handbook-tb

Hugh J. Ault and Brian J. Arnoldincome subject to tax by the source country, the non-resident employeeis usually subject to tax on that remuneration by the source country.The employee’s remuneration will usually be deductible if the employeris a resident or a non-resident carrying on business in the source countrythrough a PE or a fixed base located in the source country. In thesecircumstances, the employer is usually required to withhold the tax onbehalf of the employee from the remuneration.Nevertheless, a developing country’s tax base may be erodedif a non-resident employer avoids having a PE or fixed base in thesource country or if a non-resident individual can alter his or her legalstatus from employment to independent contractor. A non-residentemployee of a non-resident employer without a PE or fixed base in thesource country is taxable only if the non-resident employee is presentin the source country for more than 183 days in any 12-month period.If a non-resident is an independent contractor, Article 7 or 14 of theUnited Nations Model Convention (Article 7 of the OECD ModelConvention) will limit the source country’s right to tax to situationswhere the non-resident has a PE or a fixed base in the source countryand the income is attributable to the PE or fixed base, or where thenon-resident stays in the source country for 183 days or more in any12-month period. In contrast, a non-resident employee of a residentemployer or a non-resident employer with a PE or fixed base in thesource country is taxable on any income from employment exercisedin the source country.9.3 Entertainment and athletic servicesSome entertainers and athletes can make large sums of money in ashort period of time. Developing countries that wish to tax incomederived by non-resident entertainers and athletes must ensure thatthe provisions of their domestic law and tax treaties allow them to taxsuch income irrespective of the legal structure of the arrangements.Article 17 of the United Nations Model Convention allows the countryin which entertainment or sports activities take place to tax theincome from those activities. Countries must also have provisions inplace to deal with techniques used by non-resident entertainers andathletes to avoid source-country tax. Common avoidance schemesin this regard involve the assignment of income by a non-resident38