Direct Tax Laws and International Taxation · Double Taxation Avoidance Agreements (DTAA)

OECD Model vs UN Model Convention: Differences and Structure

Updated 11 October 2026 · Fact-checked

The OECD and UN Model Tax Conventions are templates that countries use to draft bilateral tax treaties. Both share the same article structure. The OECD model favours residence-country taxation; the UN model gives more taxing rights to the source country. To answer questions, identify the article, compare the two models, and apply the treaty to the facts.

Understand OECD and UN Model Conventions

A model convention is not a treaty and binds no one. It is a standard draft that two countries use as a starting point when they negotiate a Double Taxation Avoidance Agreement (DTAA). India's treaties are bilateral agreements, and their wording is influenced by these models, mostly with negotiated variations.

The OECD Model was developed by the Organisation for Economic Co-operation and Development. It was written mainly with developed countries in mind, where capital and investment flow in both directions. So it leans towards residence-based taxation: the country where the earner lives gets the main right to tax.

The UN Model was developed under the United Nations for treaties between developed and developing countries. Capital usually flows from the developed country to the developing one. So it protects the source country, where the income arises, and keeps more taxing rights there. India is a capital-importing country in many treaty relationships, so the UN approach appears often in Indian treaties.

Both models follow a similar chapter layout: scope (persons and taxes covered), definitions (including resident, permanent establishment), taxation of income (Articles on immovable property, business profits, shipping and air transport, associated enterprises, dividends, interest, royalties, capital gains, independent and dependent personal services, directors' fees, artistes and sportspersons, pensions, government service, students and others), methods for eliminating double taxation, and special provisions (non-discrimination, mutual agreement procedure, exchange of information, entry into force and termination).

Under domestic law, the Income-tax Act, 2025 allows the Central Government to enter into agreements with other countries for relief from double taxation and for exchange of information; you study that in the topic on agreements with foreign countries. Here, focus on how the two models are built and where they differ.

Key rules to remember

Core philosophy: OECD Model → residence country gets priority; UN Model → source country gets wider taxing rights; This is the one-line answer to most comparison questions.
Permanent establishment (PE) threshold: UN Model: PE is easier to create (e.g. services PE, building site threshold shorter, insurance agent PE); OECD Model: stricter PE test; A lower PE threshold means more business profits taxable in the source country. Check the exact period in the specific treaty.
Business profits attribution: OECD: profits attributable to the PE; UN: includes a limited 'force of attraction' idea for similar sales or business activities; The UN Model allows the source country to tax some profits beyond those strictly attributable to the PE.
Withholding on passive income: OECD: dividends and interest taxable at source at limited rates (5%/15% suggested for dividends, 10% for interest); royalties taxable only in the residence country. UN: source country may also tax royalties and fees, with rates left to negotiation; The UN Model leaves the rates blank for the treaty partners to negotiate. The OECD Model suggests rates for dividends and interest but gives royalties to the residence country alone.
Fees for technical services: UN Model (2017 update) added Article 12A on fees for technical services, letting the source country tax them; OECD Model has no equivalent article; Many Indian treaties include fees for technical or included services taxed at source. Verify the particular treaty.
Relief methods: Exemption method or credit method (both models offer both); The relief article decides how the residence country removes double taxation.

How to solve OECD and UN Model Conventions questions

Use this approach for any theory, comparison or case question on the model conventions.

1Read the question and decide the task: structure, comparison, or applying a model to facts.
2Identify the income type (business profits, dividend, royalty, services, capital gain) and match it to the relevant article.
3State the OECD position first, then the UN position, in one line each.
4Link the difference to the underlying philosophy: residence country versus source country.
5If facts are given, test for a permanent establishment or for residence, then say which country may tax and with what limit.
6Mention that the actual treaty text governs, since each DTAA is negotiated and may depart from either model.
7Close with a clear conclusion in one sentence, naming the country with the taxing right.

Quickest way: Philosophy-first comparison

When to use it: Use for MCQs and short comparison questions when time is tight.

Ask: who benefits more, the residence country or the source country?
If the option says source country gets wider rights, easier PE, or royalty and service taxation at source, it points to the UN Model.
If the option stresses residence-country taxation and a stricter PE, it points to the OECD Model.
Remember that both models are only templates; any option saying a model is binding is wrong.

