Articles 6, 13, 22 and 8 of OECD Model Tax Convention

The Organisation for Economic Co-operation and Development (OECD) Model Tax Convention on Income and on Capital is a model framework developed by the OECD to provide guidance and standardisation in the negotiation and implementation of bilateral tax treaties between countries.

The Model Tax Convention serves as a template for countries to develop their own double taxation treaties. It aims to address issues related to the taxation of cross-border income and capital to avoid double taxation and prevent tax evasion.

The Model Tax Convention provides standard articles and guidelines that cover various aspects of international taxation, including the definition of taxable income, allocation of taxing rights between countries, methods for resolving disputes, and mechanisms to prevent tax abuse.

The Model Tax Convention establishes principles for determining residency, defining permanent establishments, and allocating taxing rights for different types of income such as dividends, interest, royalties, and capital gains. It also includes provisions for the exchange of information between countries to combat tax evasion and promote transparency.

Article 6: Income from Immovable Property
Article 6 of the Model Tax Convention deals with the taxation of income derived from immovable property, such as real estate. It establishes the principle that the country where the property is situated has the primary right to tax such income. In general, the article outlines the conditions under which income from immovable property may be taxed in the country where the property is located.

The article typically provides definitions of what constitutes immovable property, including land, buildings, and other structures. It clarifies that income from immovable property, such as rental income or income from the sale of real estate, can be taxed in the country where the property is situated.

To prevent double taxation, the article often allows for a tax credit or exemption in the taxpayer's country of residence. This ensures that the taxpayer is not taxed on the same income in both the source country (where the property is located) and the residence country (where the taxpayer resides).

Article 13: Capital Gains
Article 13 of the Model Tax Convention addresses the taxation of capital gains. It establishes the circumstances under which capital gains arising from the sale or transfer of specific assets, such as shares or real estate, can be taxed in the respective countries.

The article typically provides guidelines for determining the taxation rights between the source country (where the asset is located) and the residence country (where the taxpayer resides). It outlines the conditions under which the source country may tax capital gains from the alienation of specific assets.

The article often establishes that capital gains derived from the sale of immovable property, such as real estate, are generally taxed in the country where the property is situated. In the case of movable property, such as shares in a company, the article may assign the taxing rights to the country where the taxpayer resides.

To avoid double taxation, the article often provides mechanisms for relief, such as allowing the residence country to provide a tax credit or exemption for capital gains taxes paid in the source country.

Article 22: Other Income
Article 22 of the Model Tax Convention deals with the taxation of income that does not fall into specific categories addressed in other articles. It provides rules for the taxation of various types of income, including dividends, interest, royalties, and other miscellaneous income items.

This article often establishes that the country of residence has the primary right to tax such income. However, it may also provide that the source country can impose limited taxation on specific types of income.

The article usually includes provisions for the avoidance of double taxation. It may stipulate that the residence country will grant relief in the form of a tax credit or exemption for taxes paid in the source country, ensuring that the taxpayer is not subject to double taxation on the same income.

Article 8: Business Profits
Article 8 of the Model Tax Convention focuses on the taxation of business profits. It provides rules for allocating and taxing profits earned by enterprises operating in more than one country, aiming to avoid double taxation.

The article typically establishes the principle that business profits are taxable in the country where the enterprise has a permanent establishment (PE). A permanent establishment refers to a fixed place of business through which the enterprise carries out its business activities.

It outlines the criteria for determining the existence of a permanent establishment, such as having a place of management, a branch office, or a dependent agent in a country. The article also specifies the methods for attributing profits to a permanent establishment, ensuring that the taxable profits are fairly allocated between the source country and the residence country.

To prevent double taxation, the article often allows for the use of the arm's length principle for determining the profits attributable to a permanent establishment. The arm's length principle ensures that transactions between related entities within the same multinational enterprise are conducted at fair market value, as if they were independent parties. This helps prevent profit shifting and ensures that profits are allocated appropriately.

In cases where a taxpayer's business activities do not create a permanent establishment, Article 8 may still address the taxation of business profits through specific provisions known as anti-fragmentation rules or force of attraction rules. These rules are designed to prevent taxpayers from artificially fragmenting their activities to avoid having a permanent establishment and paying taxes in the source country.

While the Model Tax Convention serves as a guideline, it is not legally binding. Countries may adapt and modify the provisions according to their specific tax policy and requirements when entering into bilateral tax treaties with other jurisdictions. As a result, the actual tax treaties between countries may vary from the OECD Model.

The Model Tax Convention reflects the OECD's efforts to promote fairness, efficiency, and cooperation in international taxation. It serves as a valuable resource for countries to negotiate and update their bilateral tax treaties, providing a common framework for the resolution of cross-border tax issues and fostering international tax cooperation.