paragraph 4.5 was renumbered as paragraph 17, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 4.5 was added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Issues Arising under Article 5 (Permanent Establishment) of the Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002).

Paragraph 18: Deleted on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025. After 21 November 2017 and until 18 November 2025, paragraph 18 read as follows:

“18. Even though part of the business of an enterprise may be carried on at a location such as an individual’s home office, that should not lead to the automatic conclusion that that location is at the disposal of that enterprise simply because that location is used by an individual (e.g. an employee) who works for the enterprise. Whether or not a home office constitutes a location at the disposal of the enterprise will depend on the facts and circumstances of each case. In many cases, the carrying on of business activities at the home of an individual (e.g. an employee) will be so intermittent or incidental that the home will not be considered to be a location at the disposal of the enterprise (see paragraph 12 above). Where, however, a home office is used on a continuous basis for carrying on business activities for an enterprise and it is clear from the facts and circumstances that the enterprise has required the individual to use that location to carry on the enterprise’s business (e.g. by not providing an office to an employee in circumstances where the nature of the employment clearly requires an office), the home office may be considered to be at the disposal of the enterprise.”

Paragraph 25 was previously replaced on 21 November 2017, when paragraph 18 was amended and renumbered as paragraph 51 (see history of paragraph 51) and a new paragraph 18 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 19: Deleted on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025. After 21 November 2017 and until 18 November 2025, paragraph 19 read as follows:

“19. A clear example is that of a non-resident consultant who is present for an extended period in a given State where she carries on most of the business activities of her own consulting enterprise from an office set up in her home in that State; in that case, that home office constitutes a location at the disposal of the enterprise. Where, however, a cross-frontier worker performs most of his work from his home situated in one State rather than from the office made available to him in the other State, one should not consider that the home is at the disposal of the enterprise because the enterprise did not require that the home be used for its business activities. It should be noted, however, that since the vast majority of employees reside in a State where their employer has at its disposal one or more places of business to which these employees report, the question of whether or not a home office constitutes a location at the disposal of an enterprise will rarely be a practical issue. Also, the activities carried on at a home office will often be merely auxiliary and will therefore fall within the exception of paragraph 4.”

Paragraph 19 was previously replaced on 21 November 2017, when paragraph 19 was amended and renumbered as paragraph 55 (see history of paragraph 55) and a new paragraph 19 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 19.1: Renumbered as paragraph 56 (see history of paragraph 56) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 20: Corresponds to paragraph 4.6 as it read before 21 November 2017. On that date, paragraph 20 was renumbered as paragraph 57 (see history of paragraph 57) and paragraph 4.6 was renumbered as paragraph 20, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 4.6 was added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Issues Arising under Article 5 (Permanent Establishment) of the Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002).

Paragraph 21: Corresponds to paragraph 5 as it read before 21 November 2017. On that date, paragraph 21 was amended and renumbered as paragraph 58 (see history of paragraph 58) and paragraph 5 was amended and renumbered as paragraph 21, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 23 July 1992 and until 21 November 2017, paragraph 5 read as follows:

“5. According to the definition, the place of business has to be a “fixed” one. Thus in the normal way there has to be a link between the place of business and a specific geographical point. It is immaterial how long an enterprise of a Contracting State operates in the other Contracting State if it does not do so at a distinct place, but this does not mean that the equipment constituting the place of business has to be actually fixed to the soil on which it stands. It is enough that the equipment remains on a particular site (but see paragraph 20 below.”

Paragraph 5 was amended on 23 July 1992, by replacing the cross reference to “paragraph 19” by a reference to “paragraph 20”, by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992. In the 1977 Model Convention and until 23 July 1992, paragraph 5 read as follows:

“5. According to the definition, the place of business has to be a “fixed” one. Thus in the normal way there has to be a link between the place of business and a specific geographical point. It is immaterial how long an enterprise of a Contracting State operates in the other Contracting State if it does not do so at a distinct place, but this does not mean that the equipment constituting the place of business has to be actually fixed to the soil on which it stands. It is enough that the equipment remains on a particular site (but cf. paragraph 19 below).”

Paragraph 5 of the 1977 Model Convention replaced paragraph 5 of the 1963 Draft Convention when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 5 of the 1963 Draft Convention was deleted and a new paragraph 5 was added. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 5 read as follows:

“5. The general definition in paragraph 1 of the Article has, therefore, been drafted in its present form because it is the one which gives the greatest clarity and which promises to be the easiest to administer. There follows in paragraph 2 a list of prima facie examples of permanent establishments. In paragraph 3 there is provided a list of specific exceptions which, although they involve a fixed place of business should be excepted from the general rule in order to foster international trade or for convenience of administration. It is not, of course, suggested that the list in paragraph 2 is exhaustive. The last words of paragraph 3 (e) also provide a generalised exception to the general definition laid down in paragraph 1. These words have the effect of restricting to some extent the effect of paragraph 1 and go some way to meeting criticism that the scope of the general definition is too wide.”

Paragraph 22: Corresponds to paragraph 5.1 as it read before 21 November 2017. On that date, paragraph 22 was renumbered as paragraph 62 (see history of paragraph 62) and paragraph 5.1 was amended and renumbered as paragraph 22, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 28 January 2003 and until 21 November 2017, paragraph 5.1 read as follows:

“5.1 Where the nature of the business activities carried on by an enterprise is such that these activities are often moved between neighbouring locations, there may be difficulties in determining whether there is a single “place of business” (if two places of business are occupied and the other requirements of Article 5 are met, the enterprise will, of course, have two permanent establishments). As recognised in paragraphs 18 and 20 below a single place of business will generally be considered to exist where, in light of the nature of the business, a particular location within which the activities are moved may be identified as constituting a coherent whole commercially and geographically with respect to that business.”

Paragraph 5.1 was added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Issues Arising under Article 5 (Permanent Establishment) of the Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002).

Paragraph 23: Corresponds to paragraph 5.2 as it read before 21 November 2017. On that date, paragraph 23 was amended and renumbered as paragraph 70 (see history of paragraph 70) and paragraph 5.2 was renumbered as paragraph 23, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 23 was added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Issues Arising under Article 5 (Permanent Establishment) of the Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002).

Paragraph 24: Corresponds to paragraph 5.3 as it read before 21 November 2017. On that date, paragraph 24 was amended and renumbered as paragraph 71 (see history of paragraph 71) and paragraph 5.3 was renumbered as paragraph 24, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 5.3 was added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Issues Arising under Article 5 (Permanent Establishment) of the Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002).

Paragraph 25: Corresponds to paragraph 5.4 as it read before 21 November 2017. On that date, paragraph 25 was amended and renumbered as paragraph 63 (see history of paragraph 63) and paragraph 5.4 was renumbered as paragraph 25, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 5.4 was added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Issues Arising under Article 5 (Permanent Establishment) of the Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002).

Paragraph 26: Replaced on 21 November 2017 when paragraph 26 was deleted and a new paragraph 26 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 23 July 1992 and until 21 November 2017, paragraph 26 read as follows:

“26. Moreover, subparagraph e) makes it clear that the activities of the fixed place of business must be carried on for the enterprise. A fixed place of business which renders services not only to its enterprise but also directly to other enterprises, for example to other companies of a group to which the company owning the fixed place belongs, would not fall within the scope of subparagraph e).”

Paragraph 26 as it read after 23 July 1992 corresponded to paragraph 25 of the 1977 Model Convention. On that date paragraph 26 of the 1977 Model Convention was amended and renumbered as paragraph 27 (see history of paragraph 73) and paragraph 25 of the 1977 Model Convention was renumbered as paragraph 26 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 25 of the 1963 Draft Convention was replaced when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 25 of the 1963 Draft Convention was deleted, the heading preceding paragraph 25 was moved immediately before paragraph 45 and a new paragraph 25 was added. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 25 read as follows:

“25. Canada reserves its position on paragraph 4 of this Article. When negotiating Conventions with other Member countries, the Canadian authorities would wish to alter paragraph 4 so as to reflect the Canadian position that a person acting in Canada on behalf of an enterprise of the other contracting State who has a stock of merchandise from which he regularly fills orders on behalf of the enterprise in the other Contracting state should be regarded as a permanent establishment.”

Paragraph 26.1: Renumbered as paragraph 64 (see history of paragraph 64) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 27: Corresponds to paragraph 5.5 as it read before 21 November 2017. On that date, paragraph 27 was amended and renumbered as paragraph 73 (see history of paragraph 73) and paragraph 5.5 was renumbered as paragraph 27, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 5.5 was added on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010.

Paragraph 27.1: Renumbered as paragraph 74 (see history of paragraph 74) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 28: Corresponds to the first four sentences of paragraph 6 as it read before 21 November 2017. On that date, paragraph 28 was amended and renumbered as paragraph 75 (see history of paragraph 75) and paragraph 6 was amended and renumbered as paragraph 28, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. The amendment and renumbering of paragraph 6 involved paragraph 6 being split between paragraphs 28, 29, 30 and 31 as follows: The first 4 sentences formed paragraph 28, the fifth sentence was incorporated in paragraph 29, the sixth sentence was incorporated in paragraph 30 and the last sentence was incorporated in paragraph 31. After 28 January 2003 and until 21 November 2017, paragraph 6 read as follows:

“6. Since the place of business must be fixed, it also follows that a permanent establishment can be deemed to exist only if the place of business has a certain degree of permanency, i.e. if it is not of a purely temporary nature. A place of business may, however, constitute a permanent establishment even though it exists, in practice, only for a very short period of time because the nature of the business is such that it will only be carried on for that short period of time. It is sometimes difficult to determine whether this is the case. Whilst the practices followed by member countries have not been consistent in so far as time requirements are concerned, experience has shown that permanent establishments normally have not been considered to exist in situations where a business had been carried on in a country through a place of business that was maintained for less than six months (conversely, practice shows that there were many cases where a permanent establishment has been considered to exist where the place of business was maintained for a period longer than six months). One exception has been where the activities were of a recurrent nature; in such cases, each period of time during which the place is used needs to be considered in combination with the number of times during which that place is used (which may extend over a number of years). Another exception has been made where activities constituted a business that was carried on exclusively in that country; in this situation, the business may have short duration because of its nature but since it is wholly carried on in that country, its connection with that country is stronger. For ease of administration, countries may want to consider these practices when they address disagreements as to whether a particular place of business that exists only for a short period of time constitutes a permanent establishment.”

Paragraph 6 was amended on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Issues Arising under Article 5 (Permanent Establishment) of the Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002). In the 1977 Model Convention and until 28 January 2003, paragraph 6 read as follows:

“6. Since the place of business must be fixed, it also follows that a permanent establishment can be deemed to exist only if the place of business has a certain degree of permanency, i.e. if it is not of a purely temporary nature. If the place of business was not set up merely for a temporary purpose, it can constitute a permanent establishment, even though it existed, in practice, only for a very short period of time because of the special nature of the activity of the enterprise or because, as a consequence of special circumstances (e.g. death of the taxpayer, investment failure), it was prematurely liquidated. Where a place of business which was, at the outset, designed for a short temporary purpose only, is maintained for such a period that it cannot be considered as a temporary one, it becomes a fixed place of business and thus – retrospectively – a permanent establishment.”

Paragraph 6 of the 1977 Model Convention replaced paragraph 6 of the 1963 Draft Convention when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 6 of the 1963 Draft Convention was deleted and a new paragraph 6 was added. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of it the 1977 Model Convention, paragraph 6 read as follows:

“6. During the drafting of the permanent establishment Article a good deal of consideration was given to the question whether it should contain some special provision for itinerant merchants, pedlars and watermen. After careful consideration it was decided that in such cases there should only be deemed to be a permanent establishment if there is a fixed place of business. Itinerants of this kind are, in general, subject to tax in the country of residence. A special provision to deal with these people seems unnecessary because their income will, in general be small and it is likely to be most difficult to tax them in any country except the one in which they reside. Moreover, any loss of tax which a country may suffer through giving up its right to tax itinerants from other countries is likely to be more or less compensated by the fact it will have the sole right to tax itinerants residing within its own borders. It may be, of course, that countries with common frontiers will regard this problem as of sufficient importance to merit some special provision.”

