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The interpretation of the term employer in Article 15(2) (b) OECD Model and its implication on short-term secondments - from a Swedish perspective

Gratte, Caroline (2010)
Department of Law
Abstract
The global mobility is constantly increasing and numerous of international groups have recognised the need for a dynamic workforce. In order to adapt to the international market and to widen the knowledge within a multinational group, employees are seconded between affiliated companies. The secondment of an employee puts several questions of taxation to the fore. Primarily, the issue as to where the remuneration should be taxable is made topical. When different States present deviating tax claims, a situation of juridical double taxation might arise. In order to mitigate the occurrence of such taxation and to encourage cross-border movement, States enter into tax treaties. The vast majority of the current tax treaties are drafted in... (More)
The global mobility is constantly increasing and numerous of international groups have recognised the need for a dynamic workforce. In order to adapt to the international market and to widen the knowledge within a multinational group, employees are seconded between affiliated companies. The secondment of an employee puts several questions of taxation to the fore. Primarily, the issue as to where the remuneration should be taxable is made topical. When different States present deviating tax claims, a situation of juridical double taxation might arise. In order to mitigate the occurrence of such taxation and to encourage cross-border movement, States enter into tax treaties. The vast majority of the current tax treaties are drafted in accordance with the OECD Model. The fundamental provisions regarding the taxation of cross-border streams of income from employment are stipulated in Article 15 OECD Model. However, the wording of the Article is ambiguous and it contains several terms that are not defined. Such undefined conditions in the Model Convention have proven to cause interpretative problems. One of the most controversial issues of interpretation is the understanding of the term ''employer'' in Article 15(2) (b) OECD Model. The assessment of which of the companies that should be regarded as the real employer of the seconded employee can prove to be decisive for the awarding of the taxing rights. The current legal position on the construal of the term ''employer'' is divided into two different approaches, namely the concept of formal and economic employer. The circumstance that the expression can be perceived throughout various perspectives should not be regarded as satisfactory, since the legal and the economical consequences of a secondment can be difficult to establish in advance. In Sweden, the County Administrative Court and the Administrative Court of Appeal have not illustrated an unanimous attitude towards the understanding of the term ''employer''. However, the Swedish Tax Agency seems to be determined to maintain a strict interpretation, based on the concept of formal employer. Such an attitude causes many problems for internationally active companies. The inconvenience is especially obvious when an employee is seconded to or originating from a Contracting State that advocates the concept of economic employer. In order to resolve the issues surrounding the term ''employer'', and to establish which of the concepts that should be prevailing, guidance can be drawn from the international methods of tax treaty interpretation. Thus, the Vienna Convention on the Law of Treaties, the general rule of interpretation in Article 3(2) OECD Model and its adjacent Commentary play an important role in the interpretative process. In addition, case law from the different OECD Member countries and the opinions expressed in the legal doctrine might be used as arguments supporting either of the concepts. However, when evaluating the wording of the available international methods of interpretation, it is difficult to establish a comprehensible solution to the juridical impasse of today. In addition, the current legal remedies are not efficient enough to sort out a conflict of interpretation between the Contracting States. Thus, in order to accord the requirements of numerous of seconded employees and to secure a suitable interpretation of the term ''employer'', the OECD and its member countries need to acknowledge the fact that amendments to the OECD Model or the Commentary are necessary. (Less)
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author
Gratte, Caroline
supervisor
organization
year
type
H3 - Professional qualifications (4 Years - )
subject
keywords
Skatterätt
language
English
id
1557813
date added to LUP
2010-03-08 15:55:21
date last changed
2010-03-08 15:55:21
@misc{1557813,
  abstract     = {The global mobility is constantly increasing and numerous of international groups have recognised the need for a dynamic workforce. In order to adapt to the international market and to widen the knowledge within a multinational group, employees are seconded between affiliated companies. The secondment of an employee puts several questions of taxation to the fore. Primarily, the issue as to where the remuneration should be taxable is made topical. When different States present deviating tax claims, a situation of juridical double taxation might arise. In order to mitigate the occurrence of such taxation and to encourage cross-border movement, States enter into tax treaties. The vast majority of the current tax treaties are drafted in accordance with the OECD Model. The fundamental provisions regarding the taxation of cross-border streams of income from employment are stipulated in Article 15 OECD Model. However, the wording of the Article is ambiguous and it contains several terms that are not defined. Such undefined conditions in the Model Convention have proven to cause interpretative problems. One of the most controversial issues of interpretation is the understanding of the term ''employer'' in Article 15(2) (b) OECD Model. The assessment of which of the companies that should be regarded as the real employer of the seconded employee can prove to be decisive for the awarding of the taxing rights. The current legal position on the construal of the term ''employer'' is divided into two different approaches, namely the concept of formal and economic employer. The circumstance that the expression can be perceived throughout various perspectives should not be regarded as satisfactory, since the legal and the economical consequences of a secondment can be difficult to establish in advance. In Sweden, the County Administrative Court and the Administrative Court of Appeal have not illustrated an unanimous attitude towards the understanding of the term ''employer''. However, the Swedish Tax Agency seems to be determined to maintain a strict interpretation, based on the concept of formal employer. Such an attitude causes many problems for internationally active companies. The inconvenience is especially obvious when an employee is seconded to or originating from a Contracting State that advocates the concept of economic employer. In order to resolve the issues surrounding the term ''employer'', and to establish which of the concepts that should be prevailing, guidance can be drawn from the international methods of tax treaty interpretation. Thus, the Vienna Convention on the Law of Treaties, the general rule of interpretation in Article 3(2) OECD Model and its adjacent Commentary play an important role in the interpretative process. In addition, case law from the different OECD Member countries and the opinions expressed in the legal doctrine might be used as arguments supporting either of the concepts. However, when evaluating the wording of the available international methods of interpretation, it is difficult to establish a comprehensible solution to the juridical impasse of today. In addition, the current legal remedies are not efficient enough to sort out a conflict of interpretation between the Contracting States. Thus, in order to accord the requirements of numerous of seconded employees and to secure a suitable interpretation of the term ''employer'', the OECD and its member countries need to acknowledge the fact that amendments to the OECD Model or the Commentary are necessary.},
  author       = {Gratte, Caroline},
  keyword      = {Skatterätt},
  language     = {eng},
  note         = {Student Paper},
  title        = {The interpretation of the term employer in Article 15(2) (b) OECD Model and its implication on short-term secondments - from a Swedish perspective},
  year         = {2010},
}