handbook-tb

Protecting the tax base of developing countriesresident in a low-tax country to provide various services to the companyin the developing country. These services, which often includelegal, accounting, management and technical services, 30 may notrequire employees of the non-resident service provider to be presentin the developing country for long periods of time. It is difficult fordeveloping countries to counteract this type of tax planning even witheffective anti-avoidance rules in place. Some countries have insistedon a shorter period than 183 days in order to minimize this limitationon their ability to tax.9.5 Technical servicesSome developing countries have special rules in their domestic lawand tax treaties for income from technical services. Under these rules,such services are subject to a final gross-based withholding tax at a flatrate and the resident payer for the services is required to withhold taxfrom the payments to the non-resident service provider. The types ofservices to which the rules apply often include managerial, technicaland consulting services, but these are not defined precisely.Neither the current United Nations nor the OECD ModelConvention contain any specific provisions dealing with income fromtechnical services. As noted above, in general, income from businessservices is covered by Article 7 or 14 of the United Nations ModelConvention and is taxable only if the non-resident has a PE or a fixedbase or spends a significant amount of time in the source country. Thehigh threshold for the imposition of source-country tax on incomefrom business services means that it is relatively easy for non-residentsto provide technical services to customers in a source country withoutbecoming subject to source-country tax. As the payments for theservices are usually deductible by the payers (either residents of thesource country or non-residents with a PE or fixed base in the sourcecountry), fees for technical services present a serious problem of baseerosion for source countries.The erosion of the source country’s tax base by payments fortechnical services and the inability of the source country to tax such30The treatment of technical services is discussed in more detail in section9.5 below.41