The 30th session of the UN Committee of Experts on International Cooperation in Tax Matters is being held from 24 to 27 March 2025.

On 25 March 2025 the Subcommittee on Taxation Issues Related to the Digitalized and Globalized Economy presented for approval the new Article 12AA on services, that will combine and replace Articles 12A (fees for technical services) and Article 14 (independent personal services) of the UN Model; and also presented a revised commentary to the new Article.

The new Article dealing with taxation of services was previously called Article xx. A proposal was made to rename the new provision Article 12A; but members considered that this would cause potential confusion between the new and previous Articles on taxation of services. The Tax Committee therefore agreed that the name Article 12AA would be appropriate.

The need for the new combined services Article arose partly because countries and taxpayers have faced difficult issues in distinguishing between different types of services for treaty purposes. There was often difficulty in determining whether Article 7 (business profits), Article 12A (fees for technical services), or Article 14 (independent personal services) was applicable in a given situation. This gave rise to difficult disputes between taxpayers and tax authorities, and the risk of unrelieved double taxation or double non-taxation. Some countries considered that their tax base was reduced because treaty provisions prevented them from adequately taxing fees from services.

Article 12AA proposes to allow a Contracting State to tax fees for services paid to a resident of the other Contracting State on a gross basis. The applicable tax rate would be negotiated between the Contracting States. Fees for services are defined in paragraph 3 of the Article as any payment in consideration for any service.

The new Article will be of help to developing countries as they are disproportionately importers of services. Under the new Article 12AA of the UN Model the country in which payments for services arise would have the right to tax the non-resident service provider on fees from provision of services. The Article would therefore have the effect of expanding the taxing rights of the source State with respect to fees for cross-border services, extending a country’s right to tax a wide range of cross-border services. Article 12AA would not apply to fees for services to which other specific provisions of a treaty apply, such as international shipping and air transport which are covered by Article 8 of the UN Model.

Most members of the UN Tax Committee considered that the new Article 12AA would be an important step forward in allocating taxing rights on services in the changing digitalized and globalized economy, where physical presence would no longer be essential for carrying out services-related business. The change would also simplify the taxation of services under the UN Model. However some members remain concerned about the scope of the new Article 12AA and its interaction with other provisions of the UN Model.