handbook-tb

Taxation of income from servicesto disregard the formal contractual arrangements must be based onobjective criteria and the Commentary on the United Nations ModelConvention provides important guidance and examples in this regard. 58Even if the formal contractual relationship is adhered to under domesticlaw, a contracting State may deny the benefits of the exemption in Article15 (2) in abusive cases in accordance with the Commentary on Article 1dealing with the improper use of tax treaties. 59A related difficulty with the legal meaning of employment forpurposes of tax treaties is the international hiring-out of labour. 60 Underthis practice, international human resource agencies hire out individualsto enterprises resident in other countries. The individuals purport tobe employees of the agency and the agency purports to provide servicesto the enterprise resident in the source country, but does not have a PEin the source country. The Commentary on Article 15 contains a provisionthat countries might consider including in their tax treaties to denythe exemption in Article 15 (2) where the individual renders services toa person, other than the formal employer, who supervises or controlsthe manner in which the services are performed and the services are anintegral part of the business carried on by that person. 61The provisions of Article 15 of the United Nations ModelConvention dealing with employment income do not apply if the provisionsof Articles 16, 17, 18 or 19 apply. With the possible exception58See paragraph 1 of the Commentary on Article 15 of the UnitedNations Model Convention, quoting paragraphs 8.11 – 8.28 of the Commentaryon Article 15 of the OECD Model Convention. Important factors for thispurpose are whether the services provided by the individual constitute anintegral part of the employer’s business and who bears responsibility for theresults of the individual’s work.59See paragraph 1 of the Commentary on Article 15 of the UnitedNations Model Convention, quoting paragraphs 8.8 – 8.9 of the Commentaryon Article 15 of the OECD Model Convention.60See paragraph 1 of the Commentary on Article 15 of the UnitedNations Model Convention, quoting paragraphs 8.1 – 8.3 of the Commentaryon Article 15 of the OECD Model Convention.61See paragraph 1 of the Commentary on Article 15 of the UnitedNations Model Convention, quoting paragraph 8.3 of the Commentary onArticle 15 of the OECD Model Convention.79