Article 1 - Person Covered - International Taxation - Income Tax

Article 1 - Person Covered As per OECD Model Tax Convention Meaning of Person define in the Para 1 of Article 1 The OECD Model Convention and UN Model Convention shall apply to persons who are residents of one or both of the Contracting States. The Term Resident is define in the Article 4 . It does not means a person have resident of contracting state then he is entitled to the benefit of the convention, it may be denied by under various provisions of the Model Convention. Income drive by an entity treated as wholly or partly fiscally transparent For the purposes of this Convention, income derived by or through an entity or arrangement that is treated as wholly or partly fiscally transparent under the tax law of either Contracting State shall be considered to be income of a resident of a Contracting State but only to the extent that the income is treated, for purposes of taxation by that State, as the income of a resident of that State. [ Para 2 of Article 1 ] Example State A and State B have concluded a treaty identical to the Model Tax Convention. State A considers that an entity established in State B is company and taxes that entity on interest that it receives from a debtor resident in State A. under the domestic law of state B, However, the entity is treated as a partnership and the two members in that entity, who share equally all its income, are each taxed on half of the interest. One of the members is a resident of State B and the other one is resident of a country with which states A and B do not have a treaty. The paragraph provides that in such case, half of the interest shall be considered, for the purpose of Article 11, to be income of a resident of State B. Exception of the benefit granted to a resident This Convention shall not affect the taxation, by a Contracting State, of its residents except with respect to the benefits granted under paragraph 3 of Article 7, paragraph 2 of Article 9 and Articles 19, 20, 23 [A] [B], 24, 25 and 28. [ Para 3 of Article 1 ] As per UN Model Tax convention Article 1 of the United Nations Model Convention reproduces Article 1 of the OECD Model Convention. The title of Article 1 was changed in 1999 from Personal scope to Persons covered . The first article of the Convention should specify the types of persons or taxpayers to whom the Convention applies. The title Personal scope did not convey the scope of application of the Convention. Hence, the title of Article 1 was appropriately changed to Persons covered to convey the correct scope of the Convention. Article 1 of UN Model convention covers dealing with the application of the Convention to Collective Investment Vehicles . Funds That are widely-held, hold a diversified portfolio of securities and are subject to Investor - protection in the country in which they are established are referred to as Collective investment vehicles (CIVs) like REITs