Paragraph 29: Corresponds to the fifth sentence of paragraph 6 as it read before 21 November 2017. On that date, paragraph 29 was amended and renumbered as paragraph 76 (see history of paragraph 76) and the fifth sentence of paragraph 6 was incorporated in a new paragraph 29 (see history of paragraph 28), by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 30: Corresponds to the sixth sentence of paragraph 6 as it read before 21 November 2017. On that date, paragraph 30 was amended and renumbered as paragraph 77 (see history of paragraph 77) and the sixth sentence of paragraph 6 was incorporated in a new paragraph 30 (see history of paragraph 28), by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 31: Corresponds to the last sentence of paragraph 6 as it read before 21 November 2017. On that date, paragraph 31 was amended and renumbered as paragraph 82 (see history of paragraph 82) and the last sentence of paragraph 6 was incorporated in a new paragraph 31 (see history of paragraph 28), by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 32: Amended on 18 November 2025, by replacing the reference to “paragraph 6” with a reference to “paragraph 29”, by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025. After 21 November 2017 and until 18 November 2025, paragraph 32 read as follows:

“32. As mentioned in paragraphs 44 and 55, temporary interruptions of activities do not cause a permanent establishment to cease to exist. Similarly, as discussed in paragraph 6, where a particular place of business is used for only very short periods of time but such usage takes place regularly over long periods of time, the place of business should not be considered to be of a purely temporary nature.”

Paragraph 32 at it read after 21 November 2017 corresponded to paragraph 6.1 as it read before that date. On 21 November 2017, paragraph 32 was amended and renumbered as paragraph 83 (see history of paragraph 83) and paragraph 6.1 was amended and renumbered as paragraph 32, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 28 January 2003 and until 21 November 2017, paragraph 6.1 read as follows:

“6.1 As mentioned in paragraphs 11 and 19, temporary interruptions of activities do not cause a permanent establishment to cease to exist. Similarly, as discussed in paragraph 6, where a particular place of business is used for only very short periods of time but such usage takes place regularly over long periods of time, the place of business should not be considered to be of a purely temporary nature.”

Paragraph 6.1 was added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Issues Arising under Article 5 (Permanent Establishment) of the Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002).

Paragraph 32.1: Deleted on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 28 January 2003 and until 21 November 2017, paragraph 32.1 read as follows:

“32.1 Also, the phrase “authority to conclude contracts in the name of the enterprise” does not confine the application of the paragraph to an agent who enters into contracts literally in the name of the enterprise; the paragraph applies equally to an agent who concludes contracts which are binding on the enterprise even if those contracts are not actually in the name of the enterprise. Lack of active involvement by an enterprise in transactions may be indicative of a grant of authority to an agent. For example, an agent may be considered to possess actual authority to conclude contracts where he solicits and receives (but does not formally finalise) orders which are sent directly to a warehouse from which goods are delivered and where the foreign enterprise routinely approves the transactions.”

Paragraph 32.1 was added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Issues Arising under Article 5 (Permanent Establishment) of the Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002).

Paragraph 33: Corresponds to paragraph 6.2 as it read before 21 November 2017. On that date, paragraph 33 was amended and renumbered as paragraph 97 (see history of paragraph 97) and paragraph 6.2 was amended and renumbered as paragraph 33, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.2 was added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Issues Arising under Article 5 (Permanent Establishment) of the Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002).

Paragraph 33.1: Renumbered as paragraph 98 (see history of paragraph 98) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 34: Corresponds to paragraph 6.3 as it read before 21 November 2017. On that date, paragraph 34 was renumbered as paragraph 99 (see history of paragraph 99) and paragraph 6.3 was renumbered as paragraph 34, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 6.3 was added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Issues Arising under Article 5 (Permanent Establishment) of the Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002).

Paragraph 35: Amended on 18 November 2025, by replacing the reference to “paragraph 3” with a reference to “paragraph 7”, by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025. After 21 November 2017 and until 18 November 2025, paragraph 35 read as follows:

“35. For a place of business to constitute a permanent establishment the enterprise using it must carry on its business wholly or partly through it. As stated in paragraph 3 above, the activity need not be of a productive character. Furthermore, the activity need not be permanent in the sense that there is no interruption of operation, but operations must be carried out on a regular basis.”

Paragraph 35 as it read after 21 November 2017 corresponded to paragraph 7 as it read before that date. On 21 November 2017, paragraph 35 was renumbered as paragraph 100 (see history of paragraph 100) and paragraph 7 was renumbered as paragraph 35, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 7 was replaced when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 7 of the 1963 Draft Convention was deleted and a new paragraph 7 was added. In addition, the heading preceding paragraph 7 was moved immediately before paragraph 11. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 7 read as follows:

“7. This paragraph contains a list, by no means exhaustive, of examples each of which can be regarded a priori as constituting a “permanent establishment”. In the many bilateral Conventions concluded between O.E.C.D. Member countries there can, of course, be found other examples which, because of their importance in relation to the domestic taxation law of one or both of the contracting parties, have an equally strong claim to be included in this paragraph. In drafting this paragraph there were, however, three possible courses. First, there could have been compiled a composite paragraph which would necessarily have been of considerable length and would in effect have consolidated and brought together all the particular instances of permanent establishments which Member countries have found it convenient to include in their Conventions with one another. Secondly, there could have been drawn up a paragraph of medium length, selecting some of the more usual examples from existing bilateral Conventions and rejecting others, giving reasons for the choice. Finally, it would have been possible to take the minimum list of those examples common to, and agreed between Member countries. The method finally selected was to a considerable degree dictated by the nature of the task with which the draftsmen of the Article were faced. The main purpose of preparing a new permanent establishment Article was to delimit with some degree of precision the common ground between Member countries, in other words to compile an Article which Member countries would be able to accept with a minimum of discussion. With this purpose in mind it would have been a singularly useless exercise to pursue the first of the courses outlined above; the resulting Article would have been of inordinate length and many of its examples would have been completely inapplicable to the circumstances of a large number of Member countries. Similarly with the second course; to select from the many Conventions which exist examples worthy of inclusion would have been somewhat invidious and, unless the selection had been based on an extremely precise and detailed knowledge of the domestic law of each Member country – in the nature of things a most difficult test to satisfy – would have been scarcely less than impertinent. Moreover, the resulting Article would have suffered from many of the defects inherent in the first of the courses mentioned above; some of its examples would have been inapplicable to the circumstances of many Member countries.”

Paragraph 36: Corresponds to paragraph 8 as it read before 21 November 2017. On that date, paragraph 36 was amended and renumbered as paragraph 102 (see history of paragraph 102) and paragraph 8 was renumbered as paragraph 36, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 8 was amended on 23 July 1992 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992, on the basis of a previous report entitled “The Taxation of Income Derived from the Leasing of Industrial, Commercial or Scientific Equipment” (adopted by the OECD Council on 13 September 1983). In the 1977 Model Convention and until 23 July 1992, paragraph 8 read as follows:

“8. Where tangible property such as facilities, equipment, buildings, or intangible property such as patents, procedures and similar property, are let or leased to third parties through a fixed place of business maintained by an enterprise of a Contracting State in the other State, this activity will, in general, render the place of business a permanent establishment. The same applies if capital is made available through a fixed place of business. If an enterprise of a State lets or leases facilities, equipment, buildings or intangible property to an enterprise of the other State without maintaining for such letting or leasing activity a fixed place of business in the other State, the leased facility, equipment, building or intangible property, as such, will not constitute a permanent establishment of the lessor provided the contract is limited to the mere leasing of the equipment, etc. This remains the case even when, for example, the lessor supplies personnel after installation to operate the equipment provided that their responsibility is limited solely to the operation or maintenance of the equipment under the direction, responsibility and control of the lessee. If the personnel have wider responsibilities, for example, participation in the decisions regarding the work for which the equipment is used, the activity of the lessor may go beyond the mere leasing of equipment and may constitute an entrepreneurial activity. In such a case a permanent establishment could be deemed to exist if the criterion of permanency is met. When such activity is connected with, or is similar in character to, those mentioned in paragraph 3, the time limit of twelve months applies. Other cases have to be determined according to the circumstances.”

Paragraph 8 of the 1977 Model Convention replaced paragraph 8 of the 1963 Draft Convention when the 1977 Model Convention was adopted on 11 April 1977. At that time, paragraph 8 of the 1963 Draft Convention was deleted and a new paragraph 8 was added. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 8 read as follows:

“8. It is, therefore, the third course which has been taken. Basing itself on Article V of the Mexico and London Drafts, the Article attempts to comprise a list of examples which represent common ground on which Member countries are able to agree. There has been included in paragraph 2 most of the examples given in sub-paragraph 1 of Article V of the Mexico and London Drafts; there is, however, one addition and there are one or two exceptions. There has been added “place of management”; it is considered that this example should be specially mentioned since a “place of management” need not necessarily be an “office”. On the other hand, it did not seem necessary to include “head office”. Insofar as this term is not covered, like “professional premises” which has also been omitted, by the general term “office” it seemed that the “head office” of an organisation would normally be a “place of management”. “Installations” has also been left out as being a term so general as to be virtually meaningless. The terms “building site or construction or assembly project” cover constructional activities such as excavating or dredging. The provision that a building site or assembly project shall only be deemed to be a permanent establishment if it exists for more than twelve months is not intended to prevent a country from raising a tax assessment before a year has expired if it appears that the site or project is likely to last for more than twelve months. The period of twelve months may, of course, fall, in part, into more than one fiscal year.”

Paragraph 37: Corresponds to paragraph 9 as it read before 21 November 2017. On that date, paragraph 37 was deleted and paragraph 9 was renumbered as paragraph 37, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 9 as it read before 21 November 2017 was added on 23 July 1992 when paragraph 9 of the 1977 Model Convention was amended and renumbered as paragraph 10 (see history of paragraph 44) by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 37, as it read before 21 November 2017, was deleted by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 23 July 1992 and until 21 November 2017, paragraph 37 read as follows:

“37. A person will come within the scope of paragraph 6, i.e. he will not constitute a permanent establishment of the enterprise on whose behalf he acts only if:

1. he is independent of the enterprise both legally and economically, and

2. he acts in the ordinary course of his business when acting on behalf of the enterprise.”

Paragraph 37 as it read after 23 July 1992 corresponded to paragraph 36 of the 1977 Model Convention. On that date, paragraph 37 of the 1977 Model Convention was renumbered as paragraph 38 (see history of paragraph 104) and paragraph 36 was renumbered as paragraph 37 and amended by replacing the word “this” with “his” in subparagraph b) thereof, by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992. In the 1977 Model Convention and until 23 July 1992, paragraph 36 read as follows:

“36. A person will come within the scope of paragraph 6, i.e. he will not constitute a permanent establishment of the enterprise on whose behalf he acts only if:

1. he is independent of the enterprise both legally and economically, and

2. he acts in the ordinary course of this business when acting on behalf of the enterprise.”

Paragraph 36 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 38: Corresponds to paragraph 9.1 as it read before 21 November 2017. On that date, paragraph 38 was amended and renumbered to form part of paragraph 104 (see history of paragraph 104) and paragraph 9.1 was renumbered as paragraph 38, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 9.1 was added on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention” adopted by the OECD Council on 22 July 2010.

