Meaning
Standardized treaty provisions govern the taxation of income derived from private employment in cross border contexts. The oecd model article 15 sets the 183 day rule as the primary threshold for determining which country holds the right to tax a mobile employee. It establishes a default where the residence state taxes the income unless the employment occurs in another state for a period exceeding half a year.
Residency Threshold
Physical presence in the host state is measured over a rolling twelve month period rather than a calendar year. If the worker exceeds the limit defined in the oecd model article 15, the host country gains the right to tax the wages from the first day of presence. This calculation includes vacation days and short business trips.
Employer Location
The tax exemption in the host country only applies if the employer is not a resident of that country. Under the oecd model article 15, if a local branch or permanent establishment pays the salary, the host state retains taxing rights regardless of the duration of stay. This prevents companies from shifting labor costs to low tax branches while keeping employees in high tax zones.
Economic Reality
Courts often look beyond the name on the contract to determine who acts as the actual employer. Application of the oecd model article 15 depends on who bears the risk and provides the tools for the work performed.
