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

Compared with the OECD Model, which feature is characteristic of the UN Model Convention?

The UN Model gives greater taxing rights to the source state than the OECD Model. It does this through features such as a service PE provision and a wider PE definition, reflecting its aim of benefiting developing countries that are mainly capital importers.

  1. AIt restricts source-state taxation more heavily in favour of the residence state
  2. BIt gives greater taxing rights to the source state, for example through a service PE clause and a wider PE definitionCorrect
  3. CIt contains no article on royalties
  4. DIt prohibits withholding taxes on all passive income

Explanation

The UN Model is designed to favour developing countries as source states, so it retains greater source taxation, including service PE provisions and fuller source rights on royalties and fees. The OECD Model favours residence-state taxation.

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