Business
profits attributable to a permanent residence in a source
state are profits attributable to sales of goods or
merchandise, or other business activities. As with other
provisions of the Convention, there is a general exception
that said activities cannot have been engaged in for
the purpose of evading taxes.(22)
Paragraphs
2 through 9 of Article 7 provide the guidelines for
an enterprise to determine which profits are attributable
to a permanent establishment in a "source"
state. The profits must be similar to profits the enterprise
could be expected to make if it were a distinct and
independent enterprise.(23)
Deductions will be allowed for executive and administrative
expenses, whether those expenses occurred in the permanent
establishment state or elsewhere.(24)
Profits will nor be attributable to business activities
that involve the mere purchase of goods or merchandise
for the enterprise.(25)
Shipping
and Air Transport: Article 8 of the
Convention provides that income which a resident derives
from the operation of an aircraft in international air
traffic will be taxable only in the resident's state.(26)
The amount of tax on income which a resident receives
from the operation of ships in international traffic
will be reduced by 50 percent by the other state.
Associated
Enterprises: Articles 9 and 25
both seek to alleviate international double taxation
arising from the actions of either or both of the contracting
states. Article 9 permits one contracting state to increase
the assessed tax of one of its enterprises in regard
to that enterprises dealings with a related enterprise
of the other contracting state, thereby causing the
other contracting state to make what would normally
be a downward adjustment in its assessed tax. Thus article
9 has the dual objectives of alleviating double taxation,
and the proper allocation of tax jurisdiction between
the states.
Dividends,
Interest, Royalties, and Gains: Dividend
income is covered in Article 10 of the Convention. Dividends
paid by a company which is a resident of one state to
a resident of the other state may be taxed in either
or both states. If the beneficial owner of the dividends
is a resident of the other state the rate of tax imposed
by the state of the resident company may not exceed
either 10 percent or 15 percent of the gross amount
of the dividends.(27)
Interest
income is covered by Article 11 of the Convention. Interest
arising in one state and paid to a resident of the other
State may be taxed in the other state. The income may,
however, also be taxed in the state in which it arises.
However the state in which the income arises may not
tax an amount which exceeds either 10 percent or 15
percent of the gross amount of the interest.(28)
Royalties
arising in one state and paid to a resident of the other
state may be taxed in the other state. However the royalties
may also be taxed in the state in which the royalties
arise, but the tax rate may not exceed certain specified
rates. The rate may not exceed 5 percent of the gross
amount of royalties for the use of copyright of literary,
artistic, and scientific work. The tax may not exceed
8 percent of the gross amount of the royalties for the
use of industrial, commercial or scientific equipment.
The rate may not exceed 15 percent for royalties from
the use of any patent, trademark, design or related
information.(29)
However,
the above-noted tax reduction provisions will not apply
if the beneficial owner of the dividends, royalties,
or interest income carries on business in the other
contracting state through either a permanent establishment
or fixed base in that other state, and the holding,
debt claim, or property right which is the source of
the income is "effectively connected" to that
permanent establishment, fixed base, or business activities.(30)
The use of the term "effectively connected"
is somewhat broader than the "attributable"
concept that has been suggested by some commentators.(31)
Independent
Personal Services: Article 15 explains taxation
of independent personal services, which includes services,
such as scientific, literary, artistic, and educational
activities, as well as the work of professionals such
as lawyers, engineers and physicians.(32)
The general rule states that income from these activities
shall be taxable only in the state where the individual
is a resident.(33) However
if the individual has a fixed permanent base in the
other state, or if he stays in the other state for more
than 90 days in a tax year, he may be taxed by the other
state for the proportional share of his income that
is attributable to either his fixed base or his extended
stay.(34) The individual
will also be liable for taxation if he has performed
activities in the other state, the remuneration for
which was paid by a resident of the other state, or
a fixed or permanent base in the other state, and exceeds
10,000 United State dollars or its equivalent in Thai
baht.(35)
Dependent
Personal Services: Article 16 sets forth
the treatment of taxes on dependent personal services.
In general the wages of a resident shall be taxable
in the state that the individual resides. However if
the individual has been employed in the other state
he may also be taxed by that other state to the extent
that his income is attributable to work performed in
the other state. An individual employed in a state other
than the one which he resides may also be taxed by the
state of his residence if the following conditions are
met: 1) The recipient was present in the other state
for a period not exceeding an aggregate of 183 days
of any 12 month period. 2) the remuneration is paid
by a person who is not a resident of the other state;
and 3) the remuneration is not borne by a permanent
establishment or a fixed base which the employer has
in the other state.(36)
