Meaning
International model clause establishes the global benchmark for allocating taxing rights on employment income earned by cross-border workers. The article 15 oecd model governs this allocation to prevent double taxation of mobile salaries.
Day Threshold
The presence of the worker must not exceed a total of 183 days in any twelve month period commencing or ending in the fiscal year concerned. This calculation includes any day of physical presence. If the count exceeds this threshold, the host country gains the right to tax the income from the very first day.
Economic Employer
A related condition requires that the employee is paid by an employer who is not a resident of the state where the work is performed. This condition is designed to ensure that the salary is not claimed as a tax deduction by a resident business. If the local subsidiary acts as the economic employer and gains the direct benefit of the labour, the treaty exemption cannot be claimed.
Host Country
The remuneration must not be borne by a permanent establishment of the foreign employer in the host state. When the costs are allocated to a local taxable branch, the exemption is disallowed. Corporate tax departments must carefully track the ultimate expense allocation to prevent unexpected withholding liabilities.
