handbook-tb

Adolfo Martín Jimenézprovisions. If this occurs, the clause would be a way out of the withholdingtax often levied on a gross basis. It should be noted that the sourcerules may need to be coordinated to cover payments made by non-residentsto non-resident companies if these payments are not captured bythe technical services provision where the payer criterion is used.5.2.4.3 Clauses against fragmentation of contracts/projectsThe clauses against fragmentation of contracts/projects are alsocommon in the international tax arena and often apply with regardto Article 5 (3) of the United Nations Model Convention. That is tosay, where they are included, they also cover provisions equivalent toArticle 5 (3) (b) of that Model Convention, and sometimes even otherdeeming provisions included within Article 5 (3), for example, clauseson the provision of services by individuals. A common example ofthese clauses is the following, which is included at the end of Article 5(3) of the tax treaty between Chile and Spain (2003): 110For the purposes of computing the time limits referred to inthis paragraph, activities carried on by an enterprise associatedwith another enterprise within the meaning of Article 9 shall beaggregated with the period during which activities are carriedon by the enterprise to which it is associated if the activities ofboth enterprises are identical or substantially similar.It should be noted that the potential effects of this clause infavour of source-country rights are more important if, as is the casewith regard to Article 5 (3) of the tax treaty between Chile and Spain,the service clauses are not linked to a particular project and simplyprovide for a physical presence test regarding the provision of services.The clause is easier to apply than paragraph 18 of the Commentaryon Article 5 of the OECD Model Convention, as it is not necessary to resortto anti-avoidance provisions for accumulating periods in order to determinewhether there is a PE. Moreover, it has a more far-reaching effect:periods may be accumulated regardless of whether there is avoidance or110Convention between the Kingdom of Spain and the Republic of Chilefor the Avoidance of Double Taxation and the Prevention of Fiscal Evasionwith respect to Taxes on Income and Capital, of 7 July 2002.390