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HMRC internal manual

International Manual

Description of double taxation agreements: Independent personal services

This Article deals with professional income and income from activities of an independent character, income which in the United Kingdom would generally be taxed as trade profits. Such income can only be taxed in the country of which the person deriving the income is a resident, but, if he has a fixed base regularly available to him in the other country, then the other country can tax so much of the income as is attributable to that fixed base. Some agreements provide additionally that, if an individual is present in the other country exceeding a specified number of days (normally 183), that other country can tax so much of the income as is attributable to the services performed in that country in that period.

The Article was deleted from the OECD Model DTC in 2000 on the basis of a report entitled ‘Issues related to Article 14 of the OECD Model Double Taxation Convention’. That decision reflected the fact that there were no intended differences between the concepts of permanent establishment, as defined in Article 5 and used in Article 7 and fixed base as used in Article 14, or between how profits were computed and tax calculated according to which of Article 7 or 14 applied. In addition, it was not always clear which activities fell within Article 14 as opposed to Article 7. The effect of the deletion of Article 14 from a particular treaty will be that income derived from professional services or other activities of an independent character will be dealt with under Article 7 as business profits.

Of course, a large number of the UK’s tax treaties still contain an Article 14. As time goes on and as treaties are renegotiated, this will change. But in the meantime, if there is an Article 14 in a particular treaty then it should be applied as appropriate. The last OECD update which contains a commentary on Article 14 was the one published in June 1998.

Any cases of doubt or difficulty should be referred to Business International, Tax Treaty Team for advice.