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Timestamp: 2018-12-10 12:47:15
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Article 14 (Independent personal services) - swisstaxnetwork.ch
Article 14 (Independent personal services)
< Article 13
1 Art. 14 OECD Model Tax Convention
2 Switzerland's non-exhaustive list of double taxation treaties based on Article 14 of the OECD Model
8 Article 14 and Commentary of the UN Model Double Taxation Convention between Developed and Developing Countries
9 Commentary on Article 14 of the OECD Model Tax Convention
Art. 14 OECD Model Tax Convention
[Deleted from the Model Tax Convention on 29 April 2000
1. Income derived by a resident of a Contracting State in respect of professional services or other activities of an independent character shall be taxable only in that State for the purpose of performing his activities. If he has such a fixed base, the income may be taxed in the other State but only so much of it as is attributable to that fixed base.
2. The therm "professional services" includes especially independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, lawyers, engineers, architects, dentists and accountants.]
Switzerland's non-exhaustive list of double taxation treaties based on Article 14 of the OECD Model
Country Corresponding to Art. 14 Deviations (this section is under construction)
Austria Art. 14 (German/French)
China Art. 14 (German/French/English)
France Art. 16 (German/French)
Germany Art. 14 (German/French)
Great Britain Art. 14 (German/French/English)
Hong-Kong Art. 14 (German/French/English)
India Art. 14 (German/French/English)
Italy Art. 14 (German/French/English)
Luxemburg Art. 14 (German/French/English)
Malta Art. 14 (German/French/English)
Netherlands Art. 14 (German/French/English)
Spain Art. 14 (German/French)
USA Art. 14 (German/French/English)
Article 14 and Commentary of the UN Model Double Taxation Convention between Developed and Developing Countries
Article 14 (Independent personal service)
"A. Commentary on the paragraphs of article 14
1. Article 14 of the United Nations Model Convention reproduces in paragraph 1, subparagraph (a) and paragraph 2 the essential provisions of Article 14 of the OECD Model Convention (1997 version). The whole of Article 14 and the Commentary thereon were deleted from the OECD Model Convention on 29 April 2000. Paragraph 1, subparagraph (b), allows the country of source to tax in one situation in addition to the one contained in Article 14, paragraph 1, of the 1997 OECD Model Convention. More completely, while the former OECD Model Convention allowed the source country to tax income from independent personal services only if the income was attributable to a fixed base of the taxpayer, the United Nations Model Convention also allows taxation at source if the taxpayer is present in that country for more than 183 days in any twelve month period commencing or ending in the fiscal year concerned.
2. In the discussion of Article 14, some members from developing countries expressed the view that taxation by the source country should not be restricted by the criteria of existence of a fixed base and length of stay and that the source of income should be the only criterion. Some members from developed countries, on the other hand, felt that the exportation of skills, like the exportation of tangible goods, should not give rise to taxation in the country of destination unless the person concerned has a fixed base in that country comparable to a permanent establishment. They therefore supported the fixed base criterion, although they also accepted that taxation in the source country is justified by continued presence in that country of the person rendering the service. Some members from developing countries also expressed support for the fixed base criterion. Other members from developing countries expressed preference for the criterion based on length of stay.
3. In developing the 1980 Model, several members from developing countries had proposed a third criterion, namely, the amount of remuneration. Under that criterion, remuneration for independent personal services could be taxed by the source country if it exceeded a specified amount, regardless of the existence of a fixed base or the length of stay in that country.
4. As a compromise, the 1980 Model included three alternative criteria found in subparagraphs (a)–(c) of paragraph 1, the satisfaction of any one of which would give the source country the right to tax the income derived from the performance of personal activities by an individual who is a resident of the other State. However, in 1999, the former Group of Experts decided to omit the third criterion, namely, the amount of remuneration, specified in subparagraph (c), retaining subparagraphs (a) and (b).
5. Subparagraph (a), which reproduces the sole criterion in the OECD Model Convention, provides that the income may be taxed if the individual has a fixed base regularly available to him for performing his activities. Though the presence of a fixed base gives the right to tax, the amount of income that is subject to tax is limited to that which is attributable to the fixed base.
6. Subparagraph (b) as amended in 1999, extends the source country’s right to tax by providing that the source country may tax if the individual is present in the country for a period or periods aggregating at least 183 days in any twelve-month period commencing or ending in the fiscal year concerned, even if there is no fixed base. Only income derived from activities exercised in that country, however, may be taxed. Prior to the amendment, the requirement of minimum stay in the Contracting State was a “period or periods amounting to or exceeding in the aggregate 183 days in the fiscal year concerned”. A member from a developed country, however, expressed a preference for retaining the previous wording for technical reasons. By virtue of the amendment, the provisions of Article 14, paragraph 1, subparagraph (b), have been brought on a par with those of Article 15, paragraph 2, subparagraph (a), relating to the minimum period of stay in the other Contracting State.
