handbook-tb

Protecting the tax base of developing countriesprovider. Even if payments for services performed by the non-residentcompany are taxable under the domestic tax law of the developingcountry, an applicable tax treaty along the lines of the United Nationsor OECD Model Conventions would in many circumstances preventthe country from taxing such payments unless the non-resident has aPE or fixed base in the country.The United Nations Model Convention contains several provisionsdealing with various types of services. Some types of services— for example, insurance, government service, pensions, andservices of directors and top-level managerial officials — do not provideserious opportunities for the erosion of the tax base of developingcountries. These services are not dealt with in this overview. As discussedbelow, the United Nations Committee of Experts has decidedto include a new article dealing with income from certain “technicalservices” in the United Nations Model Convention.9.2 Employment incomeIn general, under both domestic law and the provisions of both theUnited Nations and OECD Model Conventions, employment incomederived by non-residents is taxable by a country only if the employmentservices are performed or exercised in the country. Under Article 15 ofthe United Nations Model Convention, a source country is preventedfrom taxing a non-resident on income from employment exercised inthe source country if the non-resident is employed by a non-residentemployer that does not have a PE or fixed base in the source country;or, if it has a PE or fixed base, the employee’s remuneration is notdeductible in computing the profits attributable to the PE or fixed base,and the non-resident employee is not present in the source countryfor 183 days or more in any 12-month period. The same result appliesunder Article 15 of the OECD Model Convention except that the conceptof a fixed base has been deleted from it.The broad scope of source country taxation of income fromemployment earned by non-resident employees suggests that opportunitiesfor avoidance of source country tax are limited. Where a nonresidentemployee’s remuneration for employment services (performedin the source country) is deductible by the employer in computing37