handbook-tb

Wei Cuiclearly based on the intrinsic connection between the income derivedfrom an asset and any capital gains realized on the disposition of theasset, is commonly used to justify taxing capital gains realized by nonresidentson the disposition of immovable property and assets usedin a permanent establishment (PE) situated in the taxing country.Nonetheless, it has not been consistently applied to other types of capitalgains realized by non-residents. The United Nations Model DoubleTaxation Convention between Developed and Developing Countries 3(United Nations Model Convention), for example, provides for sourcecountrytaxation of interest, dividends, royalties and other income, inaddition to the taxation of income from immovable property and businessprofits attributed to a PE. However, in Article 13 (Capital gains),the United Nations Model Convention follows the Organisation forEconomic Co-operation and Development Model Tax Convention onIncome and on Capital 4 (OECD Model Convention) in giving prominenceto taxing capital gains realized on the disposition of immovableproperty and business assets used in a PE, but takes a weaker stanceon the taxation of gains realized on the disposition of company shares,and allows other capital gains realized by non-residents to go untaxed. 5Model Convention), quoting paragraph 4 of the Commentary on Article 13of the Organisation for Economic Co-operation and Development ModelTax Convention on Income and on Capital (OECD Model Convention). Therule that “gains from the alienation of immovable property may be taxed inthe State in which it is situated … corresponds to the provisions of Article 6and of Article 22 (1).” See paragraph 5 of the Commentary on Article 13 ofthe United Nations Model Convention, quoting paragraph 22 of the Commentaryon Article 13 of the OECD Model Convention. The taxation of gainson the business assets of a permanent establishment (PE) or fixed base “correspondsto the rules for business profits [and for income from independentpersonal services] (Article[s] 7 [and 14]).” See paragraph 6 of the Commentaryon Article 13 of the United Nations Model Convention, quoting andsupplementing paragraph 24 of the Commentary on Article 13 of the OECDModel Convention.3United Nations, Department of Economic and Social Affairs, UnitedNations Model Double Taxation Convention between Developed and DevelopingCountries (New York: United Nations, 2011).4Organisation for Economic Co-operation and Development, Model TaxConvention on Income and on Capital (Paris: OECD, 2014).5See section 5 below.108