handbook-tb

Brian J. Arnoldthey may be taxable only if they last for a minimum period of time.Under Article 5 (3) (a) of the United Nations Model Convention, asource country is entitled to tax income from construction activitiesin the source country only if they last for six months or more and arerelated to a single project. Thus, non-resident construction companiescan avoid having a PE in a developing country by fragmenting a projectinto multiple projects that last less than six months or by havingthe projects carried out by different related entities. Some developingcountries have negotiated a shorter time threshold for constructionprojects in their tax treaties. Anti-avoidance rules in domestic law ortax treaties might be useful in counteracting other strategies for avoidingPE status. 704.9 InsuranceInsurance services provided by non-resident insurance companies donot provide serious opportunities for the erosion of the tax base ofdeveloping countries. Under Article 5 (6) of the United Nations ModelConvention, if a non-resident enterprise collects insurance premiumsor insures risks in the source country, a PE is deemed to exist unlesssuch activities are conducted by independent agents. Therefore, assumingthat a developing country has provisions in its domestic law imposingtax on non-resident insurance companies that collect premiums orinsure risks in the source country and that any tax treaties it entersinto contain a provision similar to Article 5 (6) of the United NationsModel Convention, the potential for base erosion will be quite limited.4.10 International shipping and air transportationIn general, profits from international shipping and air transportationare earned outside any particular country’s territory. As a result, theimposition of tax on such profits is difficult for any country other thanthe country in which the enterprise is resident or is effectively managed.For this reason, under Article 8 of both of the United Nationsand OECD Model Conventions the exclusive right to tax such income70See chapter VII, Preventing avoidance of permanent establishmentstatus, by Adolfo Martín Jiménez.88