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ANNEX 2
Contd. 1 of 2
OECD Model Double Taxation Convention on income
and on Capital, 1977
TITLE OF THE CONVENTION
CONVENTION BETWEEN (STATE A) AND (STATE B) FOR THE AVOIDANCE OF DOUBLE TAXATION WITH
RESPECT TO TAXES ON INCOME AND ON CAPITAL
Preamble of the Convention
NOTE: The Preamble of the Convention shall be drafted in accordance with the constitutional procedure of both Contracting States.
CHAPTER I
SCOPE OF THE CONVENTION
ARTICLE 1
PERSONAL SCOPE
This Convention shall apply to persons who are
residents of one or both of the Contracting States.
ARTICLE 2
TAXES COVERED
1. This Convention shall apply to taxes on income and on capital
imposed on behalf of a Contracting State or of its political sub-divisions or local
authorities, irrespective of the manner in Which they are levied.
2. There shall be regarded as taxes on income and on capital all taxes imposed on total
income, on total capital, or on elements of income or of capital, including taxes on gains
from the alienation of movable or immovable property, taxes on the total amounts of wages
or salaries paid by enterprises, as well as taxes on capital appreciation.
3. The existing taxes to which the Convention shall apply are in particular:
(a) (in State
A):.........................................................................................
(b) (in State
B):.........................................................................................
4. The Convention shall apply also to any identical or substantially similar taxes which
are imposed after the date of signature of the Convention in addition to, or in place of,
the existing taxes. At the end of each year, the competent authorities of the Contracting
States shall notify each other of changes which have been made in their respective
taxation laws.
CHAPTER II
DEFINITIONS
ARTICLE 3
GENERAL DEFINITIONS
1. For the purposes of this Convention, unless the context
otherwise requires:
(a) the term "person" includes an individual, a company and any other body of
persons;
(b) the term "company" means any body corporate or any entity which is treated
as a body corporate for tax purposes;
(c) the terms "enterprise of a Contracting State" and "enterprise of the
other Contracting State" mean respectively an enterprise carried on by a resident of
a Contracting State and an enterprise carried on by a resident of the other Contracting
State;
(d) the term "international traffic" means any transport by a ship or aircraft
operated by an enterprise which has its place of effective management in a Contracting
State, except when the ship or aircraft is operated solely between places in the other
Contracting State;
(e) the term "competent authority" means:
(i) (in State
A):..................................................................................
(ii) (in State
B):.................................................................................
2. As regards the application of the Convention by a Contracting State any term not
defined therein shall, unless the context otherwise requires, have the meaning which it
has Under the law of that State concerning the taxes to Which the Convention applies.
ARTICLE 4
RESIDENT
1. For the purposes of this Convention, the term "resident
of a Contracting State" means any person who, under the laws of that State, is liable
to tax therein by reason of his domicile, residence, place of management or any other
criterion of a similar nature. But this term does not include any person who is liable to
tax in that State in respect only of income from sources in that State or capital situated
therein.
2. Where by reason of the provisions of paragraph (I) an individual is a resident of both
Contracting States, then his status shall be determined as follows:
(a) he shall be deemed to be a resident of the State in which he has a permanent home
available to him; if he has a permanent home available to him. in both States, he shall be
deemed to be a resident of the State with which his personal and economic relations are
closer (centre of vital interests);
(b) if the State in Which he has his centre of vital interests cannot be determined, or if
he has not a permanent home available to him in either State, he shall be deemed to be a
resident of the State in which he has habitual abode;
(c) if he has an habitual abode in both States or in neither of them, he shall be deemed
to be a resident of the State of which he is a national;
(d) if he is a national of both States or of neither of them, the competent authorities of
the Contracting States shall settle the question by mutual agreement.
3. Where by reason of the provisions of paragraph (1) a person other than an individual is
a resident of both Contracting States, then it shall be deemed to be a resident of the
State in which its place of effective management is situated.
ARTICLE 5
PERMANENT ESTABLISHMENT
1. For the purposes of this Convention, the term "permanent
establishment" means a fixed place of business through which the business of an
enterprise is wholly or partly carried on.
