INTM266030 - Non-residents trading in the UK: Treaty permanent establishment: Commentary to OECD Model Treaty
Interpretation of Article 5
The OECD Model Treaty, at article 5, defines permanent establishment for the purposes of the treaty. Then the ‘Model Tax Convention on Income and on Capital’, better known as the OECD Commentary to the Model treaty, provides extensive interpretation on what the words in article 5 are intended to mean. Not all of the UK’s treaties follow the OECD Model Treaty. Where the treaty with which you are concerned is materially different to the Model Treaty, therefore, you will need to exercise caution as to whether the commentary applies in part or in full or even not at all.
The commentary is the subject of periodic revision through an OECD working party made up of representatives from all of the OECD member states. Usually all member states will fully support the interpretation included in the commentary. Where this is not the case, a member state will record either an ‘observation’ or a ‘reservation’ at the end of the commentary paragraphs for a particular treaty article. Observations do not express any disagreement with the text of the commentary but usefully indicate the way in which the particular country will apply the provisions of the treaty article in question. Reservations are made in respect of the article where a particular country cannot agree the OECD commentary interpretation decided upon. In those cases the reservation will usually indicate the country’s alternative interpretation.