handbook-tb

Wei CuiUnder the OECD Model Convention, the alienation of shares ofcompanies other than those holding domestic real property assets isnot taxable in the country of residence of the companies. As noted earlier,this produces differential treatment between PEs and subsidiaries,and ignores the anti-avoidance argument for taxing both asset andshare sales. 70 Article 13 (5) of the United Nations Model Conventioncan be viewed as constituting an improvement in this regard. What isless clear, especially in view of the analysis of enforcement and compliancein section 4 above, is why administrative considerations dictatea percentage ownership approach to having a threshold for taxingthe alienation of shares. For example, if it is the burden of filing a taxreturn by the non-resident that is at issue, a monetary amount (that isto say, exclusion of small gains) would seem more appropriate.The Commentary on the United Nations Model Conventionalso points out arguments against taxing listed shares (that it is “costly,”and that “developing countries may find it economically rewarding toboost their capital markets by not taxing gains from the alienationof quoted shares.” 71 ) It goes on to suggest language for carving outtraded shares from the scope of taxation under paragraph 5. The costof taxing exchange-traded shares and the policy of boosting domesticstock markets, however, seem to be issues better addressed throughdomestic law. There seems to be little need or justification for negotiatinga reciprocal agreement with individual treaty partners.5.5 Residual taxing powerArticle 13 (6) of the United Nations Model Convention, like Article 13(5) of the OECD Model Convention, gives the residence State exclusivetaxing rights over assets not covered by the preceding paragraphs ofthe Article. However, as mentioned, the Commentary has noted thepreferences of developing countries to retain taxing power over assetsnot specifically enumerated. Such preferences are also reflected in the70See David A. Weisbach, “The Irreducible Complexity of Firm-LevelIncome Taxes: Theory and Doctrine in the Corporate Tax,” supra note 21.71Paragraph 13 of the Commentary on Article 13 of the United NationsModel Convention.140