2. The term "permanent establishment" includes especially:
(a) a place of management;
(b) a branch;
(c) an office;
(d) a factory;
(e) a workshop, and
(f) a mine, an oil or gas well, a quarry or any other place of extraction of natural
resources.
3. A building site or construction or installation project constitutes a permanent
establishment only if it lasts more than twelve months.
4. Notwithstanding the preceding provisions of this Article, the term "permanent
establishment" shall be deemed not to include:
(a) the use of facilities solely for the purpose of storage, display or delivery of goods
or merchandise belonging to the enterprise;
(b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely
for the purpose of storage, display or delivery;
(c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely
for the purpose of processing by another enterprise;
(d) the maintenance of a fixed place of business solely for the purpose of purchasing
goods or merchandise or of collecting information, for the enterprise;
(e) the maintenance of a fixed place of business solely for the purpose of carrying on,
for the enterprise, any other activity of a preparatory or auxiliary character;
(f) the maintenance of a fixed place of business solely for any combination of activities
mentioned in sub-paragraphs (a) to (e), provided that the overall activity of the fixed
place of business resulting from this combination is of a preparatory or auxiliary
character.
5. Notwithstanding the provisions of paragraphs (1) and (2) where a person - other than an
agent of an independent status to whom paragraph (6) applies - is acting on behalf
of an enterprise and has, and habitually exercises, in a Contracting State an authority to
conclude contracts in the name of the enterprise, that enterprise shall be deemed to have
a permanent establishment in that State in respect of any activities which that person
undertakes for the enterprise, unless the activities of such person are limited to those
mentioned in paragraph (4) which, if exercised through a fixed place 'of business, would
not make this fixed place of business a permanent establishment under the provisions of
that paragraph.
6. An enterprise shall not be deemed to have a permanent establishment in a Contracting
State merely because it carries on business in that State through a broker, general
commission agent or any other agent of an independent status, provided that such persons
are acting in the ordinary course of their business.
7. The fact that a company which is a resident of a Contracting State controls or is
controlled by a company which is a resident of the other Contracting State, or which
carries on business in that other State (whether through a permanent establishment or
otherwise), shall not of itself constitute either company a permanent establishment of the
other.
CHAPTER III
TAXATION OF INCOME
ARTICLE 6
INCOME FROM IMMOVABLE PROPERTY
1. Income derived by a resident of a Contracting State from
immovable property (including income from agriculture or forestry) situated in the other
Contracting State may be taxed in that other State.
2. The term "immovable property" shall have the meaning which it has under the
law of the Contracting State in which the property in question is situated. The term shall
in any case include property accessory to immovable property, livestock and equipment used
in agriculture and forestry, rights to which the provisions of general law respecting
landed property apply, usufruct of immovable property and rights to variable or fixed
payments as consideration for the working of, or the right to work mineral deposits,
sources and other natural resources; ships, boats and aircraft shall not be regarded as
immovable property.
3. The provisions of paragraph (1) shall apply to income derived from the direct use,
letting, or use in any other form of immovable property.
4. The provisions of paragraphs (1) and (3) shall also apply to the income from immovable
property of an enterprise and to income from immovable property used for the performance
of independent personal services.
ARTICLE 7
BUSINESS PROFITS
1. The profits of an enterprise of a Contracting State shall be
taxable only in that State unless the enterprise carries on business in the other
Contracting State through a permanent establishment situated therein. If the enterprise
carries on business as aforesaid, the profits of the enterprise may be taxed in the other
State but only so much of them as is attributable to that permanent establishment.
2. Subject to the provisions of paragraph (3), where an enterprise of a Contracting State
carries on business in the other Contracting State through a permanent establishment
situated therein, there shall in each Contracting State be attributed to that permanent
establishment the profits which it might be expected to make if it were a distinct and
separate enterprise engaged in the same or similar activities under the same or similar
conditions and dealing wholly independently with the enterprise of which it is a permanent
establishment.
3. In determining the profits of a permanent establishment, there shall be allowed as
deductions expenses which are incurred for the purposes of the permanent establishment,
including executive and general administrative expenses so incurred, whether in the State
in which the permanent establishment is situated or elsewhere.