Paragraph 38.1: Renumbered as paragraph 105 (see history of paragraph 105) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 38.2: Renumbered to form part of new paragraph 104 together with paragraph 38 (see history of paragraph 104) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 38.3: Renumbered as paragraph 106 (see history of paragraph 106) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 38.4: Renumbered as paragraph 107 (see history of paragraph 107) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 38.5: Renumbered as paragraph 108 (see history of paragraph 108) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 38.6: Renumbered as paragraph 109 (see history of paragraph 109) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 38.7: Renumbered as paragraph 110 (see history of paragraph 110) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 38.8: Deleted on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 28 January 2003 and until 21 November 2017, paragraph 38.8 read as follows:

“38.8 In deciding whether or not particular activities fall within or outside the ordinary course of business of an agent, one would examine the business activities customarily carried out within the agent’s trade as a broker, commission agent or other independent agent rather than the other business activities carried out by that agent. Whilst the comparison normally should be made with the activities customary to the agent’s trade, other complementary tests may in certain circumstances be used concurrently or alternatively, for example where the agent’s activities do not relate to a common trade.”

Paragraph 38.8 was added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Issues Arising under Article 5 (Permanent Establishment) of the Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002).

Paragraph 39: Corresponds to part of paragraph 10 as it read before 21 November 2017. On that date, paragraph 39 was amended and renumbered as paragraph 114 (see history of paragraph 114) and paragraph 10 was amended and renumbered as paragraph 39, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. The new paragraph 39 includes the first four sentences of paragraph 10 and the remaining sentences of paragraph 10 were incorporated in the new paragraph 41. After 23 July 1992 and until 21 November 2017, paragraph 10 read as follows:

“10. The business of an enterprise is carried on mainly by the entrepreneur or persons who are in a paid-employment relationship with the enterprise (personnel). This personnel includes employees and other persons receiving instructions from the enterprise (e.g. dependent agents). The powers of such personnel in its relationship with third parties are irrelevant. It makes no difference whether or not the dependent agent is authorised to conclude contracts if he works at the fixed place of business (see paragraph 35 below). But a permanent establishment may nevertheless exist if the business of the enterprise is carried on mainly through automatic equipment, the activities of the personnel being restricted to setting up, operating, controlling and maintaining such equipment. Whether or not gaming and vending machines and the like set up by an enterprise of a State in the other State constitute a permanent establishment thus depends on whether or not the enterprise carries on a business activity besides the initial setting up of the machines. A permanent establishment does not exist if the enterprise merely sets up the machines and then leases the machines to other enterprises. A permanent establishment may exist, however, if the enterprise which sets up the machines also operates and maintains them for its own account. This also applies if the machines are operated and maintained by an agent dependent on the enterprise.”

Paragraph 10 as it read after 23 July 1992 corresponded to paragraph 9 of the 1977 Model Convention. On that date paragraph 10 of the 1977 Model Convention was renumbered as paragraph 11 (see history of paragraph 44) and paragraph 9 of the 1977 Model Convention was renumbered as paragraph 10 and amended, by replacing the cross reference therein to paragraph 34 by a reference to paragraph 35, by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992. In the 1977 Model Convention and until 23 July 1992, paragraph 9 read as follows:

“9. The business of an enterprise is carried on mainly by the entrepreneur or persons who are in a paid-employment relationship with the enterprise (personnel). This personnel includes employees and other persons receiving instructions from the enterprise (e.g. dependent agents). The powers of such personnel in its relationship with third parties are irrelevant. It makes no difference whether or not the dependent agent is authorised to conclude contracts if he works at the fixed place of business (cf. paragraph 34 below). But a permanent establishment may nevertheless exist if the business of the enterprise is carried on mainly through automatic equipment, the activities of the personnel being restricted to setting up, operating, controlling and maintaining such equipment. Whether or not gaming and vending machines and the like set up by an enterprise of a State in the other State constitute a permanent establishment thus depends on whether or not the enterprise carries on a business activity besides the initial setting up of the machines. A permanent establishment does not exist if the enterprise merely sets up the machines and then leases the machines to other enterprises. A permanent establishment may exist, however, if the enterprise which sets up the machines also operates and maintains them for its own account. This also applies if the machines are operated and maintained by an agent dependent on the enterprise.”

Paragraph 9 of the 1977 Model Convention replaced paragraph 9 of the 1963 Draft Convention when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 9 of the 1963 Draft Convention was deleted and a new paragraph 9 was added. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 9 read as follows:

“9. During the drafting of the Article it was proposed that the term “warehouse” should be included as a separate item in paragraph 2. This example has been traditionally included in similar Articles as sufficiently important to merit particular mention. The purpose of including the term was, of course, to cover those warehouses in which the business of letting storage space or other facilities to third parties was carried on. The insertion of the term was not intended to treat as a permanent establishment a warehouse controlled by an enterprise, but used only for the storage, etc., of its own goods. It was, however, suggested that to insert the term would cause confusion and that the term “warehouse” in paragraph 2 read together with a) and b) of paragraph 3 would be misleading. It was accordingly decided not to include the term “warehouse” in paragraph 2. A warehouse in which the business of letting facilities for storage, etc. to third parties is carried on will be a permanent establishment under the general definition of paragraph 1 even though it is not specifically mentioned in the list of examples in paragraph 2. Paragraph 3, however, makes it clear that a warehouse is not a permanent establishment if it is used by the enterprise which controls it merely for the purpose of storage, etc.”

Paragraph 40: Replaced on 21 November 2017 when paragraph 40 was renumbered as paragraph 115 (see history of paragraph 115) and a new paragraph 40 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 41: Replaced on 21 November 2017 when paragraph 41 was amended and renumbered as paragraph 116 (see history of paragraph 116) and a new paragraph 41 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. The new paragraph 41 includes the fifth and subsequent sentences of paragraph 10 as it read before 21 November 2017 (see history of paragraph 40).

Paragraph 41.1: Renumbered as paragraph 117 (see history of paragraph 117) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42: Replaced on 21 November 2017 when paragraph 42 was renumbered as paragraph 118 (see history of paragraph 118) and a new paragraph 42 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.1: Renumbered as paragraph 122 (see history of paragraph 122) and the heading preceding paragraph 42.1 was moved with it on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.2: Renumbered as paragraph 123 (see history of paragraph 123) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.3: Renumbered as paragraph 124 (see history of paragraph 124) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.4: Renumbered as paragraph 125 (see history of paragraph 125) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.5: Renumbered as paragraph 126 (see history of paragraph 126) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.6: Renumbered as paragraph 127 (see history of paragraph 127) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.7: Renumbered as paragraph 128 (see history of paragraph 128) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.8: Renumbered as paragraph 129 (see history of paragraph 129) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.9: Renumbered as paragraph 130 (see history of paragraph 130) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.10: Renumbered as paragraph 131 (see history of paragraph 131) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.11: Renumbered as paragraph 132 (see history of paragraph 132) and the heading preceding paragraph 42.11 was moved with it on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.12: Renumbered as paragraph 133 (see history of paragraph 133) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.13: Renumbered as paragraph 134 (see history of paragraph 134) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.14: Renumbered as paragraph 135 (see history of paragraph 135) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.15: Renumbered as paragraph 136 (see history of paragraph 136) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.16: Renumbered as paragraph 137 (see history of paragraph 137) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.17: Renumbered as paragraph 138 (see history of paragraph 138) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.18: Renumbered as paragraph 139 (see history of paragraph 139) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.19: Renumbered as paragraph 140 (see history of paragraph 140) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.20: Renumbered as paragraph 141 (see history of paragraph 141) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.21: Renumbered as paragraph 142 (see history of paragraph 142) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.22: Renumbered as paragraph 143 (see history of paragraph 143) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.23: Renumbered as paragraph 144 (see history of paragraph 144) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.24: Renumbered as paragraph 145 (see history of paragraph 145) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.25: Renumbered as paragraph 146 (see history of paragraph 146) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.26: Renumbered as paragraph 147 (see history of paragraph 147) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.27: Renumbered as paragraph 148 (see history of paragraph 148) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.28: Renumbered as paragraph 149 (see history of paragraph 149) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.29: Renumbered as paragraph 150 (see history of paragraph 150) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.30: Renumbered as paragraph 151 (see history of paragraph 151) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.31: Renumbered as paragraph 152 (see history of paragraph 152) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.32: Renumbered as paragraph 153 (see history of paragraph 153) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.33: Renumbered as paragraph 154 (see history of paragraph 154) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.34: Renumbered as paragraph 155 (see history of paragraph 155) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.35: Renumbered as paragraph 156 (see history of paragraph 156) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.36: Renumbered as paragraph 157 (see history of paragraph 157) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.37: Renumbered as paragraph 158 (see history of paragraph 158) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.38: Renumbered as paragraph 159 (see history of paragraph 159) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.39: Renumbered as paragraph 160 (see history of paragraph 160) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.40: Renumbered as paragraph 161 (see history of paragraph 161) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.41: Renumbered as paragraph 162 (see history of paragraph 162) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.42: Renumbered as paragraph 163 (see history of paragraph 163) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.43: Renumbered as paragraph 164 (see history of paragraph 164) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.44: Renumbered as paragraph 165 (see history of paragraph 165) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.45: Renumbered as paragraph 166 (see history of paragraph 166) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.46: Renumbered as paragraph 167 (see history of paragraph 167) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.47: Renumbered as paragraph 168 (see history of paragraph 168) on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 42.48: Renumbered as paragraph 169 (see history of paragraph 169) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 43: Replaced on 21 November 2017 when paragraph 43 was amended and renumbered as paragraph 170 (see history of paragraph 170) and a new paragraph 43 was added by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 44: Corresponds to paragraph 11 as it read before 21 November 2017. On that date, paragraph 44 was deleted and paragraph 11 was renumbered as paragraph 44, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 11 as it read before 23 July 1992 corresponded to paragraph 10 of the 1977 Model Convention. On that date, paragraph 11 of the 1977 Model Convention was renumbered as paragraph 12 (see history of paragraph 45), the heading preceding paragraph 11 was moved with it and paragraph 10 of the 1977 Model Convention was renumbered as paragraph 11, by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 10 of the 1977 Model Convention replaced paragraph 10 of the 1963 Draft Convention when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 10 of the 1963 Draft Convention was deleted and a new paragraph 10 was added. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 10 read as follows:

“10. This paragraph contains, first, a number of examples of forms of business activity which should not be treated as constituting permanent establishments even though the activity is carried on in a fixed place of business and, secondly, in the last few words of sub-paragraph e), a generalised exception to the rule laid down in paragraph 1 that a “fixed place of business in which the business of the enterprise is wholly or partly carried on” shall be regarded a priori as a permanent establishment.”

Paragraph 44 as it read after 28 January 2003 was deleted on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 28 January 2003 and until 21 November 2017, paragraph 44 read as follows:

“44. The Czech Republic and the Slovak Republic would add to paragraph 25 their view that when an enterprise has established an office (such as a commercial representation office) in a country, and the employees working at that office are substantially involved in the negotiation of contracts for the import of products or services into that country, the office will in most cases not fall within paragraph 4 of Article 5. Substantial involvement in the negotiations exists when the essential parts of the contract – the type, quality, and amount of goods, for example, and the time and terms of delivery – are determined by the office. These activities form a separate and indispensable part of the business activities of the foreign enterprise, and are not simply activities of an auxiliary or preparatory character.”