7. Prior to its deletion, subparagraph (c) provided a further criterion for source country tax when neither of the two conditions specified in subparagraphs (a) and (b) is met. It was provided that if the remuneration for the services performed in the source country exceeds a certain amount (to be determined in bilateral negotiations), the source country may tax, but only if the remuneration is received from a resident of the source country or from a permanent establishment or fixed base of a resident of any other country which is situated in that country.
8. It was observed that any monetary ceiling limit fixed in this behalf becomes meaningless over a period of time due to inflation and would only have the effect of limiting the amount of potentially valuable services that the country will be able to import. Moreover, the provision to this effect appeared only in 6 per cent of the existing bilateral tax treaties finalized between 1980 and 1997. It was, accordingly, decided to delete subparagraph (c) of paragraph 1 of Article 14.
9. The former Group of experts discussed the relationship between Article 14 and subparagraph 3(b) of Article 5. It was generally agreed that remuneration paid directly to an individual for the performance of activity in an independent capacity was subject to the provisions of Article 14. Payments to an enterprise in respect of the furnishing by that enterprise of the activities of employees or other personnel are subject to Articles 5 and 7. The remuneration paid by the enterprise to the individual who performed the activities is subject either to Article 14 (if he is an independent contractor engaged by the enterprise to perform the activities) or Article 15 (if he is an employee of the enterprise). If the parties believe that further clarification of the relationship between Article 14 and Articles 5 and 7 is needed, they may make such clarification in the course of negotiations.
10. Since Article 14 of the United Nations Model Convention contains all the essential provisions of Article 14 of the 1997 OECD Model Convention, the former OECD Commentary on that Article is relevant. That Commentary reads as follows:
1. The Article is concerned with what are commonly known as professional services and with other activities of an independent character. This excludes industrial and commercial activities and also professional services performed in employment, e.g. a physician serving as a medical officer in a factory. It should, however, be observed that the Article does not concern independent activities of artistes and sportsmen, these being covered by Article 17.
2. The meaning of the term “professional services” is illustrated by some examples of typical liberal professions. The enumeration has an explanatory character only and is not exhaustive. Difficulties of interpretation which might arise in special cases may be solved by mutual agreement between the competent authorities of the Contracting States concerned.
3. The provisions of the Article are similar to those for business profits and rest in fact on the same principles as those of Article 7. The provisions of Article 7 and the Commentary thereon could therefore be used as guidance for interpreting and applying Article 14. Thus the principles laid down in Article 7 for instance as regards allocation of profits between head office and permanent establishment could be applied also in apportioning income between the State of residence of a person performing independent personal services and the State where such services are performed from a fixed base. Equally, expenses incurred for the purposes of a fixed base, including executive and general expenses, should be allowed as deductions in determining the income attributable to a fixed base in the same way as such expenses incurred for the purposes of a permanent establishment […]. Also in other respects Article 7 and the Commentary thereon could be of assistance for the interpretation of Article 14, e.g. in determining whether computer software payments should be classified as commercial income within Article 7 or 14 or as royalties within Article 12.
4. Even if Articles 7 and 14 are based on the same principles, it was thought that the concept of permanent establishment should be reserved for commercial and industrial activities. The term “fixed base” has therefore been used. It has not been thought appropriate to try to define it, but it would cover, for instance, a physician’s consulting room or the office of an architect or a lawyer. A person performing independent personal services would probably not as a rule have premises of this kind in any other State than of his residence. But if there is in another State a centre of activity of a fixed or a permanent character, then that State should be entitled to tax the person’s activities.
11. Some countries interpret Article 14 differently from the interpretation delineated in paragraphs 9 and 10 above. These countries may, therefore, wish to clarify their positions and agree on these aspects bilaterally, if not already dealt with."
Commentary on Article 14 of the OECD Model Tax Convention
"[Article 14 was deleted from the Model Tax Convention on 29 April 2000 on the basis of the report entitled “Issues Related to Article 14 of the OECD Model Tax Convention” (adopted by the Committee on Fiscal Affairs on 27 January 2000 and reproduced in Volume II of the full version of the OECD Model Tax Convention at page R(16)-1). That decision reflected the fact that there were no intended differences between the concepts of permanent establishment, as used in Article 7, and fixed base, as used in Article 14, or between how profits were computed and tax was calculated according to which of Article 7 or 14 applied. In addition, it was not always clear which activities fell within Article 14 as opposed to Article 7. The effect of the deletion of Article 14 is that income derived from professional services or other activities of an independent character is now dealt with under Article 7 as business profits.]"
Subpages (1): BGE vom 20.2.1970 (Missbrauch DBA-F)