4. Insofar as it has been customary in a Contracting State to determine the profits to be
attributed to a permanent establishment on the basis of an apportionment of the total
profits of the enterprise to its various parts, nothing in paragraph (2) shall preclude
that Contracting State from determining the profits to be taxed by such an apportionment
as may be customary; the method of apportionment adopted shall, however, be such that the
result shall be in accordance with the principles contained in this Article.
5. No profits shall be attributed to a permanent establishment by reason of the mere
purchase by that permanent establishment of goods or merchandise for the enterprise.
6. For the purposes' of the preceding paragraphs, the profits to be attributed to the
permanent establishment shall be determined by the same method year by year unless there
is good and sufficient reason to the contrary.
7. Where profits include items of income which are dealt with separately in other Articles
of this Convention, then the provisions of those Articles shall not be affected by the
provisions of this Article.
ARTICLE 8
SHIPPING, INLAND WATERWAYS TRANSPORT AND AIR TRANSPORT
1. Profits from the operation of ships or aircraft in
international traffic shall be taxable only in the Contracting State in which the place of
effective management of the enterprise is situated.
2. Profits from the operation of boats engaged in inland waterways transport shall be.
taxable only in the Contracting State in which the place of effective management of the
enterprise is situated.
3. If the place of effective management of a shipping enterprise or of an inland waterways
transport enterprise is aboard a ship or boat, then it shall be deemed to be situated in
the Contracting State in which the home harbour of the ship or boat is situated, or, if
there is no such home harbour, in the Contracting State of which the operator of the ship
or boat is a resident.
4. The provisions of paragraph (1) shall also apply to profits from the participation in a
pool, a joint business or an international operating agency.
ARTICLE 9
ASSOCIATED ENTERPRISES
1. Where-
(a) an enterprise of a Contracting State participates directly or indirectly in the
management, control or capital of an enterprise of the other Contracting State, or
(b) the same persons participate directly or indirectly in the management, control or
capital of an enterprise of a Contracting State and an enterprise of the other Contracting
State, and in either case conditions are made or imposed between the two enterprises in
their commercial or financial relations which differ from those which would be made
between independent enterprises, then any profits which would, but for those conditions,
have accrued to one of the enterprises, but, by reason of those conditions, have not so
accrued, may be included in the profits of that enterprise and taxed accordingly.
2. Where a Contracting State includes. in the profits of an enterprise of that State - and
taxes accordingly - profits on which an enterprise of the other Contracting State has been
charged to tax in that other State and the profits so included are profits which would
have accrued to the enterprise of the first-mentioned State if the conditions made between
the two enterprises had been those which would have been made between independent
enterprises, then that other State shall make an appropriate adjustment to the amount of
the tax charged therein on those profits. In determining such adjustment, due regard shall
be had to the other provisions of this Convention and the competent authorities of the
Contracting States shall if necessary consult each other.
ARTICLE 10
DIVIDENDS
1. Dividends paid by a company which is a resident of a
Contracting State to a resident of the other Contracting State may be taxed in that other
State.
2. However, such dividends may also be taxed in the Contracting State of which the company
paying the dividends is a resident and according to the laws of that State, but if the
recipient is the beneficial owner of the dividends the tax so charged shall not exceed:
(a) 5 per cent of the gross amount of the dividends if the beneficial owner is a company
(other than a Partnership) which holds directly at least 25 per cent of the capital of the
company paying the dividends;
(b) 15 per cent of the gross amount of the dividends in all other cases.
The competent authorities of the Contracting States shall by mutual agreement, settle the
mode of application of these limitations.
This paragraph shall not affect the taxation of the company in respect of the profits out
of which the dividends are paid.
3. The term "dividends" as-used in this Article 'means income from shares,
"jouissance" shares or "jouissance" rights, mining shares, founders'
shares or other rights, not being debt-claims, participating in profits, as well as income
from other corporate rights which is subjected to the same taxation treatment as income
from shares be the laws of the State of which the company making the distribution is a
resident.
4. The provisions of paragraphs (1) and (2) shall not apply if the beneficial owner of the
dividends, being a resident of a Contracting State, carries on business in the other
Contracting State of which the company paying the dividends is a resident, through a
permanent establishment situated therein, or performs in that other State independent
personal services from a fixed base situated therein, and the holding in respect of which
the dividends are paid is effectively connected with such permanent establishment or fixed
base. In such case the provisions of Article 7 or Article 14, as the case may be, shall
apply.