Paragraph 44 was amended on 28 January 2003, by adding the Slovak Republic as a country making the reservation, by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003. After 23 October 1997 and until 28 January 2003, paragraph 44 read as follows:

“44. The Czech Republic would add to paragraph 25 its view that when an enterprise has established an office (such as a commercial representation office) in a country, and the employees working at that office are substantially involved in the negotiation of contracts for the import of products or services into that country, the office will in most cases not fall within paragraph 4 of Article 5. Substantial involvement in the negotiations exists when the essential parts of the contract – the type, quality, and amount of goods, for example, and the time and terms of delivery – are determined by the office. These activities form a separate and indispensable part of the business activities of the foreign enterprise, and are not simply activities of an auxiliary or preparatory character.”

Paragraph 44 was added on 23 October 1997 by the report entitled “The 1997 Update to the Model Tax Convention”, adopted by the OECD Council on 23 October 1997.

Paragraph 44, as it read before 31 March 1994, was amended and renumbered as paragraph 56 (see history of paragraph 53) by the report entitled “1994 Update to the Model Tax Convention”, adopted by the OECD Council on 31 March 1994.

Paragraph 44.1: Added on 18 November 2025, together with the preceding heading, by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 44.2: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 44.3: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 44.4: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 44.5: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 44.6: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 44.7: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 44.8: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 44.9: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 44.10: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 44.11: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 44.12: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 44.13: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 44.14: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 44.15: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 44.16: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 44.17: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 44.18: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 44.19: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 44.20: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 44.21: Added on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025.

Paragraph 45: Corresponds to paragraph 12 as it read before 21 November 2017. On that date, paragraph 45 was amended and renumbered as paragraph 171 (see history of paragraph 171) and paragraph 12 was amended and renumbered as paragraph 45, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 23 July 1992 and until 21 November 2017, paragraph 12 read as follows:

“12. This paragraph contains a list, by no means exhaustive, of examples, each of which can be regarded, prima facie, as constituting a permanent establishment. As these examples are to be seen against the background of the general definition given in paragraph 1, it is assumed that the Contracting States interpret the terms listed, “a place of management”, “a branch”, “an office”, etc. in such a way that such places of business constitute permanent establishments only if they meet the requirements of paragraph 1.”

Paragraph 12 as it read after 23 July 1992 corresponded to paragraph 11 of the 1977 Model Convention. On that date, paragraph 12 of the 1977 Model Convention was renumbered as paragraph 13 (see history of paragraph 46), paragraph 11 of the 1977 Model Convention was renumbered as paragraph 12 and the heading preceding paragraph 11 was moved with it, by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 11 of the 1963 Draft Convention was replaced when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 11 of the 1963 Draft Convention was amended and renumbered as paragraph 21 (see history of paragraph 22), the heading preceding paragraph 7 was moved immediately before paragraph 11 and a new paragraph 11 was added.

Paragraph 45.1: Renumbered as paragraph 172 (see history of paragraph 172) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 45.2: Renumbered as paragraph 173 (see history of paragraph 173) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 45.3: Renumbered as paragraph 174 (see history of paragraph 174) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 45.4: Renumbered as paragraph 175 (see history of paragraph 175) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 45.5: Renumbered as paragraph 176 (see history of paragraph 176) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 45.6: Renumbered as paragraph 177 (see history of paragraph 177) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 45.7: Renumbered as paragraph 178 (see history of paragraph 178) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 45.8: Renumbered as paragraph 179 (see history of paragraph 179) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 45.9: Renumbered as paragraph 180 (see history of paragraph 180) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 45.10: Renumbered as paragraph 181 (see history of paragraph 181) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 45.11: Renumbered as paragraph 182 (see history of paragraph 182) and amended on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 46: Corresponds to paragraph 13 as it read before 21 November 2017. On that date, paragraph 46 was renumbered as paragraph 187 (see history of paragraph 187) and paragraph 13 was renumbered as paragraph 46, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 13 as it read after 23 July 1992 corresponded to paragraph 12 of the 1977 Model Convention. On that date, paragraph 13 of the 1977 Model Convention was renumbered as paragraph 14 (see history of paragraph 47) and paragraph 12 of the 1977 Model Convention was renumbered as paragraph 13, by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 12 of the 1977 Model Convention replaced paragraph 12 of the 1963 Draft Convention when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 12 of the 1963 Draft Convention was deleted and a new paragraph 12 was added. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 12 read as follows:

“12. Comment is perhaps called for on the examples mentioned in paragraph 3 e). It is recognised that a place of business the function of which is solely that of advertising, or the supply of information, or of scientific research may well contribute to the productivity of its parent enterprise. To assume so is once more axiomatic. But the services it performs for its parent enterprise are so far antecedent to the actual realisation of profits by its parent body that no profits can properly be allocated to it; accordingly it does not constitute a taxable unit. It should, of course, be emphasised that exemption should be given only so long as the place of business completely satisfies the conditions laid down. If, for example, the research establishment were to concern itself with manufacture, then exemption would be forfeited.”

Paragraph 47: Amended on 18 November 2025, by replacing “on or off-shore” with “onshore or offshore” in the final sentence, by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025. After 21 November 2017 and until 18 November 2025, paragraph 47 read as follows:

“47. Subparagraph f) provides that mines, oil or gas wells, quarries or any other place of extraction of natural resources are permanent establishments. The term “any other place of extraction of natural resources” should be interpreted broadly. It includes, for example, all places of extraction of hydrocarbons whether on or off-shore.”

Paragraph 47 as it read after 21 November 2017 corresponded to paragraph 14 as it read before that date. On 21 November 2017, paragraph 47 was amended and renumbered as paragraph 188 (see history of paragraph 189) and paragraph 14 was renumbered as paragraph 47, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 14 as it read 23 July 1992 corresponded to paragraph 13 of the 1977 Model Convention. On that date, paragraph 14 of the 1977 Model Convention was renumbered as paragraph 15 (see history of paragraph 48) and paragraph 13 of the 1977 Model Convention was renumbered as paragraph 14, by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 13 of the 1977 Model Convention replaced paragraph 13 of the 1963 Draft Convention when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 13 of the 1963 Draft Convention was deleted and a new paragraph 13 was added. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 13 read as follows:

“13. The last words of sub-paragraph e), “or for similar activities which have a preparatory or auxiliary character for the enterprise” require a special explanation of their own. The purpose of these words is twofold. In the first place, since it would be unreasonable to seek to claim that the list of examples quoted in paragraph 3 is, or in the nature of things could hope to be exhaustive, the last words of sub-paragraph e) are intended to cover any further examples (such as the organisation maintained solely for the purposes of servicing a patent or “know-how” contract) which are not listed among the exceptions in paragraph 3 but are nevertheless within the spirit of them. The words in question are, therefore, intended to make it unnecessary to attempt to produce an exhaustive list of exceptions which, even if it were comprehensive, would inevitably be of inordinate length and undesirable rigidity. In the second place, the words extend the principle underlying the examples in sub-paragraph e) to provide a generalised exception to the general definition in paragraph 1. To a considerable degree they delimit that definition and exclude from its rather wide scope a number of forms of business organisation which, although they are carried on in a fixed place of business, should not be treated as taxable units. To put the matter in another way, the last words of subparagraph e) refine the general definition in paragraph 1 and, when read with that paragraph, provide a more selective test by which to determine what constitutes a properly taxable permanent establishment. In view of the examples given, the reference to “similar activities” cannot lead to an arbitrary extension of the exemption set out in paragraph 3 e). It will, of course, be the responsibility of the enterprise to prove that the activities in question are of a preparatory or auxiliary character within the framework of the whole activities of the enterprise. If, for example, the results of the research carried on in a laboratory are not only used by the enterprise but are also sold to a third party, the paragraph would cease to apply. Alternatively, it would be possible for countries to include in bilateral agreements a provision that, where the results of the laboratory’s research are used partly by the enterprise and in part are sold to third parties, the charge to tax on the permanent establishment should be limited to the profits arising from the sales to third parties. Such a provision would be analogous to the provisions relating to “mere purchase” in a number of Conventions.”

Paragraph 48: Amended on 18 November 2025 by the report entitled “Proposed Changes to the OECD Model Tax Convention on Income and on Capital and its Commentary”, adopted by the OECD Council on 18 November 2025. After 21 November 2017 and until 18 November 2025, paragraph 48 read as follows:

“48. Subparagraph f) refers to the extraction of natural resources, but does not mention the exploration of such resources, whether on or off-shore. Therefore, whenever income from such activities is considered to be business profits, the question whether these activities are carried on through a permanent establishment is governed by paragraph 1. Since, however, it has not been possible to arrive at a common view on the basic questions of the attribution of taxation rights and of the qualification of the income from exploration activities, the Contracting States may agree upon the insertion of specific provisions. They may agree, for instance, that an enterprise of a Contracting State, as regards its activities of exploration of natural resources in a place or area in the other Contracting State:

1. shall be deemed not to have a permanent establishment in that other State; or

2. shall be deemed to carry on such activities through a permanent establishment in that other State; or

3. shall be deemed to carry on such activities through a permanent establishment in that other State if such activities last longer than a specified period of time.

The Contracting States may moreover agree to adopt the free-standing alternative provision on the taxation of activities carried out in connection with the exploration and exploitation of extractible natural resources that is described in paragraphs 170 to 203 below, the centrepiece of which is a lower permanent establishment threshold that would be crossed after a non-resident enterprise had carried out relevant activities in a State for more than a bilaterally agreed period.”

Paragraph 48 as it read after 21 November 2017 corresponded to paragraph 15 as it read before that date. On 21 November 2017, paragraph 48 was renumbered as paragraph 190 (see history of paragraph 190) and paragraph 15 was renumbered as paragraph 48, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 15 as it read after 23 July 1992 corresponded to paragraph 14 of the 1977 Model Convention. On that date, paragraph 15 of the 1977 Model Convention was renumbered as paragraph 16 (see history of paragraph 49), the heading preceding paragraph 15 was moved with it and paragraph 14 of the 1977 Model Convention was renumbered as paragraph 15, by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 14 of the 1977 Model Convention replaced paragraph 14 of the 1963 Draft Convention when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 14 of the 1963 Draft Convention and the headings preceding it were deleted and a new paragraph 14 was added. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 14 and the preceding headings read as follows:

“Paragraph 4

DEPENDENT AGENTS AND EMPLOYEES

14. Whilst in paragraph 3 of the Article certain exceptions are made to the general definition in paragraph 1, it seems necessary in conformity with the international practice hitherto followed to treat certain groups of persons as permanent establishments on account of the nature of their business activities, even though the enterprise may not have a fixed place of business.”

Paragraph 49: Corresponds to paragraph 16 as it read before 21 November 2017. On that date, paragraph 49 was renumbered as paragraph 191 (see history of paragraph 191) and paragraph 16 was renumbered as paragraph 49, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. At the same time, the heading preceding paragraph 16 was moved with it.

Paragraph 16 was amended on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010. After 28 January 2003 and until 22 July 2010, paragraph 16 read as follows:

“16. This paragraph provides expressly that a building site or construction or installation project constitutes a permanent establishment only if it lasts more than twelve months. Any of those items which does not meet this condition does not of itself constitute a permanent establishment, even if there is within it an installation, for instance an office or a workshop within the meaning of paragraph 2, associated with the construction activity. Where, however, such an office or workshop is used for a number of construction projects and the activities performed therein go beyond those mentioned in paragraph 4, it will be considered a permanent establishment if the conditions of the Article are otherwise met even if none of the projects involve a building site or construction or installation project that lasts more than 12 months. In that case, the situation of the workshop or office will therefore be different from that of these sites or projects, none of which will constitute a permanent establishment, and it will be important to ensure that only the profits properly attributable to the functions performed and risks assumed through that office or workshop are attributed to the permanent establishment. This could include profits attributable to functions performed and risks assumed in relation to the various construction sites but only to the extent that these functions and risks are properly attributable to the office.”

