handbook-tb

Brian J. Arnoldof Article 17 dealing with entertainment and athletic services, whichis analysed separately below, these Articles do not raise any seriousconcerns about base erosion or profit shifting.4.3 Government serviceUnder Article 19 of the United Nations Model Convention, incomefrom government services, including pensions, is generally taxable bythe country that pays the remuneration, so there is no erosion of thatcountry’s tax base assuming that the country actually taxes the income.Article 19 applies only to non-resident individuals employed by the governmentof the source country; it does not apply to non-residents providingindependent services to the government. Accordingly, the sameissues with respect to the distinction between employment and independentor business services also applies to non-residents providing servicesto the government. However, since the legal relationship is with thegovernment, the opportunities for tax avoidance are limited. The onlycircumstance in which the government paying the employee or formeremployee is not entitled to tax the income is if the employee is a residentand national of the other country and the services are performed in thatcountry. Therefore, with respect to income from government service,the source country simply has to ensure that such payments are taxableunder its domestic law in order to protect its domestic tax base.4.4 Directors’ fees and remuneration of top-levelmanagerial officialsWith respect to the remuneration of directors and top-level managerialofficials, under Article 16 of the United Nations Model Convention, thecountry in which the company paying the remuneration is resident isentitled to tax the remuneration. It is irrelevant whether the servicesare provided inside or outside the source country. In terms of base erosion,any remuneration paid by a resident company to its non-residentdirectors and senior managers will likely be deductible in computing itsincome. Although the remuneration is deductible in computing the company’sincome, that deduction may be offset by the tax on the director ortop-level managerial official (assuming, of course, that the non-residentdirector or official is taxable on the remuneration under domestic law).Therefore, countries that wish to tax non-resident directors and senior80