Direct Tax Laws & International Taxation · Overview of Model Tax Conventions

UN Model Tax Convention Overview for CA Final

Updated 5 October 2026 · Fact-checked

The UN Model Tax Convention is a template for double tax treaties between developed and developing countries. It leans towards source-country taxation. Solve questions by identifying the income, finding the relevant article, and showing how the UN text gives the source state wider taxing rights than the OECD text, especially on PE, royalties and technical fees.

Understand UN Model Tax Convention Overview

A tax treaty (DTAA) divides taxing rights between two countries so that the same income is not taxed twice. Countries rarely draft from scratch. They start from a model convention and negotiate changes.

The UN Model Tax Convention was developed under the United Nations for treaties between developed and developing countries. Its core idea is that where capital and technology flow mostly one way, the source country (where income arises) should keep a fair share of tax. The residence country (where the recipient lives) then gives relief.

The OECD Model is the other main template. It gives more weight to residence-country taxation. The UN Model keeps the OECD article structure, so the two look alike. The difference is in specific wording, thresholds and rates. That is exactly where exam questions come from.

The source bias shows up in a few places. The PE definition is wider. Some service-type PEs are possible. Royalties and fees for technical services can be taxed in the source state, with the rate left to bilateral negotiation. The UN Model has a separate article on fees for technical services (Article 12A), which the OECD Model does not have. Article 12A was introduced only in the 2017 update of the UN Model. Older UN-based treaties, including many Indian ones, deal with fees for technical services inside the royalties article (Article 12) or in a treaty-specific clause. India's treaties often follow UN-style positions on these points, but each treaty has its own text. Always read the question's treaty wording if it is given.

Treaty provisions are given effect in India through the treaty-making provision, which is Section 90 of the Income-tax Act, 1961. The corresponding provision in the Income-tax Act, 2025 has a different section number, so do not quote Section 90 for the 2025 Act. Under Section 90(2), the assessee may choose the more beneficial of the treaty or the Act. This is not an absolute override. Anti-avoidance provisions such as GAAR (Chapter X-A) and Section 90(2A) apply notwithstanding the treaty. So the model is a guide, and the actual treaty, read with these limits, decides the answer.

Key rules to remember

Core principle of the UN Model: Source-country taxing rights (UN) ≥ source-country taxing rights (OECD); Say 'wider or equal, not always wider'. On many articles the text is the same.
PE: building site or project: UN: PE if site, construction, assembly or installation project lasts more than 6 months; The OECD Model uses 12 months. Supervisory activities are also covered in the UN text.
PE: services (UN Article 5(3)(b)): UN Article 5(3)(b): services PE if services are furnished by an enterprise through employees or other personnel in a state for more than 183 days in any 12-month period, for the same project or a connected project, and the services are furnished within that state for a customer there; All conditions must be met: the 183-day count, the same or connected project, services performed in the state, and furnished through employees or other personnel. The OECD main text has no such rule.
PE: insurance (UN Article 5(6)): UN Article 5(6): an insurer may have a PE if it collects premiums in the state or insures risks situated there through a person other than an independent agent; Not in the OECD Model.
PE: stock deliveries (UN Article 5(5)(b)): UN Article 5(5)(b): a person who has no authority to conclude contracts but habitually maintains in the state a stock of goods from which he regularly delivers on behalf of the enterprise can create a PE for the enterprise; UN Article 5(5)(b) adds this stock-delivery limb for agents without authority to conclude contracts. The OECD dependent-agent rule applies only to agents who habitually conclude contracts (or play the principal role in concluding them). The PE arises through that person, not through plain storage. The Article 5(4) exceptions (storage, display or delivery of the enterprise's own goods) still apply to the enterprise's own activities.
Business profits: force of attraction: UN: source state may tax profits from sales or business activities of the same or similar kind as those through the PE; A limited force-of-attraction rule. The OECD Model does not have it.
Royalties (Article 12): UN: royalties taxable in both states; the source state's tax rate is left to bilateral negotiation; The OECD Model gives the sole taxing right on royalties to the residence state. Treaty rates in the actual treaty decide the tax.
Fees for technical services (Article 12A): UN Article 12A (added in the 2017 update): fees for technical services may be taxed in the source state; the rate is left to bilateral negotiation; Under the UN Model, FTS has its own Article 12A. The OECD Model has no FTS article. Many Indian DTAAs, especially older ones, include FTS (or fees for included services) in the royalties article (Article 12) instead, so read the treaty. Either way, source taxation with negotiated rates is the UN-style position.
Dividends and interest: rates: UN: no fixed percentage; rates are fixed in bilateral negotiation; The OECD ceilings are 5% or 15% on dividends and 10% on interest. Royalties are taxable only in the residence state under the OECD Model, so it has no royalty ceiling.
Capital gains on shares: UN Article 13(4): source state may tax gains on shares that derive their value mainly from immovable property situated there. UN Article 13(5): source state may tax gains on shares of a company resident there if the holder owned at least a specified percentage during a stated period; The percentage and the period in Article 13(5) are left to negotiation, so check the threshold in the treaty.

How to solve UN Model Tax Convention Overview questions

Use the same method for any question that asks you to explain, compare or apply the UN Model.

