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Double Taxation: US, UN and OECD Models – Permanent Establishment and Business Profits
Finance & Accounting
Pages 5 (1255 words)
This paper looks at the three models of double taxation – Unites States model and compares it with the United Nations model and the OECD model in order to determine what similarities or differences exists among them in order to inform people who do not understand the provisions contained in them. …
In an article entitles ‘Double Tax Treaties: The Basics and Benefits’ (Zarb: 50) indicates that as a result of globalization the issue relating to double taxation has been brought into the limelight. Double taxation agreements relates to persons that are resident of one or both states which are party to the treaty (UN 2001: 7). These agreements normally last for a period of five (5) years (Zarb: 50). The growth of MNC’s along with electronic commerce has brought the issue into sharp focus. However, attempts to deal with the problem of double taxation goes back to the early 1920’s. Although the US has not adopted the OECD model treaty, the model has played a great role in the treaties that the US has entered into since 1963. In fact the Technical Explanation US Model Convention points to the OECD model in explaining permanent residence (US: 2006). The OECD Model Tax Convention contains the treaty concept of permanent establishment which is used mainly to determine taxation rights when a business entity in one country derives profits from a business in another country.
Double taxation treaties are bilateral agreements between countries and serves to: facilitate a reduction in or an elimination of the problem of double taxation of income; establish cooperation between authorities in contracting states on tax matters; facilitates the promotion of trade between contracting countries so that normal flow of capital is not negatively affected; divides revenue in a fair manner; and fights against tax evasion and fraud.
The paper looks specifically at the definition of permanent establishment and business profits. These models are important because they apply to agreements between different countries. ...
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