Paragraph 16 was previously amended on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Issues Arising under Article 5 (Permanent Establishment) of the Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002). After 23 July 1992 and until 28 January 2003, paragraph 16 read as follows:

“16. This paragraph provides expressly that a building site or construction or installation project constitutes a permanent establishment only if it lasts more than twelve months. Any of those items which does not meet this condition does not of itself constitute a permanent establishment, even if there is within it an installation, for instance an office or a workshop within the meaning of paragraph 2, associated with the construction activity.”

Paragraph 16 as it read after 23 July 1992 corresponded to paragraph 15 of the 1977 Model Convention. Paragraph 16 of the 1977 Model Convention was renumbered as paragraph 17 (see history of paragraph 50), paragraph 15 of the 1977 Model Convention was renumbered as paragraph 16 and the heading preceding paragraph 15 was moved with it, by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 15 of the 1977 Model Convention replaced paragraph 15 of the 1963 Draft Convention when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 15 of the 1963 Draft Convention was deleted and a new paragraph 15 was added. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 15 read as follows:

“15. Persons who may be deemed to be permanent establishments must be strictly limited to those who are dependent, both from the legal and economic points of view, upon the enterprise for which they carry on business dealings (Report of the Fiscal Committee of the League of Nations, 1928, page 12). Where an enterprise has business dealings with an independent agent, this cannot be held to mean that the enterprise itself carries on a business in the other State. In such a case, there are two separate enterprises.”

Paragraph 50: Corresponds to paragraph 17 as it read before 21 November 2017. On that date, paragraph 50 was renumbered as paragraph 192 (see history of paragraph 192) and paragraph 17 was renumbered as paragraph 50, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 17 was amended on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Issues Arising under Article 5 (Permanent Establishment) of the Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002). After 23 July 1992 and until 28 January 2003, paragraph 17 read as follows:

“17. The term “building site or construction or installation project” includes not only the construction of buildings but also the construction of roads, bridges or canals, the laying of pipe-lines and excavating and dredging. Planning and supervision of the erection of a building are covered by this term, if carried out by the building contractor. However, planning and supervision is not included if carried out by another enterprise whose activities in connection with the construction concerned are restricted to planning and supervising the work. If that other enterprise has an office which it uses only for planning or supervision activities relating to a site or project which does not constitute a permanent establishment, such office does not constitute a fixed place of business within the meaning of paragraph 1, because its existence has not a certain degree of permanence.”

Paragraph 17 as it read after 23 July 1992 corresponded to paragraph 16 of the 1977 Model Convention. Paragraph 17 of the 1977 Model Convention was amended and renumbered as paragraph 18 (see history of paragraph 51) and paragraph 16 of the 1977 Model Convention was renumbered as paragraph 17 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 16 of the 1963 Draft Convention was replaced when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 16 of the 1963 Draft Convention was amended and renumbered as paragraph 31 (see history of paragraph 83) and a new paragraph 16 was added.

Paragraph 51: Corresponds to paragraph 18 as it read before 21 November 2017. On that date, paragraph 51 was renumbered as paragraph 193 (see history of paragraph 193) and paragraph 18 was amended and renumbered as paragraph 51, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. When paragraph 18 was amended and renumbered, the last two sentences of paragraph 18 were incorporated in paragraph 52. After 23 July 1992 and until 21 November 2017, paragraph 18 read as follows:

“18. The twelve month test applies to each individual site or project. In determining how long the site or project has existed, no account should be taken of the time previously spent by the contractor concerned on other sites or projects which are totally unconnected with it. A building site should be regarded as a single unit, even if it is based on several contracts, provided that it forms a coherent whole commercially and geographically. Subject to this proviso, a building site forms a single unit even if the orders have been placed by several persons (e.g. for a row of houses). The twelve month threshold has given rise to abuses; it has sometimes been found that enterprises (mainly contractors or subcontractors working on the continental shelf or engaged in activities connected with the exploration and exploitation of the continental shelf) divided their contracts up into several parts, each covering a period less than twelve months and attributed to a different company which was, however, owned by the same group. Apart from the fact that such abuses may, depending on the circumstances, fall under the application of legislative or judicial anti-avoidance rules, countries concerned with this issue can adopt solutions in the framework of bilateral negotiations.”

Paragraph 18 as it read after 23 July 1992 corresponded to paragraph 17 of the 1977 Model Convention. On that date paragraph 18 of the 1977 Model Convention was renumbered as paragraph 19 (see history of paragraph 55) and paragraph 17 of the 1977 Model Convention was amended and renumbered as paragraph 18 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992. In the 1977 Model Convention and until 23 July 1992, paragraph 17 read as follows:

“17. The twelve month test applies to each individual site or project. In determining how long the site or project has existed, no account should be taken of the time previously spent by the contractor concerned on other sites or projects which are totally unconnected with it. A building site should be regarded as a single unit, even if it is based on several contracts, provided that it forms a coherent whole commercially and geographically. Subject to this proviso, a building site forms a single unit even if the orders have been placed by several persons (e.g. for a row of houses).”

Paragraph 17 of the 1963 Draft Convention was replaced when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 17 of the 1963 Draft Convention was deleted and a new paragraph 17 was added. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 17 read as follows:

“17. During the drafting of the Article, it was at one stage suggested that one of the tests that should be used to determine whether or not an agent is to be regarded as a permanent establishment should be the availability in the country in which the agent operates, and at the disposal of the agent of a stock of goods or merchandise belonging to the enterprise. This is, of course, a criterion commonly employed in bilateral Conventions for the avoidance of double taxation. For a number of reasons, this suggestion was not pursued and in its present form paragraph 4 of the Article is founded on the view that the only real criterion is the nature of the authority entrusted to the agent; in brief, whether or not he has, and habitually exercises, an authority to conclude contracts in the name of the enterprise.”

Paragraph 52: Replaced on 21 November 2017 when paragraph 52 was renumbered as paragraph 194 (see history of paragraph 194) and a new paragraph 52 was added, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. The new paragraph 52 included the last two sentences of paragraph 18 as it read before 21 November 2017 (see history of paragraph 18).

Paragraph 53: Replaced on 21 November 2017 when paragraph 53 was renumbered as paragraph 195 (see history of paragraph 195) and a new paragraph 53 was added, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 54: Corresponds to part of paragraph 19 as it read before 21 November 2017. On that date, paragraph 54 was renumbered as paragraph 196 (see history of paragraph 196) and paragraph 19 was divided and incorporated in paragraphs 54 and 55 (see history of paragraph 55), by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 55: Corresponds to part of paragraph 19 as it read before 21 November 2017. On that date, paragraph 55 was renumbered as paragraph 198 (see history of paragraph 198) and part of paragraph 19 was amended and renumbered as paragraph 55, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. The amendments included the incorporation of parts of paragraph 19 into paragraph 54. After 23 July 1992 and until 21 November 2017, paragraph 19 read as follows:

“19. A site exists from the date on which the contractor begins his work, including any preparatory work, in the country where the construction is to be established, e.g. if he installs a planning office for the construction. In general, it continues to exist until the work is completed or permanently abandoned. A site should not be regarded as ceasing to exist when work is temporarily discontinued. Seasonal or other temporary interruptions should be included in determining the life of a site. Seasonal interruptions include interruptions due to bad weather. Temporary interruption could be caused, for example, by shortage of material or labour difficulties. Thus, for example, if a contractor started work on a road on 1 May, stopped on 1 November because of bad weather conditions or a lack of materials but resumed work on 1 February the following year, completing the road on 1 June, his construction project should be regarded as a permanent establishment because thirteen months elapsed between the date he first commenced work (1 May) and the date he finally finished (1 June of the following year). If an enterprise (general contractor) which has undertaken the performance of a comprehensive project subcontracts parts of such a project to other enterprises (subcontractors), the period spent by a subcontractor working on the building site must be considered as being time spent by the general contractor on the building project. The subcontractor himself has a permanent establishment at the site if his activities there last more than twelve months.”

Paragraph 19 as it read after 23 July 1992 corresponded to paragraph 18 of the 1977 Model Convention. On that date, paragraph 19 of the 1977 Model Convention was renumbered as paragraph 20 (see history of paragraph 57) and paragraph 18 of the 1977 Model Convention was renumbered as paragraph 19, by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 18 of the 1963 Draft Convention was replaced when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 18 of the 1963 Draft Convention was deleted and a new paragraph 18 was added. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 18 read as follows:

“18. Since the maintenance of a place of business exclusively for the purchase of goods or merchandise is not to constitute a permanent establishment (cf. paragraph 3 of the Article), a person should not be deemed to be a permanent establishment merely because he has an authority to conclude contracts which is strictly limited to contracts covering the purchase of goods or merchandise.”

Paragraph 56: Corresponds to paragraph 19.1 as it read before 21 November 2017. On that date, paragraph 56 was renumbered as paragraph 199 (see history of paragraph 199) and paragraph 19.1 was amended and renumbered as paragraph 56, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017. After 29 April 2000 and until 21 November 2017, paragraph 19.1 read as follows:

“19.1 In the case of fiscally transparent partnerships, the twelve month test is applied at the level of the partnership as concerns its own activities. If the period of time spent on the site by the partners and the employees of the partnership exceeds twelve months, the enterprise carried on by the partnership will therefore be considered to have a permanent establishment. Each partner will thus be considered to have a permanent establishment for purposes of the taxation of his share of the business profits derived by the partnership regardless of the time spent by himself on the site.”

Paragraph 19.1 was added on 29 April 2000 by the report entitled “The 2000 Update to the Model Tax Convention”, adopted by the OECD Committee on Fiscal Affairs on 29 April 2000, on the basis of Annex I of another report entitled “The Application of the OECD Model Tax Convention to Partnerships” (adopted by the OECD Committee on Fiscal Affairs on 20 January 1999).

Paragraph 57: Corresponds to paragraph 20 as it read before 21 November 2017. On that date, paragraph 57 was renumbered as paragraph 201 (see history of paragraph 201) and paragraph 20 was renumbered as paragraph 57, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 20 was amended on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Issues Arising under Article 5 (Permanent Establishment) of the Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002). After 23 July 1992 and until 28 January 2003, paragraph 20 read as follows:

“20. The very nature of a construction or installation project may be such that the contractor’s activity has to be relocated continuously or at least from time to time, as the project progresses. This would be the case for instance where roads or canals were being constructed, waterways dredged, or pipe-lines laid. In such a case, the fact that the work force is not present for twelve months in one particular place is immaterial. The activities performed at each particular spot are part of a single project, and that project must be regarded as a permanent establishment if, as a whole, it lasts more than twelve months.”

Paragraph 20 as it read after 23 July 1992 corresponded to paragraph 19 as it read before that date. On 23 July 1992, paragraph 20 of the 1977 Model Convention was renumbered as paragraph 21 (see history of paragraph 58), the heading preceding paragraph 20 was moved with it and paragraph 19 of the 1977 Model Convention was renumbered as paragraph 20, by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 19 of the 1963 Draft Convention was replaced when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 19 of the 1963 Draft Convention was deleted and a new paragraph 19 was added. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 19 read as follows:

“19. Under paragraph 4 of the Article, only one category of dependent agents, who meet specific conditions, is deemed to be permanent establishments. All independent agents and the remaining dependent ones are deemed to be permanent establishments. Mention should be made of the fact that the Mexico and London Drafts (Article V, paragraph 4, of the Protocol) and a number of Conventions, do not enumerate exhaustively such dependent agents as are deemed to be permanent establishments, but merely give examples. In the interest of preventing differences of interpretation and of furthering international economic relations, it appeared advisable to define, as exhaustively as possible, the cases where agents are deemed to be “permanent establishments”.”