Common mistakes in OECD and UN Model Conventions

Treating a model convention as a binding treaty.
The words 'convention' and 'agreement' sound legally binding.
Fix: Write that models are templates; only the signed bilateral DTAA, once in force, applies.
Reversing the OECD and UN positions.
Both are international bodies, so students memorise without a logic.
Fix: Anchor on who they were written for: OECD for developed countries (residence), UN for developed-developing treaties (source).
Saying the models differ in article structure.
Students assume two models mean two layouts.
Fix: The layouts are broadly similar. The differences lie in content: PE thresholds, royalty and services taxation, and rate negotiation.
Quoting specific treaty rates as if they came from the model.
Mixing up the India-specific treaty rates with the model text.
Fix: Say the model suggests or leaves rates to negotiation, and the actual rate is in the treaty you are given.
Ignoring the PE test in a business profits question.
Jumping straight to the rate.
Fix: First decide whether a PE exists. Without a PE, business profits are generally taxable only in the residence country under the treaty.

Worked examples

Example 1

A software company resident in Country A provides services to an Indian customer through its own employees who stay in India. Explain, with reference to the OECD and UN Models, why the source country may be able to tax the profits under a UN-style treaty but not an OECD-style one.

Show the solution

Identify the income: business profits from services performed in India (source country).
Under the OECD approach, business profits are taxable in the source country only if the enterprise has a permanent establishment there, and the PE test is relatively strict.
Under the UN approach, a services PE can arise when employees or personnel furnish services in the source country for a stated period, a lower threshold than the OECD test.
So if the stay is long enough to meet the treaty's services PE test, India can tax the profits attributable to that PE under a UN-style treaty.
Under an OECD-style treaty without a services PE, India may have no right to tax, and Country A taxes the profits.
Check the actual treaty's period and wording before concluding.

Answer: Under a UN-style treaty with a services PE clause, India can tax the profits attributable to the PE if the presence meets the stated period. Under an OECD-style treaty without that clause, profits are generally taxable only in Country A.

Example 2

Choose the correct statement: (a) The OECD Model is binding on all member countries of the OECD. (b) The UN Model gives greater weight to taxation by the source country. (c) The OECD and UN Models have completely different article structures. (d) A model convention overrides domestic tax law automatically.

Show the solution

Option (a): wrong. A model is a template; it binds no one, even OECD members.
Option (c): wrong. Both follow a broadly similar article structure; differences lie in content.
Option (d): wrong. Only a signed and notified treaty can affect domestic law, and a model alone has no legal force.
Option (b): correct. The UN Model was built for developed-developing treaties and keeps wider taxing rights with the source country.

Answer: (b) The UN Model gives greater weight to taxation by the source country.

Exam tips

Write a two-column comparison in your answer (OECD versus UN) using bullet lines; it shows the contrast clearly and scores well.
Always tie each difference to the philosophy of residence versus source taxation.
In case-based MCQs, check for a PE first, then the income type, then who gets the taxing right.
Avoid quoting exact rates or day counts from memory unless the question gives the treaty; say 'as negotiated in the treaty'.

Practice questions from Double Taxation Avoidance Agreements (DTAA)

OECD and UN Model Conventions in other exams

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

OECD and UN Model Conventions: frequently asked questions

What is the main difference between the OECD and UN Model Conventions?

The OECD Model favours taxation in the country of residence, while the UN Model gives the source country wider taxing rights. This shows up in PE rules, royalties and technical services. Both are templates used for negotiating bilateral treaties.

Is the OECD or UN Model more relevant to India?

India's treaties draw on both, and many show UN-style features such as wider source taxation of royalties and fees for technical services. The signed treaty is what actually applies, so read its text in any question.

Do the two models have the same article structure?

Broadly yes. Both cover scope, definitions, taxation of different kinds of income, methods for relief from double taxation and special provisions such as non-discrimination and mutual agreement procedure. The difference is in the content of certain articles.

Does a model convention have legal force?

No. It is a draft template and also a commentary used to interpret treaties. Only a bilateral agreement that has been signed and brought into force has legal effect.