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A Study of Double Taxation Treaties and National Laws

Taxing Income from Services Provided by Non-Residents and Attributing Income to Permanent

Establishments through ‘Fractional Apportionment’


Clinic: Graduate Institute, Fall 2019

Beneficiary: BEPS Monitoring Group


Executive Summary

(Full report can be read here)**​

This research paper addresses the issue of taxation of income from services provided by non-residents and examines double taxation treaties as well as national laws.


Digitalization of economy has sharpened the recent debates on efficiency of tax rules around the world, and the OECD is striving to reach international consensus on the matter. The current study is an attempt to contribute to the ongoing debates on tax reforms by studying two key concepts, namely services permanent establishment and fractional apportionment, which are provided for in Article 7.4 and Article 5.3.b of the UN Model Tax Convention, respectively. The notion of permanent establishment (PE), defined in many tax treaties, as well as in Article 5 of the OECD and UN Model Tax Conventions, is used to determine the right of a State to tax the profits of an enterprise of the other State. The UN Model Tax Convention includes a broader notion of PE by considering the furnishing of services as PE, should certain conditions be met. The UN Model Convention Treaty also includes a provision that allows the use of the method of fractional apportionment (FA) to determine the profits attributed to a PE.


This research examines, firstly, if and to what extent the provisions on PE and FA are included in double taxation treaties that are currently in force. Secondly, it analyzes the domestic laws of certain developing countries to shed light on different forms that PE and FA may take.


Our conclusions are based on analysis of 3181 double taxation treaties currently in force. To collect our data and draw these conclusions, we relied on the IBFD Tax Research Platform. Regarding the provision on services PE, the research found that such provision is contained in 1131 double taxation treaties, that is in around ⅓ of the overall number of the treaties analyzed. Further, we identified three main deviations from the text of Article 5.3.b of the UN Model Tax Convention and provided numbers on the tax treaties that include provisions with such deviations. Regarding the provision on FA, our results showed that the relevant provision is contained in 2166 tax treaties, that is in around ⅔ of the 3181 tax treaties analyzed. Further, 1236 tax treaties contain provisions that follow the exact same wording of the UN Model Tax Convention, while 720 tax treaties contain provisions with only insignificant grammatical deviations. Lastly, 205 treaties contain provisions that significantly deviate from the wording of the UN Model Tax Convention. The r