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1. Fees paid to ACo 

1.1 PE?

Under Art. 5(1), each of the 3 construction sites (each in a separate city) must be analysed separately. None of the sites would satisfy the “approximately 6 months” time test for Art. 5(1). 

Under Art. 5(3)(a), a PE is deemed if there is “a construction, assembly or installation project or supervisory activities in connection therewith, but only if such site, project or activities last more than six months”. Each of the 3 construction projects (each in a separate city and for a separate client) must be analysed separately, and thus the “supervisory activities in connection therewith” should also be analysed separately – which would mean that none of the supervisory activities would satisfy the “more than six months” test. 

Art. 5(3)(b) was amended in the 2017 UN model treaty to remove the rquirement that the services must relate to the same or a connected project. Thus, for Art. 5(3)(b), the 3 sets of supervisory activities should be analysed together. 

However, 2 issues arise with Art. 5(3)(b): (i) does Art. 5(3)(a) constitute a more specific provision – and, if so, does it “cover the field” (i.e., exclude the separate operation of Art. 5(3)(b))?; and (ii) is the “more than 183 days in any 12 month period …” test in Art. 5(3)(b) satisfied? 

Re (i): In my view, Art. 5(3)(a) is a more specific provision: it applies specifically to supervisory services. However, there is no support in the UN Comm. for the “cover the field” argument – in my view, it does not apply. 

Re (ii): One or more ACo employees furnish the services for a total of 8 months (i.e., Feb, Mar, May, Jun, Jul, Aug, Sep, Oct). However, it’s unclear on how many days during those 8 months the services are furnished. If the employees do not work on weekends or public holidays, it’s likely that the “more than 183 days in any 12 month period …” test in Art. 5(3)(b) is not satisfied. 

1.2 Art. 12A: 

The fees probably qualify as “fees for technical services” in Art. 12A(3). If so, then B is allowed (in principle) to levy income tax on the fees, subject to the gross rate limit in Art. 12A(2). However, if ACo has a PE in B under Art. 5(3)(b) (see above), then Art. 7 will apply instead of Art. 12A(2) – thereby allowing B to impose income tax on a “net” basis, with no rate limitation. 

2. Salaries paid to ACo’s employees 

Each employee would qualify for the exemption from B income tax in Art. 15(2) if: (i) that particular employee was present in B “for a period or periods not exceeding in the aggregate 183 days in any twelve-month period …”; and (ii) ACo does not have a PE in B. If either of these 2 conditions is not satisfied, then Art. 15(1) would allow B to impose income tax on the salary which relates to the exercise of the employment in B. 

Re (i): If an employee was assigned to 2 or more of the contracts, then it’s possible that that employee was present in B for an aggregate period exceeding 183 days. However, if each employee was assigned to only one contract, it’s likely that condition (i) would be satisfied. 

Re (ii): see Art. 5(3)(b) (above).