handbook-tb

Adolfo Martín Jimenézunder Article 5, paragraph 3, subparagraph (b)” 95 and accepts rulesanalogous in this respect to those in paragraph 18 of the Commentaryon Article 5 of the OECD Model Convention.In terms of preventing abuse, two differences with the OECDModel Convention also stand out: Article 5 (7) of the United NationsModel Convention and the force of attraction principle. Contrary tohow it may appear at first glance, Article 5 (7) of the United NationsModel Convention does not add much, if properly interpreted, toArticle 5 (6) of the OECD Model Convention. The provision has anumber of interpretative problems and its conditions can be easilyavoided by having more than one principal (either related or unrelated)or, better still, by avoiding agency arrangements in the jurisdictionaltogether (which is not difficult to achieve). 96 In fact, it may beargued that countries are worse off if this provision is included becauseit may make the application of anti-abuse provisions more difficult: itwould be enough to establish remuneration at arm’s length of the agentin order to argue its independence and hence reduce the possibilitiesof bringing profits accruing to non-resident entities to the tax baseof the source country. Unless “arm’s length” is interpreted in a nonconventionalform, this provision does not guarantee that the sourcecountry will increase its taxing rights over groups of companies andrelated parties. For instance, if cost-plus is accepted as the method forremunerating activities of a subsidiary in the source country, this willallow the residual value of activities in the jurisdiction to go to thecountry of residence of the principal. This would mean that as longas the subsidiary does not assume risks and functions regarding, forinstance, sales in the same country by the parent, the attribution ofprofit to it may be very limited.Moreover, the consequences of a non–arm’s length remunerationcould be brought into question. For instance, the subsidiary maybe a dependent agent. However, this finding would not guaranteethat the parent/associated company would be taxed within the sourcecountry — that is to say, as long as the PE tests were not met (fixed place,95See paragraph 11 of the Commentary on Article 5 of the UnitedNations Model Convention.96See R. Vann, “The UN Model and Agents: “Wholly or Almost Wholly,”(2011) Sydney Law School Legal Studies Research Paper.376