handbook-tb

Brian J. Arnoldare resident in treaty countries) must be taxable on the same basis. 93However, Article 24 (3) does not apply to “connected requirements”such as information reporting and enforcement measures. Therefore,payments for services to a non-resident may be subject to withholdingat source even though resident service providers are not subjectto withholding. 94 However, pursuant to Article 24 (3) non-residentservice providers must be entitled to file returns, pay tax on their netprofits attributable to the PE and claim a refund to the extent that theamount withheld exceeds the tax.Article 24 (3) does not apply to income from independent personalservices dealt with under Article 14 of the United Nations ModelConvention. As a result, non-residents earning income from such servicesmay be taxed less favourably than residents earning the sametype of income. In fact, most countries do not discriminate againstnon-residents earning income from independent personal services,although some countries take the position that Article 14 does notrequire taxation on a net basis.Second, Article 24 (4) requires a contracting State to allow thededuction of interest, royalties and “other disbursements” paid by itsresident enterprises to residents of the other contracting State underthe same conditions as if the amounts were paid to its own residents.The term “other disbursements” is sufficiently broad to include paymentsby residents of a country to non-residents for services. Thus, acountry cannot deal with base erosion by denying the deduction ofpayments to non-residents for services if it allows the deduction ofsuch payments to residents. Some countries disallow the deduction of93Article 24 (3) of the United Nations Model Convention does not preventa country from taxing both resident and non-resident service providersby means of a withholding tax on the gross amount of the paymentsreceived by them.94Arguably, paragraph 2 of the Commentary on Article 24 of the UnitedNations Model Convention, quoting paragraph 65 of the Commentary onArticle 24 of the OECD Model Convention, contains a statement that maycontradict this conclusion: “permanent establishments must be treated asresident enterprises and hence in respect of such income be subjected to taxon profits solely.” However, this statement relates to the taxation of the profitsof a permanent establishment and not to connected requirements.102