Paragraph 58: Corresponds to paragraph 21 as it read before 21 November 2017. On that date, paragraph 58 was amended and renumbered as paragraph 202 (see history of paragraph 202) and paragraph 21 was amended and renumbered as paragraph 58, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. At the same time, the heading preceding paragraph 21 was moved with it. The amendments made to paragraph 58 included the incorporation of parts of paragraph 23 into paragraph 58 (see history of paragraph 71). After 23 July 1992 and until 21 November 2017, paragraph 21 read as follows:

“21. This paragraph lists a number of business activities which are treated as exceptions to the general definition laid down in paragraph 1 and which are not permanent establishments, even if the activity is carried on through a fixed place of business. The common feature of these activities is that they are, in general, preparatory or auxiliary activities. This is laid down explicitly in the case of the exception mentioned in subparagraph e), which actually amounts to a general restriction of the scope of the definition contained in paragraph 1. Moreover subparagraph f) provides that combinations of activities mentioned in subparagraphs a) to e) in the same fixed place of business shall be deemed not to be a permanent establishment, provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character. Thus the provisions of paragraph 4 are designed to prevent an enterprise of one State from being taxed in the other State, if it carries on in that other State, activities of a purely preparatory or auxiliary character.”

Paragraph 21 as it read after 23 July 1992 corresponded to paragraph 20 of the 1977 Model Convention. On that date, paragraph 21 of the 1977 Model Convention was renumbered as paragraph 22 (see history of paragraph 62), paragraph 20 of the 1977 Model Convention was renumbered as paragraph 21 and the heading preceding paragraph 20 was moved with it, by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 20 of the 1963 Draft Convention was replaced when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 20 of the 1963 Draft Convention was amended and incorporated into the first sentence of paragraph 35 (see history of paragraph 102), the headings preceding paragraph 20 were amended and moved with it and a new paragraph 20 was added.

Paragraph 59: Replaced on 21 November 2017 when paragraph 59 was renumbered as paragraph 203 (see history of paragraph 203) and a new paragraph 59 that comprised the first three sentences of paragraph 24 (see history of paragraph 71) was added, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 60: Replaced on 21 November 2017 when paragraph 60 was renumbered as paragraph 204 (see history of paragraph 204) and a new paragraph 60 was added, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 61: Replaced on 21 November 2017 when paragraph 61 was renumbered as paragraph 205 (see history of paragraph 205) and a new paragraph 61 was added, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 62: Corresponds to paragraph 22 as it read before 21 November 2017. On that date, paragraph 62 was renumbered as paragraph 206 (see history of paragraph 206) and paragraph 22 was amended and renumbered as paragraph 62, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. After 23 July 1992 and until 21 November 2017, paragraph 22 read as follows:

“22. Subparagraph a) relates only to the case in which an enterprise acquires the use of facilities for storing, displaying or delivering its own goods or merchandise. Subparagraph b) relates to the stock of merchandise itself and provides that the stock, as such, shall not be treated as a permanent establishment if it is maintained for the purpose of storage, display or delivery. Subparagraph c) covers the case in which a stock of goods or merchandise belonging to one enterprise is processed by a second enterprise, on behalf of, or for the account of, the first-mentioned enterprise. The reference to the collection of information in subparagraph d) is intended to include the case of the newspaper bureau which has no purpose other than to act as one of many “tentacles” of the parent body; to exempt such a bureau is to do no more than to extend the concept of “mere purchase”.”

Paragraph 22 as it read after 23 July 1992 corresponded to paragraph 21 of the 1977 Model Convention. On that date, paragraph 22 of the 1977 Model Convention was renumbered as paragraph 23 (see history of paragraph 70) and paragraph 21 was renumbered as paragraph 22, by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 21 of the 1977 Model Convention corresponded to paragraph 11 of the 1963 Draft Convention. Paragraph 21 of the 1963 Draft Convention was amended and incorporated into the second sentence of paragraph 35 (see history of paragraph 102) and paragraph 11 of the 1963 Draft Convention was amended and renumbered as paragraph 21 when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 11 read as follows:

“11. The exceptions listed in sub-paragraphs a) to e) do not require much detailed comment. The first two and the fourth are common in the bilateral Conventions concluded between Member countries. Paragraph 3 a) of the Article relates only to the case in which an enterprise acquires the use of facilities for storing, displaying or delivering its own goods or merchandise. Paragraph 3 b) relates to the stock of merchandise itself and provides that the stock shall not be treated as a permanent establishment if it is maintained for the purpose of storage, display or delivery. Paragraph 3 c) covers the case in which a stock of goods or merchandise belonging to one enterprise is processed by a second enterprise in another territory on behalf of, or for the account of the first-mentioned enterprise. The reference to the collection of information in paragraph 3 d) is intended to cover the case of the newspaper bureau which has no purpose other than to act as one of many ‘tentacles’ of the parent body; to exempt such a bureau is no more than an extension of the concept of “mere purchase”.”

Paragraph 63: Corresponds to paragraph 25 as it read before 21 November 2017. On that date, paragraph 63 was renumbered as paragraph 207 (see history of paragraph 207) and paragraph 25 was amended and renumbered as paragraph 63, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. The amendments made to paragraph 25 included the incorporation of last two sentences of paragraph 25 into paragraph 71 (see history of paragraph 71). After 28 January 2003 and until 21 November 2017, paragraph 25 read as follows:

“25. A permanent establishment could also be constituted if an enterprise maintains a fixed place of business for the delivery of spare parts to customers for machinery supplied to those customers where, in addition, it maintains or repairs such machinery, as this goes beyond the pure delivery mentioned in subparagraph a) of paragraph 4. Since these after-sale organisations perform an essential and significant part of the services of an enterprise vis-à-vis its customers, their activities are not merely auxiliary ones. Subparagraph e) applies only if the activity of the fixed place of business is limited to a preparatory or auxiliary one. This would not be the case where, for example, the fixed place of business does not only give information but also furnishes plans etc. specially developed for the purposes of the individual customer. Nor would it be the case if a research establishment were to concern itself with manufacture.”

Paragraph 25 was previously amended on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Issues Arising under Article 5 (Permanent Establishment) of the Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002). After 23 July 1992 and until 28 January 2003, paragraph 25 read as follows:

“25. A permanent establishment could also be constituted if an enterprise maintains a fixed place of business in order to supply spare parts to customers for the machinery supplied to such customers, or to maintain or repair such machinery, as this goes beyond the pure delivery mentioned in subparagraph a) of paragraph 4. Since these after-sale organisations perform an essential and significant part of the services of an enterprise vis-à-vis its customers, their activities are not merely auxiliary ones. Subparagraph e) applies only if the activity of the fixed place of business is limited to a preparatory or auxiliary one. This would not be the case where, for example, the fixed place of business does not only give information but also furnishes plans etc. specially developed for the purposes of the individual customer. Nor would it be the case if a research establishment were to concern itself with manufacture.”

Paragraph 25 as it read after 23 July 1992 corresponded to paragraph 24 of the 1977 Model Convention. On 23 July 1992, paragraph 25 of the 1977 Model Convention was renumbered as paragraph 26 (see history of paragraph 26) and paragraph 24 of the 1977 Model Convention was renumbered as paragraph 25 and amended, by replacing the words “or to maintain or repair” with “and to maintain and repair” in the first sentence, by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992. In the 1977 Model Convention and until 23 July 1992, paragraph 24 read as follows:

“24. A permanent establishment could also be constituted if an enterprise maintains a fixed place of business in order to supply spare parts to customers for the machinery supplied to such customers, and to maintain and repair such machinery, as this goes beyond the pure delivery mentioned in subparagraph a) of paragraph 4. Since these after-sale organisations perform an essential and significant part of the services of an enterprise vis-à-vis its customers, their activities are not merely auxiliary ones. Subparagraph e) applies only if the activity of the fixed place of business is limited to a preparatory or auxiliary one. This would not be the case where, for example, the fixed place of business does not only give information but also furnishes plans etc. specially developed for the purposes of the individual customer. Nor would it be the case if a research establishment were to concern itself with manufacture.”

Paragraph 24 of the 1963 Draft Convention was replaced when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 24 of the 1963 Draft Convention was amended and renumbered as paragraph 41 (see history of paragraph 118) and a new paragraph 24 was added.

Paragraph 64: Corresponds to paragraph 26.1 as it read before 21 November 2017. On that date, paragraph 64 was renumbered as paragraph 208 (see history of paragraph 208) and paragraph 26.1 was amended and renumbered as paragraph 64, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2017. After 22 July 2010 and until 21 November 2017, paragraph 26.1 read as follows:

“26.1 Another example is that of facilities such as cables or pipelines that cross the territory of a country. Apart from the fact that income derived by the owner or operator of such facilities from their use by other enterprises is covered by Article 6 where they constitute immovable property under paragraph 2 of Article 6, the question may arise as to whether paragraph 4 applies to them. Where these facilities are used to transport property belonging to other enterprises, subparagraph a), which is restricted to delivery of goods or merchandise belonging to the enterprise that uses the facility, will not be applicable as concerns the owner or operator of these facilities. Subparagraph e) also will not be applicable as concerns that enterprise since the cable or pipeline is not used solely for the enterprise and its use is not of preparatory or auxiliary character given the nature of the business of that enterprise. The situation is different, however, where an enterprise owns and operates a cable or pipeline that crosses the territory of a country solely for purposes of transporting its own property and such transport is merely incidental to the business of that enterprise, as in the case of an enterprise that is in the business of refining oil and that owns and operates a pipeline that crosses the territory of a country solely to transport its own oil to its refinery located in another country. In such case, subparagraph a) would be applicable. An additional question is whether the cable or pipeline could also constitute a permanent establishment for the customer of the operator of the cable or pipeline, i.e. the enterprise whose data, power or property is transmitted or transported from one place to another. In such a case, the enterprise is merely obtaining transmission or transportation services provided by the operator of the cable or pipeline and does not have the cable or pipeline at its disposal. As a consequence, the cable or pipeline cannot be considered to be a permanent establishment of that enterprise.”

Paragraph 26.1 was previously amended on 22 July 2010 by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010. After 28 January 2003 and until 22 July 2010, paragraph 26.1 read as follows:

“26.1 Another example is that of facilities such as cables or pipelines that cross the territory of a country. Apart from the fact that income derived by the owner or operator of such facilities from their use by other enterprises is covered by Article 6 where they constitute immovable property under paragraph 2 of Article 6, the question may arise as to whether paragraph 4 applies to them. Where these facilities are used to transport property belonging to other enterprises, subparagraph a), which is restricted to delivery of goods or merchandise belonging to the enterprise that uses the facility, will not be applicable as concerns the owner or operator of these facilities. Subparagraph e) also will not be applicable as concerns that enterprise since the cable or pipeline is not used solely for the enterprise and its use is not of preparatory or auxiliary character given the nature of the business of that enterprise. The situation is different, however, where an enterprise owns and operates a cable or pipeline that crosses the territory of a country solely for purposes of transporting its own property and such transport is merely incidental to the business of that enterprise, as in the case of an enterprise that is in the business of refining oil and that owns and operates a pipeline that crosses the territory of a country solely to transport its own oil to its refinery located in another country. In such case, subparagraph a) would be applicable.”

Paragraph 26.1 was added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Issues Arising under Article 5 (Permanent Establishment) of the Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002).

