handbook-tb

Taxation of income from servicesemployer that avoids having a PE or fixed base in the source country.In this situation Article 15 (2) of the United Nations Model Conventionwould prevent the source country from taxing the non-resident’semployment income unless the employee is present in the sourcecountry for more than 183 days in any 12-month period. If, however,the non-resident employer has a PE or fixed base in the source country,the source country would be entitled to tax not only the profitsattributable to the employer’s PE or fixed base, but also the employee’sremuneration borne by the PE or fixed base. There are several ways,including the use of artificial structures, in which non-residents canavoid having a PE or fixed base in the source country. 53Third, a source country’s tax on the employment income of anon-resident can be avoided by altering the legal status of the nonresidentfrom employment to independent contractor. If a non-residentis employed by a resident enterprise or a non-resident enterprisewith a PE or a fixed base, under Article 15 of the United NationsModel Convention the source country is entitled to tax income fromemployment exercised by the non-resident employee in the sourcecountry. The source country’s right to tax applies irrespective of thelength of time spent in the source country or the amount of incomeearned. On the other hand, if the non-resident is an independententerprise, Articles 7 and 14 of the United Nations Model Conventionlimit the source country’s right to tax to situations in which the nonresidenthas a PE or a fixed base in the source country and the incomeis attributable to that PE or fixed base. If a non-resident individualdoes not have a fixed base in the source country, the source country’stax is limited to situations in which the individual stays in the sourcecountry for 183 days or more in any 12-month period and the incomeis derived from activities performed in the source country. 54 Thetime period in Article 5 (3) (b) and Article 14 (1) (b) for independentcontractors is similar to or longer than the time period in Article 15 (2)(a) for employees. 55 Therefore, the real difference between the treatment53See chapter VII, Preventing avoidance of permanent establishmentstatus, by Adolfo Martín Jiménez.54Article 14 (1) (b) of the United Nations Model Convention.55Under Article 5 (3) (b) of the United Nations Model Convention,an enterprise must perform services in the source country for more than77