handbook-tb

Taxation of income from servicesby residents of the country. This general practice reflects a consensusthat the source of employment income is the country in which theemployee is present and performing the duties of employment. Thepractice is clearly justified because the income from employment exercisedin a country is closely connected with that country.The taxation of non-residents on income from employment exercisedin a source country usually applies irrespective of whether theemployer is a resident or non-resident of the source country (or if theemployer is a non-resident, irrespective of whether the non-residenthas a PE or fixed base in the source country to which the employmentis connected), irrespective of the duration of the employment in thesource country or the amount of income derived and irrespective ofwhether the non-resident employee’s remuneration is deductible by theemployer against the source country’s tax base. 51 In summary, underArticle 15 of the United Nations Model Convention a source countryis prevented from taxing a non-resident on employment income onlyif the non-resident is employed by a non-resident employer that doesnot have a PE or fixed base in the source country, or if it has a PE orfixed base, the employee’s remuneration is not deductible in computingthe profits attributable to the PE or fixed base and the non-residentemployee is not present in the source country for 183 days or more inany 12-month period.The broad scope of source country taxation of income fromemployment earned by non-resident employees suggests that opportunitiesfor tax avoidance of source country tax are limited, as discussedbelow. It also suggests that the enforcement of source country tax onthe employment income of non-residents may be problematic in certaincircumstances. Typically, income from employment is taxed on agross basis or a quasi gross basis, with standard deductions allowed,and the tax is collected by means of a withholding obligation imposedon employers. This collection mechanism is effective and efficient(although it places the compliance burden on the employer). However,the withholding obligation on the employer can be effectively enforcedonly if the employer is a resident or a non-resident with a PE or fixedbase in the source country. Where the employee is employed by a51These conclusions are based on Article 15 of the United Nations ModelConvention.75