Paragraph 65: Replaced on 21 November 2017 when paragraph 65 was amended and renumbered as paragraph 209 (see history of paragraph 209) and a new paragraph 65 was added, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 66: Replaced on 21 November 2017 when paragraph 66 was amended and renumbered as paragraph 210 (see history of paragraph 210) and a new paragraph 66 was added, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 67: Replaced on 21 November 2017 when paragraph 67 was renumbered as paragraph 211 (see history of paragraph 211) and a new paragraph 67 was added, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 68: Replaced on 21 November 2017 when paragraph 68 was deleted and a new paragraph 68 was added, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. After 15 July 2014 and until 21 November 2017, paragraph 68 read as follows:

“68. Estonia and Slovenia reserve the right to amend paragraph 6 to make clear that an agent whose activities are conducted wholly or almost wholly on behalf of a single enterprise will not be considered an agent of an independent status .”

Paragraph 68 was amended on 15 July 2014, by adding Estonia as a country making the reservation, by the report entitled “The 2014 Update to the Model Tax Convention”, adopted by the OECD Council on 15 July 2014. After 22 July 2010 and until 15 July 2014, paragraph 68 read as follows:

“68. Slovenia reserves the right to amend paragraph 6 to make clear that an agent whose activities are conducted wholly or almost wholly on behalf of a single enterprise will not be considered an agent of an independent status.”

Paragraph 68 was added on 22 July 2010, together with the preceding heading, by the report entitled “The 2010 Update to the Model Tax Convention”, adopted by the OECD Council on 22 July 2010.

Paragraph 69: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 70: Corresponds to paragraph 23 as it read before 21 November 2017. On that date, paragraph 23 was amended and renumbered as paragraph 70, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. The amendments to paragraph 58 included the incorporation of parts of paragraph 23 into paragraphs 58 and 71. After 23 July 1992 and until 21 November 2017, paragraph 23 read as follows:

“23. Subparagraph e) provides that a fixed place of business through which the enterprise exercises solely an activity which has for the enterprise a preparatory or auxiliary character, is deemed not to be a permanent establishment. The wording of this subparagraph makes it unnecessary to produce an exhaustive list of exceptions. Furthermore, this subparagraph provides a generalised exception to the general definition in paragraph 1 and, when read with that paragraph, provides a more selective test, by which to determine what constitutes a permanent establishment. To a considerable degree it limits that definition and excludes from its rather wide scope a number of forms of business organisations which, although they are carried on through a fixed place of business, should not be treated as permanent establishments. It is recognised that such a place of business may well contribute to the productivity of the enterprise, but the services it performs are so remote from the actual realisation of profits that it is difficult to allocate any profit to the fixed place of business in question. Examples are fixed places of business solely for the purpose of advertising or for the supply of information or for scientific research or for the servicing of a patent or a know-how contract, if such activities have a preparatory or auxiliary character.”

Paragraph 23 as it read after 23 July 1992 corresponded to paragraph 22 of the 1977 Model Convention. On that date, paragraph 23 of the 1977 Model Convention was renumbered as paragraph 24 (see history of paragraph 71) and paragraph 22 of the 1977 Model Convention was renumbered as paragraph 23 by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 22 of the 1963 Draft Convention was replaced when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 22 of the 1963 Draft Convention was amended and renumbered as paragraph 39 (see history of paragraph 115), the headings preceding paragraph 22 were amended and moved with it and a new paragraph 22 was added.

Paragraph 71: Corresponds to paragraph 24 and parts of paragraphs 23 and 25 as they read before 21 November 2017. On that date, paragraph 24 was amended and renumbered as paragraph 71, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. The amendment of paragraph 24 included the first three sentences of paragraph 24 being relocated to form new paragraph 59 and a number of other deletions and additions, as well as the inclusion of the last sentence of paragraph 23 (see history of paragraph 70) and the last two sentences of paragraph 25 (see history of paragraph 63). After 23 July 1992 and until 21 November 2017, paragraph 24 read as follows:

“24. It is often difficult to distinguish between activities which have a preparatory or auxiliary character and those which have not. The decisive criterion is whether or not the activity of the fixed place of business in itself forms an essential and significant part of the activity of the enterprise as a whole. Each individual case will have to be examined on its own merits. In any case, a fixed place of business whose general purpose is one which is identical to the general purpose of the whole enterprise, does not exercise a preparatory or auxiliary activity. Where, for example, the servicing of patents and know-how is the purpose of an enterprise, a fixed place of business of such enterprise exercising such an activity cannot get the benefits of subparagraph e). A fixed place of business which has the function of managing an enterprise or even only a part of an enterprise or of a group of the concern cannot be regarded as doing a preparatory or auxiliary activity, for such a managerial activity exceeds this level. If enterprises with international ramifications establish a so-called “management office” in States in which they maintain subsidiaries, permanent establishments, agents or licensees, such office having supervisory and coordinating functions for all departments of the enterprise located within the region concerned, a permanent establishment will normally be deemed to exist, because the management office may be regarded as an office within the meaning of paragraph 2. Where a big international concern has delegated all management functions to its regional management offices so that the functions of the head office of the concern are restricted to general supervision (so-called polycentric enterprises), the regional management offices even have to be regarded as a “place of management” within the meaning of subparagraph a) of paragraph 2. The function of managing an enterprise, even if it only covers a certain area of the operations of the concern, constitutes an essential part of the business operations of the enterprise and therefore can in no way be regarded as an activity which has a preparatory or auxiliary character within the meaning of subparagraph e) of paragraph 4.”

Paragraph 24 as it read after 23 July 1992 corresponded to paragraph 23 of the 1977 Model Convention. On that date, paragraph 24 of the 1977 Model Convention was amended and renumbered as paragraph 25 (see history of paragraph 63) and paragraph 23 of the 1977 Model Convention was renumbered as paragraph 24, by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 23 of the 1963 Draft Convention was replaced when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. At that time, paragraph 23 of the 1963 Draft Convention was amended and renumbered as paragraph 40 (see history of paragraph 116) and a new paragraph 23 was added.

Paragraph 72: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017.

Paragraph 73: Corresponds to paragraph 27 as it read before 21 November 2017. On that date, paragraph 27 was amended and renumbered as paragraph 73 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. After 28 January 2003 and until 21 November 2017, paragraph 27 read as follows:

“27. As already mentioned in paragraph 21 above, paragraph 4 is designed to provide for exceptions to the general definition of paragraph 1 in respect of fixed places of business which are engaged in activities having a preparatory or auxiliary character. Therefore, according to subparagraph f) of paragraph 4, the fact that one fixed place of business combines any of the activities mentioned in subparagraphs a) to e) of paragraph 4 does not mean of itself that a permanent establishment exists. As long as the combined activity of such a fixed place of business is merely preparatory or auxiliary a permanent establishment should be deemed not to exist. Such combinations should not be viewed on rigid lines, but should be considered in the light of the particular circumstances. The criterion “preparatory or auxiliary character” is to be interpreted in the same way as is set out for the same criterion of subparagraph e) (see paragraphs 24 and 25 above). States which want to allow any combination of the items mentioned in subparagraphs a) to e), disregarding whether or not the criterion of the preparatory or auxiliary character of such a combination is met, are free to do so by deleting the words “provided” to “character” in subparagraph f).”

Paragraph 27 was previously amended on 28 January 2003, by deleting the sixth sentence, which was incorporated into new paragraph 27.1, by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Issues Arising under Article 5 (Permanent Establishment) of the Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002). After 23 July 1992 and until 28 January 2003, paragraph 27 read as follows:

“27. As already mentioned in paragraph 21 above, paragraph 4 is designed to provide for exceptions to the general definition of paragraph 1 in respect of fixed places of business which are engaged in activities having a preparatory or auxiliary character. Therefore, according to subparagraph f) of paragraph 4, the fact that one fixed place of business combines any of the activities mentioned in the subparagraphs a) to e) of paragraph 4 does not mean of itself that a permanent establishment exists. As long as the combined activity of such a fixed place of business is merely preparatory or auxiliary a permanent establishment should be deemed not to exist. Such combinations should not be viewed on rigid lines, but should be considered in the light of the particular circumstances. The criterion “preparatory or auxiliary character” is to be interpreted in the same way as is set out for the same criterion of subparagraph e) (cf. paragraphs 24 and 25 above). Subparagraph f) is of no importance in a case where an enterprise maintains several fixed places of business within the meaning of the subparagraphs a) to e) provided that they are separated from each other locally and organisationally, as in such a case each place of business has to be viewed separately and in isolation for deciding the question whether or not a permanent establishment exists. States which want to allow any combination of the items mentioned in subparagraphs a) to e), disregarding whether or not the criterion of the preparatory or auxiliary character of such a combination is met, are free to do so by deleting the words “provided” to “character” in subparagraph f).”

Paragraph 27 as it read after 23 July 1992 corresponded to paragraph 26 of the 1977 Model Convention. On 23 July 1992, paragraph 27 of the 1977 Model Convention was renumbered as paragraph 28 (see history of paragraph 75) and paragraph 26 of the 1977 Model Convention was renumbered as paragraph 27 and amended, by replacing the cross references to paragraphs 20, 23 and 24 with cross references to paragraphs 21, 24 and 25, by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992. In the 1977 Model Convention and until 23 July 1992, paragraph 26 read as follows:

“26. As already mentioned in paragraph 20 1 above, paragraph 4 is designed to provide for exceptions to the general definition of paragraph 1 in respect of fixed places of business which are engaged in activities having a preparatory or auxiliary character. Therefore, according to subparagraph f) of paragraph 4, the fact that one fixed place of business combines any of the activities mentioned in the subparagraphs a) to e) of paragraph 4 does not mean of itself that a permanent establishment exists. As long as the combined activity of such a fixed place of business is merely preparatory or auxiliary a permanent establishment should be deemed not to exist. Such combinations should not be viewed on rigid lines, but should be considered in the light of the particular circumstances. The criterion “preparatory or auxiliary character” is to be interpreted in the same way as is set out for the same criterion of subparagraph e) (cf. paragraphs 23 and 24 above). Subparagraph f) is of no importance in a case where an enterprise maintains several fixed places of business within the meaning of the subparagraphs a) to e) provided that they are separated from each other locally and organisationally, as in such a case each place of business has to be viewed separately and in isolation for deciding the question whether or not a permanent establishment exists. States which want to allow any combination of the items mentioned in subparagraphs a) to e), disregarding whether or not the criterion of the preparatory or auxiliary character of such a combination is met, are free to do so by deleting the words “provided” to “character” in subparagraph f).”

Paragraph 26 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 74: Corresponds to paragraph 27.1 as it read before 21 November 2017. On that date, paragraph 27.1 was amended and renumbered as paragraph 74, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. After 28 January 2003 and until 21 November 2017, paragraph 27.1 read as follows:

“27.1 Subparagraph f) is of no importance in a case where an enterprise maintains several fixed places of business within the meaning of subparagraphs a) to e) provided that they are separated from each other locally and organisationally, as in such a case each place of business has to be viewed separately and in isolation for deciding whether a permanent establishment exists. Places of business are not “separated organisationally” where they each perform in a Contracting State complementary functions such as receiving and storing goods in one place, distributing those goods through another etc. An enterprise cannot fragment a cohesive operating business into several small operations in order to argue that each is merely engaged in a preparatory or auxiliary activity.”

Paragraph 27.1 was added on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Issues Arising under Article 5 (Permanent Establishment) of the Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002). Before 28 January 2003, the first sentence of paragraph 27.1 was the sixth sentence of paragraph 27 (see history of paragraph 73).