5. Where a company which is a resident of a Contracting State derives profits or income
from the other Contracting State, that other State may not impose any tax on the dividends
paid by the company, except insofar as such dividends are paid to a resident of that other
State or insofar as the holding in respect of which the dividends are paid is effectively
connected with a permanent establishment or a fixed base situated in that other State, nor
subject the company's. undistributed profits to a tax on the company's undistributed
profits, even if the dividends paid or the undistributed profits consist wholly or partly
of profits oz' income arising in such other State.
ARTICLE 11
INTEREST
1. Interest arising in a Contracting State and paid to a resident
of the other Contracting State may be taxed in that other State.
2. However, such interest may also be 'taxed in the Contracting State in which it arises
and according to the laws of that State, but if the recipient is the beneficial owner of
the interest the tax so charged shall not exceed 10 per cent of the gross amount of the
interest. The competent authorities of the Contracting States shall by mutual agreement
settle the mode of application of this limitation.
3. The term "interest" as used in this Article means income from debt-claims of
every kind, whether or not secured by mortgage and whether or not carrying a right to
participate in the debtor's profits, and in particular, income from government securities
an income from bonds or debentures, including premiums and prizes attaching to such
securities, bonds or debentures. Penalty charges for late payment shall not be regarded as
interest for the purpose of this Article.
4. The provisions of paragraphs (1) and (2) shall not apply if the beneficial owner of the
interest, being a resident of a Contracting State, carries on business in the other
Contracting State in which the interest arises, through a permanent establishment situated
therein, or Performs in that other State independent personal services from a fixed base
situated therein, and the debt-claim in respect of which the interest is paid is
effectively connected with such permanent establishment or fixed base. In such case the
provisions of Article 7 or Article 14, as the case may be, shall apply.
5. Interest shall be deemed to arise in a Contracting State when the payer is that State
itself, a political sub-division, a local authority or a resident of that State. Where,
however, the person paying the interest, whether he is a resident of a Contracting State
or not, has in a Contracting State a permanent establishment or a fixed base in connection
with which the indebtedness on which the interest is paid was incurred, and such interest
is borne by such permanent establishment or fixed base, then such interest shall be deemed
to arise in the State in which the permanent establishment or lured base is situated.
6. Where, by reason of a special relationship between the payer and the beneficial owner
or between both of them and some other person, the amount of the interest, having regard
to the debt-claim for which it is paid, exceeds the amount which would have been agreed
upon by the payer and the beneficial owner in the absence of such relationship, the
provisions of this Article shall apply only to the last-mentioned amount. In such case,
the excess part of the payments shall remain taxable according to the laws of each
Contracting State, due regard being had to the other provisions of this Convention.
ARTICLE 12
ROYALTIES
1. Royalties arising in a Contracting State and paid to a
resident of the other Contracting State shall be taxable only in that other State if such
resident is the beneficial owner of the royalties.
2. The term "royalties" as used in this Article means payments of any kind
received as a consideration for the use of, or the right to use, any copyright of
literary, artistic or scientific work including cinematograph films, any patent, trade
mark, design or model, plan, secret formula or process, or for the use of, or the right to
use, industrial, commercial], or scientific equipment, or for information concerning
industrial, commercial or scientific experience.
3. The provisions of paragraph (1) shall not apply if the beneficial owner of the
royalties, being a resident of a Contracting state, carries on business in the other'
Contracting State in which the royalties arise, through a permanent establishment situated
therein, or Performs in that other State independent personal services from a fixed base
situated therein, and the right or property in respect of which the royalties are paid is
effectively connected with such permanent establishment or fixed base. In such case the
provisions of Article 7 or Article 14, as the case may be, shall apply.
4. Where, by reason of a special relationship between the payer and the beneficial owner
or between both of them and some other person, the amount of the royalties, having regard
to the use, right or information for which they are paid, exceeds the amount which would
have been agreed upon by the payer and the beneficial owner in the absence of such
relationship, the provisions of this Article shall apply only to the last-mentioned
amount. In such case, the excess part of the payments shall remain taxable according to
the laws of each Contracting State, due regard being had to the other provisions of this
Convention.
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