1Identify the income or activity in the question: business profits, royalty, technical fee, services, dividend, interest or capital gain.
2Name the relevant article in the model, such as PE (Article 5), business profits (Article 7), royalties (Article 12), or fees for technical services (Article 12A).
3State the UN position in one line, and mention that its basis is source-country taxation.
4State the OECD position on the same point to show the contrast, if the question asks for comparison.
5Apply the facts: check days, months, who the agent is, and what the payment is for.
6Add the rate position: the UN Model leaves rates to negotiation, so the actual treaty decides.
7Conclude clearly: PE exists or not, source state may or may not tax, and whether the treaty text must be checked.
8If a treaty is given, apply that text over the model and over domestic law if more beneficial.

Quickest way: Three-column comparison

When to use it: Use it for short notes and 'differentiate' questions when time is tight.

Draw three columns in your head: Article, UN Model, OECD Model.
Write only the five high-yield rows: PE for sites (6 vs 12 months), services PE, insurance and stock PE, royalties/FTS, force of attraction.
Add one-line reasoning: source country gets a larger share, which suits developing countries.
Finish with one line that the actual DTAA prevails and the model is only a template.

Common mistakes in UN Model Tax Convention Overview

Saying the UN Model is completely different from the OECD Model.
Students focus only on differences when preparing comparisons.
Fix: State that the structure and most articles are similar. The UN Model modifies specific articles to favour the source state.
Writing 12 months for a building-site PE under the UN Model.
The 12-month OECD figure is remembered more often.
Fix: Remember it as UN = 6 months, OECD = 12 months.
Stating that the UN Model fixes the rate of tax on royalties.
Confusion with the OECD ceilings on dividends and interest.
Fix: Write that UN Model rates are left to bilateral negotiation. Use the treaty rate if one is given.
Treating the model convention as binding law.
Students forget that a model is only a template.
Fix: Say that only a signed and notified treaty is applicable, and the treaty text is applied over the model.
Missing the services PE and force of attraction in a comparison answer.
Students stop after PE and royalties.
Fix: Add services PE, insurance PE, stock-for-delivery PE and limited force of attraction as extra source-bias features.
Giving a conclusion without applying the facts.
Students recite theory, which loses application marks.
Fix: Count days or months, name the activity, then state whether the threshold is crossed.

Worked examples

Example 1

A developed-country company, Alpha Inc., carries out an installation project in a developing country, Beta, for 8 months. The treaty between the two countries follows the UN Model text. Alpha has no other presence in Beta. Is there a PE in Beta? Would the answer differ under the OECD Model?

Show the solution

The activity is an installation project, covered by the PE article.
Under the UN Model, an installation project creates a PE if it lasts more than 6 months.
The project runs for 8 months, which is more than 6 months. A PE exists in Beta.
Under the OECD Model the threshold is 12 months. Eight months is less than 12 months, so no PE would arise.
The difference arises because the UN Model gives the source country wider taxing rights.

Answer: Under the UN Model there is a PE in Beta, so Beta can tax profits attributable to the PE. Under the OECD Model there would be no PE.

Example 2

A UK company provides consultancy to an Indian customer through its employees, who work in India for 200 days in a 12-month period on one project. The treaty with India follows the UN Model services article (Article 5(3)(b)). The company has no fixed place of business in India. Can India claim a PE, and how does this link to the UN Model's source bias?

Show the solution

The income arises from services, not from a fixed place of business.
UN Article 5(3)(b) treats an enterprise as having a PE if services are furnished by it through employees or other personnel in a state for more than 183 days in any 12-month period, for the same project or a connected project, with the services performed within that state for a customer there.
The services are furnished through employees, which meets the 'employees or other personnel' condition.
The consultancy ran for 200 days on one project, which is more than 183 days.
The services are performed in India for an Indian customer, so the location condition is met.
The OECD Model's main text does not have this rule. Without a fixed place of business, a PE would normally not arise.
This shows the UN Model's bias: it allows source-state taxation even without a fixed place.

Answer: Yes. All conditions of UN Article 5(3)(b) are met, including the 183-day threshold, so India can claim a services PE. Profits attributable to this PE can be taxed in India, subject to the actual treaty text.

Exam tips

Learn the five high-yield differences: site PE months, services PE, insurance and stock PE, force of attraction, and royalties/FTS with negotiated rates.
In comparison questions, write each point in the order of Article, UN position, OECD position, reason.
Use a one-line source-versus-residence explanation in the introduction. It earns marks for understanding.
In a case scenario, count days or months first, and then state the conclusion in one sentence.
Mention that the treaty actually in force prevails over the model, and that under Section 90(2) the assessee may choose the more beneficial of the treaty or the Act. Add that GAAR (Chapter X-A) and Section 90(2A) apply notwithstanding the treaty.

Practice questions from Overview of Model Tax Conventions

UN Model Tax Convention Overview in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

UN Model Tax Convention Overview: frequently asked questions

Why does the UN Model favour source-country taxation?

It was designed for treaties between developed and developing countries. In such cases, investment and technology mostly flow from developed to developing states. The UN Model therefore preserves more taxing rights for the country where the income arises.

What is the main difference between the UN and OECD models?

Both have the same broad article structure. The UN Model gives the source state wider rights, for example a 6-month site PE, a services PE, and negotiated rates on royalties and technical fees. The OECD Model gives more weight to the residence state.

Is the UN Model binding on India?

No. It is only a template. Only a treaty that India has signed and notified is applicable. Many Indian treaties borrow UN-style provisions, but you must read the actual treaty text.

Do I need to remember article numbers for CA Final?

Yes, for the main ones. Remember Article 5 for PE, Article 7 for business profits and Article 12 for royalties. The UN Model also has Article 12A for fees for technical services, added in its 2017 update. Many Indian treaties deal with fees for technical services inside Article 12, so check where the given treaty places them.