Paragraph 75: Corresponds to paragraph 28 as it read before 21 November 2017. On that date, paragraph 28 was amended and renumbered as paragraph 75, by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. After 23 July 1992 and until 21 November 2017, paragraph 28 read as follows:

“28. The fixed places of business mentioned in paragraph 4 cannot be deemed to constitute permanent establishments so long as their activities are restricted to the functions which are the prerequisite for assuming that the fixed place of business is not a permanent establishment. This will be the case even if the contracts necessary for establishing and carrying on the business are concluded by those in charge of the places of business themselves. The employees of places of business within the meaning of paragraph 4 who are authorised to conclude such contracts should not be regarded as agents within the meaning of paragraph 5. A case in point would be a research institution the manager of which is authorised to conclude the contracts necessary for maintaining the institution and who exercises this authority within the framework of the functions of the institution. A permanent establishment, however, exists if the fixed place of business exercising any of the functions listed in paragraph 4 were to exercise them not only on behalf of the enterprise to which it belongs but also on behalf of other enterprises. If, for instance, an advertising agency maintained by an enterprise were also to engage in advertising for other enterprises, it would be regarded as a permanent establishment of the enterprise by which it is maintained.”

Paragraph 28 as it read after 23 July 1992 corresponded to paragraph 27 as it read before that date. On 23 July 1992, paragraph 28 of the 1977 Model Convention was amended and renumbered as paragraph 29 (see history of paragraph 76) and paragraph 27 was renumbered as paragraph 28, by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 27 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 76: Corresponds to paragraph 29 as it read before 21 November 2017. On that date, paragraph 29 was amended and renumbered as paragraph 76 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. After 23 July 1992 and until 21 November 2017, paragraph 29 read as follows:

“29. If a fixed place of business under paragraph 4 is deemed not to be a permanent establishment, this exception applies likewise to the disposal of movable property forming part of the business property of the place of business at the termination of the enterprise’s activity in such installation (see paragraph 11 above and paragraph 2 of Article 13). Since, for example, the display of merchandise is excepted under subparagraphs a) and b), the sale of the merchandise at the termination of a trade fair or convention is covered by this exception. The exception does not, of course, apply to sales of merchandise not actually displayed at the trade fair or convention.”

Paragraph 29 as it read after 23 July 1992 corresponded to paragraph 28 of the 1977 Model Convention. On that date, paragraph 29 of the 1977 Model Convention was renumbered as paragraph 30 (see history of paragraph 77) and paragraph 28 of the 1977 Model Convention was renumbered as paragraph 29 and amended, by replacing the cross-reference to “paragraph 10” of the Commentary on Article 5 with “paragraph 11”, by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992. In the 1977 Model Convention and until 23 July 1992, paragraph 28 read as follows:

“28. If a fixed place of business under paragraph 4 is deemed not to be a permanent establishment, this exception applies likewise to the disposal of movable property forming part of the business property of the place of business at the termination of the enterprise’s activity in such installation (cf. paragraph 10 above and paragraph 2 of Article 13). Since, for example, the display of merchandise is excepted under subparagraphs a) and b), the sale of the merchandise at the termination of a trade fair or convention is covered by this exception. The exception does not, of course, apply to sales of merchandise not actually displayed at the trade fair or convention.”

Paragraph 28 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 77: Corresponds to paragraph 30 as it read before 21 November 2017. On that date, paragraph 30 was amended and renumbered as paragraph 77 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. After 23 July 1992 and until 21 November 2017, paragraph 30 read as follows:

“30. A fixed place of business used both for activities which rank as exceptions (paragraph 4) and for other activities would be regarded as a single permanent establishment and taxable as regards both types of activities. This would be the case, for instance, where a store maintained for the delivery of goods also engaged in sales.”

Paragraph 30 as it read after 23 July 1992 corresponded to paragraph 29 of the 1977 Model Convention. On that date, paragraph 30 of the 1977 Model Convention was amended and renumbered as paragraph 31 (see history of paragraph 82), the heading preceding paragraph 30 was moved with it and paragraph 29 of the 1977 Model Convention was renumbered as paragraph 30, by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 29 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 78: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 79: Added together with the preceding heading on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 80: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 81: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 82: Corresponds to paragraph 31 as it read before 21 November 2017. On that date, paragraph 31 was amended and renumbered as paragraph 82 and the preceding heading was moved with it by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. At the same time the heading preceding paragraph 31 was moved with it. After 23 July 1992 and until 21 November 2017, paragraph 31 read as follows:

“31. It is a generally accepted principle that an enterprise should be treated as having a permanent establishment in a State if there is under certain conditions a person acting for it, even though the enterprise may not have a fixed place of business in that State within the meaning of paragraphs 1 and 2. This provision intends to give that State the right to tax in such cases. Thus paragraph 5 stipulates the conditions under which an enterprise is deemed to have a permanent establishment in respect of any activity of a person acting for it. The paragraph was redrafted in the 1977 Model Convention to clarify the intention of the corresponding provision of the 1963 Draft Convention without altering its substance apart from an extension of the excepted activities of the person.”

Paragraph 31 as it read before 23 July 1992 corresponded to paragraph 30 of the 1977 Model Convention. On that date, paragraph 31 of the 1977 Model Convention was renumbered as paragraph 32 (see history of paragraph 83), paragraph 30 of the 1977 Model Convention was renumbered as paragraph 31 and amended, by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992. At the same time, the heading preceding paragraph 30 was moved with it. In the 1977 Model Convention and until 23 July 1992, paragraph 30 read as follows:

“30. It is a generally accepted principle that an enterprise should be treated as having a permanent establishment in a State if there is under certain conditions a person acting for it, even though the enterprise may not have a fixed place of business in that State within the meaning of paragraphs 1 and 2. This provision intends to give that State the right to tax in such cases. Thus paragraph 5 stipulates the conditions under which an enterprise is deemed to have a permanent establishment in respect of any activity of a person acting for it. The paragraph has been redrafted to clarify the intention of the corresponding provision of the 1963 Draft Convention without altering its substance apart from an extension of the excepted activities of the person.”

Paragraph 30 was added when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977.

Paragraph 83: Corresponds to paragraph 32 as it read before 21 November 2017. On that date, paragraph 32 was amended and renumbered as paragraph 83 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015. After 28 January 2003 and until 21 November 2017, paragraph 32 read as follows:

“32. Persons whose activities may create a permanent establishment for the enterprise are so-called dependent agents i.e. persons, whether or not employees of the enterprise, who are not independent agents falling under paragraph 6. Such persons may be either individuals or companies and need not be residents of, nor have a place of business in, the State in which they act for the enterprise. It would not have been in the interest of international economic relations to provide that the maintenance of any dependent person would lead to a permanent establishment for the enterprise. Such treatment is to be limited to persons who in view of the scope of their authority or the nature of their activity involve the enterprise to a particular extent in business activities in the State concerned. Therefore, paragraph 5 proceeds on the basis that only persons having the authority to conclude contracts can lead to a permanent establishment for the enterprise maintaining them. In such a case the person has sufficient authority to bind the enterprise’s participation in the business activity in the State concerned. The use of the term “permanent establishment” in this context presupposes, of course, that that person makes use of this authority repeatedly and not merely in isolated cases.”

Paragraph 32 was previously amended on 28 January 2003 by the report entitled “The 2002 Update to the Model Tax Convention”, adopted by the OECD Council on 28 January 2003, on the basis of another report entitled “Issues Arising under Article 5 (Permanent Establishment) of the Model Tax Convention” (adopted by the OECD Committee on Fiscal Affairs on 7 November 2002). After 31 March 1994 and until 28 January 2003, paragraph 32 read as follows:

“32. Persons whose activities may create a permanent establishment for the enterprise are so-called dependent agents i.e. persons, whether employees or not, who are not independent agents falling under paragraph 6. Such persons may be either individuals or companies. It would not have been in the interest of international economic relations to provide that the maintenance of any dependent person would lead to a permanent establishment for the enterprise. Such treatment is to be limited to persons who in view of the scope of their authority or the nature of their activity involve the enterprise to a particular extent in business activities in the State concerned. Therefore, paragraph 5 proceeds on the basis that only persons having the authority to conclude contracts can lead to a permanent establishment for the enterprise maintaining them. In such a case the person has sufficient authority to bind the enterprise’s participation in the business activity in the State concerned. The use of the term “permanent establishment” in this context presupposes, of course, that that person makes use of this authority repeatedly and not merely in isolated cases. Also, the phrase “authority to conclude contracts in the name of the enterprise” does not confine the application of the paragraph to an agent who enters into contracts literally in the name of the enterprise; the paragraph applies equally to an agent who concludes contracts which are binding on the enterprise even if those contracts are not actually in the name of the enterprise.”

Paragraph 32 was previously amended on 31 March 1994, by adding a sentence at the end of the paragraph, by the report entitled “1994 Update to the Model Tax Convention”, adopted by the OECD Council on 31 March 1994. After 23 July 1992 and until 31 March 1994, paragraph 32 read as follows:

“32. Persons whose activities may create a permanent establishment for the enterprise are so-called dependent agents i.e. persons, whether employees or not, who are not independent agents falling under paragraph 6. Such persons may be either individuals or companies. It would not have been in the interest of international economic relations to provide that the maintenance of any dependent person would lead to a permanent establishment for the enterprise. Such treatment is to be limited to persons who in view of the scope of their authority or the nature of their activity involve the enterprise to a particular extent in business activities in the State concerned. Therefore, paragraph 5 proceeds on the basis that only persons having the authority to conclude contracts can lead to a permanent establishment for the enterprise maintaining them. In such a case the person has sufficient authority to bind the enterprise’s participation in the business activity in the State concerned. The use of the term “permanent establishment” in this context presupposes, of course, that that person makes use of this authority repeatedly and not merely in isolated cases.”

Paragraph 32 as it read after 23 July 1992 corresponded to paragraph 31 of the 1977 Model Convention. On 23 July 1992, paragraph 32 of the 1977 Model Convention was renumbered as paragraph 33 (see history of paragraph 97) and paragraph 31 of the 1977 Model Convention was renumbered as paragraph 32, by the report entitled “The Revision of the Model Convention”, adopted by the OECD Council on 23 July 1992.

Paragraph 31 of the 1977 Model Convention corresponded to paragraph 16 of the 1963 Draft Convention. Paragraph 16 of the 1963 Draft Convention was amended and renumbered when the 1977 Model Convention was adopted by the OECD Council on 11 April 1977. In the 1963 Draft Convention (adopted by the OECD Council on 30 July 1963) and until the adoption of the 1977 Model Convention, paragraph 16 read as follows:

“16. Having thus excluded the independent agents from the term “permanent establishments”, it would likewise not be in the interest of international economic relations to treat all dependent agents as being permanent establishments. Treatment as a permanent establishment should be limited to dependent agents of those enterprises which, in view of the scope of their agent’s authority or of the nature of their agent’s business dealings, take part to a particular extent in business activities in the other State. Therefore, the Article proceeds on the basis that only persons having the authority to conclude contracts shall be treated as permanent establishments. The term “general authority” which has been commonly used in bilateral Conventions has been abandoned and replaced simply by the term “authority”. In practice, it seems unlikely that any dependent agents have a completely unfettered authority to conclude contracts. In all cases the authority must be to some extent circumscribed. For administrative reasons, it seems advisable to avoid the difficulties which would inevitably arise if the question whether or not the dependent agent is a permanent establishment had to be decided by reference to the precise extent of his authority. When the agent has sufficient authority to bind the enterprise’s participation in the business activity of the other country is such that the agent should be deemed to be a permanent establishment. The use of the term “permanent establishment” in relation to a person, presupposes, of course, that that person makes use of his authority repeatedly and not merely in isolated cases.”

Paragraph 84: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 85: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 86: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 87: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 88: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 89: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of follow-up work undertaken following another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 90: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 91: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 92: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 93: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 94: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 95: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.

Paragraph 96: Added on 21 November 2017 by the report entitled “The 2017 Update to the Model Tax Convention”, adopted by the OECD Council on 21 November 2017, on the basis of another report entitled “Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7 - Final Report”, endorsed by the G20 at the 2015 G20 Antalya Summit on 15-16 November 2015.