LESSON 4 - PART 1 - ARTICLE 14 - INDEPENDENT PERSONAL SERVICES

Formerly under the OECD Model, an individual’s income could be taxed in his/her state of residence. In the case of non-residents, Article 14 permitted the taxation of income for independent personal services if certain criteria were met, for example, if the individual has a fixed base (FB) in the Contracting State. In this example, the Contracting State may tax the income to the extent it was earned through the FB.

To determine, Under the Canada-US Treaty, whether Article XIV applies, one must first establish whether the taxpayer is a resident of one of the Contracting States. Next, one must determine whether the services are of an independent nature (not services of employment, artists or athletes which are covered under Articles XV 15 and XVI 16 respectively). Finally, one must determine whether there is a FB.

The OECD Model did not define FB.  In determining the existence of a FB, consider the following:

a) there must be a location from which an independent activity can start,
b) the location must be fixed, and
c) the independent activity must commence wholly or partly through the location that is readily available to the individual.
The OECD Model has deleted this Article from the OECD Model in 2000, allowing income from independent personal services to fall under the similar Article VII, Business Profits.  However, this Article will still be found in the UN Model and in most of Canada’s treaties.

UPDATE:

Article XIV (Independent Personal Services) and XVII (Withholding of Taxes in Respect of Personal Services) have also been deleted in the US-Canada Protocol (See article 9 and 12 of the Protocol) and thus, they will be deleted in the US-Canada Treaty once the Protocol enters into force.

No article discuss “Independent Personal Services” in the new (2006) Canada-Mexico Treaty

However, this Article is still found in the UN Model and US-Mexico Treaty.