Tax Treaty Series

ITQ T-

037

March 27, 2020

Question

XCo, a company resident in X, publishes an online global newspaper on business, finance and economics news and analysis. The newspaper is regarded as a pre-eminent global source for such information.

The newspaper is provided to all its customers, in digital form, on a "paid subscription" basis. The newspaper is written in English. However, it is also provided in several other languages (customers can choose to read the newspaper in any of the languages).

XCo has many customers (all individuals) who are resident in Y. The customers pay for their subscriptions by credit card – usually, a direct monthly charge to the card. The Y language is one of the languages in which the newspaper is provided.

XCo is registered for VAT purposes in Y. Its subscription fee for Y customers includes VAT, which XCo sends to the Y tax authorities. XCo’s quarterly VAT returns are prepared and filed by an unrelated accounting firm in Y.

XCo has no employees, physical assets or related parties in Y.

The X/Y treaty is identical to the 2017 UN model treaty.

Under the X/Y treaty, is Y permitted to levy income tax on XCo?

Answer

Art. 5: no PE.

Art. 12(3) "royalties":

Subscription fees should not be "onsideration for … copyright", even if newspaper downloaded to customer's computer: para. 17.3, OECD Comm. (reproduced by UN Comm.)

Are the subscription fees consideration "for information concerning industrial, commercial or scientific experience"?

OECD Comm. (reproduced by UN Comm.) equates "information…experience" with know-how, and then "defines" know-how transactions as involving "undivulged" information, "unrevealed to the public", and with "confidentiality" provisions
That "definition" should not cover a newspaper, regardless of its pre-eminence and existence of a paywall
Thus, subscription fees should not be "royalties"

Art. 12A(3) "fee for technical services" (FTS):

1st issue: is newspaper "managerial, technical or consultancy" in nature? Probably “technical”

2nd issue: is provision of newspaper a service?

Key question: to be a "service", does the newspaper need to be prepared on a customised basis for a particular customer’s use?
UN Comm. provides inconsistent answers to this question: para. 62 ("transfer of knowledge…") vs. para. 91 example
Difficult to conclude on this question

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